Europe’s euro currency bloc has sharply boosted its financial rescue fund to more than $1 trillion, its latest effort to protect itself and the world economy against defaults by debt-ridden governments.
The finance ministers from the 17 nations that use the euro agreed Friday in Copenhagen to add another $500 billion over the coming year to a new account slated to take effect in July.
Europe has already spent tens of billions on bailouts — twice to financially troubled Greece, and once each to Ireland and Portugal. The bigger account is aimed at protecting the eurozone against possible defaults by Italy and Spain, whose combined debts dwarf that of the three countries the continent has already assisted.
Financial analysts, the International Monetary Fund and the Organization for Economic Cooperation and Development had called for creation of an even bigger rescue fund. But some northern European countries — especially Germany and Finland — have grown weary of providing ever more assistance.
The head of EU’s economic affairs unit, Olli Rehn, said the increase should suffice.
“We see this as a lasting decision. Altogether, the euro area is mobilizing an overall firewall of 800 billion euros, which is more than one trillion U.S. dollars. The euro area member states have thus made a crucial contribution to the strengthening of global firewalls and responded to calls from our global partners from G-20 (Group of 20 advanced economies) and of course among them the BRIC countries (Brazil, Russia, India, China). I trust that today’s decision will pave the way for an increase of the IMF (International Monetary Fund) resources by the IMF spring meetings next month, in April, mid-April.”
Germany and France, Europe’s two strongest economies, disagreed this week on the size of the new rescue fund. But in the end, French Finance Minister Francois Baroin said they reached an accord.
“Absolutely no problem between Germany and France. We have debate, political debate, but we have a strong agreement on the firewall which is a very good answer from the eurozone and the eurogroup.”
Danish Finance Minister Margrethe Vestager said investors that buy the bonds of European governments will never be totally satisfied with the size of the rescue fund. But she said the eurozone finance chiefs had to make a decision and believe that it was the correct one.
“I don’t think that you can ever make the market satisfied. What you have to do is say, ‘This is what we think will do it. This is the height, the width and the length of the firewall. This is the political decision and this is the end of the discussion.’ ”
Meanwhile, Spain announced $36 billion in new spending cuts on Friday as the Madrid government sought to control its deficits and improve its economy. Nearly a quarter of the Spanish workforce is unemployed — the highest rate in the European Union.