The European Commission wants euro zone leaders to agree to a bigger rescue fund to nudge the IMF into backing debt-stricken European economies, despite German resistance to boosting it, the EU's top economic official said on Thursday.
Investors and many EU officials want euro zone leaders to agree at next week's summit in Brussels to combine the European Union's European Financial Stability Facility (EFSF) with its permanent European Stability Mechanism (ESM) to provide a solid firewall.
While the International Monetary Fund and France are also in favor, German Chancellor Angela Merkel has resisted calls to let the two funds operate simultaneously. The German government said on Wednesday it was not necessary to increase the size of the ESM beyond 500 billion euros ($662 billion).
But EU Economic and Monetary Affairs Commissioner Olli Rehn said it was crucial for investor confidence and economic growth to go beyond the 500-billion euro ceiling.
It is a process of negotiation, Rehn said in an interview, when asked about Germany's official position.
A combined rescue fund would add up to about 750 billion euros ($992 billion) of still-uncommitted funds, but Rehn declined to discuss any numbers. The ESM will enter into force in July.
The Commission's task is to speak the truth as we see it and we see (a combined fund) is essential in order to overcome the crisis and return to recovery and growth.
I trust we will in due course come to this conclusion in the euro area and among the leaders of the euro area, he said.
Rehn signaled that an agreement showing the Europeans were willing to create a significant rescue fund would help convince the world's largest economies to increase the International Monetary Fund's resources.
We are working for that also, because we want to see that... the International Monetary Fund (too) could help with increased resources and these things tend to be interlinked, Rehn said.
G20 officials meeting in Mexico this weekend told Reuters that Europe is prepared to make a signal on a stronger firewall on the understanding the final G20 communique would then make a reference to boosting IMF aid to the euro zone's most indebted members, should they be unable to finance themselves on markets.
The IMF is seeking to more than double its firepower by raising an extra $600 billion to help countries deal with the fallout from the debt crisis, but the plan faces resistance from countries including the United States and Canada.
(Writing by Robin Emmott; editing by Rex Merrifield)