Germany and Merkel in the limelight
This weekend’s G20 statement was very clear. The provision of further IMF funding by member states will depend on the ability of the Eurozone countries and particularly Germany as largest contributor, to increase the size of the currency zone rescue fund. Demands are being made requiring the temporary rescue fund (EFSF) and permanent stability mechanism (ESM) be combined to create a single permanent EUR 900bn rescue facility reducing risks of contagion affecting larger Eurozone countries including Spain and Italy. If such a combination occurs, other IMF members will provide further resources for the IMF, partly applicable to support struggling Eurozone economies given that they will have an increased influence in the IMF. Concurrently, other Eurozone countries are also increasing pressure on Germany to agree to enlarge the permanent rescue fund. However, German public remains negative towards providing any further support to Eurozone countries. German Chancellor Angela Merkel therefore faces several negative alternatives all involving significant costs. Apparently, we are approaching a decisive moment for the future of both the euro and the Eurozone. If Merkel intends to remain as determined to save the euro as she has seemed so far, she has no alternative but to agree to an increase in the permanent stability mechanism (ESM) at the upcoming EU summit in Brussels on Thursday and Friday this week. However, in a speech on Monday Mrs Merkel discarded such demands when she told German lawmakers that the government does not see any need at this time to debate over increasing the capacity of the ESM and EFSF.
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SEB tech team