Schaeuble Damps Talk of Rapid Euro Fund Boost as Pressure Mounts

Germany sought to stifle debate over boosting the firepower of the euro rescue fund, damping speculation of a breakthrough in talks to quell the European debt crisis.

German Finance Minister Wolfgang Schaeuble opposed moves to further scale up the European Financial Stability Facility until the final three countries approve the fund’s latest upgrade. Slovakia, the Netherlands and Malta have yet to ratify an earlier decision to expand the fund to 440 billion euros ($584 billion).

“Speculating makes no sense,” Schaeuble told reporters before a meeting of European finance ministers in Luxembourg tonight. “We will wait until the other countries that haven’t ratified it also do so.”

European stocks and the euro fell today and investors shunned riskier countries’ bonds amid growing international impatience with 18 months of muddling through marked by clashes among Germany, France and the European Central Bank.

Europe’s financial leaders are fighting on multiple fronts, trying to extinguish the Greek crisis while insulating Italy and Spain and coming up with a formula for banks that the International Monetary Fund says face as much as 300 billion euros in credit risks.

The meeting, chaired by Luxembourg Prime Minister Jean-Claude Juncker, started at 5 p.m. No time was set for the concluding press conference.

Greece Lifeline

Today was the original target date for approving an 8 billion-euro loan payment to Greece, the sixth installment of the 110 billion-euro lifeline put together at the outbreak of the crisis in May 2010.

Now that decision has been pushed back until mid-October, as Greek Prime Minister George Papandreou concocts plans to squeeze additional savings out of a population weary of two years of budget cuts and tax increases.

“We need to wait on Greece,” Dutch Finance Minister Jan Kees de Jager told reporters. Greece’s odds hinge on an assessment by European Commission, ECB and IMF experts, to be discussed by the ministers on Oct. 13.

The payout would buy Greece time as seven countries including Germany, Europe’s dominant economy, consider unstitching a July accord on a second bailout, potentially calling for Greek bond writedowns of as much as 50 percent that would constitute default, two European officials said.

‘Bazooka’ Need

“I’m very concerned of things getting out of control,” Nouriel Roubini, chairman of Roubini Global Economics LLC, said in an interview yesterday in Dubai. “You need a huge bazooka of at least 2 trillion euros, but you can’t wait three months, you have to do it in the next few weeks.”

Schaeuble and Luxembourg Finance Minister Luc Frieden ruled out a discussion tonight of using leverage to get more out of the rescue fund, contradicting earlier statements by European Union Economic and Monetary Commissioner Olli Rehn and Finnish Finance Minister Jutta Urpilainen.

“We are reviewing options over optimizing the use of the EFSF in order to have more out of it,” Rehn said. “Leveraging is one of the options.”

Fourteen of the 17 euro countries have approved the reinforcement of the temporary fund. Of the three to go, Slovakia poses the biggest hurdle, with Prime Minister Iveta Radicova squaring off against euro-skeptics within her coalition. Slovakia is slated to vote by Oct. 17.

Slovakian Vote

Schaeuble leaned on Slovakia to go along, saying “they are deciding not just for themselves, but also for all in Europe.”

The revamped fund will obtain the powers to buy bonds on the primary and secondary markets, offer precautionary credit lines and enable capital infusions for banks. Options for further magnifying its clout include enabling it to borrow from the ECB, using it for bond insurance or to offer credit enhancements.

Bank of France Governor Christian Noyer, an ECB council member, said today in Tokyo he’s “open” to the idea of using borrowed money to beef up the fund.

Finance ministers are also close to a deal on Finland’s demand for collateral -- such as shares in nationalized Greek banks or real estate -- to underpin its contribution to Greece’s second package, three people familiar with the discussion said.

A proposal to be considered today sets relatively unattractive terms so that Finland would be the only country to force Greece to put up collateral, said the people, who declined to be identified because the talks are private.

Collateral Wrangling

Deals on collateral have been close before. Finland reached an arrangement with Greece on Aug. 16, only to see it rejected by other euro countries.

“Can we find a solution?” Finland’s Urpilainen said. “That’s impossible to say. We are trying to find a solution that everyone can accept.”

The clash pitted Greece against AAA-rated Finland, home to a euro-skeptic movement that catapulted to third place in April elections by opposing further bailouts. While the party now known as “The Finns” didn’t make it into the ruling coalition, it captured the Finnish mood and hardened the stance of new Prime Minister Jyrki Katainen in the euro-rescue bartering.

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