ECB 'ready to calm bond markets with €1trn package'
Published 05/12/2011 | 05:00
The chances of getting an agreement to save the euro on Friday continue to hang in the balance amid reports that the ECB is ready with a €1trillion package to calm European bond markets.
The euro faces a decisive week as EU leaders, encouraged by the US, seek agreement on a convincing rescue plan that could end the now two-year-old crisis. A summit is due to take place on Friday in Brussels among heads of state.
The governments of the 17-nation eurozone are considering giving hundreds of billions of euros to the IMF in order to end the sovereign-debt crisis, 'Die Welt' reported, citing sources close to the negotiations.
"Triple-digit billions" will be paid into the fund which would then finance rescue programmes for some countries, according to 'Die Welt'. Other central banks such as the US Federal Reserve are also said to be willing to contribute.
Late last week Germany's finance minister Wolfgang Schaeuble was proposing an idea where states would effectively siphon off a chunk of their debt to a special national fund and pay it off over about 20 years while committing to reforms to keep debt levels on target.
However, despite optimism, weekend reports suggested German Chancellor Angela Merkel and French President Nicolas Sarkozy remained divided over a new package.
Ireland is believed to be flexible on greater EU intrusion in national budgeting, but other countries have reservations.
Mr Sarkozy and Ms Merkel may not reach an agreement on proposals to overhaul European institutions today, 'Le Journal du Dimanche' reported.
Mr Sarkozy and Ms Merkel have different opinions on several matters, including the role of the ECB and the closer monitoring of euro countries' budgets with potential sanctions against persistent offenders, the French outlet reported.
Also the Dutch finance minister Jan Kees de Jager was quoted as saying the problems related to the European debt crisis wouldn't be resolved later this week in Brussels.
Meanwhile, it looks like the ECB will have cut interest rates on Thursday to counter a looming recession and taken new measures to provide longer-term funding for Europe's teetering banks.
World financial markets rallied last week on the prospect of such a masterplan after ECB chief Mario Draghi signalled that in response to a new "fiscal compact" in the eurozone, the central bank could act more decisively to fight the crisis.
Some media reports suggested a €1trillion package was being readied by Mr Draghi.
A convincing show of political determination to stand behind the euro and surmount the crisis through closer eurozone integration could prompt the ECB to do more to support Italian and Spanish bonds.
However, if the 27-nation EU is unable to agree, or settles for another half-measure after months of dithering, the flight from eurozone bond markets may accelerate, confidence may ebb further and the crisis could become acute in January, when Italy has to start a massive refinancing campaign. (Additional reporting by Reuters)