European commission president Jos� Manuel Barroso believed to want European Financial Stability Facility increased
EU leaders today called for more effective action to defend the euro by increasing the hundreds of billions in the eurozone's bailout fund and extending the fund's scope to include bond-buying and short-term credit for countries in distress.
The French and German governments dismissed the calls in Brussels as unnecessary. But Jos� Manuel Barroso, president of the European commission, appeared to be picking a fight with Berlin and Paris by insisting on agreement to boost the bailout fund within three weeks.
Although Portugal, tipped as the next country to require a bailout, passed a significant test on the bond markets by raising ?1.2bn at a less stringent than expected rate of 6.716%, commission officials insisted that persuasive action was needed to counter market attacks on the weaker members of the single currency. "We need to get this over and done with, to stop this dragging on," said one senior official, amid fears that Spain and Belgium will also need help.
A ?750bn (�623bn) rescue fund was established last May by the EU and the IMF, with eurozone governments the biggest contributors, guaranteeing ?440bn through the so-called European Financial Stability Facility (EFSF).
"It is possible to improve the EFSF," Barroso said. "We are saying very clearly that we believe that the financing capacity must be reinforced and the scope of the activities of the EFSF should be widened. I see no reason why we should not take a decision on these matters at the latest by the next European council [summit] at the beginning of February."
Barroso is believed to want the fund increased by about ?200bn or nearly 50%, a proposal bitterly opposed by Germany last month. Although the fund stretches to ?440bn, the lending potential is only ?250bn were it to be tapped by Portugal and Spain while retaining a triple A credit rating. Commission officials said the fund should be increased so that the full ?440bn is available for bailouts.
The commission also argued for the scope of the fund to be expanded. In November, Ireland became the first eurozone country to tap the fund, under stringent conditions. The previous Greek bailout was arranged separately.
The EFSF is used only to rescue a country no longer able to fund itself on the bond markets because of high borrowing costs. Barroso and Olli Rehn, the monetary affairs commissioner, want the fund to be made available to countries like Belgium ? facing short-term funding problems ? and for buying up the bonds of troubled nations. The European Central Bank, which has been reluctantly buying bonds since last May, supports this use of the EFSF, but was previously opposed by Berlin, the biggest EFSF guarantor.
Source: http://www.guardian.co.uk/business/2011/jan/12/ec-eurozone-bailout-fund-increase
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