Euro-zone finance ministers meeting in Brussels on Monday agreed that a permanent rescue mechanism to be set up from 2013 would total 500 billion euros ($675 billion) -- significantly higher than the current rescue fund.
The new fund, the European Stability Mechanism (ESM), will be part of a package of measures European leaders are hoping to agree at two summits in March to resolve the debt crisis. "We've already agreed on the volume of the lending capacity of the ESM. We've agreed on the amount of 500 billion, and this will be subject to regular revision," the chairman of euro-zone finance ministers, Luxembourg Prime Minister Jean-Claude Juncker, told a news conference.
Apart from the euro zone, the ESM would also get cash from the International Monetary Fund and, possibly, from voluntary contributions from non-euro zone European Union countries, Juncker said.
The ESM is intended to replace the temporary euro rescue fund, the European Financial Stability Facility (EFSF), which was hurriedly set up in May to avert a collapse of the single currency in the wake of the Greek debt crisis.
The EFSF currently has a volume of 440 billion but can only lend up to 250 billion to ailing euro member states because it has to keep a large cash buffer in order to maintain top credit ratings. Juncker said the ESM's 500 billion would be the "effective lending capacity" of the new rescue fund.
No Deal on Expanding Current Rescue Fund
EU officials are worried that the current fund may not be big to cope if Portugal and Spain were to follow Greece and Ireland in needing a bailout. But Monday's meeting yielded no agreement on enlarging the fund's effective lending capacity. Germany is opposing an immediate increase in the EFSF unless other euro zone member states agree to cut public spending and make their economies more competitive.
Germany's " competitiveness pact", supported by France, includes higher retirement ages, a German-style "debt brake" to limit government bond issuance, a common corporate tax base and an end to inflation-linked wages. But other euro-zone countries are resisting the proposal. EU leaders are to meet first on March 11 and then on March 24-25 to reach a deal on the comprehensive package.
cro -- with wire reports
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