Germany is backing down from its resistance to increasing the size of the eurozone's bailout fund to rescue debt-ridden countries.
The 17-nation currency bloc has created a new $666 billion rescue fund that is set to take effect in July. But some financial analysts have said that account would not be large enough to cover the debts of larger European nations — such as Italy and Spain — if they need help in the future.
Germany, with Europe's most robust economy, resisted calls for expanding the fund. But on Monday, German Chancellor Angela Merkel said the eurozone's current temporary rescue fund that has loaned money to Greece, Ireland and Portugal could be operated in tandem with the new account. That would add $267 billion to the overall bailout fund — for a total of $933 billion.
“We can imagine that these 200 billion euros could run parallel to the 500 billion euros of the ESM (European Stability Mechanism) until they have been paid back by the countries. That will take several years, and then the ESM will stand alone with the 500 billion.''
Some analysts say that even the larger fund might not be sufficient to handle the debts of Italy and Spain, with the eurozone's third and fourth largest economies. The European Commission, the European Union's executive branch, has called for creation of a bailout fund of more than $1.2 trillion.
But some of Europe's financially strongest governments — particularly in the northern part of the continent — have voiced increasing opposition to further assistance for debt-plagued governments in the southern part of the eurozone. It took months of negotiations before Greece's European neighbors agreed recently to hand it another bailout, its second in two years.