Ministers agree to bolster bailout fund, but euro fears persist

Eurozone finance ministers have agreed to increase the capacity of the European Financial Stability Facility (EFSF) bailout fund.

However the EFSF, which currently has resources of €440bn, will not now be elevated to a €1tn.

Ecofin ministers meeting in Brussels last night also agreed to allow the fund to guarantee 20-30% of potential losses incurred by investors who buy bonds of governments in financial trouble.

Ministers at the meeting also delivered Greece an €8bn Christmas rescue package to stem an immediate cash crisis.

However the moves failed to resolve fears that the common euro currency might be doomed.

Stock markets around the world rose earlier in the day, hoping that intense pressure from the bond markets would finally force the 17-nation eurozone into quicker and more robust action.

But even as Italy’s borrowing costs skyrocketed to a euro-era record, the 17 finance ministers only found a veneer of credibility to coat the euro’s rescue fund with more leverage.

They failed to increase the bailout fund to match earlier predictions and kicked other major financial issues – like a closer fiscal union – over to their bosses, the EU leaders meeting next week in Brussels.

The ministers did agree to use the fund to offer financial protection of 20 to 30% to investors who bought new bonds of troubled eurozone nations, an effort to help those countries get back to borrowing on global markets again.

“We made important progress on a number of fronts,” Jean-Claude Juncker, the eurozone chief, insisted late yesterday.

“This shows our complete determination to do whatever it takes to safeguard the financial stability of the euro.”

The EU’s monetary chief Olli Rehn said eurozone nations needed to work on many financial issues at once to ease global pressure on their currency.

“There is no one single silver bullet that will get us out of this crisis,” Mr Rehn told reporters.

But the question of how to beef up the leverage capacity of European Financial Stability Facility from its current €440bn to a hoped-for €1tn was not resolved.

The fund is supposed to be a firewall that protects European nations from the financial chaos of their neighbours.

Fund chief Klaus Regling remained vague on how beefed up it was after yesterday’s meeting in Brussels, but assured reporters it was more than big enough to deal with Europe’s immediate financial debt problems.

“To be clear, we do not expect investors to commit large amounts of money during the next few days or weeks,” Mr Regling said. “Leverage is a process over time.”

Dutch Finance Minister Jan Kees de Jager said investors had appeared less eager than originally anticipated.

“It will be very difficult to reach something in the region of a trillion. Maybe half of that,” he said.