Eurozone must do more to boost single currency, IMF warns
BRUSSELS: European leaders came under pressure to boost the €750bn (£635bn) rescue fund for the euro when the head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, warned finance ministers that not enough was being done to shore up the single currency.
But Germany, which would be liable for the biggest share of any increase in the emergency fund, led resistance to the proposals and is likely to oppose calls for the European Central Bank buy up troubled government bonds in the eurozone. Ahead of an EU finance ministers meeting in Brussels tomorrow, the 16 governments using the euro met to consider steps to contain the contagion threatening the single currency. They agreed an €85bn bailout for Ireland last week and announced that the current temporary emergency fund would be turned into a permanent European stability mechanism by mid-2013.
Governments were drafting policies and options for an EU summit next week amid fears that the 10-month euro crisis was moving into a dangerous new phase. StraussKahn attended today's meeting of eurozone ministers in Brussels to demand a more pro-active role by the ECB in buying up the bonds of troubled governments and to call for a large increase in the rescue fund set up in May. The EU has already launched bailouts worth nearly €200bn for Greece and Ireland. The current fund would suffice to come to Portugal's rescue, the weakest link in the euro. But if attention then fell on Spain, the EU's fourth biggest economy, the rescue kitty would be empty. The meeting came as the ECB revealed that it had spent €1.965bn buying government bonds in the week leading up to last Tuesday, up from €1.345bn the week before and the highest weekly amount in months. An even bigger increase is expected to show up in next week's figures, after ECB president Jean-Claude Trichet hinted last week that the bank would buy more bonds in an effort to lower borrowing costs for weaker eurozone countries such as Greece, Ireland and Portugal. Despite the pressure from the markets for a coherent and convincing message on the eurozone's problems, the signals yesterday were cacophonous. The head of Belgium's central bank, Guy Quaden, said he supported calls to increase the rescue fund. Chancellor Angela Merkel of Germany retorted there was no need for that, nor for the "e-bonds" (common EU bonds issued by a new European debt agency) called for by Luxembourg and Italy.
"It is our firm conviction that the treaties do not allow joint eurobonds, that is no universal interest rate for all European member states," Merkel said. Eurobonds would entrench German responsibility for the borrowing of weaker and more profligate countries. They would raise the costs of German borrowing and could trigger a backlash in a country where resentment at having to bail out more feckless governments is already running high. -PB News
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