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Europe wrangles over bailout fund contributions

Europe wrangles over bailout fund contributions

Germany's finance minister on Monday dampened the hopes of poorer eurozone countries that their contributions to the region's bailout fund will be lowered.
"We have an established formula" to calculate each country's contribution, said Wolfgang Schaeuble as he arrived in Brussels. "I don't think it makes sense to change that with every decision."
Schaeuble and his European Union counterparts were discussing the final details of their promised "comprehensive solution" to the region's crippling debt crisis ahead of a summit of EU leaders later this week. That crisis has already forced Greece and Ireland to seek multibillion euro bailouts, while Portugal is currently struggling to convince markets it has got a handle on its heavy debt load.
As well as working out how current and future bailout contributions will take place, ministers are set to decide whether to lower the interest rate Ireland has to pay on its (EURO)67.5 billion rescue loan.
Eurozone governments have agreed to increase the lending capacity of the bailout fund, the European Financial Stability Facility, to (EURO)440 billion ($621.7 billion) from about (EURO)250 billion currently.
Its successor _ the European Stability Mechanism that will come into force in 2013 _ will be able to lend (EURO)500 billion to countries in financial difficulties.
However, how those totals will be reached is still up in the air.
Several poorer countries such as Slovakia and Malta are unhappy with the formula used to calculate their contributions to the fund as it gives equal weight to a country's economic output and population _ which means that poorer countries contribute a much larger proportion of their gross domestic product.
Slovakia, for instance, currently only has to guarantee about 1 percent, or (EURO)4 billion, of the fund's total lending capacity. However, the (EURO)4 billion for which Slovakia would be liable if bailed out countries failed to repay their loans, represent some 6.7 percent of its GDP.
By contrast, Germany has to guarantee some (EURO)125 billion, or around 5 percent of its economic output, according to calculations by think tank Re-Define. It's even lower at around 4.5 percent for Belgium and Austria.
Ministers also have to decide whether they will stick with their method of guaranteeing the bonds issued by the bailout fund or whether they will ask some countries to pay in capital, which would give the fund a structure more similar to a bank.
Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers, said he expected ministers to narrow down their differences so allow leaders to take the final decisions on Thursday and Friday.
Among those is a potential lowering of Ireland's interest rate, after Greece received a 1 percentage point reduction on the interest payments for its (EURO)110 billion bailout earlier this month.
However, Schaeuble reiterated Germany's demand to get something in return for such a decrease, adding that he was "quite curious" to hear what Ireland has to offer.
Ireland's new finance minister meanwhile again rejected any changes to the country's rock-bottom corporate tax rate and appeared to expect suggestions from his counterparts.
"If colleagues come up with alternative proposals in terms of some kind of quid pro quo away from the area of corporate tax we'd be quite willing to listen," Michael Noonan told reporters.