Wall Street Journal
January 14, 2011
Brussels this week has been abuzz with ideas about how to make the euro zone's main bailout fund more effective. As the crisis that started in Greece and enveloped Ireland now threatens to overtake Portugal, it's evident that the European Financial Stability Fund has not provided a firebreak between countries that its architects hoped for when it was created in May.
"The EFSF funding capacity must be reinforced," European Commission President Jose Manuel Barroso said Wednesday, adding that "the scope of activities should be widened."
The discussions have taken place mostly behind closed doors, but enough detail has emerged to suggest that many ideas dismissed in the past—some because of German opposition—are now back on the agenda. European officials appear to be moving toward a package that would at once reshape the EFSF and also specify the rules of engagement for the permanent bailout fund that will replace it after mid-2013.
The Doomsday nature of the bailout fund has been noted here before: It's only when the victim is at the point of drowning that a rescue takes place, by which time the next country in line is up to its neck in water. The stipulation that bailouts can only occur as a last resort has rendered them virtually useless in preventing contagion.
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