Eurozone under pressure to aid euro with more cash

[December 06, 2010]  BRUSSELS (AP) -- European nations were under pressure to commit more money to help stabilize the euro, as finance ministers gathered in Brussels to find ways to fight the debt crisis that has rocked the currency bloc.

The head of the group of 16 countries that use the euro, Jean-Claude Juncker, and Italian Finance Minister Giulio on Monday called for the creation of pan-European bonds to boost much-needed confidence in the euro. But Germany, Europe's bankroller, quickly ruled out the notion.

Meanwhile, Belgian Finance Minister Didier Reynders said over the weekend that eurozone countries should increase the current euro750 billion ($1 trillion) bailout fund now, rather than wait until the creation of a permanent stability mechanism planned for 2013.

Analysts have warned that the existing fund was too small to pay for a potential bailout of highly indebted Italy and Spain. The funding costs of the eurozone's third and fourth biggest economies jumped in recent weeks amid concerns that the debt crisis that has forced Greece and Ireland to seek multibillion euro bailouts could soon claim other victims.

In an editorial in the Financial Times, Juncker and Tremonti wrote the European Union should issue its own bonds to help countries that run into financial trouble.

A European Debt Agency could eventually issue bonds worth up to 40 percent of EU economic output, Juncker and Tremonti wrote. The agency should finance 50 percent of all bonds sold by EU states and -- in cases where debt markets seize up like they have in recent weeks for countries like Ireland and Portugal -- it could fund the entire bond issue, the two officials wrote.

However, Germany rejected the idea of European bonds. Government spokesperson Christoph Steegmans said Monday that they would not be viable financially and would require changes to the EU treaties.

Germany, Europe's largest economy, fears that issuing European bonds would push up its own borrowing costs and has also ruled out an increase of the current bailout fund.

It is more focused on the so-called European Stability Mechanism -- new rules for bailouts that are meant to force losses on private investors in some cases after 2013.

European finance ministers will likely discuss the new mechanism, along with the other issues, on Monday.

Investors, meanwhile, are waiting for data due to be published this afternoon on whether the European Central Bank last week increased its purchases of distressed government bonds. The ECB started buying government bonds in May when funding costs soared for countries with high debts.

Investors fear that the debt load in fiscally weak countries, particularly Portugal but also Spain and Italy, could require more rescue efforts. The search is on for ways to convince markets that the region will be able to lower its debts and sustain growth.

One solution might be to restructure those countries' debts now and allow them to get their economies in order under humane circumstances, said Simon Tilford, chief economist at the Centre for European Reform, a London-based thing tank.

[Associated Press; By GABRIELE STEINHAUSER]

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