Eurozone finance chiefs announced a landmark deal on Friday to raise the bloc's debt firewall to a "robust" €800 billion. Ministers are under huge international pressure to ring-fence the eurozone to prevent a new global economic crisis.
AFP - Eurozone finance ministers struck a landmark deal on Friday to raise their debt firewall to more than one trillion dollars, as a budget crisis in Spain underlined the need for firm defences.
"All together, the euro area is mobilising an overall firewall of approximately 800 billion euros, more than $1 trillion," a joint statement from the 17 finance ministers said.
"Robust firewalls have been established ... and led to a significant improvement of market conditions," the statement added.
The headline figure, however, includes some 300 billion euros in loans already pledged.
The 800 billion euros is made up of 500 billion euros in the bloc's permanent ESM bailout pot that comes into effect in July, plus 200 billion already pledged for crisis-hit countries, plus another 100 billion in bilateral and EU loans.
The eurozone's two bailout funds, the ESM and a temporary pot called the EFSF, will run in parallel until mid-2013, the statement added.
The paying-in of the ESM's cash element, some 80 billion euros, will be accelerated, according to the statement, with two slices paid in this year, two next year and a final tranche in 2014.
But the deal was accompanied by a row between Austrian Finance Minister Maria Fekter and the head of the eurozone, Luxembourg Prime Minister Jean-Claude Juncker after the former leaked news of the deal to reporters.
This resulted in Juncker cancelling a planned press conference.
"Juncker is furious" at Fekter, said a diplomatic source.
The final headline figure matched a pledge made on Thursday by the finance minister of Germany, Europe's top economy and paymaster, Wolfgang Schaeuble.
"It's convincing, it's sufficient," said Schaeuble at the time.
Irish Finance Minister Michael Noonan told reporters on the way into the meeting: "The market reaction to these is to the dollar amounts."
"So anything that gets you to a trillion dollars looks like a serious firewall and if you're talking 800 (billion euros), its over a trillion dollars and that is a very serious firewall."
Eurozone ministers are under huge international pressure to build a convincing firewall.
The European Union's partners from Washington to Tokyo, including the International Monetary Fund, want to see the eurozone ring-fenced for good to prevent a new crisis that could harm the world economy.
The Organisation for Economic Cooperation and Development (OECD) pressed this week for a one-trillion-euro pot, which OECD head Angel Gurria calls "the mother of all firewalls."
And leading and emerging nations of the Group of 20 (G20) have said they will only consider lending more to the IMF to combat the eurozone crisis if the bloc first stumps up enough cash to tackle their own problems.
Highlighting the main reason to bolster the firewall -- fears that the sovereign debt crisis that started in Greece could spread to larger economies such as Italy and Spain -- were fresh concerns about Spanish fiscal strains.
Hours after a general strike, which burst into violence in places, Spain's right-leaning government was poised to unveil huge cuts on Friday to meet European rules.
Unions said nearly a million people took part in Madrid alone to denounce labour reforms, spending cuts and soaring unemployment in a country mired in recession. The interior ministry put turnout in Madrid at just 85,000.
"Spain is in a very difficult situation," said EU Economic Affairs Commissioner Olli Rehn, adding that Madrid had the strength to fix its fiscal position.
Spanish borrowing costs have risen in recent weeks after Madrid admitted it had missed its 2011 deficit target of 6.0 percent of gross domestic product, reporting 8.5 percent instead.
"We had a very severe budgetary slippage in 2012 but Spain will cease to be a problem," said Finance Minister Luis de Guindos in Copenhagen.
The final firewall figure agreed on was however short of what some -- including the European Commission and France -- had demanded.
Many called for combining the zone's two rescue funds to create a total firewall of 940 billion euros.
But Germany, facing domestic public opposition to paying in more to what some Germans see as a "bottomless pit" in the eurozone, rejected this solution.
Ministers will now tackle other thorny issues, including appointing a new member of the six-member Executive Board of the European Central Bank.
The head of Luxembourg's central bank, Yves Mersch, is favourite to get the nod, but the decision may yet be delayed until until the French election on May 6.
Date created : 2012-03-30