European Finance Minister ministers rule out immediate aid for Portugal, Spain
FRANKFURT: European finance ministers ruled out immediate aid for Portugal and Spain or an increase in the 750 billion-euro ($1 trillion) crisis fund, counting on European Central Bank bond purchases to calm debt-spooked markets. A week after handing Ireland an 85 billion-euro lifeline, the finance chiefs voiced confidence that Spain and Portugal will tame their budget deficits and said the existing credit line is enough to defend them in an emergency.
"It's very difficult to calm the financial markets, but we repeated today one more time that we do everything to secure the financial stability in the euro zone," Luxembourg Prime Minister JeanClaude Juncker told Bloomberg News late yesterday after chairing the ministers' meeting in Brussels.
A 22-week high in ECB bondbuying brought a respite from speculative attacks, masking divisions between the 16 euro-area governments over the next steps to fight the explosion of debt that threatens the currency.
"As the market 'wolves' are likely to keep huffing and puffing, we believe that European leaders will ultimately take further steps rather than have the house blown down," Michala Marcussen, head of global economics at Societe Generale SA in London, said in an e-mailed note. "For now, the ECB remains the best line of defense."
Germany led the opposition to an increase in the crisis-aid fund or the launch of joint bond sales, with Chancellor Angela Merkel under pressure to stave off further costs for taxpayers in Europe's largest economy. Europe is taking steps to "convince the financial markets that we in Europe have a stable currency and will solve the problems," German Finance Minister Wolfgang Schaeuble told reporters before the meetings resumed today. Europe shouldn't "start a new debate every week." Portuguese Finance Minister Fernando Teixeira dos Santos bucked "strong" pressure from other ministers to ask for aid, Lisbonbased Publico newspaper reported today, citing an unidentified European diplomat. Teixeira dos Santos declined to comment late yesterday.
While bonds in Portugal, Spain and Italy fell yesterday, the extra yields over German bonds remained below the levels of Nov. 28 when the Irish package was announced and the ECB stepped up its buying of government debt. Portugal's spread has fallen to 309 basis points from 425 basis points, Spain's to 230 from 244 and Italy's to 165 from 168. "The best defense against contagion is to improve our budgetary positions to meet the agreed fiscal targets," European Union Economic and Monetary Commissioner Olli Rehn said. "The recovery is taking hold and is progressing but at the same time it is essential that we contain the financial bush fires so they will not turn into a Europewide forest fire." -PB News
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