Germany must let bailout fund grow

Klaus Regling, head of the European Financial Stability Facility (EFSF), warned that the eurozone must reinforce its firewalls. “More money would reassure markets. Wrongly or rightly the fact is that big numbers in the shop window create calm,” he said over the weekend.
Last night, officials claimed Angela Merkel was prepared to yield to the pressure and agree to combine the firepower of the €440bn (£368bn) EFSF and its permanent replacement, the €500bn European Stability Mechanism (ESM).
However, the German Chancellor is desperate not to anger her electorate by giving more support to the eurozone, especially after her coalition partners struggled in state elections yesterday.
Eurozone finance ministers are due to meet in Copenhagan on Friday and Saturday to agree to combine the bail-out funds – or significantly increase their capabilities.
Olli Rehn, the European Union economic affairs commissioner, said there was “no room for complacency” and urged the eurozone “to conclude the comprehensive crisis response by reinforcing the euro area financial firewall”. Mr Rehn said he was confident a “satisfactory compromise” would be reached in Copenhagen.
Mr Regling expressed a mounting frustration with Mrs Merkel’s stand-off. “The bailouts haven’t cost German taxpayers a penny,” he insisted. “The belief that this money is gone and will never come back is wrong. These are loans that must be paid back.”
But Germany is not alone. Finland, one of the last four remaining AAA-rated countries in the eurozone, is also concerned about uniting the bail-out funds. The Finnish prime minister, Jyrki Katainen, said: “The firewall must be high enough, but not too high, which could destroy the confidence of the sustainable countries.”
Spain’s 10-year yields climbed for a third week last week, to over 5pc, amid fears that the country will have to be bailed out. Mariano Rajoy won popular support at home for securing an agreement from Brussels to relax Spain’s budget deficit target for 2012 from 4.4pc to 5.3pc. But European officials have called for Spain to stick to their targets or risk losing the market’s confidence.
The finance ministers’ summit is likely to be used to push ahead on the Financial Transactions Tax (FTT), despite intense opposition from Britain, home to around 80pc of Europe’s financial services industry.