Germany reluctant to expand European bailout fund
BRUSSELS — Despite rising pressure for new measures to draw a line under the debt crisis, Germany moved Monday to close off debate on an increase to a 750-billion-euro bailout fund, or the more radical step of issuing common euro zone bonds.
As ministers from the 16 euro zone countries met in Brussels, Chancellor Angela Merkel of Germany dampened speculation that the bailout fund, worth $997 billion and now being used by Ireland, could be increased soon.
“I see no need to expand the fund right now,” Merkel said in Berlin after talks with Prime Minister Donald Tusk of Poland, Bloomberg News reported.
Her comment came as the European debt crisis showed few signs of abating. Moody’s, the credit rating agency, on Monday downgraded by two notches government bonds issued by Hungary, which is outside of the euro zone. This left the country’s bonds one step above junk status. Meanwhile, yields on Spanish and Italian bonds rose.
For weeks, European leaders have tried, and failed, to restore calm. There appeared to be no sign Monday of a consensus required to get ahead of the markets and restore confidence.
While Olli Rehn, the European commissioner for economic and monetary affairs, said the meetings in Brussels would include discussion of deepening the bailout fund, Merkel had said she did not favor an immediate increase.
The managing director of the International Monetary Fund, Dominique Strauss-Kahn, was scheduled to attend the meeting. European diplomats say privately that there has been a debate in recent days on whether to increase the fund to make it clear that a big economy like Spain could be defended, if needed. But many think that the public mood in Germany makes such a move politically impossible for Merkel, unless it is presented as a last-ditch effort to save the euro itself.
Merkel has rejected a separate call from Luxembourg and Italy to create a common euro zone bond. Such a move would not be permitted under the European Union’s governing treaty, she said. Creating the legal possibility to issue euro zone bonds, German officials suggest, would require a substantial rewriting of the European Union treaty, something most countries would be unwilling to do because it could require referendums in several countries where it lacked enough support.
The idea of common euro zone bonds has long been favored by Luxembourg and Belgium, the biggest supporters of European integration.