Merkel, Under Pressure, Backs Euro Zone Bailout-Fund Increase

Germany's Chancellor Angela Merkel, who has been reluctant to enlarge funds set aside for potential rescues of euro zone economies, agreed Monday to support a €200 billion ($265 billion) increase of the main financial firewall.

Merkel told reporters in Berlin that the European Stability Mechanism, or ESM, the region's permanent bailout mechanism, should be capped at €500 billion.

However, she said the €200 billion in loans the temporary European Financial Stability Facility, or EFSF, already extended to peripheral euro zone countries could run in parallel with the ESM, Bloomberg News reported.

Merkel said this arrangement, which gives the two funds the combined firepower of €700 billion, could last for several years, according to Agence France-Presse.

Previously, Germany's stance was that the EFSF should be replaced by the ESM, which would have only €500 billion at its disposal.

Merkel acquiesced after growing pressure from nearly all other euro zone states, the International Monetary Fund, the European Central bank and the European Union's European Commission, according to German magazine Der Spiegel. The United States also had pressured Merkel to support an expanded firewall.

One reason Merkel cited for backing the euro zone fund's increase is the rising yields of soevereign debt of Spain and Portugal, which indicates falling demand for those financially troubled nations' bonds.

Yields on 10-year Spanish and 10-year Portuguese bonds, which fell Monday, still trade above 5 percent and 12 percent, respectively.

European stocks were positive in afternoon trading on Monday, with the U.K. FTSE 100 Index up 0.83 percent, Germany's DAX up 1.16 percent and France's CAC 40 up 0.72 percent.