Euro Zone Agrees on Firewall

Germany had spoken out against substantial increases in the firewall. Finance Minister Steve Vanackere of Belgium was quoted saying, “Obviously markets will only have confidence in us if we agree on a strong rescue fund. We can’t consider that the crisis is over. We must find a good middle way between those who seek a [maximum] firewall and those who want it kept to a minimum.”

It remains to be seen whether they were successful in doing that. Steve Barrow, head of G10 strategy at Standard Bank in London, was quoted saying, “At the end of the day the key question is whether this new firepower is enough. Clearly if things turn down again, and especially if more bailouts are needed, the tricky issue of underfunding the ESM/EFSF relative to the potential bailout need is bound to resurface.”

While Commerzbank analyst Christoph Weil said that the increase proposed by finance ministers, when put together with funding from the International Monetary Fund (IMF), would likely suffice to “offer shelter to Spain and Italy if necessary,” he said in a note, “Nonetheless, there is reason to fear that investors will remain skeptical and continue to demand high risk premiums for peripheral bonds.”