Bloomberg News

Schaeuble Says Euro Fund Needs More Work to Spur Confidence

November 29, 2011

(Updates with Moody’s warning in fifth paragraph. For the EFSF guidelines, see NI EFSF CRL. EXT4 for debt-crisis news.)

Nov. 28 (Bloomberg) -- German Finance Minister Wolfgang Schaeuble said that European governments are struggling to enact a pledge to beef up the euro rescue fund, as he called for fast- track treaty changes to tighten budget discipline as the key to calming markets.

The European Financial Stability Facility recently paid a higher rate of interest on debt than France or the other AAA rated countries that guarantee the EFSF, underscoring the “crisis of confidence” in the euro area, Schaeuble said in an interview with ARD television in Berlin. The “decisive” answer remains budget discipline enforced by means of European Union treaty change, he said.

Treaty change is necessary to give veto power over member- state budgets to the EU Commission, Schaeuble said in the interview broadcast late yesterday. “We can do that quickly and this will send an important signal to markets that the euro is and remains a stable currency,” he said.

Euro-area finance ministers will meet in Brussels tomorrow as governments bid to regain the confidence of financial markets after a week in which the euro-area sovereign debt crisis worsened. Under guidelines to be considered by finance chiefs, the EFSF may insure bonds of troubled countries with guarantees of between 20 percent and 30 percent of each issue to be determined in light of market circumstances, a draft shows.

Moody’s Warning

Moody’s Investors Service said the “rapid escalation” of Europe’s debt and banking crisis is threatening all the region’s sovereign-bond ratings, and the probability of multiple defaults by euro-area countries is no longer negligible.

Schaeuble again ruled out joint euro-area bonds or deploying the European Central Bank to fight the crisis, saying such a debate is conducted in “those countries that have to sort out their budget problems and chose to misunderstand that they have to make more efforts.”

“We must together set up institutions that secure trust in the euro,” he said. “Everything that detracts from that is damaging.”

Schaeuble’s comments clash with French Budget Minister Valerie Pecresse, who suggested that more help from the ECB may be forthcoming if euro countries implement tougher budget rules.

“Countries need to make a complete commitment to cutting their debt levels and increasing budgetary convergence,” Pecresse said yesterday on France’s Canal Plus television. “Then European institutions will be able to play their full role. That goes for the commission, the council and also for the ECB.”

Overhauling Treaties

Pecresse, who is also a spokeswoman for the French government, said that fellow administrations are working on “re-making the European treaties,” with the aim of creating “new governance for the euro zone, a real regulator and real sanctions to bolster confidence” in the euro.

The euro rose today amid optimism that Europeans will step up efforts to end the crisis, advancing 0.5 percent to $1.3300 at 9:14 a.m. in Frankfurt. A report by La Stampa newspaper that the International Monetary Fund is preparing aid of as much as 600 billion euros ($799 billion) for Italy in case that nation’s funding woes worsen appeared “wide of the mark,” said Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co.

IMF Resources

“The IMF simply does not have the resources,” New York- based Chandler wrote in a note to clients. The Washington-based lender had committed $282 billion in loans as of mid-August, compared with member quotas of $383 billion and additional pledged or committed resources of about $600 billion, IMF data show.

Asked about newspaper reports that German Chancellor Angela Merkel and French President Nicolas Sarkozy are planning a fast- track stability pact to stem the crisis, Schaeuble said the government was “making efforts to convince the European Parliament that we can make such a treaty change without summoning to a convention” of representatives from each EU country to deliberate the matter.

“We need only change so-called protocol 14 of the Lisbon Treaty -- that is for the members of the single currency to create their own stability union,” Schaeuble said. “We must together set up institutions that secure trust in the euro,” he said. “Everything that detracts from that is damaging.”

Fiscal Discipline

Germany and France would start a coalition of euro-zone members that would commit to greater fiscal discipline without waiting to change EU treaties, German newspaper Welt am Sonntag reported at the weekend. The project, similar in form to the Schengen agreement that regulates passport-free cross-border travel, may be announced this week, the newspaper said, citing unidentified people close to the government.

The deal, which could be implemented by the start of 2012, would also expect the ECB to take a stronger role as the euro- area’s crisis-fighter, Welt am Sonntag said.

Schaeuble’s ministry denied a separate report in today’s Die Welt newspaper that Germany, France and four other AAA rated euro nations planned to issue joint bonds.

Bond markets in the euro area “are not functioning normally,” Bank of France Governor Christian Noyer said at a forum in Tokyo today. He told reporters that markets have forgotten Italy’s strengths, including a strong industrial base. Noyer declined to comment on possible IMF talks with Italy.

While the euro area will probably survive “without further widespread defaults,” policy makers may need even more pressure from investors to come up with a plan that ends the crisis, Moody’s said today.

Barring major policy initiatives, “the point is likely to be reached where the overall architecture of Moody’s ratings within the euro area, and possibly elsewhere within the EU, will need to be revisited,” the ratings company said in a statement.

--With assistance from Aki Ito in Tokyo, Karl Lester M. Yap in Manila and Tony Czuczka and Rainer Buergin in Berlin. Editors: Alan Crawford, Hellmuth Tromm

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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