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Eurozone ministers closer to firewall boost Eurozone ministers boost firewall to $1tn
(40 minutes later)
Finance ministers in Copenhagen are close to a deal to increase the size of the eurozone's rescue fund. Finance ministers in Copenhagen have agreed to increase the size of the eurozone's rescue funds.
Austrian Finance Minister Maria Fekter said that eurozone countries had agreed to boost the joint lending power of the "firewall" from 500bn to 800bn euros ($1.1tn; £667bn). Eurozone countries agreed to boost the joint lending power of the "firewall" from 500bn to 800bn euros ($1.1tn; £667bn).
Germany has resisted calls to boost the size of the fund to 1 trillion euros. "The stability and integrity of the Economic and Monetary Union have required swift and vigorous measures," href="http://consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/129381.pdf" >they said.
The firewall is the eurozone's permanent mechanism to bail out troubled eurozone nations. The firewall is the permanent mechanism to bail out troubled eurozone nations.
There has been no official confirmation of the rescue fund increase from the summit of the finance ministers of the 17 nations that use the euro in the Danish capital.
As Spain and Italy's finances have looked more precarious, investors have been worried about whether the eurozone's firewall could cope with more bailouts.As Spain and Italy's finances have looked more precarious, investors have been worried about whether the eurozone's firewall could cope with more bailouts.
"Robust firewalls have been established," the eurozone ministers said. "This comprehensive strategy has paid off and led to a significant improvement of market conditions."
In reality, what the eurozone is doing is moving up the timetable of its permanent bailout fund to make it active earlier.
The existing fund - the European Financial Stability Facility (EFSF) - has already been used to rescue the Republic of Ireland and Portugal, and is committed to providing part of Greece's second bailout.
It will have only 200bn euros in remaining lending capacity from the middle of this year, which can only be used for new rescues "in exceptional circumstances".
The European Stability Mechanism (ESM) was originally intended to be a permanent replacement for the EFSF, but now the two will overlap from the middle of this year.
The combined lending of the two funds will be set at a total of 700bn euros.
Including two other loans to Greece, the eurozone said the firewall is now above 800bn euros.
Debate of size
Earlier this week the Organisation for Economic Co-operation and Development - a forum of the world's rich democratic nations - recommended increasing the bailout funds to 1 trillion euros, or about 11% of the eurozone's gross domestic product.Earlier this week the Organisation for Economic Co-operation and Development - a forum of the world's rich democratic nations - recommended increasing the bailout funds to 1 trillion euros, or about 11% of the eurozone's gross domestic product.
But as well as Germany, Finland and the Netherlands are also thought to favour only a modest increase. But Germany favoured only a modest increase at the summit of the finance ministers of the 17 nations that use the euro in the Danish capital.
'Right' size?
As recently as this week, German Chancellor Angela Merkel said that she would favour only a temporary increase to 700bn euros.As recently as this week, German Chancellor Angela Merkel said that she would favour only a temporary increase to 700bn euros.
But her finance minister, Wolfgang Schaeuble, has mentioned a figure of 800bn euros - suggesting that they have accepted some of the concerns of their partners.But her finance minister, Wolfgang Schaeuble, has mentioned a figure of 800bn euros - suggesting that they have accepted some of the concerns of their partners.
And the Republic of Ireland's Michael Noonan said: "The maximum I think that is on the table today could be 940bn euros and that would be an impressive figure and would send a very clear signal to the markets. And the Republic of Ireland's Michael Noonan said: "If we get to 800 or beyond 800, the denominated amount in dollars... presents a very serious firewall to prevent attacks on Europe."
"But if we get to 800 or beyond 800, the denominated amount in dollars... presents a very serious firewall to prevent attacks on Europe." Many eurozone members, including France, were thought to be in favour of a big increase in order to ensure that larger eurozone countries are not drawn back into the crisis.
Many eurozone members, including France, are thought to be in favour of a big increase in order to ensure that larger eurozone countries are not drawn back into the crisis.
Concerns have been raised over Spain, which has failed to cut its borrowing as much as promised, and which faces violent protests against labour market reforms intended to boost its flagging economy.Concerns have been raised over Spain, which has failed to cut its borrowing as much as promised, and which faces violent protests against labour market reforms intended to boost its flagging economy.
"I am confident of our capacity to reach an agreement, we will reach a consensus," said French Finance Minister Francois Baroin as he arrived for the talks."I am confident of our capacity to reach an agreement, we will reach a consensus," said French Finance Minister Francois Baroin as he arrived for the talks.
"The right size of the fund depends on how you approach the issue.""The right size of the fund depends on how you approach the issue."
The finance ministers are also expected to discuss making the eurozone's second bailout fund - the European Stability Mechanism (ESM) - available more quickly. Third bailout?
The existing fund - the European Financial Stability Facility (EFSF) - has already been used to rescue the Republic of Ireland and Portugal, and is committed to providing part of Greece's second bailout.
It will have only 200bn euros in remaining lending capacity from the middle of this year, which the draft statement said would only be used for new rescues "in exceptional circumstances".
Third bailout?
The ESM was originally intended to be a permanent replacement for the EFSF, but now the two are expected to overlap from the middle of this year.
Meanwhile, Greek Prime Minister Lucas Papademos has raised the possibility of a third bailout for his country in an interview with Italian daily Il Sole 24 Ore.Meanwhile, Greek Prime Minister Lucas Papademos has raised the possibility of a third bailout for his country in an interview with Italian daily Il Sole 24 Ore.
"It cannot be excluded that some financial support may be necessary, but we must try hard to avoid such an outcome," Mr Papademos said."It cannot be excluded that some financial support may be necessary, but we must try hard to avoid such an outcome," Mr Papademos said.
"Greece will do everything possible to make a third adjustment programme unnecessary."Greece will do everything possible to make a third adjustment programme unnecessary.
"Having said that, markets may not be accessible by Greece even if it has implemented fully all measures agreed upon," he said."Having said that, markets may not be accessible by Greece even if it has implemented fully all measures agreed upon," he said.