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Germany denies reports on rescue fund hike

(Xinhua)

10:08, January 25, 2012

BERLIN, Jan 24 (Xinhua) -- Eurozone paymaster Germany on Tuesday rejected a report that it had agreed to raise the firepower of the 17-member single currency bloc's bailout funds.

"Germany has no decision to raise the ESM (European Stability Mechanism) to 750 billion euros (about 977 billion U.S. dollars)," read a statement by German government spokesman Steffen Seibert.

The statement came shortly after the Financial Times reported that German Chancellor Angela Merkel wanted eurozone member states to comply with even stricter budget discipline in exchange for Berlin's approval to upscale the ESM.

The International Monetary Fund (IMF) chief Christine Lagarde also called on Monday for a "larger firewall" to prevent countries like Italy and Spain being forced into insolvency.

The ESM is due to begin operations in July and run in parallel with the European Financial Stability Facility (EFSF), a temporary instrument that was used to rescue Portugal and Ireland.

Under its current sturcture, the EFSF issues bonds guaranteed by the eurozone member statets to raise funds from the dent market, and use them to lend on to those receiving financial aid.

But unlike the EFSF, which will run till mid 2013, the ESM requires member states to pay billions of cash into the fund instead of just offering credit loan guarantees, thus it could better protect the eurozone countries from new crises.

"This is a significant accomplishment and demonstrates the viability of the eurozone countries and the European Union as a whole," said German Finance Minister Wolfgang Schauble.

But many still believe the firewall should be further expanded. Italian Prime Minister Mario Monti wanted to double its capacity to one billion euros, while Lagarde suggested packing the surplus sums of some 250 billion euros, which the EFSF has not yet consumed, onto the ESM.

Germany has so far led opposition to combine the ESM with the EFSF. A key decision on whether to increase the ESM capital scale will be unveiled at a forthcoming summit in March.

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