Plan for eurobonds moves closer

EUROBONDS and increasing the €750 billion bailout fund moved a step closer to being realised following long discussions by finance ministers in Brussels, but both could take some time to become a reality.

Portugal was the other major issue on the table and various off-record sources said that most agree the country will over the next few weeks need to apply for funding to the EU-IMF.

It will be possible for ministers to deal with any request, as in Ireland’s case, through a conference call rather than physically meeting. But ministers were anxious to avoid referring to either Portugal or Spain needing a bailout and hope that markets will calm down in response to the budget measures being taken by both countries.

The IMF head Dominique Strauss-Kahn told the meeting that he would be willing to take part in any increase in the fund.

Belgian finance minister Didier Reynders suggested questions about the size of the fund would relate to the post-2013 mechanism and said such a debate might not take place for several weeks.

While German chancellor Angela Merkel appeared to rule out so-called e-bonds, her finance minister Wolfgang Schaeuble appeared to soften his attitude on them.

Some believe that a mechanism such as a debt agency could be set up to provide e-bonds and this would not require the kind of major change to the treaties that countries want to avoid.

Markets were calm yesterday due to the ECB continuing to buy sovereign debt and in anticipation of the Irish budget being adopted.

Irish 10-year bonds rose, outperforming German bunds amid speculation the Dáil will approve the budget. European stocks rose to their highest levels in two years.

Sweden, the Netherlands and Finland put most emphasis on rapidly agreeing governance rules for governments and their budgets.

However, a number of other countries want to reopen proposed rules on how debt should be calculated and its reduction achieved.

Germany is expected to push next week for a treaty change to allow for a permanent bailout fund to include that it must be used as a last resort. No other state wants this as it means they could be appealed to the European Court of Justice but some diplomats expect Germany to get its way.