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German objections stop euro firewall talks

The Local · 28 Feb 2012, 17:29

Published: 28 Feb 2012 17:29 GMT+01:00

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"Germany is not ready," a eurozone governmental source told news agency AFP, of the latest move in a global tug-of-war over emergency bailout funding. "Chancellor Angela Merkel ultimately agrees that the funds, old and new, should be combined," the source said. "But the timing isn't yet right."

Eurozone leaders were to meet Friday on the second day of a European Union summit to discuss combining the temporary European Financial Stability Facility rescue fund with the permanent European Stability Mechanism due to come into operation in July.

This would give the debt-wracked 17-nation zone total funds of about €750 billion ($1 trillion) with which to help weaker member states.

EU president Herman Van Rompuy decided Tuesday to delay the sensitive discussions in light of dogged resistance from Germany, the biggest contributor to the funds.

A source said a special summit of eurozone members might be held next month instead. "Don't rule out a (eurozone) meeting before March ends."

Ministers from the G20 group of developed and emerging economies pressed Europe at the weekend to come up with a substantial aid plan before they can consider providing the International Monetary Fund with additional resources.

There was meanwhile good news on the debt crisis from Italy and Portugal, with Rome able to raise more than €6.0 billion ($8.0 billion) at far lower interest rates while Lisbon passed an important EU-IMF audit of its reforms.

On the downside, the European Central Bank suspended acceptance of Greek government bonds as collateral for bank refinancing after the ratings agency Standard & Poor's declared Greece to be in selective default.

The ECB added that any banks hit by its decision could still borrow cash from national central banks via an emergency liquidity assistance facility.

An ECB statement said Greek bonds could not be used by eurozone banks as collateral for central bank loans following an announcement by Standard and Poor's that Greece was in "selective default" following a debt writedown.

S&P said, however, that its assessment could change following the writedown of privately held Greek bonds sometime around March 12.

The lower rates that Italy had to pay to raise its funds signalled that investors were less worried about the finances of the eurozone's third biggest economy.

Severe pressure on Italy's ability to fund its debt in December pushed the European Central Bank to flood the markets with cheap three-year funds in a move that eased pressure. The ECB is due of offer more of the same Wednesday.

The EU-IMF approval of Portuguese budget measures and reforms cleared the way for a new slice of rescue aid meanwhile even though Lisbon cut its economic forecasts again, with the economy now expected to shrink 3.3 percent, worse than the previous 3.0 percent.

Bailed-out Ireland meanwhile said Tuesday it will hold a constitutional referendum on the European Union's proposed fiscal pact, part of measures aimed at preventing any repeat of the debt crisis.

The referendum will be watched closely by Ireland's EU partners as Ireland has sent shockwaves through the bloc in the past by initially rejecting two key EU treaties before passing both in second votes.

At a summit in January, nearly all EU leaders backed a fiscal treaty that forces countries to enshrine in national law a so-called "golden rule" to balance budgets or face automatic sanctions, in the wake of the euro crisis.

Story continues below…

British Prime Minister David Cameron refused to back the pact when it was first proposed and the Czech Republic has also said it will not sign up.

In Berlin, German finance minister Wolfgang Schäuble said Tuesday that it would be regrettable if a country decided to leave the eurozone or EU but that other members would have to accept it.

"If a country were to decide to leave them, it's something we would regret but which it would be necessary to accept," Schäuble told reporters.

He had been questioned in particular about Greece after German lawmakers on Monday endorsed a second, €130-billion rescue package from the eurozone

and IMF for Athens.


The Local (news@thelocal.de)

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Your comments about this article

19:00 February 28, 2012 by Englishted
Breaking news Ireland has the balls to decide on having a vote on this.

Maybe a little democracy is returning to Europe after all , when can I vote on expansion ?. Sorry stopping expansion.
20:07 February 28, 2012 by Navigator_B
Englishted, don't raise your hopes too high about democracy coming from Ireland. The reason Ireland is holding a referendum is not because it has the balls to decide it. It has no choice because the Irish constution requires a vote on giving up so much sovereignty. The Irish will cave in to pressure to accept the fiscal compact treaty just like they did in the end with the Nice and Lisbon treaties, after they had previously rejected them both.
11:56 February 29, 2012 by luckylongshot
Germany has a very difficult to read position on the Euro. It champions austerity after the event, when the horse has bolted and it is too late. It then agrees to give the banks that are pretending to be Greece a bailout, then backs off the idea of putting more money into the bailout fund.

Behind the scenes what is going on here is a battle between the interests of the German public and the banks. This is an age old battle that Lord Acton acknowledges must be fought.

"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.¦quot;

I remain confused as to whose side the German government is actually on in this battle. Hopefully they will act in the publics interest.
14:51 February 29, 2012 by michael4096
I will support referenda when people start voting on the issue at hand. Currently, they don't. Almost all referenda become a vote of confidence in the existing administartion.
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