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  • Eurozone Bailout Fund: Leaders Unlikely To Meet Demands For Fund At G20

    Germany unlikely to be ready to decide at March 1-2 summit

    * Euro zone may decide on combined bailout fund later in March

    * No increase of IMF funds without Europe moving first

    By Jan Strupczewski and Daniel Flynn

    MEXICO CITY, Feb 25 (Reuters) - Euro zone leaders may not be able to meet international demands to ramp up their own funds for bailing out the bloc's debtors when they meet next week because Germany is showing no sign of dropping its opposition to the plan, euro zone officials said.

    A bigger European fund is a condition for major non-European economies before they lend more money to the International Monetary Fund to provide an even bigger wall of cash to fight the crisis that has already claimed three euro debtor countries and now threatens the much bigger economies of Italy and Spain.

    "I would not bet on a positive outcome by the end of the March 1-2 summit," one euro zone official said. "German opposition to a deal is still very strong."

    Euro zone leaders are set to review the 500 billion euro ($675 billion) limit on the joint lending capacity of their temporary and permanent bailout funds, known by their acronyms EFSF and ESM, at the March 1-2 summit.
    If they decide to merge the funds, they would create a firewall of 750 billion euros which would help convince markets that they were committed to bringing the crisis under control.

    The European Central Bank supports such an increase as do policymakers around the world who are considering more than doubling the IMF's resources by $600 billion.

    "Everybody says there is a pre-condition that Europe makes more efforts first," South Korea's central bank governor Kim Choong-soo said before a meeting of finance ministers and central bankers of Group of 20 leading economies in Mexico City.

    But Germany, the euro zone's biggest economy, insists Europe's current bailout arrangements are more than sufficient and that increasing them would send a signal to markets that the euro zone it expects more trouble ahead.

    German officials say countries would lose the impetus to carry out badly needed belt-tightening reforms.

    "It makes no sense, and is rather harmful," said one German official.

    Others in Berlin argue the extra obligations under the combined bailout funds could increase the risk of further credit rating downgrades for some euro zone countries. And the sense of urgency is dissipating because Italy and Spain are paying less to borrow on markets.

    Officials from other countries warn that argument is premature.

    "The current improvement in markets is very fragile, so we need to be careful not become complacent," a second euro zone official said.
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