- Associated Press - Monday, October 24, 2011

BERLIN (AP) — The eurozone bailout fund will see its firepower increased to more than 1 trillion euros ($1.39 trillion) to enable it to contain the debt turmoil that threatens to rip apart the 17-nation eurozone, according to German lawmakers briefed Monday by Chancellor Angela Merkel.

Eurozone governments hope the 440 billion euro ($600 billion) European Financial Stability Fund, or EFSF, will be able to protect countries such as Italy and Spain from being engulfed in the debt crisis.

To do that, however, it needs to be bigger or see its lending powers magnified.

Frank-Walter Steinmeier, parliamentary leader of the opposition Social Democrats, and Greens leaders Cem Oezdemir and Juergen Trittin said the chancellor informed them that the EFSF’s lending powers will be boosted significantly.

“There will be a leveraging of the EFSF. It is clear that this leveraging will be around a level beyond 1 trillion (euros),” Mr. Trittin told reporters outside the Chancellery in Berlin.

German Chancellor Angela Merkel arrives at the Chancellery in Berlin on Monday, Oct. 24, 2011, to brief lawmakers on Sunday's European Union summit on the euro financial crisis. (AP Photo/Markus Schreiber)
German Chancellor Angela Merkel arrives at the Chancellery in Berlin on Monday, ... more >

That level would be achieved through a combination of measures. The fund would insure investors against a percentage of possible losses on eurozone government bonds, and the plan also involves the participation of outside organizations such as sovereign wealth funds and the International Monetary Fund, Mr. Trittin said.

The chancellor briefed lawmakers Monday about the progress of the eurozone rescue plans following last weekend’s European Union summit.

Because of the move’s significance, members of Mrs. Merkel’s party proposed that the change receive full parliamentary approval on Wednesday — although it would have been enough for the parliament’s Budget Committee to approve the plan.

Volker Kauder, the parliamentary leader of Mrs. Merkel’s conservative bloc, said the decision to seek a vote was “nothing extraordinary” because “questions of fundamental significance must be decided in parliament.”

Parliament is set to sign off on the eurozone rescue plans and the EFSF’s new powers before Mrs. Merkel gives the final green light at an EU summit in Brussels later Wednesday. The change looks likely to pass by a wide margin in parliament.

Beefing up the bailout fund is one part of a three-pronged eurozone plan to solve the crisis.

The other two parts are reducing Greece’s debt burden so the country eventually can stand on its own and forcing banks to raise more money so they can take losses on the Greek debt and ride out the financial storm that will entail.

Greece’s private bondholders agreed in July to accept losses of 21 percent on their holdings, and getting them to take deeper losses to lighten the country’s debt load is proving particularly difficult.

Experts agree that Greece needs to write off more of its debt — German officials have said up to 50 percent or 60 percent — if it is ever to make it out of its debt hole.

But many also say such a deal with private creditors needs to be voluntary. Imposing sharp losses against the banks through a so-called “haircut” could trigger massive bond insurance payments that could cause panic on financial markets.

Story Continues →