Brussels: European finance ministers discussed ways of boosting IMF resources to build a better firewall against the debt crisis on Monday, while also assessing plans for tighter euro zone fiscal rules that they hope will prevent the problems from worsening.
With new governments in Italy and Spain redoubling austerity efforts, the EU ministers were locked in a three-hour teleconference call with discussions focused on the draft text of a new “fiscal compact” that they aim to have finalised by the end of January, EU officials said.
The call was also expected to examine issues surrounding the euro zone’s permanent bailout fund, with Finland unhappy about plans to weaken the unanimity rule governing how the European Stability Mechanism is run.
ECB president Mario Draghi.
Having agreed to offer €150 billion to the International Monetary Fund to raise its crisis-fighting capacity, ministers were debating the size of individual bilateral loans to the Fund, with up to €50 billion more expected to come from countries outside the euro zone.
There are doubts about the scheme and whether it will succeed in bolstering rescue funds. Germany’s Bundesbank said last week it would only contribute if non-euro zone and non-European countries did too and commitments are not clear.
German finance minister Wolfgang Schaeuble saw little chance of the US increasing its contribution to the Fund to help Europe, and there doubts whether Britain will take part.
“Washington cannot make bilateral loans available to the IMF without Congress approving it...and there’s no chance of that and the American government has always made that clear,” Schaeuble told German radio.
Even with the year-end looming there is no let-up in the scramble to ease market pressure on euro zone strugglers.
The European Central Bank will offer three-year funds to banks for the first time on Wednesday, an effort to counter the freeze in interbank lending. France hopes banks will use the money to buy euro zone bonds but with banks under pressure to reduce risk and rebuild capital that may be a vain hope.
Market response to measures agreed at a 9 December EU summit has been cool, mainly because of the reluctance of the ECB to step up euro zone bond purchases and declare its readiness to do so.
As a result, ratings agency Fitch concluded on Friday that a “comprehensive solution” to the crisis was technically and politically beyond reach. It warned that six euro zone economies, including Italy and Spain, could be hit with credit downgrades in the near future.
Standard and Poor’s has said it could soon downgrade nearly all the euro zone’s 17 members.
ECB president Mario Draghi began two hours of testimony to the European Parliament on Monday.
He told the Financial Times that the ECB could not start printing money and gave no signal that it would buy euro zonegovernment bonds more aggressively.
Speaking at a ceremony in Rome, Italian President Giorgio Napolitano called for a “strengthening of the still insufficient firewalls” necessary to defend sovereign debt and the euro.