SPIEGEL ONLINE

SPIEGEL ONLINE

12/23/2010 12:35 PM

Saving the Common Currency

Berlin Denies Plans for a New Euro Stability Fund

Is Germany working on a new stability fund for the European common currency? A report in a Munich daily on Thursday claimed that Berlin was working with several other European capitals on such a plan. The Finance Ministry, however, says it is not. The confusion is typical of the EU's response to the euro crisis.

The hope, of course, was that last week's European Union summit in Brussels would calm investors' nerves and lure them into thinking that the EU had a clear idea of how to nurse the European common currency back to health. Response to the deal, however -- one which saw EU leaders agree to anchor a permanent euro rescue mechanism in the Lisbon Treaty -- was tepid at best. Investors quickly returned to their oft-heard refrain that Brussels needed to take decisive action immediately, and not just in January 2013 when the new mechanism is, if all goes well, to take effect.

According to a piece in the Süddeutsche Zeitung on Thursday, however, some European capitals may be mulling a much more decisive step. A number of countries, including Germany, are looking into the establishment of an independent funding instrument referred to as the "European Stability, Growth and Investment Fund," according to a government document seen by the paper.

The institution would exist in parallel with the European Central Bank. In addition to providing countries in need with emergency funding, it would also mandate strict fiscal discipline and austerity measures in recipient countries -- not unlike the International Monetary Fund. Countries taking advantage of the fund would likewise have to put up gold reserves or shares of state-owned companies as collateral.

A National Interest

Berlin has "a national interest in the survival of the euro with all its members," the position paper reads, according to the Süddeutsche. The paper reports that, in addition to Germany, Ireland, the Netherlands and Finland were also involved in the development of the idea. According to the Süddeutsche, the idea is to be discussed at the next meeting of euro-zone finance ministers in Brussels in January.

The Finance Ministry in Berlin, however, issued a statement on Thursday in which it acknowledged having worked on the paper, but said that it in no way reflected the German government's position. "It is not the path that we are following," the statement said.

The confusion about the report, however, fits into an ongoing pattern when it comes to ideas aimed at stabilizing a European currency which has been buffeted by an ongoing sovereign debt crisis. In early 2010, the EU bailed out heavily indebted Greece to the tune of €110 billion and established a €750 million backstop to prop up the euro. That fund, however, will expire in 2013. Ireland is the latest country to have fallen victim to the sovereign debt contagion, and many fear that Portugal or even Spain could be next.

'Concerted Action' from the Chinese

European Commissioner for Economic and Financial Affairs Olli Rehn on Thursday took investors to task, however, for being overly pessimistic when it came to the euro. "In light of the facts, Spain's and Portugal's ability to take care of state debt and stimulate economic growth is much better than what the markets currently assume," Rehn told the Finnish daily Helsingin Sanomat.

According to various media reports, China would seem to agree. The Portuguese daily Jornal de Negócios reported on Wednesday that China was planning on buying between €4 billion and €5 billion worth of Portuguese bonds as a way of easing market pressure on the country.

On Thursday, a Chinese Foreign Ministry spokesperson said that the euro zone was an important area for foreign exchange investments -- a day after the Financial Times reported that China has offered to take "concerted action" to stabilize European finances.

cgh -- with wire reports

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