Germany fights eurozone firewall moves

Financial Times
February 22, 2012

The German government is set to resist or delay increasing the size of the eurozone’s financial “firewall” against contagion from the Greek debt crisis, in the face of mounting pressure from its partners, the International Monetary Fund and the US administration.

Steffen Seibert, spokesman for Angela Merkel, the German chancellor, insisted on Wednesday that Berlin saw no need to increase the size of the permanent €500bn European Stability Mechanism. “The German government’s position has not changed,” he said. “That means no, it is not necessary.”

Ms Merkel and her finance minister, Wolfgang Schäuble, are looking isolated in the face of strong pressure from Christine Lagarde, managing director of the IMF, and the other 16 members of the European monetary union. Mr Schäuble is likely to face further pressure on the subject this weekend at a meeting of G20 finance ministers in Mexico City.

Financial markets have long seen boosting the size of the eurozone rescue fund as necessary in order to prevent the Greek crisis from spreading to healthier but still vulnerable economies like Italy and Spain. Since expectations of an imminent increase are running high, a failure to agree one next week could undercut hard-won confidence that Europe’s leaders have finally come to grips with the scale of the crisis and are willing to commit resources to contain it.

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