Europe ramps up rescue fund, may turn to IMF

Tue Nov 29, 2011 6:11pm EST
 
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By Jan Strupczewski and Valentina Za

BRUSSELS/MILAN (Reuters) - Euro zone ministers agreed on Tuesday to ramp up the firepower of their rescue fund but couldn't say by how much and raised the possibility of asking the IMF for more help after Italy's borrowing costs hit a euro lifetime high of nearly 8 percent.

Two years into Europe's sovereign debt crisis, investors are fleeing the euro zone bond market, European banks are dumping government debt, deposits are draining from south European banks and a looming recession is aggravating the pain, fuelling doubts about the survival of the single currency.

The 17 ministers agreed on a detailed plan to insure the first 20-30 percent of new bond issues for countries having funding difficulties and create co-investment funds to attract foreign investors to buy euro zone government bonds.

Both schemes would be operational by January with about 250 billion euros from the euro zone's EFSF bailout fund available to leverage after funding a second rescue program for Greece, Eurogroup chairman Jean-Claude Juncker said.

The aim was for the International Monetary Fund to match and support the new firepower of the European Financial Stability Facility, Juncker told a news conference.

"We also agreed to rapidly explore an increase of the resources of the IMF through bilateral loans, following the mandate from the G20 Cannes summit, so that the IMF could adequately match the new firepower of the EFSF and cooperate even more closely," he said.

But with China and other major sovereign funds reticent about investing more in euro zone debt, EFSF chief Klaus Regling said he did not expect investors to commit major amounts to the leveraging options in the next days or weeks, and he said he couldn't put a figure on the final size of the leveraged fund.

"It is really not possible to give one number for leveraging because it is a process. We will not give out a hundred billion next month, we will need money as we go along," he said.   Continued...