ECB's Weber Says Europe's Rescue Fund Could Be Increased If More Needed
ECB Council Member Axel Weber
Hannelore Foerster/Bloomberg
European Central Bank council member Axel Weber said, “The governments will do what is necessary to see the euro maintained.”
European Central Bank council member Axel Weber said, “The governments will do what is necessary to see the euro maintained.” Photographer: Hannelore Foerster/Bloomberg
Nov. 25 (Bloomberg) -- Simon Derrick, chief currency strategist at Bank of New York Mellon Corp., talks about the sovereign debt crisis in Europe's so-called peripheral nations. He speaks with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)
European Central Bank council member Axel Weber said governments can increase the size of the European Union-led bailout fund if necessary to restore confidence in the euro.
“Seven hundred and fifty billion should be enough to assure the markets,” Weber said at the German embassy in Paris late yesterday. “If not, it will have to be increased.” In a worst-case scenario, the fund would need an additional 140 billion euros ($187 billion), an amount that would not jeopardize the survival of the euro, Weber said in Berlin today.
Contagion from Europe’s sovereign debt crisis is spreading to Spain, sparking concern that the bailout fund set up in May isn’t large enough to rescue the euro region’s fourth-largest economy. The premium on Spanish debt over German bunds rose to a euro-era record yesterday and Portugal’s bonds fell on concern they will follow Ireland and Greece in asking for external aid.
“It is far from certain whether the fund can be increased as easily as that,” given governments may face domestic resistance to a top-up request, Commerzbank AG analysts wrote in a research note today. “So there is a danger that markets are going to consider this statement to be premature, thus increasing market skepticism regarding the ability to act among those responsible.”
Spain’s economy is almost twice the size of Portugal, Greece and Ireland combined. Deputy Finance MinisterJose Manuel Campa said in an interview yesterday the country’s funding position for the rest of the year is “comfortable.”
Spanish Yield
The yield on Spain’s 10-year government bond rose to 5.17 percent at 4:37 p.m. in London. The euro traded at $1.3370.
The European Union and the International Monetary Fund established the 750 billion-euro fund in May after Greece’s near-default threatened the survival of the single currency. Klaus Regling, who runs the largest part of the fund, told Bild- Zeitung in an interview published today that it’s large enough for all member states.
Germany, which today ruled out expanding the fund, is resisting pressure from the European Commission to double its size, Die Welt newspaper reported without saying where it got the information.
Weber said in Berlin today that if Greece, Ireland, Portugal and Spain were unable to refinance government debt -- a scenario he considers inconceivable -- rescue funds of 1.07 trillion euros would be needed.
140 Billion Euros
About 925 billion euros has already been committed through the 750-billion euro rescue fund, the 110-billion euro Greek aid package and the 65 billion euros of ECB bond purchases, leaving a shortfall of about 140 billion euros, Weber said. “The euro won’t fail as a result of this difference.”
Weber, who has said the ECB needs to start withdrawing some of its emergency stimulus measures next year, said governments will “do what is necessary to see the euro maintained.”
A leading candidate to take over from Jean-Claude Trichet as head of the ECB next year, Weber backed German government proposals to create a permanent crisis-resolution mechanism once the bailout fund expires in 2013.
“In order not to distort incentives for investors, private creditors shouldn’t be relieved of their responsibility,” said Weber, who heads Germany’s Bundesbank. Future aid for euro- member states should be tied to “strict conditions” and only be used “when the stability of the monetary union as a whole is in danger,” he said.
Ireland on Nov. 21 applied to the EU for a rescue to bail out its banking system. Weber said the ECB “welcomes” Ireland’s request for help and is “confident” the package will help stabilize the country’s financial system.
To contact the reporters on this story: Christian Vits in Frankfurt at cvits@bloomberg.net; Mark Deen in Paris at markdeen@bloomberg.net
To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net
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