WASHINGTON (Reuters) – Europe is working on ways to boost the firepower of its bailout fund, top officials said yesterday, after the United States, China and other countries urged swift action to contain its debt crisis.
With financial markets plunging on fears that Greece’s near-bankruptcy could spread to other euro zone countries, European policymakers were seeking to prevent a repeat of the kind of financial chaos that swept the world in 2007-2009.
The European Union’s top economic official, Olli Rehn, said as soon as governments confirm new operational powers for the 440-billion-euro fund, known as the EFSF, attention will turn to how to get more advantage from the existing money.
“As one part of the next stage we are contemplating the possibility of leveraging the EFSF resources to have more firepower and thus have a stronger financial firewall to support our member states,” he said.
Another official said Germany would not agree to expanding the rescue fund’s size, so leveraging it was necessary.
“We need to find a mechanism where we can turn one euro in the EFSF into five, but there is no decision on how we could do that yet,” the official said.The United States and other countries have urged Europe to leverage up the fund, possibly with support from the European Central Bank.
The International Monetary Fund’s steering committee said in a statement the euro zone would do whatever was necessary to resolve the single currency bloc’s sovereign debt crisis.
The IMF warned that the global economy had “entered a dangerous phase, calling for exceptional vigilance, coordination and readiness to take bold action” to cope with Europe’s crisis and prevent it infecting others.
Greece is at the forefront of the crisis that has struck a number of countries on the 17-nation euro zone’s periphery. Debt-laden Italy, the third-biggest euro zone economy, has also struggled to retain investor confidence but Italian Economy Minister Giulio Tremonti insisted on Saturday its financial house was “in order.”
US Treasury chief Timothy Geithner, in his most explicit warnings to date, said the ECB should take a more central role in fighting the crisis.
