WSJ: Euro Zone Falls Short on Fund – Ministers Look to IMF, ECB as Expected Rescue Pool Seen Too Small to Mount Italy, Spain Rescues
Posted on December 1, 2011
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“…the break-up of the Eurozone now poses a larger threat to Poland than tanks, terrorism or missiles.”
Polish Foreign Minister Radoslaw Sikorski
By STEPHEN FIDLER,CHARLES FORELLE and COSTAS PARIS
BRUSSELS—Euro-zone finance ministers agreed on Tuesday on details to expand the bloc’s bailout fund but acknowledged it would have less capacity to help troubled nations than once hoped, and suggested future efforts to resolve the worsening crisis would depend on the European Central Bank and the International Monetary Fund coming to their aid.
Luxembourg Premier Jean-Claude Juncker, center left, with euro-zone finance ministers, including Germany’s Schäuble, center, Tuesday in Brussels.
An analysis presented at the meeting suggested the fund might raise between €500 billion and €750 billion ($700 billion to $1 trillion), according to a person familiar with the matter, far short of the €1 trillion or even €2 trillion that many had expected. After the meeting, officials didn’t give a figure for its expected size.
But such sums would fall shy of the amount that would be needed to convince financial markets there is enough in the pot to rescue Italy and Spain, as well as to support Europe’s troubled banks.
The rising debt-financing costs of Italy, represented at the meeting by its new prime minister, Mario Monti, were a major concern of the meeting, officials said, adding there were worries about the country’s heavy borrowing need of about €400 billion next year.
An IMF official said the Washington-based fund could at present provide €100 billion to help Italy, if it came to that. That means that to assemble a credible backstop, the Europeans would need to raise a substantial amount of money elsewhere
A recent UBS report sheds some light on why: They estimated that the financial crises and bank runs and uncertainty around leaving the Eurozone would cost small, weak countries like Greece 50 percent of their GDP in the first year and 15 percent in the years thereafter. And big, rich countries like Germany wouldn’t fare all that much better: UBS thought they’d take a hit of 20-25 percent of their GDP in year one, and 10-12.5 percent in the years after that.”