As EU finance ministers prepare to meet in Brussels to finalize a bailout deal for Ireland before markets reopen on Monday, the German government is defending its handling of eurozone countries in financial difficulty.
Germany is the biggest economy in the eurozone
Foreign minister Guido Westerwelle said on Saturday that Germany was not considering issuing eurozone bonds to counter Europe’s debt crisis. And Germany’s finance ministry said that Chancellor Angela Merkel had already ruled out the idea of issuing bonds.
Westerwelle and Merkel rejected the idea of eurozone bonds
But German news weekly Focus cited sources claiming that Germany might drop its objections to such bonds, if strict conditions for tougher sanctions on countries running up excessive deficits were imposed.
The solution would help troubled eurozone countries, including Greece, Ireland and Portugal, by bringing down their borrowing costs. But this means Germany could risk seeing its credit rating deteriorating, and would face higher interest rates.
Merkel wants a permanent mechanism
Merkel is facing tough questions at home as to whether Germany, Europe’s largest economy, should help European partners like Ireland out of financial crisis at the risk of damaging Germany’s solid financial reputation.
Merkel is calling for a permanent mechanism to replace the provisional European Stability Fund, a pot of money member states can draw on if they get into severe financial difficulties.
The provisional fund runs out in the summer of 2013. At an EU summit in December, Merkel is hoping to lay the foundation for a permanent system for dealing with such situations. Germany is stressing that private investors should also shoulder responsibility for financial insecurity.
Finance ministers converge on Brussels
EU finance ministers are expected to meet in Brussels on Sunday to finalize an aid plan for Ireland before markets open on Monday morning. Ministers will be asked to approve the bailout package, worth around 85 billion euros ($113 billion) in loans. Germany and France are urging a rapid conclusion to negotiations to put an end to uncertainty.
The EU and International Monetary Fund rescue plan is intended to stop the Irish debt crisis spreading to other countries in the eurozone.
German economy minister Rainer Bruederle gave his assurance that Ireland and Greece were the only eurozone countries that needed to draw on emergency financial aid.
He rejected the idea that other countries, specifically Spain and Portugal, were at risk, saying, "Spain and Portugal are doing everything in their power to keep their national finances in order."
Ministers hope the euro will stabilize after the Ireland bailout
Is there enough money in the current fund?
Some in Europe have questioned whether the current mechanism for rescuing debt-ravaged countries in the eurozone is adequate. According to German news magazine Der Spiegel, Marco Buti, director general for Economic and Financial Affairs at the European Commission wants the existing 750-billion-euro stability fund to be increased, perhaps by double its current level.
However, German finance minister Wolfgang Schaeuble rejected the idea, saying that the current 750 billion euro fund was adequate.
But some economists are suggesting that there should be no limit on rescue deals for eurozone countries in financial trouble. Michael Burda of Berlin's Humboldt University told the Tagesspiegel newspaper that it was dangerous to name concrete figures.
"The EU should give an unlimited guarantee for the debts of member states… only then will the markets calm down," the economist said.
Author: Joanna Impey (AFP, AP, dpa, Reuters)
Editor: Ben Knight