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BBC World Service

OECD says increase needed in European bailout fund

Marketplace Staff Mar 28, 2012

Stacey Vanek Smith: The European Central Bank said today that credit was tight for businesses last month — that in spite of efforts to get banks lending again. And yesterday the Organization for Economic Cooperation and Development in Paris said the European Union would need to increase the amount of money in its bailout fund to more than a trillion dollars.

BBC Economics correspondent Mark Gregory joins me now. Good morning Mark.

Mark Gregory: Good morning.

Smith: So Mark, there are already plans in place for a European rescue fund worth more than $900 billion. So basically, what the organization is saying is that is not enough?

Gregory: That’s exactly what they are saying. I mean, their argument is that to really restore the confidence of the financial markets, you need this enormous bailout fund of $1.3 trillion, or thereabouts. And that’s going to give them the confidence. Then, if you’d like, the eurozone can get back to worrying about other things — which is restoring growth.

Smith: Right. But any increase in the lending capacity of the eurozone’s bailout funds needs Germany to play ball, and they have expressed some doubts in that area. Do you think they will play ball?

Gregory: Well that certainly is the issue. Almost everybody in this debate — apart from Germany — would like to see a larger bailout fund. Germany until now has resisted that very, very strongly; although, earlier this week — on Monday, in fact — they did announce some kind of concession. But nothing like the kind of movement, the sorts of figures that the OECD and a lot of the other players in this game would like to see.

Smith: If the bailout fund does get bigger, is there a concern that countries like Greece might feel like they could pull back on some of the reforms and austerity measures?

Gregory: Well, underlyingly, this is one of the concerns of Germany — that if there is this large amount of rescue money sloshing about, then the pressure is off. The contrary view is that you need, if you like, to get the fear out the way, and then people can get on with the process of actually restructuring.

Smith: The BBC economics correspondent Mark Gregory. Mark, thank you.

Gregory: Thank you.

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