Monday, December 19, 2011

EU leaders discuss IMF measures to create firewall against debt crisis

European finance ministers discussed ways of boosting IMF resources to build a better firewall against the debt crisis today, while also assessing plans for tighter euro zone fiscal rules that they hope will prevent the problems from worsening.

With new governments in Italy and Spain redoubling austerity efforts, the EU ministers were locked in a three-hour teleconference call with discussions focused on the draft text of a new "fiscal compact" that they aim to have finalized by the end of January, EU officials said.

The call, expected to end around 12:30 am. EST, was also expected to examine issues surrounding the euro zone's permanent bailout fund, with Finland unhappy about plans to weaken the unanimity rule governing how the European Stability Mechanism is run.

Having agreed to offer 150 billion euros to the International Monetary Fund to raise its crisis-fighting capacity, ministers were debating the size of individual bilateral loans to the Fund, with up to 50 billion euros more expected to come from countries outside the euro zone.

The European Central Bank will offer three-year funds to banks for the first time on Wednesday, an effort to counter the freeze in interbank lending. France hopes banks will use the money to buy euro zone bonds but with banks under pressure to reduce risk

ECB President Mario Draghi began two hours of testimony to the European Parliament at 1530 GMT. He told the Financial Times that the ECB could not start printing money and gave no signal that it would buy euro zone government bonds more aggressively.

Speaking at a ceremony in Rome, Italian President Giorgio Napolitano called for a "strengthening of the still insufficient firewalls" necessary to defend sovereign debt and the euro.