February 23, 2012 / 3:28 PM / 6 years ago

EU executive wants bigger rescue fund

BRUSSELS (Reuters) - The European Commission wants euro zone leaders to overcome German objections and back a bigger rescue fund to nudge the IMF into helping troubled European economies, the EU’s top economic official said on Thursday.

Europe wants the International Monetary Fund to boost its resources, but most G20 countries, which are also the IMF’s paymasters, say they first want to see more of an effort by the currency bloc to raise funds for its own institutions.

Investors and EU officials want European leaders to agree at a Brussels summit next week to combine their EFSF temporary bailout facility with the permanent ESM to create a rescue fund of about 750 billion euros ($990 billion).

France backs the idea but German Chancellor Angela Merkel does not want the two funds to operate simultaneously. Her government has said it is not necessary to increase the size of the ESM beyond the current 500 billion euros.

EU Economic and Monetary Affairs Commissioner Olli Rehn said this was crucial for investor confidence and economic.

“The Commission’s task is to speak the truth as we see it and we see (a combined fund) is essential in order to overcome the crisis and return to recovery and growth,” he told Reuters.

“I trust we will in due course come to this conclusion in the euro area and among the leaders of the euro area.”

Asked about Germany’s position, he said: “It is a process of negotiation.”

The European Stability Mechanism (ESM), which was set to replace the European Financial Stability Facility, will enter into force in July.

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Euro zone debt crisis graphics r.reuters.com/hyb65p

For full multimedia coverage: r.reuters.com/xyt94s

U.S. RELUCTANCE

Rehn said an agreement showing that Europeans were willing to create a significant rescue fund would help convince the world’s largest economies to increase the IMF’s resources.

“We want to see that... the International Monetary Fund (too) could help with increased resources, and these things tend to be interlinked,” Rehn said.

Officials from the world’s 20 largest economies will meet in Mexico City this weekend where they will discuss the IMF’s role in trying to resolve the debt crisis.

The IMF is seeking to more than double its firepower by raising an extra $600 billion to help countries deal with the fallout from the debt crisis, but the plan faces resistance from countries including the United States and Canada.

Euro zone finance ministers agreed in December to boost IMF resources by 150 billion euros. The Czech Republic, Denmark, Poland and Sweden - which are not in the euro zone - are also considering granting loans to the Washington-based lender.

But it is unclear whether Europe will reach its 200 billion euro target, because Britain must still clarify whether it will increase its participation within the G20 framework. ($1 = 0.7552 euros)

Writing by Robin Emmott; Editing by Rex Merrifield, Sebastian Moffett, Anna Willard

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