Eurozone rescue fund could be increased if needed: France

13th January 2011, Comments 0 comments

French Finance Minister Christine Lagarde said Thursday that the eurozone's rescue fund will be increased if needed in order to "demonstrate our determination to defend the stability of the eurozone."

"We'll think about capacity of the fund which will be given additional means if that becomes necessary," said Lagarde, adding the no agreement on a possible increase had yet been reached.

Meanwhile, Belgian Finance Minister Didier Reynders told AFP on Thursday that the EU was in talks to double the eurozone debt crisis fund to 1.5 trillion euros (two trillion dollars),

"I think that doubling the resources would be a reasonable objective," Reynders said in a telephone interview, adding that talks were ongoing.

Lagarde said one possibility is to increase the size of the rescue funds, of which the main European component is 440-billion-euro European Financial Stability Facility (EFSF).

She said this would be done "not so much because of new proven needs but to demonstrate our determination to defend the stability of the eurozone."

Other options were also being looked into, she added.

Lagarde said European leaders were working "on a series of measures likely to significantly improve the management of the eurozone."

German Finance Minister Wolfgang Schaeuble said on Thursday that the lending capacity of the euro crisis mechanism should be increased but that the overall size of the fund should remain steady.

"I think it is right to have a debate on whether it should not be made clear, in order to foster trust in the markets, that the 750 billion euros (985 billion dollars) that we agreed on are actually available," Schaeuble said.

"But this is not an expansion."

The fund cannot lend all its 440 billion euros because as it has to raise funds on the money markets, it has to retain some of its money to set against its borrowings. In effect, that means it cannot lend the full amount.

After Greece required a bailout last year the EU and International Monetary Fund put together a three-year rescue mechanisms worth up to 750 billion euros, and have agreed to set up place a permanent follow-on mechanism in 2013.

So far only Ireland has tapped the EFSF but there are fears that other weaker eurozone members, most notably Portugal and perhaps the much bigger economies of Spain and Belgium, might be forced to follow suit, and over-stretch its capacity.

© 2011 AFP

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