At a crunch meeting in Brussels yesterday ministers from the 16 Eurozone countries discussed how to reassure markets following the bailouts in Ireland and Greece and persistent fears over Portugal and Spain.
German chancellor Angela Merkel rebuffed calls for a bigger financial safety net, setting a collision course with the International Monetary Fund (IMF), with its chief Dominique Strauss-Kahn urging ministers to increase the size of the €500bn (£424bn) bailout mechanism for debt-stricken states.
The IMF said: “The recovery could still stay the course, but this scenario could now easily be derailed by the renewed financial market turmoil. There is a strong case for increasing the resources available for this safety net and making their use more flexible, including for the purpose of providing more effective support to banking systems.”
But Merkel was adamant she will not explore the possibility of injecting more cash into the European Financial Stability Facility. She said: “I see no need at this time to increase the fund. Only a very small percentage of it has been used.”
Some diplomats say putting more money on the table now might be interpreted as a sign that the EU is preparing for a possible bailout of Spain, the Eurozone’s fourth largest economy, and could aggravate market tensions.
She was supported by Dutch finance minister Jan Kees de Jager, who said it was premature to discuss what would happen if the fund ran out of money. He said: “Only one tenth of the of the total volume is now being accessed through the program so I think it is a little bit premature to already talk about what would happen if there are no more funds available. We have already stated that we will stand behind the euro and we will do everything to defend it.”