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Brian Lenihan, Greek finance minister George Papaconstantinou and Commissioner Olli Rehn at yesterday's meeting. AP Photo/Virginia Mayo

EU finance ministers agree to €500bn bailout fund

Major decision on the new European Stability Mechanism comes weeks ahead of schedule – but further details have yet to be ironed out.

EUROZONE FINANCE MINISTERS have agreed to increase the EU’s emergency bailout fund to €500bn as of 1 January, 2013.

The new permanent crisis mechanism, called the European Stability Mechanism, will replace the EU’s current fund, the European Financial Stability Fund.

The EFSF was used to provide financial assistance to Ireland.

The AFP reports that while the EFSF’s lending capacity from its €440bn fund is around €250bn, some EU leaders called for the full pot of the new fund to be available for loans.

The remainder of the EFSF is held as collateral to enable eurozone countries to borrow more cheaply than they lend.

The announcement came well ahead of the expected end of March deadline for agreeing a new bailout fund figure, but further details have yet to be worked out.

The President of the European Council Herman Van Rompuy has called an informal meeting of the 17 heads of eurozone countries for 11 March – just two days after the new Irish government is due to take office – to discuss stronger eurozone economic governance.

Angela Merkel and Nicolas Sarkozy are spearheading proposals to encourage greater economic cohesion which include plans to introduce a minimum common tax base and raise the retirement age. However, EU leaders don’t seem to be rushing to get on board with the plan, and already several have criticised various aspects of the proposals, according to Der Spiegel.

Read: EU economics chief says bailout terms could change >

Read: Kenny tells Merkel Ireland won’t change corporation tax rate >