Compare and contrast these headlines:
Guardian: France and Germany ready to agree €2 trillion rescue fund
FT Deutschland: Schäuble ready to leverage bailout fund to €1 trillion
Conflicting reports emerged yesterday evening as to exactly what would be agreed at Sunday’s meeting of EU leaders regarding the increase of the lending capacity of the eurozone’s bailout fund, the EFSF. FT Deutschland exclusively claimed, following a tip-off from an FDP MP, that earlier in the day German Finance Minister Wolfgang Schäuble had broken the news to coalition MPs that he would propose leveraging the EFSF to up to a maximum of €1tr through guaranteeing the first 20% or 30% of bondholders’ losses on newly issued eurozone debt. Meanwhile the Guardian got slightly ahead of itself in exclaiming that France and Germany had in principle agreed to boost the EFSF to double that amount.
Given the sensitivity of this issue in Germany, and for the FDP in particular, any increases in German taxpayers’ liabilities on eurozone sovereign debt are unlikely to go down well, which is why Schäuble was keen to emphasise that Germany’s EFSF guarantees of €211 would not increase. Although the leaderships of the coalition parties have apparently agreed in principle, it is not difficult to imagine there will be significant dissent among ordinary party members, after all 15 voted against increasing the effective lending capacity of the EFSF last month (a substantial dissent given the coalition only has a majority of 19).
In view of this, it is difficult to see where the Guardian, which cryptically cites “EU Diplomats” as its source, found the additional trillion euros. We appreciate that during the financial crisis banding around enormous sums of money has become commonplace, but surely a trillion euros still makes a big difference?