EU Agrees Eurozone Fund Financing

Angela Merkel, the German chancellor, convinced her European counterparts to restructure a new €500bn eurozone bail-out fund so that members will not have to pay cash into the system so quickly. The new fund, which goes into place in 2013, will require €80bn in paid-in cash as well as €620bn in guarantees and callable capital so that it can use its full €500bn to rescue debt-ridden countries that suffer a Greece-like implosion.

German Chancellor Angela Merkel arrives for a second day of an EU summit in Brussels, on March 25, 2011

Angela Merkel, the German chancellor, convinced her European counterparts to restructure a new €500bn eurozone bail-out fund so that members will not have to pay cash into the system so quickly.

The new fund, which goes into place in 2013, will require €80bn in paid-in cash as well as €620bn in guarantees and callable capital so that it can use its full €500bn to rescue debt-ridden countries that suffer a Greece-like implosion.

Originally, eurozone finance ministers had agreed to put €40bn immediately into the fund upon its creation in 2013, with the rest being paid in over three years. But Ms Merkel's coalition partners, the Free Democrats, resisted paying in so much so quickly, and the German chancellor was able to spread the payments to €16bn per year over five years.

The sudden change by Germany angered some other EU members, including its normal allies in the Netherlands, but the German proposal was agreed to after a debate that lasted late into the night.

"It's hard to say which is more obstructive and less European, the True Finns or the Free Democrats," said one senior EU official, referring to the surging Eurosceptic party threatening to win next month's Finnish elections.

Under the terms of the new deal, eurozone countries agreed that they would speed up their financial backing of the fund if a large country needed a bail-out and there was not enough cash in the fund to cover the size of the rescue.

That provision raised hackles in Spain and Italy, which were concerned that they would have to pay in more cash while other countries with better credit records -- like Germany and the Netherlands -- would only have to make additional loan guarantees. Silvio Berlusconi, the Italian prime minister, held up agreement even after financial experts from the 17 countries had come to a deal, officials said.

But in the end, the countries agreed to tweak the wording to make the required commitments more vague.

CNN