Eurozone finance ministers failed to agree details on how to expand the area’s emergency rescue fund at a meeting this afternoon.
Although progress has been made, finance ministers have decided to meet again next Monday (21 March) to finalise changes to the fund, known as the European Financial Stability Facility (EFSF), and the terms of the permanent European Stability Mechanism (ESM), which will replace it in 2013.
Jean-Claude Juncker, the prime minister of Luxembourg who chairs the meeting of finance ministers of eurozone member states, the Eurogroup, said an extra meeting was needed in order to strike a deal in time for the next summit of EU leaders on 24-25 March.
Ministers are discussing ways to expand the effective lending rate of the EFSF up to the nominal value of €440 billion, a move that was agreed in principal at a summit of EU leaders on Friday night.
But views diverge among member states on whether that should be done by raising guarantees or by moving to a combination of higher guarantees and capital injections.
At a press conference following the Eurogroup meeting this evening, Juncker said finance ministers were still “discussing ways and means” of how to achieve the €440bn level.
He said: “Will this be done by guarantees or could there be other means? My present feeling is that this will be done by guarantees. We have to discuss further technical details next week.”
At the moment the effective capacity of the EFSF is lower than the headline amount because not all countries issuing guarantees have the triple-rating that the fund requires.
However, any move to extend guarantees is politically sensitive in Germany.
Juncker added: “As part of the usual response, we continued our debate and discussions on the EFSF, including ways to ensure its effective capacity.
“As regards increasing lending capacity, as you can expect, we looked into various technical possibilities, including increasing guarantees. This is something that needs further discussion and more in-depth discussion.”
Before the meeting, Michael Noonan, Ireland’s new finance minister, met Jean-Claude Trichet, the president of the European Central Bank (ECB), as well as José-Manuel Barroso, the president of the European Commission, and Olli Rehn, the European commissioner for economic and monetary affairs.
Ireland is under pressure to raise its low corporate tax rate in return for better terms on loans provided by the EU.
Noonan warned before the meeting that Ireland would have to use some of the €25bn contingency fund, provided by the EU and the International Monetary Fund (IMF), to help solve the national banking crisis and called for the EU to give the Irish government more time to restructure its banking sector.
Rehn said the meeting had gone well. He added: “It is essential that Ireland completes the ongoing round of [bank] stress tests, which in Ireland has the deadline of the end of this month, the end of March. That will show the real state of the Irish banking sector.”
Finance ministers also talked about the need for changes to the system of credit-rating agencies, following a request by Greece.
Juncker said that better regulation in the credit-rating agency sector was “particularly urgent”.
Following the meeting of finance ministers from countries that use the euro, finance ministers from the other ten EU states joined discussions to consider measures for economic governance. This meeting will continue tomorrow morning.