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Berlin experts fear euro break-up from bail-out escalation

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Ambrose Evans-Pritchard
London Telegraph
October 18, 2011

Plans to increase the firepower of Europe’s bail-out machinery with extra leverage threaten France’s AAA rating and risk setting off a dangerous chain of events, a top German institute has warned.

Berlin’s DIW institute, one of Chancellor Angela Merkel’s five official advisers, said attempts to boost the €440bn (£384bn) EFSF bail-out fund – possibly to €2 trillion – with guarantees to shore up southern Europe would be “poisonous” for France’s credit worthiness.

Dr Ansgar Belke, the group’s research chief, said the leverage proposal emerging as part of the EU’s “Grand Plan” to restore confidence is self-defeating. “It counteracts efforts made so far to stabilise the eurozone debt crisis, which are premised on the AAA rating of a sufficiently large number of strong economies. In extremis, it would probably cause the break-up of the eurozone”, he told newspaper Handelsblatt.

Berlin yesterday played down hopes of a major breakthrough as EU leaders rush to complete their plan before a deadline next week. Mrs Merkel’s spokesman said “dreams that everything will be resolved and dealt with by next Monday cannot be fulfilled”.

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This article was posted: Tuesday, October 18, 2011 at 7:28 am





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