ForexSpace.com - The much-touted two-day meeting of EU finance ministers has got under way in Denmark. Set against a tumultuous backdrop, the key decision - whether to increase the financial firewall – has been passed. Austrian Finance Minister Maria Fekter has announced that a sum of around 800 billion euros was agreed after what inside sources characterized as a heated discussion, the 17 euro zone nations signed off on the least contentious of the options, favored by countries including Germany, Finland and the Netherlands, where public sentiment is firmly against more bailouts. As currency guru Ashraf Laidi tells us: “Anything less than combining EFSF (EUR 240 bln) with ESM (EUR 500 bln) to reach EUR 740 bln would be seen as a disappointment.”

The amount would comprise 500 billion euros in new cash through the permanent rescue fund, the European Stability Mechanism (ESM), when it kick starts in July, and 200 billion already committed under the existing European Financial Stability Facility. Yet another 53 billion euros would come from bilateral loans already extended to Greece, and 49 billion euros in aid from the EMU’s first response to the crisis, known as the European Financial Stability Mechanism (EFSM), Maria Fekter commented to reporters. The European Commission, France and many of the world's largest economies had all been pressuring for an increase in the euro zone bailout capacity, the rationale being largely that it would lend support to the confidence of investors, who seeing a wall of money supporting euro zone debt, will return, thus obviating the need for bailout cash. Nevertheless, until earlier this week, Berlin was holding out against any increase, insisting it was ready to do so only if needed, noting that markets have calmed down from the peak of the debt crisis and that implementation of agreed reforms was more important.

IMF managing director Christine Lagarde has just issued this statement welcoming the decision. “The IMF has long emphasized that enhanced European and global firewalls, together with the implementation of strong policy frameworks, are critical for ending the crisis and securing international financial stability,” said Madam Lagarde “The combination of the ESM and the EFSF, along with other recent European efforts, will strengthen the European firewall and support the IMF’s efforts to increase its available resources for the benefit of all our members.”

Drew Hillier. Editor