BRUSSELS — The finance ministers of the 17 countries that use the euro are pressing ahead with an overhaul of their financial firefighting tools, but said a deal will require more debate over the coming weeks.
Following their first meeting of the year in Brussels on Monday, the currency union's top financial policymakers said they discussed "all the ingredients" of a comprehensive package to deal with the region's crippling debt crisis, which already has forced Greece and Ireland to implement painful budget cuts in exchange for multibillion euro bailouts.
"All the ingredients of the solutions we have to form are on table," said Jean Claude Juncker, who heads the eurogroup. "The discussion was broad and will be narrowed in the next couple of weeks."
The centerpiece of any prospective deal will likely be an overhaul of Europe's €750 billion ($1 trillion) bailout fund, which was set up last spring alongside the €110 billion bailout of Greece to soothe financial markets anxious over some countries' mounting debt levels. So far, it hasn't really convinced, with Ireland following Greece in the bailout club and mounting fears that the debt crisis could spread to Portugal and Spain.
Both the European Union's executive Commission and the European Central Bank have said that the fund needs more powers and more funds at its disposal to deal with any emergency that may arise. Such new powers could include the right to buy government bonds on the open market to support their prices and keep vulnerable countries' funding costs in check.
"We shall improve our current existing financial backstops so that the so-called market forces cannot even have the slightest doubt about our capacity to act even in the most stressed scenarios," said the EU's Monetary Affairs Commissioner Olli Rehn.
Germany, the eurozone's effective paymaster, has so far ruled out any substantial increase of the fund's size. But German Finance Minister Wolfgang Schaeuble indicated that his country would be prepared to bolster the eurozone's contribution to the fund so it can actually lend out the full headline amount.
Eurozone governments make their €440 billion contribution to the region's bailout fund by guaranteeing bonds issued by the so-called European Financial Stability Facility. The remaining €310 billion come from the European Commission and the International Monetary Fund.
However, to get a triple-A credit rating for the EFSF's bonds — and make them attractive to investors — governments had to guarantee 120 percent of their value, while bailed out countries have to deposit a certain portion of the loans they receive "as a cash buffer."
That takes the EFSF's lending capacity down to only about €250 billion, which most analysts say is insufficient to deal with a bailout of Spain, if it ever arises. Spain's economy makes up about 10 percent of the eurozone economy, more than Greece, Ireland and Portugal combined.
But discussions Monday went beyond boosting the fund's size, with the Commission pressing to give it powers that would allow it to do more than provide emergency loans for countries.
Rehn and Juncker declined to elaborate of the details of ministers' discussions, but Juncker said ministers had also debated potentially lowering the interest rates charged in the Irish and Greek bailouts — a move that would make it easier for the two countries to repay their emergency aid even as their economies are shrinking.
"We were discussing in general terms the question of lowering the interest rates we charge for countries, but we did not discuss this point in sufficient detail to give you the likely outcome," Juncker cautioned.
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