Fears over EU debt crisis spark rescue-fund talks
European ministers meet to discuss plans to increase the €440bn bailout as first €5bn for Ireland set to arrive
EUROPEAN Union governments met yesterday to discuss proposals to increase the €440bn bailout fund for indebted eurozone countries amid fears that the existing fund might be too small if the debt crisis spreads to Spain or another large country.
News of the plans to bolster Europe's firepower came as the first €5bn from Ireland's €85bn bailout fund is due to be transferred into the Government's coffers today or tomorrow.
Some governments want to reduce the interest rates on the rescue loans -- a step that would make it easier for aid recipients to reduce their debt-service burdens and repair their budgets, the reports added.
No decision has been taken yet on a large eurozone bailout fund and a decision is unlikely at next week's meeting of EU finance ministers. Officials from European finance ministries were debating the overhaul of the European Financial Stability Facility earlier this week to prepare the ground for the gathering of EU finance ministers but it may take several weeks to put the plan into action.
News of the secret talks to bolster the fund came as Otmar Issing, the influential former chief economist of the European Central Bank, warned that the euro's existence could be threatened unless member countries find a way to impose tougher spending curbs on one another.
"With the failure to make sovereign states' fiscal policies consistent with the conditions for the single currency area, policy makers not only have weakened the functioning of monetary union but have also called into question its very survival," Mr Issing wrote in an article to be published this week.
The article for the Official Monetary and Financial Institutions Forum in London is an updated English version of an article that Mr Issing published in November in Germany. His views are particularly noteworthy because he was a key figure in the introduction of the euro while serving as a board member of the Bundesbank, the German central bank.
Japan said, meanwhile, that it planned to buy eurozone bonds later this month to help fund Ireland's €85bn bailout.
"There is a plan for the eurozone to jointly issue a large amount of bonds late this month to raise funds to assist Ireland," Japanese finance minister Yoshihiko Noda said at a news conference in Tokyo yesterday.
The euro gained against the yen as the statements of support showed that the country with the world's second-largest foreign-exchange reserves may help stem the risk of the crisis spreading, although the currency's rally later fizzled.
Analysts added that Japan's decision reflected both Tokyo's concern about the impact of the crisis on its export-reliant economy and an effort to reassert itself on the global stage.
Portugal, however, continued to resist pressure to seek a bailout. Finance minister Fernando Teixeira dos Santos said his country was doing everything it could to avoid an EU-IMF financial rescue.
"We are seeking to avoid this possibility," Teixeira dos Santos said. "We are doing our work. Clearly, Europe is not doing its work to guarantee the stability of the euro."