Germany’s opposition to strengthening the European Financial Stability Facility (EFSF), the rescue vehicle of the euro zone, has to end, while the country’s insistence on a euro zone competitiveness pact is “necessary and politically clever.”
According to Reuters, the head of the BDA employers' association, Dieter Hundt, wrote in a German newspaper on Tuesday that while he supported a competitiveness pact as part of a comprehensive reform package, German opposition to increasing the funding for the EFSF should stop. In the newspaper Handelsblatt, Hundt wrote, "The question to be asked is what would be the impact on the markets and those speculators who always try to speculate against the euro."
Currently the nominal amount of the EFSF is 440 billion euros ($613 billion), but its practical limit because of guarantees and other restrictions is only 250 billion euros. The restrictions are necessary if the EFSF is to maintain its AAA rating, which allows it to borrow money on the world market at more reasonable rates.
Euro zone leaders are scheduled to meet on Friday to work on a comprehensive package of steps that will alleviate the region’s debt crisis. They intend to complete work on the package at another meeting set for March 24-25. However, opposition from Germany to increasing the amount of the EFSF has been driven both by public opinion against bailing out other euro zone countries and by economists’ criticism. A group of 200 economists has voiced strong opposition to any strengthening measures.
Hundt’s comment addressed to the economists was, "It's easy to demand that the rescue fund should not become bigger. But this avoids the crunch question: whether the volume is enough to clear a realistic path into the future for illiquid states."
The European Commission (EC), as well as France and to a limited degree Germany, all agree that something must be done to boost the effective lending capacity of the EFSF to the full 440 billion euros, but they have not been able to agree on how to go about it.