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Europe Seen Lifting Firewall in Bid for More Aid

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Chancellor Angela Merkel
Chancellor Angela Merkel of Germany, the dominant country in two years of crisis fighting, this week backed an increase in the lending limit to address “fragility” in Portugal and Spain. Photographer: Michele Tantussi/Bloomberg

March 28 (Bloomberg) -- European governments are likely to boost the limit on rescue lending to between 700 billion euros and 940 billion euros ($935 billion to $1.3 trillion) and expect more support to come from major global powers, a European Union official said.

Euro-area finance ministers will lift the aid ceiling from 500 billion euros at a meeting March 30 in Copenhagen and may speed up payments into the planned permanent rescue fund, the official told reporters in Brussels today on condition of anonymity because no decisions have been made.

Leaders are confident that the extra capacity plus more than 1 trillion euros pumped into the financial system by the European Central Bank will persuade the rest of the world to chip in more via the International Monetary Fund, the official said.

Chancellor Angela Merkel of Germany, the dominant country in two years of crisis fighting, this week backed an increase in the lending limit to address “fragility” in Portugal and Spain.

Merkel assented to letting the 200 billion euros spent or committed by the temporary rescue fund be added on top of the 500 billion euros to be deployed by the permanent fund, the European Stability Mechanism, due to be set up in July. That would permit the ESM to operate at capacity.

At issue is how to handle the 240 billion euros left in the temporary fund, the European Financial Stability Facility, the EU official said. The official ruled out a “maximalist” solution of piling all of it into the rescue pot.

Speeding Payments

Discussion of the lending cap will coincide with a possible further speedup of the capitalization of the permanent fund. Government leaders agreed March 1 to make the first two of five planned annual payments this year.

The remaining payments may also be accelerated, possibly with two in 2013 and the final installment in 2014, two years earlier than first planned, the official said.

As a result, Europe would be capable of making a theoretical three-year aid pledge of 500 billion euros on July 1 and having enough money to follow through, the official said.

The official also predicted a decision on March 30 to fill a vacancy on the central bank’s board, in a faceoff between Luxembourg Central Bank Governor Yves Mersch and Spain’s Antonio Sainz de Vicuna, head of the Frankfurt-based bank’s legal department.

Luxembourg is laying claim to an Executive Board seat that has been in Spain’s hands since the euro’s debut. The term of the incumbent, Jose Manuel Gonzalez-Paramo, ends on May 31.

Two other appointments aren’t ripe for decisions, the official said. They are for a successor to Luxembourg Prime Minister Jean-Claude Juncker as chair of euro meetings and for the top job at the permanent rescue fund.

To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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