European finance ministers assessed ways of strengthening their 440 billion euro rescue fund on Monday, but Germany remained reluctant to bolster the facility without commitments on closer economic co-ordination. Monday's talks are supposed to prepare the ground for a "comprehensive package" of measures European leaders are hoping to agree in late March to resolve the year-long debt crisis.
While there is no consensus yet on all potential changes, the eurozone appears to be coming close to an agreement that the rescue fund - the European Financial Stability Facility (EFSF) - should be made stronger and more flexible. The EFSF has eurozone government guarantees for up to 440 billion euros ($596 billion), but its effective capacity is only about 250 billion because of guarantees built into the fund.
That sum could be insufficient to bail out more than two countries if both Portugal and potentially Spain were to follow Greece and Ireland in needing a bailout. To increase the effective lending capacity, eurozone countries are considering either raising their guarantees for the fund or raising guarantees and injecting cash into it. Ministers will also explore making the fund more flexible, which could include allowing it to buy the bonds of distressed countries, or other similar steps.
The ministers are to narrow down the number of options on the table, but make no final decisions. EU leaders are to meet on March 24-25 to strike a deal on the comprehensive package of steps. Schaeuble repeated the German position that no increase in the EFSF was immediately necessary since no country was applying for a new bailout now.
Germany, whose support as Europe's largest economy is essential to any deal, is reluctant to back an increase in the EFSF unless other euro zone member states sign up to measures to cut spending and make their economies more competitive. Financial markets were calmer in the first few weeks of this year, but renewed concerns have emerged in the past 10 days, after EU leaders failed to make progress at a summit on February 4.
The "competitiveness pact", backed by France, envisages higher retirement ages, national laws to cap debt, a common corporate tax base and an end to indexing wages to inflation. But other eurozone countries complain the Franco-German proposal has not even been properly presented to them and while no one opposes the idea of becoming more competitive, many disagree with elements of the pact reported in the press. At the start of their meeting, the ministers agreed to recommend that Belgium's Peter Praet be nominated to the executive board of the European Central Bank over his Slovak rival Elena Kohutikova, an EU source told Reuters.