The Organization for Economic Cooperation and Development says the euro currency bloc needs to create a much bigger rescue fund for future financial emergencies, even larger than economic powerhouse Germany is willing to accept.
German Chancellor Angela Merkel said earlier this week that she would assent to creation of a $930 billion bailout fund. That would combine the financial clout of a new fund that takes effect in July and an existing account that already has rescued debt-ridden Greece, Ireland and Portugal. European leaders are considering a bigger fund in case larger countries — like Italy and Spain — need help paying their debts.
On Tuesday, Angel Gurria, the OECD's secretary general, said eurozone finance ministers meeting later this week in Copenhagen need to create a $1.3 trillion rescue fund. He said the “mother of all firewalls” is needed — to be certain the fund has enough cash to cover a large-scale default.
“We call on the informal ECOFIN (Economic and Financial Committee) later this week to expand the available stability funds further to provide a credible level of support. Talking about the so-called firewall, let me just quote myself, 'the mother of all firewalls' should be in place, strong enough, broad enough, deep enough, tall enough, you know, all sorts of, you know, just big, to ensure that it does not need to be used actually, that people know that it's there and therefore will not even attempt to either speculate or try to see if it's strong enough.”
Gurria said the bigger fund would assure international financial markets that the 17-nation currency union is serious about resolving the continent's two-year governmental debt contagion.
“It's a message, it's a language, it's a signal, but it's a signal to the markets, it's a language that you're talking about with the markets, it's something that you're telling the markets, I've got the firepower and by God if I need to I'm going to use it, so anybody that is speculating is going to lose their shirt.”
The European Union's economic minister, Olli Rehn, said all eurozone nations need to control their spending. He said countries that have imposed austerity plans to cut their deficits must strictly adhere to them to improve their credibility with investors.
“This differentiation implies that those countries that simply have no fiscal space or no credibility in the bond markets, they need to stick to their agreed headline targets no matter what – including the program countries, including the countries under particular market scrutiny – while at the same time those countries with better fiscal space should let their automatic stabilizers function effectively.”
The eurozone's new permanent $664 billion rescue fund is set to take effect in July. Ms. Merkel said Monday the current temporary rescue account, with another $266 billion, could run in tandem with the new bailout fund.
But Germany and some other financially stable northern European nations have grown weary of supporting debt-plagued governments on the eurozone's southern periphery and opposed creation of an even bigger account.
The OECD, a 34-nation coalition that promotes economic growth and social stability around the world, is the latest group calling for creation of the much larger fund, following the International Monetary Fund and the European Commission, the European Union's executive arm.
