Talks are accelerating that could see the eurozone's rescue fund given a wider remit in a bid to master a mercurial debt crisis and push national economies towards greater convergence. "We are reflecting, throwing about ideas," a European Union diplomatic source told AFP, adding that eurozone finance ministers could hold a telephone conference next week to take stock of work by experts ahead of a March EU summit deadline.
The examination goes far deeper than eventual enlargement of the 440-billion-euro European Financial Stability Fund (EFSF), part of a 750-billion-euro (trillion-dollar) safety net put together by the eurozone, the EU and the International Monetary Fund.
The EFSF is to be replaced as of January 1, 2013, with a permanent mechanism for emergency rescues of the sort that had to be given to Greece and Ireland last year. EU leaders are to agree the size, shape and scope of that new toolkit when they gather in Brussels on March 24-25 - although such questions are already sure to butt in at a February 4 summit officially dedicated to the bloc's energy and energy security strategy.
During meetings last week in Brussels, finance ministers expressed a willingness to put in place stronger guarantees, which would mean boosting the actual lending capacity of the EFSF. The EFSF raises funds from the markets against those guarantees, but currently has to keep an estimated 200-billion-euro buffer in reserve to ensure better interest rates. But the increased guarantees would come in exchange for much more closely-aligned economic governance parameters.
Triple-A credit-rated states, Germany, France, the Netherlands, Austria, Luxembourg and Finland - who together already contribute over 60 percent of the rescue funding - nevertheless indicated they were in no mood to hike the EFSF beyond the 440 billion euros already committed. Precise techniques allowing full fund capacity to be used have yet to be spelled out. But the technical work goes much deeper - exploring ways to enable more flexible credit lines to be extended to governments.
Proposals include "widening fund operations and interventions that could involve acquiring the debt of any eurozone member state," the Portuguese finance minister, Fernando Texeira dos Santos, said Thursday, a move that would relieve that burden from the European Central Bank. Portugal is widely viewed by analysts to be next to need bailout assistance, while Spain, whose government announced plans on Friday to part-nationalise savings banks over-exposed to a burst property bubble, is also causing concern.
Several German newspapers this week reported another idea under consideration - allowing the EFSF to loan money to struggling governments to buy back their own debt on the bond market at a discount.
According to the German press, Berlin is pushing for such a plan as a way of allowing Greece to restructure its debt - claims that Athens, Berlin and Brussels have each denied. "Nonsense," was how the European Commission put it on Thursday.
Ireland is also pushing for a re-negotiation of its loan terms, its finance minister Brian Lenihan has admitted publicly. EU commission head Jose Manuel Barroso wants decisions taken quicker, telling Stuttgarter Zeitung on Friday that "we now have to clearly show markets that we are not only in the business of producing declarations, but (also) decisions." He said his view was shared by the head of the ECB, Jean-Claude Trichet. Barroso said he did not understand German "reticence" on a faster structural overhaul.
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