German officials: Bailout fund will top $1.4 trillion

BERLIN—The eurozone bailout fund will see its firepower increased to more than US$1.39 trillion to enable it to contain the debt turmoil that threatens to rip apart the 17-nation eurozone, according to German lawmakers briefed yesterday by Chancellor Angela Merkel. Eurozone governments hope the US$600 billion European Financial Stability Fund, or EFSF, will be able to protect countries like Italy and Spain from being engulfed in the debt crisis. To do that, however, it needs to be bigger or see its lending powers magnified. Frank-Walter Steinmeier, parliamentary leader of the opposition Social Democrats, and Greens leaders Cem Oezdemir and Juergen Trittin said the chancellor informed them that the EFSF’s lending powers would be boosted significantly.

“There will be a leveraging of the EFSF. It is clear that this leveraging will be around a level beyond one billion (euro),” Trittin told reporters outside the chancellery in Berlin. That would be achieved through a combination of measures. The fund would insure investors against a percentage of possible losses on eurozone government bonds and the plan also involves the participation of outside organisations such as sovereign wealth funds and the International Monetary Fund, Trittin said. The chancellor briefed lawmakers yesterday about the progress of the eurozone rescue plans following the weekend’s EU summit. Because of the move’s significance, members of Merkel’s party proposed that the change receive full parliamentary approval tomorrow—although it would have been enough for the parliament’s budget committee to approve the plan.

Volker Kauder, the parliamentary leader of Merkel’s conservative bloc, said the decision to seek a vote was “nothing extraordinary” because “questions of fundamental significance must be decided in parliament.” Kauder stressed that Germany’s liability won’t be increased by beefing up the fund’s firepower and that Berlin would still be guaranteeing loans to the tune of up to €211 billion, and no more. The vote would also provide “a great breadth of support to the chancellor in her negotiations,” he told reporters.