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Germany signals willingness to boost Europe's bailout fund

March 26, 2012 |  7:12 am

German Chancellor Angela Merkel signaled a new willingness Monday to boost the size of Europe's bailout fund for financially troubled nations
REPORTING FROM BERLIN -- Bowing to international pressure, German Chancellor Angela Merkel signaled Monday
that her country could agree to a boost in Europe's bailout resources for financially ailing nations, a move she and other German leaders had resisted in their attempts to beat back the euro debt crisis.

Merkel told a gathering of her fellow Christian Democrats that it might be possible for Europe's temporary rescue fund to run in tandem with its permanent successor. The arrangement would see the 200 billion euros (about $265 billion) already earmarked for bailouts of Greece, Ireland and Portugal operating alongside the 500 billion euros (about $665 billion) committed to the permanent rescue fund, known as the European Stability Mechanism, or ESM. The ESM is scheduled to come online this summer.

"We could see the 200 billion euros running parallel to the ESM's 500 billion euros until they've been paid back by the bailed-out countries," Merkel said Monday.

But after that, Merkel insisted, the permanent bailout fund would remain set at 500 billion euros and shouldn't be enlarged beyond its current size.

As Europe's paymaster, Germany has faced heavy pressure to boost the continent's bailout fund, to increase its effectiveness as a firewall against the spread of the euro debt crisis to larger countries such as Spain and Italy. But Berlin had publicly resisted the move until now because of domestic opposition to ever-deepening economic commitments to bail out Germany's debt-laden neighbors.

If the temporary and permanent bailout funds were to run concurrently, as outlined by Merkel, German taxpayers would be on the line for about $372 billion.

Legal experts here expect that the German parliament will have to approve a boost to the bailout fund before it can be implemented.

Europe's economic storm has calmed down somewhat since January, following a move by the European Central Bank to provide cheap long-term loans to banks. But in recent days, worries have once again flared up, focused largely on Spain, the Eurozone's fourth-largest economy, whose struggles with overspending could push the continent back into crisis mode.

European leaders have expressed hope that an enlarged emergency fund would reassure nervous investors about the Eurozone's stability.

Of the 17 nations that use the euro, only Germany and Finland have expressed major misgivings over expanding the fund. But over the weekend, Finland's prime minister signaled a willingness to relent on the issue, followed by Merkel's comments Monday.

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-- Aaron Wiener

Photo: German Chancellor Angela Merkel at the start of a meeting Monday of her Christian Democrats. Credit: Michael Sohn / Associated Press

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