Euro-area finance ministers pledged to strengthen the safety net for debt-strapped countries and indicated they don’t face pressure for immediate moves to tame the fiscal crisis.
Finance chiefs from the 17-country euro region yesterday weighed how to get the ¤750-billion ($1 trillion) rescue fund up to its full potential, examined ways to give it more flexibility and didn’t rule out boosting its size. The Brussels meetings conclude today with all 27 European Union ministers.
Putting more money on the table “is one of the issues we’re discussing but a comprehensive package includes a series of things,” German Finance Minister Wolfgang Schaeuble told reporters. “We have to tie together a package that relieves us of the necessity of having to keep reacting every few months.”
The euro rose against the dollar today as investors speculated officials’ efforts to stop the sovereign-debt crisis from deepening will succeed. Signs of economic buoyancy and successful bond auctions in southern Europe have bought time for European governments to look at how to stiffen the firewall against the year-old turmoil that threatens to undermine the single currency.
Investors offered Portugal a respite by cutting its borrowing costs in the sale of ¤599 million in 10-year bonds on January 12. The extra yield on Portuguese 10-year debt over German levels has fallen 39 basis points since January 7 to 385 basis points.
Spanish sale
Spain sold ¤5.5 billion of Treasury bills today as its borrowing costs fell one day after it pulled two bond auctions. The sale included ¤4.5 billion of 12-month bills at an average yield of 2.947 per cent, compared with 3.449 per cent the last time the same maturity was offered on December 14.
Germany, the euro region’s leading power, has eased its opposition to augmenting the anti-crisis toolkit by reinforcing the rescue fund, mapping out the permanent aid mechanism to be set up in 2013 and rewriting the bloc’s budget-deficit rules.
“We are organising a better functioning of the rescue fund, to enhance the capacity to lend, but also we have to have a better commitment from all the countries of the euro zone for better fiscal consolidation,” Belgian Finance Minister Didier Reynders said.
A summit of EU leaders in late March looms as the deadline to outline a package of measures. Concern is persisting that Greece and Ireland, recipients of ¤178 billion in European and IMF loans last year, will struggle to revive their economies.
AAA talks
At the start of the two-day session, ministers from Germany, France and four other countries with AAA credit ratings met yesterday to consider how to boost the financial firepower of the rescue fund without pushing up their own borrowing costs.
Experts are examining whether an increase in guarantees would put the top credit rating at risk, a European official told reporters. The need for a capital buffer to cinch a AAA rating cuts the main rescue fund’s lending capacity to about ¤250 billion from a theoretical maximum of ¤440 billion.
“If it’s needed to be made ready, it’ll be there,” Dutch Finance Minister Jan Kees de Jager told reporters. “But for the Netherlands it will only go through if there is a comprehensive package.”
The other components in the emergency aid program are ¤60 billion in a fund managed by the European Commission and ¤250 billion from the Washington-based IMF.
“We will evaluate different measures to improve the efficiency of the rescue mechanism,” Austrian Finance Minister Josef Proell said.
Ireland is pushing for the new package to give it a break on interest rates that average 5.8 per cent. The rate is around 300 basis points higher than the EU’s cost of borrowing, a mark-up designed under German pressure to make aid a last-ditch option. EU policy makers view 50 to 100 basis points as a more suitable margin, a person familiar with the discussions said.
“We’re beginning a discussion this evening about how those interest rates can be improved,” Irish Finance Minister Brian Lenihan said yesterday. “My intention is to ensure that Ireland can get a better deal.”
Cowen faces vote of confidence
Irish Prime Minister Brian Cowen faces a vote of confidence on Tuesday by his Fianna Fail party, with one of his most senior ministers seeking to topple him before a general election.
Seventy-one lawmakers were set to vote at a meeting beginning at 5.30 pm in Dublin. Cowen called for the secret ballot on January 16, saying he expects a “ringing endorsement” even after Foreign Minister Micheal Martin said he’d oppose him.
Finance Minister Brian Lenihan said today he will support Brian Cowen. Ireland needs “stable political leadership,” Lenihan told broadcaster RTE on Tuesday.
