Eurozone ministers clinch trillion-dollar firewall deal

Eurozone finance ministers struck a landmark deal yesterday to raise their debt firewall to more than one trillion dollars, as a budget crisis in Spain underlined the need for firm defences.

“All together, the euro area is mobilising an overall firewall of approximately €800 billion, more than $1 trillion,” a joint statement from the 17 finance ministers said.

“Robust firewalls have been established and led to a significant improvement of market conditions,” the statement added.

The headline figure, however, includes some €300 billion in loans already pledged.

The €800 billion is made up of €500 billion in the bloc’s permanent ESM bailout pot that comes into effect in July, plus €200 billion already pledged for crisis-hit countries, plus another €100 billion in bilateral and EU loans.

The eurozone’s two bailout funds, the ESM and a temporary pot called the EFSF, will run in parallel until mid-2013, the statement added.

The paying-in of the ESM’s cash element, some €80 billion, will be accelerated, according to the statement, with two slices paid in this year, two next year and a final tranche in 2014. But the deal was accompanied by a row between Austrian Finance Minister Maria Fekter and the head of the eurozone, Luxembourg Prime Minister Jean-Claude Juncker after the former leaked news of the deal to reporters.

This resulted in Juncker cancelling a planned press conference. “Juncker is furious at Fekter,” said a diplomatic source.

The final headline figure matched a pledge made on Thursday by the finance minister of Germany, Europe’s top economy and paymaster, Wolfgang Schaeuble.

“It’s convincing, it’s sufficient,” said Mr Schaeuble at the time.

Irish Finance Minister Michael Noonan told reporters on the way into the meeting: “The market reaction to these is to the dollar amounts.”

“So anything that gets you to a trillion dollars looks like a serious firewall and if you’re talking €800 billion, it’s over $1 trillion and that is a very serious firewall.”

Eurozone ministers are under huge international pressure to build a convincing firewall.

The European Union’s partners from Washington to Tokyo, including the International Monetary Fund, want to see the eurozone ring-fenced for good to prevent a new crisis that could harm the world economy.

The Organisation for Economic Cooperation and Development pressed this week for a €1 trillion pot, which OECD head Angel Gurria calls “the mother of all firewalls”.

And leading and emerging nations of the Group of 20 (G20) have said they will only consider lending more to the IMF to combat the eurozone crisis if the bloc first stumps up enough cash to tackle their own problems.

Highlighting the main reason to bolster the firewall – fears that the sovereign debt crisis that started in Greece could spread to larger economies such as Italy and Spain – were fresh concerns about Spanish fiscal strains.

Many called for combining the zone’s two rescue funds to create a total firewall of €940 billion.