Euro-zone deal on firewall awaits Germany

Sat Feb 25, 2012 4:26pm EST
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By Jan Strupczewski and Daniel Flynn

MEXICO CITY (Reuters) - Germany may not be ready to back an increase in the euro zone's bailout fund at a summit next week, delaying progress towards building up nearly $2 trillion in firepower to tackle fallout from Europe's sovereign debt crisis.

Finance leaders from leading economies, meeting in Mexico City this weekend, are trying to secure a massive international fund to prevent the crisis from spreading throughout financial markets and threatening a fragile world recovery.

They are demanding that Europe increase its own firewall before the Group of 20 economies agree to contribute more resources to the International Monetary Fund. As Europe's paymaster, Germany's support for a larger European fund is critical, and G20 members are piling on the pressure.

"I do want to encourage Germany to take that leadership role very seriously and come up with an overall euro zone plan," said Canada's Finance Minister Jim Flaherty.

G20 finance leaders are trying to line up all the extra resources by April. It would mark their boldest efforts since 2008 when the G20 mustered $1 trillion to rescue the world economy from the credit crisis, which blew up in the United States and caused the worst recession since the 1930s.

Recovery since then has proved halting and chaos has spread to Europe where highly indebted countries -- Greece, Ireland and Portugal -- have been locked out of debt markets and forced to seek bailouts. Italy and Spain also are under threat.

But Germany so far has opposed building up the region's bailout fund, fearful that it would ease pressure on countries to carry out first tough fiscal measures and the deep economic reforms needed to bring their budgets under control.

German Finance Minister Wolfgang Schaeuble told bankers in Mexico City that he was worried the fundamental problems in Europe had not been solved.   Continued...

Francisco Gonzalez (L), chairman and CEO of BBVA, speaks with Charles Dallara, managing director of the Institute of International Finance, during a meeting of finance ministers and central bankers from the Group of 20 top economies in Mexico City February 25, 2012. REUTERS/Edgard Garrido