Belgian Finance Minister Didier Reynders said the euro region could increase the size of its 750 billion-euro ($1 trillion) bailout fund, breaking ranks with German Chancellor Angela Merkel and France’s Nicolas Sarkozy.
Reynders told reporters in Brussels yesterday that the current cash pool could be increased if governments decide to create a larger fund as part of a permanent crisis mechanism in 2013. “If we decide this in the next weeks or months, why not apply it immediately to the current facility?”
European officials are under pressure to find new ways to stop contagion spreading from Greece and Ireland amid concern the bailout package may not be large enough to rescue Spain if needed. While Sarkozy and Merkel rejected expanding the fund on Nov. 25, European Central Bank President Jean-Claude Trichet on Dec. 3 indicated governments should consider just such a move.
The International Monetary Fund also supports boosting the facility after 2013, Reynders said at the end of a week in which Belgian bond spreads jump to the highest in at least 17 years.
“The IMF is in favor of a larger mechanism,” said Reynders, who said that the fund didn’t need to be increased right away. “They are ready to follow the process if we decide in Europe.”
IMF spokesman Wiliam Murray declined to comment. Managing Director Dominique Strauss-Kahn is scheduled to join a regular meeting of euro region finance ministers in Brussels tomorrow.
Reynders said ministers will discuss the outlook for Portugal, which is struggling to quash speculation it will also need a bailout.
“I said two weeks ago that it’s quite needed for Ireland to ask for help,” he said. “We need now to find a remedy for Portugal to see is it necessary or not, but to avoid the contagion. We will follow that in the next weeks and months.”
Reynders’s comments come as Trichet challenges political leaders to do more to fix their budgets and stamp out a sovereign debt crisis that’s ricocheted through European markets for more than a year. Asked about increasing the size of the cash pool on Dec. 3, he said that “everything they do needs to be commensurate to the dimension of the challenges.”
“This is true in all domains, qualitative as well as quantitative,” Trichet said. “They must go as far as possible and be as effective as possible.”
A market rout in the aftermath of Ireland’s bailout last week pushed the ECB into a new wave of bond purchases.
The extra yield that investors demand to hold Portuguese 10-year bonds over German bunds on Dec. 3 fell below 300 basis points for the first time since August after touching 428 basis points on Nov. 29. Ireland’s 10-year yield plunged 30 basis points to 8.2 percent on Dec. 3 and the Spanish 10-year yield, which hit 5.67 percent on Nov. 30, closed at 5.1 percent.
The premium on Belgian 10-year bonds rose to 133 basis points on Nov. 30.
“The difficulty we have is like other countries in Europe: we need to solve the problem of contagion coming from Greece, Ireland and maybe now Portugal,” Reynders said. “We don’t have any real problem in Belgium for the moment like that.”
The worsening crisis this past week prompted Spain to push through more measures to trim its budget deficit just one week after saying such a step wouldn’t be needed.
Spain’s Cabinet on Dec. 3 raised tax on tobacco and set a date for a pension overhaul. Two days earlier, the government said it plans to raise about 14 billion euros ($18.4 billion) from selling stakes in the airport operator and lottery company.
“Time has run out; we have been talking for months,” Deputy Prime Minister Alfredo Perez Rubalcaba told reporters, referring to the pension plan. “We are going to work even harder to reach agreements.”
EU ministers are hammering out a permanent crisis mechanism that will be set up in 2013 and would also include a bailout fund.
“The permanent mechanism must be with a huge amount of money -- if you don’t organize, you always have speculation if it is enough for one, two or more countries,” Reynders said. “For the moment the discussion next week will be about approving the plan for Ireland and then to have some information about the situation in Portugal.”