Germany and France have rejected calls by Brussels for a rapid increase in the size and powers of the EU’s rescue machinery, once again exposing serious differences at the heart of monetary union.
Jose Barroso, head of the European Commission, called on EU leaders to boost the firepower of the EU’s €440bn (£366bn) bail-out fund and beef up its role, allowing it to intervene with pre-emptive bond purchases to help states under threat.
“It is important for the markets to know that Eurozone leaders are committed to do whatever is necessary,” he said, hoping for action as soon as early February.
He also proposed a “new phase of European integration” with far-reaching oversight of the budgets, pensions, labour markets, and trade flows of EU states to prevent a recurrence of the imbalances that led to the EMU debt crisis.
Mr Barroso said the fund boost was a “precautionary” move, not directed at any one country. The gambit is risky since it may be taken by investors as a sign that Brussels fears imminent contagion to Spain, deemed too big for the current fund.
The response in Paris and Berlin was chilly. “We think the fund is big enough,” said Francois Baroin, France’s budget minister. German Chancellor Angela Merkel said the bail-out mechanism was “nowhere near exhaustion”, adding curtly that she did not wish to debate the matter “any further”.
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