The head of the 17-strong group of eurozone countries, Luxembourg Prime Minister Jean-Claude Juncker, announced on February 14 that from 2013 the new European Stability Mechanism will double its lending capacity, following agreement between ministers in Brussels.
But with details of how the funds will be raised left to future meetings, Holland’s finance minister Jan Kees de Jager was reported to have denied that the Netherlands had committed itself to the plan.
EU Economic and Monetary Affairs Commissioner Olli Rehn sought to play down the significance of his comments. He said: “It is a classical situation in EU negotiations. Nothing is agreed before everything is agreed. But there is a consensus in principle.”
György Matolcsy, Hungary’s finance minister, who currently chairs the ministerial meetings, said Europe is on course to meet its deadline for agreeing a package of financial governance measures, aimed at averting future crises, by March this year. But while welcoming signs of growth in EU economies, he also warned that inflation – which has just hit 4 per cent in Britain – is “public enemy number one”.
The ESM will take over from the temporary three year European Financial Stability Facility which was put in place in June last year in response to the escalating crises in Greece, Ireland and other economies. According to Mr Juncker, the size of the fund will be reviewed at least every two years. The International Monetary Fund is expected to contribute some 250 billion euros, while EU member states outside the eurozone, such as the United Kingdon, could also make voluntary contributions. Britain has already stepped in to lend to the Irish economy.
No final agreement is expected before the spring summit of EU leaders in March. But support for increased funding from the eurozone paymaster countries such as France and Germany led to speculation that demands for economic reform and ever-tighter limits on spending in countries such as Portugal, Ireland, Greece and Spain are likely to go ahead. Recent Franco-German proposals for a stringent “competitiveness pact”, said to include wage-capping and a later retirement age, have already been criticised by other eurozone members.
Mr Rehn said: “I am certain this agreement ensures the credibility of the ESM in the financial markets. But we are not out of the woods yet. Now we need a convincing strategy for growth.” And that, according to the EU, means creating a lot of new jobs.
