The World from Berlin What Earth Could Do with One Trillion Euros

The OECD is calling for Europe to increase the permanent euro bailout fund to 1 trillion euros. Germany has already agreed to nearly that amount, but many in the country are opposed to any further expansion of the fund. German editorialists argue euro-zone countries would have serious trouble raising further funds.

A sculpture of a woman holds up the symbol of the euro stands outside the European Parliament building in Brussels.
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A sculpture of a woman holds up the symbol of the euro stands outside the European Parliament building in Brussels.

If Europe wants to ease jittery financial markets, the Organization for Economic Cooperation and Development (OECD) is warning, then "the mother of all firewalls" should be put in place. On Tuesday, the international institution called on the European Union to increase its permanent euro rescue fund to a size of around €1 trillion ($1.3 trillion) in order to shore up market confidence and prevent the possibility of contagion in the euro crisis.

The announcement came only days after SPIEGEL reported that German Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble had given up their resistance to expanding the euro bailout fund.

In a speech given in Brussels on Tuesday ahead of a meeting of euro-zone finance ministers in Copenhagen this week, OECD Secretary-General Angel Gurría, said that a permanent euro bailout fund of at least €1 trillion would provide a credible financial firewall that would also give governments much-needed breathing space and allow them to focus on competitiveness and growth.

"Europe is stalling. It needs to get out of first gear and make growth the No. 1 priority," Gurría said during a presentation of economic reports on the euro zone and the EU.

"Weak financial conditions, fiscal consolidation and economic adjustment are restricting demand in the short term before the long-term benefits on stability and growth are felt," Gurría said. "Decisive action to restore confidence and support demand is needed now."

Not Smooth Sailing

Changes to the euro support mechanism are already afoot. The original plan was to replace the current European Financial Stability Fund (EFSF) with a permanent successor fund known as the European Stability Mechanism (ESM). The EFSF has a total credit capacity of €440 billion ($583 billion), while the ESM would initially be funded with €500 billion.

Now it appears, however, that the two funds will be kept in operation alongside each other -- at least initially. Merkel's compromise is a major concession for the German chancellor, who had sought to cap the rescue fund at €500 billion.

But the news doesn't mean necessarily mean that all will be smooth sailing for Germany's finance minister when he meets his counterparts in Denmark this weekend. On Tuesday, the governing parties and the opposition reached a compromise agreement that will allow the German parliament to decide on whether to release billions of euros to bail out troubled EU member states. The compromise came after Germany's highest court ruled that a planned nine-member special panel of lawmakers to approve quick bailout decisions did not provide sufficient parliamentary involvement. But the deal could also mean further delays for bailout packages in the future.

Merkel had also hoped to link a vote on a European pact on budget discipline, the so-called fiscal pact, to legislation authorizing the permanent ESM bailout fund. The chancellor had sought to push both through parliament by June, but the main opposition parties -- the center-left Social Democratic Party (SPD) and the Greens -- signaled Tuesday more time was needed to complement the fiscal pact with measures to boost growth.

Twenty-five of the EU's 27 member states have said they would implement the fiscal pact. In Germany, however, Merkel requires opposition support to implement the pact, because the measure must be passed by a two-thirds majority in the German parliament.

Responding to criticism in Europe and abroad from the United States and the International Monetary Fund, Germany is making compromises in the euro crisis. On Germany's editorial pages, however, commentators warn on Wednesday that plenty of trouble still lies ahead.

The financial daily Handelsblatt writes:

"Merkel's proposal to complement the new, permanent ESM euro rescue fund by allowing the previous EFSF to continue to operate in parallel, does not come too late. And it is even possible that the volume will be sufficient: the total guaranteed sum is €940 billion through mid-2013, a sum that is very close to the €1 trillion (firewall) that the OECD has been advocating for weeks."

"However, the €940-billion bailout fund remains under continuous attack from the Christian Social Union (the Bavarian sister party to Merkel's conservative Christian Democratic Union, which also shares power in government) and the Free Democratic Party (also a coalition government partner), who want to set a national guarantee of €500 billion as the absolute upper ceiling. In the best case that would confuse the German public. In the worst case the financial markets would believe the (CSU and FDP leaders) in Germany more than Merkel and Schäuble in Brussels -- and will then start with their next test of this limit. Then, yet again, the government would fail to secure a long-term calming of markets, the next escalation of the crisis would be pre-programmed and the German government would be the culprit."

The conservative daily Die Welt writes:

"The OECD's demand is based on a fundamental error in reasoning. The OECD assumes that market investors will be impressed by such a massive sum without bothering to ask whether the Europeans could actually come up with that figure. The trillion euros that some are calling the minimum amount for ensuring Europe's financial stability wouldn't have to be borne by Germany alone. Italy and Spain would also bear liability. Already, in a relatively calm period, these countries are having enough trouble raising the capital needed for a permanent ESM rescue fund that is only half as big. In an acute crisis situation, it would be impossible for them to raise billions in additional money."

"Instead of calling for more money now, at a time when the situation is calmer than at the end of last year, the Europeans should make better use of the time they have been given. They must now implement reforms that will provide for greater growth and less unemployment. They need to consolidate their budgets now. The conservative Spanish government has already shown how not to do it: Without agreement from its European partners, it wants to reduce the deficit less than it had promised. Spain was promptly penalized for its action with increased interest rates on its government bonds. This should serve as a warning sign for Europe's other dubious debtors."

The conservative daily Frankfurter Allgemeine Zeitung writes:

"When it comes to saving the euro, the SPD has gone along with Merkel's coalition government on one law after the next over the past two years, even though every proposal deserved resistance from the opposition. Now, of all things, it is the fiscal pact that the Social Democrats don't want to go along with -- the only law that has the goal of solid budget policy and of strengthening the original rules aimed at protecting the euro's stability. One could understand the resistance if it were directed at making the fiscal pact tougher, because it doesn't have a big enough bite."

"But that's not what it's about for the SPD. The party is linking its support for the fiscal pact to its calls for a Europe-wide financial transaction tax on the markets and greater measures to drive growth in the euro zone. Why Merkel's CDU/CSU and the FDP are willing to negotiate on this issue is baffling. All Merkel's government needs to do is just wait. If the SPD votes against the fiscal pact, it would not only disgrace itself across half of Europe, but also here at home in Germany, where it would be viewed as a reckless driver of debt. That would be a blemish that could have the power to determine the next election. The SPD will think twice before it takes on this risk."

Tabloid Bild also responds to the OECD demand with an editorial by its columnist Franz Josef Wagner that some may find offensive:

"One trillion, in numbers, is a 1 with 12 zeros. Numbers have a mystical meaning. Seven billion people live on our planet. Each number is an individual, a person. Some people on our planet only earn one euro a day. For the euro crisis, a trillion is now being demanded. What could we do for humanity with a trillion euros? We could save those in Africa suffering from AIDS, we could save the Indians in the rain forest and we could save the Eskimos from alcoholism. One trillion euros."

-- Miriam Widman


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