Germany Rejects Combined Rescue Funds, Government Official Says

December 07, 2011, 7:32 AM EST By Tony Czuczka

(For more on Europe’s debt crisis, see EXT4.)

Dec. 7 (Bloomberg) -- Germany rejected proposals to combine the current and permanent euro-area rescue funds as Chancellor Angela Merkel’s government said it was more pessimistic of the outcome of a European Union leaders’ summit beginning tomorrow.

It is already decided that the permanent European Stability Mechanism will take over from the current rescue fund at an appointed time, the German official told reporters in Berlin today on condition of anonymity because the negotiations are private. That is the agreed sequence and Germany will oppose any attempt to change that, the official said.

The euro reversed earlier gains versus the dollar and the yen after the official’s comments. The euro weakened 0.1 percent to $1.3387 at 11:07 a.m. London time after rising as much as 0.4 percent. The 17-nation currency fell 0.1 percent to 104.06 yen. The Japanese currency was little changed at 77.74 per dollar.

Merkel and French President Nicolas Sarkozy said in Paris on Dec. 5 that they had agreed to press fellow leaders at the summit to back plans to bring in the 500 billion euro ($670 billion) ESM in 2012, one year earlier than envisaged. Operating the ESM in combination with the 440 billion-euro temporary fund next year would potentially boost Europe’s anti-crisis resources to 940 billion euros, two people familiar with the discussions said in October.

While the Dec. 8-9 summit in Brussels must take a decisive step on euro governance, not all EU members appreciate the seriousness of the situation, the German official said. The group of 17 euro states must press ahead with EU treaty change alone if necessary, the official said.

EU leaders will discuss the International Monetary Fund’s role in the debt crisis, though may not take a final decision, the official said.

--Editors: Alan Crawford, Leon Mangasarian

To contact the reporter on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net;

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