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Flurry Of EU Meetings To Save The Eurozone

  • Rikard Jozwiak

France and Germany are reportedly in disagreement about how to increase the resources of the bail-out fund

France and Germany are reportedly in disagreement about how to increase the resources of the bail-out fund

BRUSSELS -- European leaders are preparing to descend on Brussels for a series of meetings aimed at tackling the continent's debt crisis.
The gatherings include two summits of heads of government, on October 23 and October 26.
The goal is to conclude deals on a string of issues to convince markets that the European Union has the Greek debt crisis under control and that problems won't spread to other parts of the area that uses the single currency.
Leaders had been expected to agree new steps to reduce Greece's debt, to make Europe's banks stronger through recapitalization, and to boost the powers of the eurozone bailout fund.
But there are deep divisions, most importantly between France and Germany.
A gathering of the 17 eurozone finance ministers in Brussels on October 21 kicks off the flurry of meetings in the EU capital, and was to be followed by a meeting of all 27 finance ministers on October 22.
Late on October 20, Germany indicated that Chancellor Angela Merkel’s obligation to clear details with the country's parliament before she could make firm commitments had made it impossible to reach an agreement on all points on October 23 and that an additional summit therefore would take place in Brussels three days later.
The delay is caused by a disagreement between France and Germany on how to increase the resources of the temporary 440 billion-euro ($607 billion) bailout fund, the European Financial Stability Facility (EFSF).
There is widespread agreement that the EFSF must be boosted to a capacity between one to two trillion euros in order to prevent the crisis spreading to major eurozone economies such as Italy and Spain.
But France and Germany disagree on the method.
Germany reportedly favors a model that would increase the firepower of the EFSF by getting more impact from existing money. That would see the fund acting as an insurer, using its funds to cover a portion of any losses on new eurozone loans.
Disagreements

Guntram Wolff, an economist with Brussels-based think tank Bruegel, told RFE/RL that "this is not going to come from taxpayers directly, it is not going to come from the European Central Bank, which is the option that would be cleanest and most obvious for an economist."
"So we will probably come to the conclusion to have an insurance scheme where EFSF money can be used to insure, against losses, a part of the sovereign debt that is newly issued," Wolff said.
Wolfgang Schaeuble, Germany's finance minister, has so far insisted that there will be no increase in the 211 billion euros that Berlin has provided in financial guarantees for the rescue fund, a statement that many Germans would welcome after voicing dismay in having to foot a large part of the bill so far.
The insurance scheme has however been questioned by France, due to fears that it would cost Paris its triple-A debt rating as it puts all eurozone governments on the line for potentially huge losses. The EFSF can raise rescue money at low interest rates but only if both France and Germany are able to maintain their triple-A status.
Paris instead favors essentially turning the bailout fund into a bank, which could use funding from the European Central Bank's (ECB). But that's a move the bank and Germany have rejected.
France and Germany also disagree on another contentious issue that might jeopardize the former's credit rating: the level of private-sector involvement in saving Greece.
Germany has been keen to secure more private-sector contributions to reduce Athens' debt burden and the Greek government would welcome some relief as demonstrators this week once again took to the streets to protest against heavy cuts.
During the last EU summit in July, it was agreed that private-sector investors would contribute 50 billion euros to reduce Greece's 360-billion euro debt pile. That figure is now likely to increase, a move that France so far have been reluctant to approve since its banks hold a significant amount of Greek debt.
To inflict larger costs on them would make the French economy even wobblier and stoke fears that the country eventually would be sucked in to a similar economic situation as other troubled eurozone economies.
A third sticking point concerns how the bank recapitalization of Europe's banks will be carried out. It is expected that banks will be given a deadline of six to nine months to boost their capital from shareholders, or else accept some form of national government support. Although EU leaders agree that it has to be done, several banks have already expressed opposition, arguing that it would increase countries' debts.
Even if EU leaders are capable of agreeing on a number of issues in the coming days, analyst Wolff believes that the eurozone crisis is likely to continue for quite some time.
"I think this will be one step in the right direction but markets will not be completely convinced. We will continue to have debates about all these issues for probably another year or two," Wolff said.
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