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Eurozone talks

November 8, 2011

Eurozone finance ministers have agreed on a timescale, if not the details, for an enlarged fund to allay market doubts about sovereign debt. Limited progress was made as concerns remained over Italy and Greece.

ECB chief Draghi and Greek Finance Minister Venizelos
Italy and Greece dominated euro finance ministers' discussionsImage: dapd

Assembled finance ministers from the 17 members of the eurozone could only agree on a timetable for boosting the bloc's rainy-day fund in their meeting on Monday night.

The plan to give the European Financial Stability Facility (EFSF) greater leverage to intervene and lend - aimed at boosting its theoretical firepower without investing hard currency - is still in place, but details are unlikely to be finalized before the end of November.

Currently the collection of credit guarantees from eurozone countries has an estimated "firepower" of 440 billion euros ($600 billion) - a figure that should be increased to one trillion euros.

Extra funding could be raised by issuing partially guaranteed government bonds, to make them more attractive, or by setting up a special fund to attract private capital.

The EFSF "will now consult with market participants in order to come up with the most effective arrangements," the chairman of the Eurogroup, Jean-Claude Juncker, said at the close of talks between finance ministers from across the eurozone.

German Finance Minister Wolfgang Schaeuble, left, speaks with Greek Finance Minister Evangelos Venizelos
Prime Minister George Papandreou will not be part of the next Greek governmentImage: dapd

"We intend to finalize the work of the operational details of the two options by the end of November in the form of guidelines that will be approved by the Eurogroup so that implementation can take place in December," he said.

Before the meeting, Juncker, Luxembourg's premier, had referred to the process as "insanely complicated and insanely important."

Market doubts around Italy

Meanwhile, market pressure on Italy worsened. The country's 1.9 trillion euros ($2.6 trillion) debt mountain, and risk of it not being paid back, caused yields on its debts bonds to reach a record of just below 6.6 percent in Monday's trading.

That puts it closer to the 7 percent yield threshold on bonds that led Greece, Ireland and Portugal to request bailouts.

Markets had eased after rumors that Italian Prime Minister Silvio Berlusconi was about to resign, allowing a new government to push through austerity measures demanded by the EU. However, speculation against the eurozone's third-largest economy resumed after a defiant Berlusconi said on his Facebook page that he would not step down.

Need for reassurance

Italy was expected by other eurozone members to answer "very specific questions concerning the implementation" of its austerity and growth policies "by the end of this week," EU Economy Commissioner Olli Rehn said.

"For Italy, it is now crucial to implement the fiscal policies as outlined in the letter of the prime minister and accelerate structural reforms in order to boost growth and job creation," Rehn said, adding that Italian Finance Minister Guilio Tremonti had done much to reassure fellow ministers.

Italy decided to submit its its finances to international scrutiny last week. The European Central Bank, the European Commission and the IMF were due to begin monitoring Italian finances in coming days.

Italian Prime Minister Silvio Berlusconi
Markets reacted positively to rumors that Berlusconi might stand downImage: dapd

Cross-party commitment sought

In negotiations regarding Greece, Athens was told it would receive the next tranche of emergency loans, worth 8 billion euros, if leaders of the countries two main political parties could give a written commitment to implement austerity measures that are part of the agreement.

"Whoever wins the election, the question of whether [Greece's] European obligations will be met should not be dependent on the outcome of the election," said German Finance Minister Wolfgang Schäuble on Monday.

Greek Finance Minister Evangelos Venizelos said that his fellow finance ministers had "very warmly" greeted political developments in Greece, as negotiations to form a transitional government continued.

Author: Richard Connor, Mark Hallam (AFP, dpa, Reuters)
Editor: Nancy Isenson