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Schäuble advisors fret over euro rescue package

The Local · 27 Mar 2011, 14:25

Published: 27 Mar 2011 14:25 GMT+02:00

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According to a report in news weekly Der Spiegel, the Finance Ministry's official advisory board wrote a letter to Schäuble, warning that the plan outlined in Brussels could "damage the development of the eurozone and threaten to over-burden Germany and other donor countries."

But estimates by the German Institute for Economic Research (DIW) suggest the new rescue deal means the German taxpayer would be able to sustain another euro crisis, even if several countries were affected.

At the Brussels summit, Merkel insisted on a last-minute change to a €700 billion permanent rescue fund for the embattled eurozone.

The change means Germany will avoid having to pay a lump sum of €11 billion in 2013 – a payment the government feared would put its finances under too much short-term pressure.

Instead, it will pay five smaller payments each year from 2013 to 2017 to cover its €22 billion cash payment into the fund, which is being set up to bail out shaky eurozone members and keep the currency stable.

The Finance Ministry's 31-strong advisory board said the deal confirms "the errors in financial policy and controlling the financial markets." It means countries with bad state finances would be bailed out by healthy ones.

The Associaion of German Banks defended the deal. "Germany is an export country and profits from a stable euro," association President Andreas Schmitz said in a statement. "That's another reason why the country is digging deep to offer guarantees to prevent unstable countries from falling into bankruptcy."

But Schmitz warned the rescue package should not be used as a license to run up new debts.

Story continues below…


The Local (news@thelocal.de)

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Your comments about this article

16:14 March 27, 2011 by Sastry.M
Any plan Germany undertakes in a true spirit of support and sacrifice to the German people within her states and surrounding in the European continent as a community will always be blessed as long as vigil is kept in spending the released package funds to meet the dire necessities of needy productive people as against greedy ones who can surreptitiously siphon them out to run up to new debts in search of speculative profits taking the magnanimous support as self willed licence.
18:45 March 27, 2011 by Relaxed
Thats one of the longest sentences I have read. I think I just about understand and agree with it.
19:49 March 27, 2011 by Gussy
"It means countries with bad state finances would be bailed out by healthy ones."

Errrr, which are the healthy ones.....?
02:54 March 28, 2011 by DrStrangelove
"Errrr, which are the healthy ones.....?"

Good question. Maybe the ones not currently on life support?
10:32 March 28, 2011 by auniquecorn

I was thinking the exact same thing after reading it.

but of course, (Merkel insisted on a last-minute change.)

is only the begining of a million more to come.
16:33 March 28, 2011 by tallady
Bail outs as I said before mean the stronger EU countries( using the euro) mainly Germany and France lending more money to the weaker at lower rates than market rate, to try to carry them over to better times. There are hazards in this approach. If the stronger countries take on too much extra debt for the weaker countries, they start to undermine their own credit worthiness and drive up interest rates more generally . If the austerity programmes are linked to tight money and a relatively high exchange rate it is difficult to see how the struggling weaker economies get to grow themselves out of trouble and ever pay back the debt they incurred.

The fact that Germany is mainly an export economy and as Andreas Schmitz said Germany benefits from a stable euro, there is no turning back.

The EU is the largest trading bloc in the world,has the most fortune 500 companies .

European Financial Stability facility (EFSF) was beefed up along with the ESM by Germany,meaning that European assistance for excessively indebted states will remain a last resort. A unanimous vote will be needed for any assistance.This will not come into play until June 2013.
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