EU Said to Weigh Combining Rescue Funds to Deploy $1.3 Trillion
Oct. 20 (Bloomberg) -- European governments may unleash as much as 940 billion euros ($1.3 trillion) to fight the debt crisis by combining the temporary and planned permanent rescue funds, two people familiar with the discussions said.
Negotiations over pairing the two funds accelerated this week after efforts to leverage the temporary fund ran into European Central Bank opposition and provoked a clash between Germany and France, said the people, who declined to be identified because a decision rests with political leaders.
The dual-use option is one way to break a deadlock that today prompted declines in weaker countries' bonds, European stocks and the euro and led the European Union to announce that an Oct. 23 summit will have to be followed by another three days later.
The 440 billion-euro European Financial Stability Facility has already spent or committed about 160 billion euros, including loans to Greece which will run for up to 30 years. It is slated to be replaced by the European Stability Mechanism, worth 500 billion euros, in mid-2013.
A consensus is emerging to start the permanent fund in mid-2012, the people said. During the transition between the two funds, euro-area governments originally agreed to cap the overall lending capacity at 500 billion euros, a figure deemed sufficient when Greece, Ireland and Portugal were the primary victims of the debt crisis.
Officials have discussed scrapping Article 34 of the ESM treaty, which sets the cap, the people said. A revised treaty is due to be signed by the end of November.
Faster startup of the ESM would also save money. It would cut the extra debt of donor countries by 38.5 billion euros, saving Germany 11.5 billion euros and France 8.6 billion euros, according to staff estimates reported by Bloomberg News on Sept. 24.
To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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