EUROPEAN UNION

German chancellor eyes strengthening eurozone firewall

Germany's Angela Merkel has given up her previous resistance to making the eurozone's financial firewall stronger by combining two rescue funds. The proposal requires parliamentary approval.

German Chancellor Angela Merkel on Monday for the first time spoke out in favor of combining the eurozone's old and new currency stability mechanism in a bid to boost confidence in struggling member countries.

She said at a presidium meeting of her ruling Christian Democratic party in Berlin that she considered agreeing to a temporary increase of the euro area's bailout funds to 700 billion euros ($930 billion).

Merkel wants some 200 billion euros in rescue loans already promised to Greece, Ireland and Spain under the old European Financial Stability Facility (ESFS) to run in parallel to a new and permanent 500-billion-euro bailout fund called the European Stability Mechanism (ESM).

"We could imagine that the 200 billion euros could run in parallel until the loans are paid back by the respective debt-stricken nations," Merkel said in a statement.

Larger firewall, greater risks

The proposal would also mean that Germany's liabilities would rise far beyond the 211 billion euros that resulted from the first euro firewall agreement. This is why the chancellor had been rather reluctant to alter the regulations that are currently in place. But mounting pressure from governments in struggling eurozone countries made her change her mind.

German lawmakers from all parties represented in the Bundestag, Germany's parliament, are to debate the chancellor's proposal on Tuesday.

Merkel emphasized that a parliamentary vote on any possible bailout fund alteration was still a long way off.

But without a policy change, the permanent European Stability Mechanism can only grant some 300 billion euros in new loans, since existing bailout commitments have to be subtracted from its overall capacity.

hg/gsw (dpa, AFP, Reuters)