Troubled Franco-Belgian bank Dexia is drawing on emergency liquidity funds, a banking source said on Thursday, as its host governments rush to finalise a long-awaited deal to provide guarantees on its debt. A French Finance Ministry source said on Thursday an interim agreement to guarantee Dexia's financing would be signed "within days" and would be based on the deal reached in October.
That echoed comments by Belgian Finance Minister Didier Reynders, who said on Wednesday he hoped to reach an agreement with the European Commission about Dexia's restructuring plan in the coming days. Belgium, which is expected to be liable for 60.5 percent of the 90 billion euros ($120 billion) in guarantees that it, France and junior partner Luxembourg said last month they would provide, has now been hit by the eurozone debt crisis.
With national debt totalling 100 percent of GDP and without a formal government since elections almost 18 months ago, Belgium saw the risk premium on its bonds over 10-year German Bunds reach its highest level since the introduction of the euro on Thursday. France, which is due to provide 36.5 percent of the guarantees, leaving Luxembourg with the remaining 3 percent, has its own concerns on debt, with credit rating agency Fitch saying on Wednesday that the country would have limited room to absorb any new shocks to its public finances without endangering its AAA status.