Euro zone agrees to boost rescue capacity

Sat Mar 31, 2012 3:34pm EDT
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By Jan Strupczewski and Robin Emmott

COPENHAGEN (Reuters) - Euro zone finance ministers agreed on Friday to increase their financial firewall to 700 billion euros to ward off a new flare-up of Europe's sovereign debt crisis, drawing a positive initial reaction from G20 partners and markets.

The 17-nation currency area agreed to combine two rescue funds to make 500 billion euros of new funds available in case of emergency until mid-2013, on top of 200 billion euros already committed to bailouts for Greece, Ireland and Portugal.

The executive European Commission had proposed raising the total to 940 billion euros, with 740 billion in new money, but EU paymaster Germany resisted a bigger increase.

"The euro area has responded to calls from our global partners, the G20 and the BRIC countries. I trust today's decision will pave the way for an IMF decision at the Spring meetings," EU Economic and Monetary Affairs Olli Rehn said.

The United States and International Monetary Fund chief Christine Lagarde both welcomed the decision. Lagarde said it would help the global lender raise more resources to fight contagion from the European crisis if needed.

Washington, which has been pressing European leaders to tackle the problem aggressively, praised their efforts to strengthen confidence in the currency union.

The euro rose and Spanish and Italian bond yields fell slightly after the firewall boost and a draconian Spanish austerity budget.

Spain unveiled savings worth 27 billion euros ($35.85 billion) this year, roughly half from spending cuts and half from revenue increases, in a bid to convince European partners and investors it can rein in its budget deficit.   Continued...

Austrian Finance Minister Maria Fekter (R) delivers a speech next to Infrastructure Minister Doris Bures during a session of the parliament in Vienna March 28, 2012. REUTERS/Lisi Niesner