EU entering ‘critical period’ to resolve debt crisis

EU finance ministers are meeting in Brussels after a top official said the region had just days to take decisive action to resolve the crisis.

EU Monetary Affairs Commissioner Olli Rehn said: “We are now entering the critical period of 10 days to complete and conclude the crisis response”.

The meeting comes a day after eurozone ministers agreed measures to expand the region’s bailout fund.

But they said it was unlikely to hit its 1tn euro ($1.3tn; £860bn) target.

Eurogroup chief Jean-Claude Juncker said the expansion of the fund, known as the European Financial Stability Facility (EFSF), would still be “substantial”.

European leaders want to bolster the EFSF, which currently has a lending capacity of 440bn euros, in case large economies such as Italy or Spain need to call for bailout money.

Fears that Italy in particular may need financial assistance were raised on Tuesday when the government was forced to pay much higher interest rates in a bond auction.

Private investors

Ministers did agree to allow the bailout fund to partially guarantee potential losses investors might incur on the purchase of government bonds.

In a statement, the EFSF said the guarantee would give a bondholder “an amount of fixed credit protection of 20% to 30% of the principal amount of the sovereign bond”.

Ministers also decided to create co-investment funds to allow public and private investors to participate in the EFSF. But fund chief Karl Regling said it was impossible to give a figure at this stage.

Ministers also agreed to release the latest 8bn euro tranche of bailout money to Greece.

Earlier this week, France and Germany proposed closer ties between eurozone economies, including binding limits on borrowing.

Source: BBC