Germany is strictly opposed to such a move. Finance Minister Wolfgang Schäuble called it “a license for printing money,” posing the risk of inflation and violating the statutes of the ECB, which is dedicated to impartiality and price stability.
“The eurozone should have such a monetary tool,” says Xavier Timbeau, director of analysis at the Center for Economic Research OFCE in Paris. “The Fed in the United States, the Bank of England, the Bank of Japan – they all intervene by buying up government bonds. Why should we deprive ourselves of such a possibility?”
Michael Wohlgemuth, managing research associate at Freiburg University, disagrees. “Of course the French see the risk of inflation as much as we do. But French banks are heavily exposed to southern European debt. And the country as a whole is about to lose its top credit rating. So France is willing to take risks and eager to spread possible losses.”
Germany’s preference for beefing up the rescue fund – even though it has not been officially confirmed – is an insurance model, in which sovereign bonds would only be partially guaranteed. By insuring only 20 percent of each debt issue, the EFSF could guarantee five times as much.
“There are two problems in the insurance model,” says Mr. Wohlgemuth. “Investors will still not accept government bonds from countries like Greece. And the likelihood that guarantee sums will actually have to be paid is increased.”