• 28 OCT 2011
A trillion euro bail-out to save the EU’s single currency is in danger of unravelling after Germany’s central bank warned that the rescue measure was too dependent on the high-risk deals that caused the economic crisis.
By Bruno Waterfield | The Telegraph
Hours after an all-night summit of euro governments ended, flaws began to emerge in a package that was billed as a “grand and comprehensive” solution to the European debt crisis.
The concerns were led by Germany’s powerful central bank, which expressed fears that a plan to leverage a €440 billion eurozone rescue fund to amass a “fire power” of €1 trillion, or £880 billion, resembled the risky finance methods that triggered the crisis in 2008.
EU leaders are expected to sanction the establishment of a so-called special purpose investment vehicle, or SPIV, to be set up in the coming weeks. It is aimed at attracting investment from countries such as China and Brazil.
Jens Weidmann, the president of the Bundesbank and a member of the European Central Bank, sounded the alarm over the plan to “leverage” the fund by a factor of four to five times without putting any new money into the pot.
He warned that the scheme could be hit by market turbulence with taxpayers left holding the bill for risky investments in Italian and Spanish bonds.
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