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Eurozone collapse 'inconceivable' Eurozone collapse 'inconceivable'
(about 1 hour later)
The head of the European Union's main bail-out fund has dismissed the possibility of a break up of the 16-nation eurozone.The head of the European Union's main bail-out fund has dismissed the possibility of a break up of the 16-nation eurozone.
Klaus Regling of the European Financial Stability Facility (EFSF) said it was "inconceivable that the euro fails".Klaus Regling of the European Financial Stability Facility (EFSF) said it was "inconceivable that the euro fails".
There has been speculation that some countries may be forced to give up the euro in light of the Irish debt crisis.There has been speculation that some countries may be forced to give up the euro in light of the Irish debt crisis.
The currency has fallen by more than three cents against the dollar this week because of events in the Republic.The currency has fallen by more than three cents against the dollar this week because of events in the Republic.
Market doubtsMarket doubts
The single currency rallied back slightly in Thursday afternoon trading to $1.3375, but has still lost 3.4 cents or 2.5% of its value against the dollar since the beginning of the week.The single currency rallied back slightly in Thursday afternoon trading to $1.3375, but has still lost 3.4 cents or 2.5% of its value against the dollar since the beginning of the week.
Against the pound, the euro is down 1.2% since Monday at 84.8p.Against the pound, the euro is down 1.2% since Monday at 84.8p.
Meanwhile, the bond yields of debt-troubled eurozone governments have continued to rise, suggesting that markets are becoming ever less comfortable about lending them money.Meanwhile, the bond yields of debt-troubled eurozone governments have continued to rise, suggesting that markets are becoming ever less comfortable about lending them money.
The 10-year Irish bond yield rose to 9.08% - above the highs seen prior to the start of the bailout talks. Spanish bonds also fell in value, raising the 10-year yield to 5.2%.The 10-year Irish bond yield rose to 9.08% - above the highs seen prior to the start of the bailout talks. Spanish bonds also fell in value, raising the 10-year yield to 5.2%.
In or out?In or out?
Mr Regling told Germany's Bild newspaper there was "zero chance" that the euro would collapse.Mr Regling told Germany's Bild newspaper there was "zero chance" that the euro would collapse.
"No country will voluntarily give up the euro - for weaker countries that would be economic suicide, likewise for stronger countries," he said."No country will voluntarily give up the euro - for weaker countries that would be economic suicide, likewise for stronger countries," he said.
Germany's Chancellor, Angela Merkel, also chimed in, saying that she is "more confident than this spring that the European Union will emerge strengthened from the current challenges".Germany's Chancellor, Angela Merkel, also chimed in, saying that she is "more confident than this spring that the European Union will emerge strengthened from the current challenges".
It follows more negative comments she made earlier in the week, when she described the euro's plight as "exceptionally serious".It follows more negative comments she made earlier in the week, when she described the euro's plight as "exceptionally serious".
Questions have been raised about the cost to the EU, and the International Monetary Fund, of bailing out eurozone members - over the summer, Greece was bailed out to the tune of 110bn euros ($147bn; £93bn), while the Irish Republic is currently negotiating what is expected to be an 85bn-euro rescue package.Questions have been raised about the cost to the EU, and the International Monetary Fund, of bailing out eurozone members - over the summer, Greece was bailed out to the tune of 110bn euros ($147bn; £93bn), while the Irish Republic is currently negotiating what is expected to be an 85bn-euro rescue package.
Many commentators have also pointed out that eurozone countries are unable to devalue their own currency - one of the key methods many governments use to trade their way out of recessions, as a weaker currency makes exports cheaper.Many commentators have also pointed out that eurozone countries are unable to devalue their own currency - one of the key methods many governments use to trade their way out of recessions, as a weaker currency makes exports cheaper.
As a result, some have suggested that countries like the Irish Republic and Greece would be better off outside the zone.As a result, some have suggested that countries like the Irish Republic and Greece would be better off outside the zone.
Fund upsizeFund upsize
Worries about the finances of other eurozone governments - in particular Portugal and increasingly Spain - are putting pressure on the euro and government bonds.Worries about the finances of other eurozone governments - in particular Portugal and increasingly Spain - are putting pressure on the euro and government bonds.
Much of the money for the Irish bail-out will come from the 440bn-euro EFSF, which was set up during the summer as a general rescue fund for eurozone governments. Much of the money for the Irish bail-out will come from the 750bn-euro EFSF, which was set up during the summer as a general rescue fund for eurozone governments.
European Central Bank council member Axel Weber said late on Wednesday that the fund could be increased if needed.European Central Bank council member Axel Weber said late on Wednesday that the fund could be increased if needed.
"Seven-hundred-and-fifty billion [euros] should be enough to assure the markets," he said. "If not, it will have to be increased.""Seven-hundred-and-fifty billion [euros] should be enough to assure the markets," he said. "If not, it will have to be increased."
But on Thursday, the European Commission and the German finance ministry denied any imminent plans to upsize the fund after a report in the German newspaper, Die Welt, claimed it would be doubled.But on Thursday, the European Commission and the German finance ministry denied any imminent plans to upsize the fund after a report in the German newspaper, Die Welt, claimed it would be doubled.
"We think the question does not arise because only one country so far [Ireland] has applied for assistance," a finance ministry spokesman said."We think the question does not arise because only one country so far [Ireland] has applied for assistance," a finance ministry spokesman said.
Bank testsBank tests
Meanwhile, the EU intends to hold a new round of stress tests next year, to check the robustness of Europe's banks.Meanwhile, the EU intends to hold a new round of stress tests next year, to check the robustness of Europe's banks.
It was a run on the government-guaranteed Irish banks by businesses and big financial firms that drove Dublin to seek a rescue from the EU and IMF.It was a run on the government-guaranteed Irish banks by businesses and big financial firms that drove Dublin to seek a rescue from the EU and IMF.
European officials claim that the new tests will be much more stringent than a previous set of tests carried out over the summer.European officials claim that the new tests will be much more stringent than a previous set of tests carried out over the summer.
"We can expect truly demanding tests over the course of 2011," said Jonathan Faull, head of the internal market unit of the European Commission."We can expect truly demanding tests over the course of 2011," said Jonathan Faull, head of the internal market unit of the European Commission.
The European Central Bank is said to want to include an additional test of whether banks have enough cash in reserve in case they suffer the kind of deposit flight that afflicted those from Ireland.The European Central Bank is said to want to include an additional test of whether banks have enough cash in reserve in case they suffer the kind of deposit flight that afflicted those from Ireland.
The results of the first stress tests were published in July in a bid to reassure markets during an earlier chapter of the sovereign debt crisis.The results of the first stress tests were published in July in a bid to reassure markets during an earlier chapter of the sovereign debt crisis.
Of the 91 major European banks scrutinised, only seven - in Greece and Spain - failed.Of the 91 major European banks scrutinised, only seven - in Greece and Spain - failed.
All of the major Irish banks passed. However, now the Irish government is set to almost completely nationalise Allied Irish Banks and Bank of Ireland.All of the major Irish banks passed. However, now the Irish government is set to almost completely nationalise Allied Irish Banks and Bank of Ireland.