Europe un­der pres­sure to boost res­cue fund

The Pak Banker - - Company& -

DUBLIN: Euro zone gov­ern­ments faced pres­sure at the week­end to in­crease the size of their res­cue fund for cri­sis-hit mem­ber states and avert a new bout of mar­ket turmoil that could threaten the sta­bil­ity of the cur­rency bloc.

Govern­ment debt pur­chases by the Euro­pean Cen­tral Bank calmed mar­kets to­wards the end of last week, push­ing down the bor­row­ing costs of vul­ner­a­ble coun­tries on the euro zone's south­ern pe­riph­ery such as Por­tu­gal, Spain and Italy.

But ECB Pres­i­dent JeanClaude Trichet has made clear that politi­cians can­not rely solely on the Frank­furt-based cen­tral bank to re­solve their crip­pling debt cri­sis and urged them to take de­ci­sive new steps to win back the con­fi­dence of in­vestors.

He has sug­gested one so­lu­tion could be to boost the size of the 750 bil­lion euro ($1,006 bil­lion) res­cue fa­cil­ity the EU and IMF set up in May af­ter bail­ing out Greece, an idea backed by Bel­gian Fi­nance Min­is­ter Didier Reyn­ders on Satur­day.

Speak­ing at a con­fer­ence in Brus­sels, Reyn­ders said it made no sense to wait to in­crease the amount of avail­able res­cue funds un­til the bloc has set up a new per­ma­nent res­cue mech­a­nism that is sched­uled to take ef­fect in 2013.

"If we de­cide (to in­crease it) in the next weeks or months, why not ap­ply it im­me­di­ately to the cur­rent fa­cil­ity," he said.

Europe's eco­nomic pow­er­house Ger­many has said it sees no rea­son to in­crease the fa­cil­ity, but some of its euro zone part­ners be­lieve such a move could al­le­vi­ate mar­ket con­cerns about the bloc's abil­ity to cope with fur­ther con­ta­gion.

Cur­rent res­cue

funds would be stretched if the bloc were forced to bail out Por­tu­gal and Spain, af­ter agree­ing to pro­vide Ire­land with 85 bil­lion eu­ros in emer­gency aid last week.

In a bid to ease mar­ket con­cerns about Spain's fi­nances, the govern­ment of Prime Min­is­ter Jose Luis Ro­driguez Za­p­a­tero an­nounced a se­ries of new mea­sures last week, say­ing it would bring for­ward pen­sion re­forms, raise to­bacco taxes and cut wind­power sub­si­dies.

But its plans to sell off 49 per­cent of state-owned air­ports author­ity AENA pro­voked a wild­cat strike by air traf­fic con­trollers that paral­ysed air­ports on Fri­day and Satur­day, forc­ing the govern­ment to declare a state of emer­gency.

More than 90 per­cent of the con­trollers had re­turned to work by Satur­day evening, but the dis­rup­tion un­der­scored the dif­fi­cult bal­anc­ing act euro zone gov­ern­ments face as they seek to ap­pease mar­kets with­out pro­vok­ing a pub­lic back­lash that could fur­ther dent in­vestor con­fi­dence.

"If they don't man­age to get this sit­u­a­tion un­der con­trol it could be a se­ri­ous blow for the govern­ment both at home and in­ter­na­tion­ally," said An­gel Laborda, an econ­o­mist at Span­ish con­sul­tancy FUN­CAS.

A poll pub­lished in Span­ish news­pa­per El Pais on Sun­day showed sup­port for Za­p­a­tero's rul­ing So­cial­ists sink­ing to its low­est level in the coun­try's mod­ern demo­cratic era.

In Greece, which is strug­gling to meet tough deficit re­duc­tion tar­gets agreed in ex­change for a 110 bil­lion euro EU/IMF res­cue, the cen­tral bank gover­nor urged the govern­ment to step up the pace of re­form, say­ing the coun­try should be aim­ing to beat the goals set for it. - PB News

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