Top European officials insist that they have enough financial firepower right now to deal with Europe's government debt crisis – but did not rule out increasing Europe's bailout fund in the future.
Jean-Claude Juncker, who chaired a meeting of the euro zone's 16 finance ministers on Monday, said that there wasn't any immediate need to increase the €750-billion ($1-trillion) financial backstop despite concerns that it just isn't enough. The fund is for euro zone governments in danger of running out of money.
“For the time being, there's no need to increase,” Mr. Juncker said after the meeting, which would be followed Tuesday by a gathering of the finance ministers from the broader 27-nation EU.
The big fear in the markets is that Portugal, and even more dangerously, much bigger Spain, will join Greece and Ireland in needing a financial lifeline – and that Europe might not have enough bailout money available to cope and keep countries that run into financial trouble from defaulting on their debts.
In May, euro zone governments and the International Monetary Fund set up the €750-billion financial backstop for the currency bloc. The majority is managed by the so-called European Financial Stability Facility, which can issue up to €440-billion in bonds guaranteed by eurozone governments. The EU's executive Commission can lend an additional €60-billion, while the IMF has said it would contribute up to €250-billion.
The idea behind the facility was to reassure bond markets that countries would be able to pay – and halt the selloff of government bonds.
Klaus Regling, who heads the EFSF said that Ireland's €67.5-billion bailout agreed last month will use up less than 10 per cent of the total backstop.
“There are sufficient resources left to deal with other relevant cases,” Mr. Regling said.
Mr. Regling said funding was not proving to be an issue and said he was getting interest in the facility's future bond issues from all around the world and from all types of investors, including central banks, sovereign wealth funds and rich individuals.
The finance ministers were under somewhat less pressure than at recent gatherings after the European Central Bank stepped up purchases of government bonds in an attempt to restore confidence in the EU's single currency bloc – figures showed that it splashed out €1.965-billion buying government bonds in the week leading up to Tuesday. That was up from €1.345-billion the week before and the highest weekly amount in months.
But heavy debts and doubtful growth prospects mean the crisis remains. Next week's figures will be key as they will contain purchases by the bank last Friday, Dec. 2, when it held its monthly policy meeting.
Market participants suspect the stabilization in European bond markets since the meeting has been largely thanks to even more purchases by the central bank, under pressure from policy makers to do more to prevent Europe's debt crisis from spreading – buying bonds supports their prices, taking pressure off the banks that hold them. It also lowers bond yields, which indicate the borrowing costs countries would face were they to go into the market for more credit.
The seeming stabilization in the bond markets may be one reason why a proposal earlier in the day from Mr. Juncker and Italy's Finance Minister Giulio Tremonti for the creation of pan-European bonds to support governments with shaky finances failed to get a hearing.
That proposal was not discussed, according to Mr. Juncker, after Germany, the Netherlands and Austria quickly came out against the idea.
The three countries, because of their lower debt levels and more competitive economies, pay much lower interest rates on their bonds than weaker euro zone nations like Ireland, Portugal or Italy. The interest rate on pan-European bonds would likely be higher than what they are paying at the moment, because it would price in the risk of default of poorer governments.
