A summit of leaders on Feb. 4 produced no breakthrough, with Germany and France introducing new proposals for boosting competitiveness across the zone, prompting renewed disagreement among states. Another summit is due to be held after March 9 to sustain momentum towards a deal, with the complete package expected to be finalised at another summit on March 24-25 in Brussels. Below are ideas that have been discussed formally or informally and could be included. Some measures face strong opposition from Germany and appear unlikely to make it. INCREASING THE EFFECTIVE LENDING CAPACITY OF THE EFSF
There is a strong chance of this step being adopted. The nominal lending capacity of the European Financial Stability Facility, the euro zone bailout fund, is 440 billion euros, but because of a system of guarantees to secure a triple-A credit rating, the special purpose vehicle has an effective lending capacity of only around 250 billion euros. The European Commission, France, Germany and others agree that the effective lending capacity should be boosted to the full 440 billion and talks are focusing on how to do that. The idea of raising the EFSF's overall size above 440 billion euros was rejected by euro zone ministers on Jan. 17.
HOW COULD THE EFSF'S CAPACITY BE INCREASED?
Lifting the EFSF's effective capacity could require euro zone states to increase their guarantees, forcing some governments to seek fresh approval from their parliaments. This could be politically tricky in countries such as Germany where public opinion is against bailouts of countries that have been overspending or not kept budgets in check. Berlin has indicated that instead, euro zone countries with a rating below the top notch could inject cash into the EFSF, making up for their lack of a triple-A grade. If the 11 non-AAA countries in the euro zone injected cash, the fund would no longer need cash buffers to secure its rating and could therefore lower its interest rate. But non-AAA countries are not keen to spend cash, so the end-result could be a mix of both options, euro zone sources have indicated.
