EU executive to push for bigger rescue fund, win IMF support

Thu Feb 23, 2012 8:16am EST
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By David Brunnstrom and Robin Emmott

BRUSSELS (Reuters) - The European Commission wants euro zone leaders to agree to a bigger rescue fund to nudge the IMF into backing debt-stricken European economies, despite German resistance to boosting it, the EU's top economic official said on Thursday.

Investors and many EU officials want euro zone leaders to agree at next week's summit in Brussels to combine the European Union's European Financial Stability Facility (EFSF) with its permanent European Stability Mechanism (ESM) to provide a solid firewall.

While the International Monetary Fund and France are also in favor, German Chancellor Angela Merkel has resisted calls to let the two funds operate simultaneously. The German government said on Wednesday it was not necessary to increase the size of the ESM beyond 500 billion euros ($662 billion).

But EU Economic and Monetary Affairs Commissioner Olli Rehn said it was crucial for investor confidence and economic growth to go beyond the 500-billion euro ceiling.

"It is a process of negotiation," Rehn said in an interview, when asked about Germany's official position.

A combined rescue fund would add up to about 750 billion euros ($992 billion) of still-uncommitted funds, but Rehn declined to discuss any numbers. The ESM will enter into force in July.

"The Commission's task is to speak the truth as we see it and we see (a combined fund) is essential in order to overcome the crisis and return to recovery and growth.

"I trust we will in due course come to this conclusion in the euro area and among the leaders of the euro area," he said.   Continued...

European Economic and Monetary Affairs Commissioner Olli Rehn gestures as he addresses a news conference at the EU Commission headquarters in Brussels February 22, 2012.      REUTERS/Francois Lenoir