GERMAN Chancellor Angela Merkel has given her first indication that she is prepared to allow an increase in the debt-crisis firewall, saying that Germany could let the temporary and permanent rescue funds run in parallel.
Ms Merkel cited "fragility" in Spain and Portugal as she revealed Germany's position on addressing the future financial backstop. Agreement among eurozone governments this week "could be the basis" for the International Monetary Fund to channel more resources to help fight the turmoil, she said.
Germany holds to its stance that the permanent rescue fund should be capped at €500bn, she said yesterday. "But in order for us to have the full €500bn at our disposal, we could imagine that we let the programmes that have already been disbursed run in parallel," Ms Merkel added.
Her comments prepare the ground for Germany to drop its opposition to proposals to expand the financial backstop at a meeting of eurozone finance ministers in Copenhagen on March 30. The euro and stocks rose on Ms Merkel's comments.
Even so, she responded to a question about the firewall yesterday by citing bond yields in Spain and Portugal that have in recent weeks shown "great sensitivity and fragility." That means "the situation is not yet normal," she said.
Euro-area leaders have established the permanent €500bn European Stability Mechanism, which is scheduled to take over from the European Financial Stability Facility and begin operations in July. Under current rules, unused EFSF funds would be passed on to the ESM, though disbursement could not exceed the half-trillion limit.
Policy makers are discussing how to add to the funds, for example by allowing the EFSF and ESM to work concurrently to make more money available. Maintaining the used sums from the temporary fund while allowing the ESM to operate at capacity would bring a total crisis backstop to €692bn. (Bloomberg)