Germany won't support higher bailout ceiling, say Merkel allies

German lawmakers will probably resist increasing funds for European bailouts to ease the debt crisis, two allies of Chancellor Angela Merkel said, signaling opposition to a bigger firewall.

The 500 billion-euro ($642 billion) ceiling for the permanent European Stability Mechanism (ESM), scheduled to go into effect this year, won’t be lifted, the lawmakers from Merkel’s Bavarian sister party, the Christian Social Union, said today.

“There won’t be one cent more,” Markus Ferber, a CSU lawmaker in the European Parliament, said at a party meeting in the Bavarian hamlet of Wildbad Kreuth. Hans Michelbach, the ranking CSU member in the German parliament’s finance committee, said that “you can’t keep throwing more money at the problem and that’s what increasing the ceiling would mean.”

Merkel has resisted calls to ratchet up bailout funding amid warnings that the current amount isn’t enough to safeguard nations such as Italy and Spain. Germany has instead focused on budget discipline as the best means to stem the crisis now in its third year.

Investor concern that Europe will struggle to bring the crisis under control has sent stocks and the euro tumbling. The Stoxx Europe 600 Index shed 0.6 per cent as of 3.02 pm Frankfurt time. The 17-member euro continued its two-day slide, down 1 per cent to $1.2815, extending last year’s decline.

Merkel will meet French President Nicolas Sarkozy in Berlin on January 9 to hammer out details of a crisis-fighting strategy that European leaders aim to complete by the end of March. While the framework involves stricter budget rules for members of the single currency, leaders are relying on bailout funding to help buy time to get the new mechanisms in place.

Temporary fund
The ESM was designed to replace the temporary rescue fund set up in May 2010, the European Financial Stability Facility (EFSF). Merkel agreed with euro-area leaders at a December 9 summit to consider bolstering the firewall by either topping up the permanent fund with remaining EFSF financing, or allowing the temporary mechanism to work concurrently with the ESM.

Leaving the current agreement unchanged would cap the overall crisis spending at 500 billion euros during the transition from the EFSF to the ESM. Merkel signaled to coalition lawmakers on December 13 that she prefers keeping the cap.

The chancellor’s Bavarian allies also planned to approve a resolution that enshrines their positions on the crisis, particularly a rejection of jointly issued euro-area debt and making it possible for euro members to be expelled.