Did Germany Finally Acquiesce To A Bigger Boost In The Eurozone Bailout Fund?

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Photo: AP/Michael Probst

The euro went way up on a Bloomberg report that EU finance ministers could raise the funding capacity of the combined eurozone bailout funds to €940 billion ($1250 billion) on Friday.According to Linda Yueh, Bloomberg obtained a draft of a document that will be considered at a meeting of EU finance minsters Friday. That document held plans to make €940 billion available for bailout funding during 2012, and €700 billion starting in 2013.

Numerous EU leaders and international organisations have been advocating boosting the current bailout funding capacity to €940 billion as opposed to the current €500 that will be available once the European Stability Mechanism takes effect this summer. Under such a plan, they would run the European Financial Stability Facility and the European Stability Mechanism simultaneously.

Germany has repeatedly rebuffed these plans, however, arguing that bailout funding should only be boosted to €700 billion—a combination of about €200 billion in funds that have already been dedicated to supporting Greece, Ireland, and Portugal as well as the €500 billion promised as part of the European Stability Mechanism. Even support for this plan was a concession from earlier plans that would have kept funding limited to €500 billion, including the €200 billion already committed.

This report could indicate that the Germans have changed their minds, however it’s still unclear whether this draft is just a proposal or something that has received tacit approval from EU finance ministers. Given German antagonism to the idea, most likely this is just a draft document that has not yet garnered significant approval.

This report caused the euro to jump over $1.33, reflecting hopes that a bigger bailout fund would supply more money to construct a firewall around Greece and recapitalize unstable banks.

Photo: FinViz.com

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