Bloomberg News

Germany May Speed Payments to Bailout Fund to Help on Ratings

January 01, 2012

(For more on Europe’s debt crisis, see EXT4.)

Dec. 30 (Bloomberg) -- Germany’s plan to speed up payments into Europe’s future permanent bailout fund with cash is aimed at securing the highest ratings for its bonds, said a senior lawmaker from Chancellor Angela Merkel’s party.

Germany may pay 8.6 billion euros ($11.1 billion) into the European Stability Mechanism in 2012, twice the amount slated in the budget, providing it can persuade other euro-region states to double their payments, Norbert Barthle, the Christian Democratic Union’s budget spokesman, said yesterday in an interview.

German coalition lawmakers see no scope to increase the 500 billion euro ESM, while its lending power may be maximized by reducing costs influenced by ratings, said Barthle, speaking by phone. Germany in July agreed to pay a quarter or about 20 billion euros of the fund’s so-called paid-in cash stock over five years.

Speeding up the payments is “definitely conceivable while a German go-it-alone will definitely not work,” said Barthle. “The aim is to secure good ratings for the fund and win a little independence from the rating agencies.”

Euro-region leaders are holding parallel talks on shaping the euro’s temporary and permanent rescue funds after the costs borne by Spain and Italy to sell debt soared this year and prompted calls to bring forward creation of the ESM.

Sarkozy-Merkel Meeting

French President Nicolas Sarkozy may be confronted with the proposal in talks with Merkel in Berlin on Jan. 9, adding to discussion on leveraging the euro’s temporary rescue fund amid risk of a downgrading of their sovereign ratings.

Ratings company Standard & Poor’s on Dec. 5 put Germany, France and 13 other euro-area nations on review for a downgrade, saying “continuing disagreements among European policy makers on how to tackle” the region’s debt crisis risk damaging their financial stability.

S&P followed up the threat a day later by saying that the temporary fund, called the European Financial Stability Facility, may lose its top credit rating if any of six AAA-rated guarantors face a downgrade.

Germany may be in better fiscal shape than some of its euro region partners to pay more into the ESM in 2012 due to rising tax revenue. A May tax review may show that it doesn’t need to reopen the budget to pay more into the ESM, Barthle said. The country’s bank-rescue fund, to be reactivated on Jan. 1, relies on off-budget finance, he said.

Euro-region finance ministers plan to finalize the accord to set up the ESM at a meeting in Brussels on Jan. 23, said German Finance Ministry spokeswoman Silke Bruns in an interview yesterday. “It would be helpful to build market confidence if more capital could be paid into the fund than envisaged currently,” she said.

--Editors: Leon Mangasarian, James Hertling.

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net.

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


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