Merkel rebuffs International Monetary Fund call to raise rescue fund
FRANKFURT: International Monetary Fund chief Dominique Strauss-Kahn will call on ministers to boost the rescue pool and urge the European Central Bank (ECB) to step up its purchases of bonds to stem the crisis, according to an IMF report.
However, German Chancellor Angela Merkel said she saw no need to increase the size of the bailout mechanism.
She also said the European Union treaty did not allow for issuing common bonds, which would anyway reduce the element of competition and the interest rate incentive for fiscal good behaviour.
The ECB engineered a dip in the soaring borrowing costs of weaker euro zone states late last week by stepping up purchases of Irish and Portuguese government bonds, according to traders, and hinting it could do more.
But yield spreads over safe-haven German Bunds resumed their rise on Monday, as did the cost of insuring their debt against default, and many analysts say only sustained, massive central bank bondbuying can reverse the trend.
The IMF report says a recovery in the euro zone, led by strong growth in its largest economy Germany, could "easily be derailed" by renewed market turmoil and describes pressure on socalled peripheral euro countries as a "severe downside risk." Wide differences remain in the 16-nation single currency area over how to overcome a debt crisis that has already led to EU-IMF bailouts for Greece and Ireland, and now threatens to spread to Portugal, Spain and possibly Italy.
Jean-Claude Juncker, chairman of euro zone finance ministers, and Italian Finance Minister Giulio Tremonti outlined a proposal in Monday's Financial Times for a joint sovereign bond, or "E-bond", to send a signal to markets and citizens of "the irreversibility of the euro." German Finance Minister Wolfgang Schaeuble warned in a newspaper interview that the risk of an antieuro political party emerging in Germany should be taken seriously. The euro has become more unpopular among Germans since this year's financial rescue of heavily indebted Greece, which ran counter to a "no bailout" principle established before the euro was created in 1999.
The IMF report and the situation on European debt markets will be discussed at length, a euro zone source said, at the regular Monday meeting of the so-called Eurogroup.
That will be followed by a meeting on Tuesday of ministers from the broader 27nation European Union, who are expected to formally approve an €85-billion aid package for Ireland and discuss the reform of EU budget rules. One influential economist, Jim O'Neill, chairman of Goldman Sachs Asset Management, said the idea of common euro zone bonds made sense, and new ideas now emerging would eventually underpin European monetary union with stronger central leadership. -PB News
ISLAMABAD: Minister of State for Information and Broadcasting Syed Sumsam Ali Shah Bukhari talking to Dr. Sayed Makhdoom Raheen, Afghan Minister for Information and Culture at Benazir Bhutto International Airport. -App