BRUSSELS: Euro zone finance ministers on Monday, Jan 17 will discuss an increase in the effective lending capacity of the euro zone rescue fund, to try to draw a line under the sovereign debt crisis before more countries need help.
The euro hovered just below a one-month high reached on Friday after successful debt auctions by Portugal and Spain. Dealers said further gains in the currency may depend on the outcome of the talks in Brussels.
The European Commission and the European Central Bank called last week for the region to boost the effective capacity of the rescue fund -- the European Financial Stability Facility -- as well as expanding its scope of operations.
ECB President Jean-Claude Trichet reiterated the central bank's view on the eve of the meeting in Brussels.
"This fund, taken as it stands at the moment we speak, needs to be enhanced, qualitatively and quantitatively," he said on a French talk show.
The fund can borrow money on markets with euro zone government guarantees of up to 440 billion euros.
But because it wants to have a triple A credit rating, the effective amount it can lend to countries in need is only around 250 billion. A potential bid for help from Portugal and Spain would stretch its resources to the limit.
Germany, the biggest euro zone economy, is key to any agreement on changes.
France appeared open to talks on an increase in the fund's lending capacity.
Still, senior European sources told Reuters that Berlin's sense of urgency for boosting the fund had diminished after successful bond auctions last week in Spain and Portugal, the two countries seen most at risk of following Greece and Ireland in seeking a financial bailout.
Instead, Germany is pushing for broader anti-crisis measures to be agreed at a summit of European Union leaders in March.
On Monday, German Finance Minister Wolfgang Schaeuble said he sees no need to discuss an increase in funding for the rescue fund.
"There is no need at present," he told German state-owned radio.
He said he aims to find a mid-term solution and emphasised that ailing euro zone countries must solve budget problems on their own.
German Chancellor Angela Merkel said on Saturday any further measures to stabilise the euro could only be introduced within a complete strategic package also aiming for stronger economic coordination.
She said new measures to tackle the euro zone debt crisis should be well thought-out and "you cannot simply raise another particular aspect each day".
"If the discussion is about a further package of measures, it is above all important that we develop a complete strategy that must absolutely include closer economic coordination," Merkel told a news conference in Mainz after a meeting with other senior members of her ruling Christian Democrats.
Among the contentious issues, officials say, are France's wish to let the EFSF buy the bonds of vulnerable euro members which Germany does not want, and Berlin's insistence that other members of the currency bloc be forced to introduce legislation similar to the "debt brake" rule it adopted in 2009.
Germany is also against lowering the punitive interest rate the EFSF charges states for its loans, a step other euro zone members believe is necessary to allow struggling economies in the bloc to reduce their debt mountains.
If the margin, now 300 basis points, were to be lowered for the EFSF, it would most likely also fall for loans already agreed on for Ireland, as well as for Greece.
"The principle is to have similar conditions across instruments and countries," a euro zone source said. - Reuters
The euro hovered just below a one-month high reached on Friday after successful debt auctions by Portugal and Spain. Dealers said further gains in the currency may depend on the outcome of the talks in Brussels.
The European Commission and the European Central Bank called last week for the region to boost the effective capacity of the rescue fund -- the European Financial Stability Facility -- as well as expanding its scope of operations.
ECB President Jean-Claude Trichet reiterated the central bank's view on the eve of the meeting in Brussels.
"This fund, taken as it stands at the moment we speak, needs to be enhanced, qualitatively and quantitatively," he said on a French talk show.
The fund can borrow money on markets with euro zone government guarantees of up to 440 billion euros.
But because it wants to have a triple A credit rating, the effective amount it can lend to countries in need is only around 250 billion. A potential bid for help from Portugal and Spain would stretch its resources to the limit.
Germany, the biggest euro zone economy, is key to any agreement on changes.
France appeared open to talks on an increase in the fund's lending capacity.
Still, senior European sources told Reuters that Berlin's sense of urgency for boosting the fund had diminished after successful bond auctions last week in Spain and Portugal, the two countries seen most at risk of following Greece and Ireland in seeking a financial bailout.
Instead, Germany is pushing for broader anti-crisis measures to be agreed at a summit of European Union leaders in March.
On Monday, German Finance Minister Wolfgang Schaeuble said he sees no need to discuss an increase in funding for the rescue fund.
"There is no need at present," he told German state-owned radio.
He said he aims to find a mid-term solution and emphasised that ailing euro zone countries must solve budget problems on their own.
German Chancellor Angela Merkel said on Saturday any further measures to stabilise the euro could only be introduced within a complete strategic package also aiming for stronger economic coordination.
She said new measures to tackle the euro zone debt crisis should be well thought-out and "you cannot simply raise another particular aspect each day".
"If the discussion is about a further package of measures, it is above all important that we develop a complete strategy that must absolutely include closer economic coordination," Merkel told a news conference in Mainz after a meeting with other senior members of her ruling Christian Democrats.
Among the contentious issues, officials say, are France's wish to let the EFSF buy the bonds of vulnerable euro members which Germany does not want, and Berlin's insistence that other members of the currency bloc be forced to introduce legislation similar to the "debt brake" rule it adopted in 2009.
Germany is also against lowering the punitive interest rate the EFSF charges states for its loans, a step other euro zone members believe is necessary to allow struggling economies in the bloc to reduce their debt mountains.
If the margin, now 300 basis points, were to be lowered for the EFSF, it would most likely also fall for loans already agreed on for Ireland, as well as for Greece.
"The principle is to have similar conditions across instruments and countries," a euro zone source said. - Reuters
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