COPENHAGEN (MNI) - By bolstering its firewalls against the spread of the sovereign debt crisis, Europe should convince international partners that it is doing its part to calm financial markets, German Finance Minister Wolfgang Schaeuble said Friday.
Earlier today, the Eurogroup decided to add the existing resources of the European Financial Stability Facility to boost the effective firepower of the permanent E500 billion European Stability Mechanism to E800 billion.
"The current overall ceiling for ESM/EFSF lending, as defined in the ESM Treaty, will be raised to E700 billion," the Eurogroup said. The remaining E100 billion come from E49 billion out of the EFSM and E53 billion out of the bilateral Greek loan facility already paid out to support current programme countries.
"As far as the international discussion calling on the Europeans to do enough is concerned…Europe is now expending E800 billion," Schaeuble told reporters following the Eurogroup meeting here, noting that this exceeds the magic $1 trillion many had called for.
A larger European firewall is a pre-condition for an increase in the International Monetary Fund's resources at the upcoming spring meetings that could give the fund additional firepower should a larger Eurozone country face troubles.
While the bigger firewall does meet demands for $1 trillion, E300 billion of the total sum has already been commited to running programs, leaving the permanent ESM bailout fund with E500 billion. It is thus not clear yet how other IMF shareholders might react.
Schaeuble argued that the debate over the firewall had been terribly misleading. "Financial markets want to know whether the Eurozone is in the position to create structure to ensure permanent stability in the regions," he said.
Only if the underlying problems are resolved, can the crisis be overcome permanently, Schaeuble said. "Otherwise you can put E10 trillion in the fund and it still won't do any good."
Eurozone has made significant progress towards tackling underlying problems, Schaeuble observed, noting that Portugal and Ireland are "doing a good job" in their reform efforts and there is broad popular support for reform efforts in Spain and Greece.
"We are not out of the woods yet but we are on the right path," he said
Schaeuble noted that the "German government has taken on additional risks," with the debt-crisis spawned bailout funds. Those risks must be seen in conjunction with the chances that the Eurozone has offered Germany, he said. "Those chances have already been realized, making us economically incredibly successful."
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