Merkel: Germany won’t back extending euro rescue fund beyond 2013, reform needed

Germany opposed to extending euro rescue fund

BERLIN — The huge rescue fund that saved the euro this year should not be extended beyond 2013, German Chancellor Angela Merkel said Tuesday, as she called instead for tougher consequences for overspending by member states in the currency bloc.

Merkel’s comments came as haggling over changes to the rules that underpin the euro heats up. On Wednesday, EU Monetary Affairs Commissioner Olli Rehn plans to issue a proposal for member states to be punished early for spending their way into trouble.

Germany has led the push for tougher rules to prevent a repeat of the debt crisis that started in Greece and then rippled across Europe, but France has rejected the idea of near-automatic penalties for countries that fail to observe deficit limits.

Worries about European debt, which have flared up again this week, almost caused Greece to go bankrupt in May, after which governments and the International Monetary Fund were forced to put together a euro750 billion ($1 trillion) safety net for governments, euro440 billion of which from European countries. The fund can issue bailouts until June 2013.

“I say here very clearly that there will not be an extension of the aid fund, rather we need treaty changes in Europe,” Merkel said at a German industry group’s conference in Berlin.

Those changes should “make clear that countries which do not keep to the stability and growth pact can be subjected to different procedures than the ones we have today,” she said.

She did not elaborate, but added that “with Germany, there will not be a simple extension of such (rescue) funds as we now have.”

Rehn said last week that, once it has gathered experience with the current rescue fund, the European Commission may next year come up with proposals for “what kind of a permanent mechanism for crisis resolution we should build” when the facility expires.

Debt fears have come back to haunt investors this week after credit ratings agency Moody’s Investor Services downgraded the debt of Anglo Irish Bank Corp., causing borrowing costs for debt-laden countries like Ireland, Spain and Portugal to rise sharply.

Under the European Union’s stability and growth pact, governments are supposed to keep their budget deficits to a maximum 3 percent of gross domestic product.

On Monday, France rejected any idea of punishing EU nations with near-automatic sanctions if they fail to keep their debt and budget deficits within limits — putting Paris at odds with Germany and the European Central Bank.

Rehn insisted sanctions decisions could only be undone by a large majority of member states — but France insists that a simple majority should suffice to decide on sanctions.

Merkel said Tuesday she had been right to insist that countries put their budgets in order as a condition for this year’s rescue packages.

“Europe must take great care that the countries which show weaknesses today become stronger,” she said.