Euro zone decision on size of bailout fund seen delayed

Sat Feb 25, 2012 4:42am EST
 
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By Jan Strupczewski and Daniel Flynn

MEXICO CITY (Reuters) - Euro zone leaders may not be able to meet international demands to ramp up their own funds for bailing out the bloc's debtors when they meet next week because Germany is showing no sign of dropping its opposition to the plan, euro zone officials said.

A bigger European fund is a condition for major non-European economies before they lend more money to the International Monetary Fund to provide an even bigger wall of cash to fight the crisis that has already claimed three euro debtor countries and now threatens the much bigger economies of Italy and Spain.

"I would not bet on a positive outcome by the end of the March 1-2 summit," one euro zone official said. "German opposition to a deal is still very strong."

Euro zone leaders are set to review the 500 billion euro ($675 billion) limit on the joint lending capacity of their temporary and permanent bailout funds, known by their acronyms EFSF and ESM, at the March 1-2 summit.

If they decide to merge the funds, they would create a firewall of 750 billion euros which would help convince markets that they were committed to bringing the crisis under control.

The European Central Bank supports such an increase as do policymakers around the world who are considering more than doubling the IMF's resources by $600 billion.

"Everybody says there is a pre-condition that Europe makes more efforts first," South Korea's central bank governor Kim Choong-soo said before a meeting of finance ministers and central bankers of Group of 20 leading economies in Mexico City.

But Germany, the euro zone's biggest economy, insists Europe's current bailout arrangements are more than sufficient and that increasing them would send a signal to markets that the euro zone it expects more trouble ahead.   Continued...

 
A European Union flag is seen in front of the Parthenon temple in Athens February 21, 2012. REUTERS/John Kolesidis