Lawmakers in euro-area nations should endorse a planned increase in the region’s rescue fund as they work toward greater fiscal integration, Commerzbank AG Chief Executive Officer Martin Blessing said.
“We need a plan in the medium-term on how we’re going to move forward with European integration in the next three to five years and we need the instruments to bridge the time,” Blessing told reporters in Frankfurt yesterday. “We need a crisis plan in the short term, especially for Greece.”
Investors have “limited” faith in European governments after they failed to stem concern that contagion from Greece’s fiscal woes will engulf Spain and Italy and hurt French banks, Blessing said. To restore confidence, lawmakers need to help develop the equivalent of an “equity story” to map out the region’s growth prospects and implement an agreement to boost the size of the European Financial Stability Facility, said the CEO of Germany’s second-largest lender after Deutsche Bank AG.
“Rescue mechanisms have to be increased, especially the EFSF, regardless of whether the troika says the next tranche can be paid out or not,” Blessing said, referring to the EU, the European Central Bank and International Monetary Fund. “If they say it can’t be paid out, then we’ll really need the fund.”
In June, European finance ministers agreed to boost the fund’s lending capacity to the headline 440 billion euros ($600 billion) from about 250 billion euros. The decision will take effect after being ratified by all 17 euro-area countries.
Germany’s lower-house Finance Committee backed proposed enhancements with a “big majority,” easing the bill’s path before a Sept. 29 vote in parliament, Deputy Finance Minister Hartmut Koschyk said in an interview today.
While the measure won support from opposition Social Democrat and Green committee members, the three parties in Chancellor Angela Merkel’s coalition had a sufficient majority to pass the legislation without opposition help, Koschyk said.
Blessing said that while he supports increasing the fund, he doesn’t necessarily see the need to raise it even further.
Investors must believe that Italy wants to address its fiscal issues, he said.
“I can’t imagine a fund that is big enough to also guarantee Italy in total, so Italy has to help itself,” he said. “Italy is in a whole other situation than Greece.”
Italy’s credit downgrade by Standard & Poor’s isn’t a concern, Blessing said in comments that were embargoed for today.
Joint euro bonds “can be an instrument if you have a fiscal union,” he said. “What they can’t be is a short-term financing instrument. The euro bond is a crowning element.”