Firewall against contagion worth 'magical' $1 trillion figure.
Finance ministers from the 17 countries that use the euro have today agreed to raise the lending capacity of their rescue fund to ?700 billion.
The ministers, meeting in Copenhagen, said that the ?robust firewalls? would ?further improve market confidence? and complement growth-enhancing structural reforms as part of their response to the sovereign-debt crisis.
In a statement they said that the overall firewall would total approximately ?800bn ? crucial for the amount to add up to $1 trillion - but this includes some money already paid out.
It remains to be seen whether the higher lending capacity will be enough to satisfy the financial markets. Many economists and non-eurozone political leaders said that the level should be nearer ?1 trillion.
The higher lending capacity agreed today will be achieved by separating from the permanent ?500bn European Stability Mechanism (ESM), which will come into operation on 1 July, the ?200bn already committed for Greece, Ireland and Portugal through the temporary European Financial Stability Facility (EFSF).
This means that, instead of being folded into the ESM as originally planned, the EFSF money will used to boost the overall total.
After the money committed to Greece, Ireland and Portugal is taken into account, ?500bn will be available for new bail-outs.
In addition, ?for a transitional period? until the middle of 2013, the ?240 billion remaining in the EFSF's coffers will be able to finance new bail-outs.
The eurozone's headline ?800bn figure comes from an additional ?49bn from the European Union's European Financial Stabilisation Mechanism (EFSM) ? created after the first Greek crisis from money from every EU member state ? and ?53bn in bilateral loans already paid out to Greece.
Jean-Claude Juncker, the president of the Eurogroup who chaired today's meeting, cancelled a planned press conference in which he was expected to announce the deal.
His change of plan was reportedly because Austria's finance minister Maria Fekter had leaked details to the media a few minutes earlier.
Michael Noonan, Ireland's finance minister, told reporters:? ?Anything that gets you to a trillion dollars looks like a serious firewall and if you're talking ?800bn, it's over a trillion dollars and that is a very serious firewall.?
Carsten Brzeski, senior economist at ING bank, described the deal as a ?classical European compromise?.
?It was as far as the German government was willing to go and it was the minimum most other eurozone countries were expecting,? he said.
?Between the lines, the official eurozone statement shows the disappointment of some eurozone countries as there is still an almost desperate attempt to at least come up with the magical one trillion number, some market observers and international institutions had called for.?
He added: ?Maybe this is new European arithmetic but the one trillion US dollar figure only equals new and fresh lending for future bailouts of ?500bn.?
? 2012 European Voice. All rights reserved.
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