Germany May Block New, Huge Bailout

Germany may block a plan to createt two huge bailout funds, which would total about $2 trillion, to aid eurozone nations and presumably eliminate the region’s sovereign debt crisis.

G20 leader have indicated that they would add $600 billion to the IMF’s funds, which would take its total to $1 trillion, if European leaders will take the size of the region’s own fund to $1 trillion. This would probably involve taking the $300 billion in the temporary bailout fund, the European Financial Stability Facility, and adding it to a new $500 billion fund–the European Stability Mechanism. Germany has indicated that it believes that $500 billion is enough to cover any foreign debt problems–which would probably include Portugal, Spain, and, perhaps, Italy.

Many experts believe that $500 billion is not close to large enough to prevent serial defaults among the financially weakest nations in Europe. Germany is concerned, among other things, that the presence of a huge bailout facility would make it easier for countries to rely on their neighbors for funds without radically restructuring the own government and tax bases. Germany believes that, with austerity programs in place,  nations like Spain and Portugal can improve deficits. Many economists believe that the austerity measures which go with balance budget attempts take enough government money out of the system to deepen recessions that have already begun in nations across the region.

What all parties concern agree on is that, without Germany, neither the IMF or ESM will get any larger

Douglas A. McIntyre