Eurozone facing IMF pressure
By Jan Strupczewski |
December 7, 2010, Tuesday
|
Print Edition
Print Edition
Eurozone finance ministers meeting yesterday faced IMF pressure to increase the size of a 750-billion-euro (US$1,006 billion) safety net for debt-stricken members to halt contagion in the single currency bloc.
But EU paymaster Germany firmly rejected any such move and also dismissed a call by two veteran finance ministers for joint euro bonds guaranteed by the whole eurozone.
International Monetary Fund chief Dominique Strauss-Kahn will call on ministers to boost the rescue pool and urge the European Central Bank to step up its purchases of bonds to stem the crisis, according to an IMF report obtained by Reuters.
However, German Chancellor Angela Merkel said she saw no need to increase the size of the bailout mechanism, which is deeply unpopular with voters in Europe's biggest economy.
She also said European Union treaty rules did not allow for issuing common bonds, which would reduce the element of competition and the interest rate incentive for fiscal good behavior.
The ECB engineered a dip in the soaring borrowing costs of weaker eurozone states late last week by stepping up purchases of Irish and Portuguese government bonds, according to traders, and hinting it could do more.
But yield spreads of countries on the eurozone periphery over safe-haven German Bunds resumed their rise yesterday, as did the cost of insuring their debt against default, and many analysts say only sustained, massive central bank bond-buying can reverse the trend.
The IMF report said a recovery in the eurozone, led by strong growth in its largest economy Germany, could "easily be derailed" by renewed market turmoil, and describes pressure on peripheral euro countries as a "severe downside risk."
Wide differences remain in the 16-nation single currency area over how to overcome a debt crisis that has already led to EU-IMF bailouts for Greece and Ireland, and now threatens to spread to Portugal, Spain and possibly Italy.
But EU paymaster Germany firmly rejected any such move and also dismissed a call by two veteran finance ministers for joint euro bonds guaranteed by the whole eurozone.
International Monetary Fund chief Dominique Strauss-Kahn will call on ministers to boost the rescue pool and urge the European Central Bank to step up its purchases of bonds to stem the crisis, according to an IMF report obtained by Reuters.
However, German Chancellor Angela Merkel said she saw no need to increase the size of the bailout mechanism, which is deeply unpopular with voters in Europe's biggest economy.
She also said European Union treaty rules did not allow for issuing common bonds, which would reduce the element of competition and the interest rate incentive for fiscal good behavior.
The ECB engineered a dip in the soaring borrowing costs of weaker eurozone states late last week by stepping up purchases of Irish and Portuguese government bonds, according to traders, and hinting it could do more.
But yield spreads of countries on the eurozone periphery over safe-haven German Bunds resumed their rise yesterday, as did the cost of insuring their debt against default, and many analysts say only sustained, massive central bank bond-buying can reverse the trend.
The IMF report said a recovery in the eurozone, led by strong growth in its largest economy Germany, could "easily be derailed" by renewed market turmoil, and describes pressure on peripheral euro countries as a "severe downside risk."
Wide differences remain in the 16-nation single currency area over how to overcome a debt crisis that has already led to EU-IMF bailouts for Greece and Ireland, and now threatens to spread to Portugal, Spain and possibly Italy.
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