OECD Secretary-General Angel Gurría has stated that the current level of commitment to the rescue funds in the EU (European Financial Stability Fund and European Stability Mechanism) is not enough to restore market confidence. He argued a financial firewall of at least one trillion Euros is required to boost the firepower of the EU’s rescue funds and give governments the breathing space they need to revitalise Europe’s economic growth and competitiveness. Presenting the OECD’s Economic Surveys of the Euro Area and the European Union in Brussels, Mr Gurría stated that the economic, fiscal and financial imbalances of the area have led to weak bank balance sheets, high unemployment and low growth.  

There are two main questions in relation to Mr Gurria’s proposal.  First, would one trillion Euros be sufficient to solve the EU’s challenges? Structural problems facing several debt-stricken European countries mean that it is unclear as to exactly what is needed to stimulate market confidence and economic growth. As Mr Gurria conceded, ‘the recent measures already taken to strengthen fiscal discipline, provide liquidity and implement growth-enhancing reforms – particularly in Greece, Italy, Portugal and Spain – are important advances towards a brighter economic outlook, but the challenges remain daunting’.

Second, who would come up with one trillion Euros? As per usual, attention has focused on Germany, however contributions from other countries would also be required. Given Italy’s and Spain’s current challenges in raising capital, it seems unlikely that they - and other countries in Europe - could raise billions in additional money. There are suggestions that the Netherlands and Finland may also favour a much smaller firewall.