COPENHAGEN (Reuters) - The euro zone should not commit more than 800 billion euros in rescue aid, and tapping that money should only be available when countries promise reforms, German Finance Minister Wolfgang Schaeuble said on Thursday.
The financial firewall would stand ready to help the bloc’s large and indebted economies, namely Italy and Spain. Finance ministers meeting in Copenhagen are due to finalize it on Friday, putting in place one of the last big pieces of the euro zone’s crisis response.
“We have 500 billion euros in fresh money available, together with the programs already agreed for Ireland, Portugal and the new program for Greece. It is about 800 billion (euros),” Schaeuble told a gathering at the University of Copenhagen.
“It think it’s enough,” he said, deflecting recent calls for a financial reserve of up to 1 trillion euros that would impress investors. “To spend more money is not the solution,” he said.
Euro zone officials hope a big enough rescue fund will be sufficient to push rich, non-euro zone countries to raise the resources of the International Monetary Fund so the Washington-based lender could also help any stricken euro zone countries.
But Germany has resisted creating what the head of the Paris-based economic think-tank OECD has called “the mother of all firewalls.”
The firewall would be made up of the euro zone’s new permanent bailout fund, the European Stability Mechanism, the temporary European Financial Stability Facility and a European Union program that can raise up to 60 billion euros.
Roughly 300 billion euros that Schaeuble counted in his calculation has already been spent in aid to Greece, Portugal and Ireland.
A draft statement ahead of Friday’s meeting obtained by Reuters said ministers would boost the euro zone’s safety net to at least 700 billion euros and pledge an extra 240 billion euros if required.
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But Schaeuble, who is highly likely to take on the influential job of chairing euro zone finance ministers’ meetings this year, said help would not come without reform.
“We will help build a secure, social stability,” Schaeuble said. “But the precondition that that will be possible is that every member state regains competitiveness,” he said, pointing to reform programs in Italy and Spain.
“In Spain, labor reform is an absolutely necessity. You must not be astonished when you see youth unemployment at 48 percent when you look at the labor laws,” Schaeuble said.
Schaeuble was speaking on a day that Spanish workers staged a general strike to protest against labor reforms which the Spanish government declared “unstoppable.”
But Germany’s finance minister said no member of the 17 nation currency area could be forced to leave by another, describing such discussions as “nonsense”.
Schaeuble defended the EU’s tough budget austerity, even at a time of recession in southern Europe.
“It is possible to reduce deficit in a growth friendly way; you have to balance deficit with structural reform,” he said.
Reporting by Robin Emmott and John O'Donnell; Editing by Dan Grebler