Italy PM says the higher the firewall the better: Nikkei

TOKYO: Italian Prime Minister Mario Monti believes that the bigger the lending capacity of the euro zone's bailout funds, the better, though the scheme must also be realistic,
Japan's Nikkei business daily reported on Sunday.

The euro zone, struggling with a sovereign debt crisis, has been debating the size of a bailout firewall aimed to facilitate the handling of fallout if the debt crisis spreads. Its finance ministers will meet on March 30 and 31 to discuss the issue.

Almost all of the currency bloc's 17 member states favour increasing the firewall to reassure markets that it can shield indebted, big economies such asItalyandSpain, if needed.

Media said on Saturday thatGermanywas ready to drop its resistance, paving the way for an agreement.

"Each member state feels a tension between two considerations," Monti told the Japanese newspaper in an interview published on its English-language website.

"Endowing financially a firewall means putting up money ... On the other hand, the higher the firewalls, the least likely it is that they have to be actually used, because the deterrence effect on market speculation may discourage speculation altogether."

Asked whether the firewall's size should be raised to 700 billion euros ($928.4 billion), one of the options being debated, Monti said: "I say the higher the better. But there is a realism also to be taken into account."

The euro zone has a temporary crisis fund, the 440 billion euro European Financial Stability Facility (EFSF), that is set to be wound up next year.

EURO BOND "CROWN"

From July, it will also have a permanent mechanism, the 500 billion euro European Stability Mechanism (ESM) that will replace the EFSF.

The two funds have a combined lending ceiling of 500 billion euros and will not be able to lend beyond that limit while they are co-existing.

Finance ministers are moving closer to agreeing on combining the ESM's 500 billion euros with 200 billion euros from the EFSF already earmarked forGreece,PortugalandIreland, diplomats said.

Another option would be to allow the funds to run together at a full combined capacity of 940 billion euros, a proposal some diplomats have suggested as unrealistic.

Monti, who replaced his predecessor, Silvio Berlusconi, in November, also told the Nikkei that commonly backed euro zone bonds could be realised.

"Now that the fiscal compact is in place, I think the conditions for a more structured fiscal union are almost completely in place and the euro bond may be the coronation that places the crown on this process," he said, referring to a new euro zone budget discipline treaty.

All but two EU members have signed the treaty, which allows a country to be sued if budget rules are flouted.

The 69-year-old Italian economist will attend a two-day nuclear security summit from Monday inSouth Korea, then visitJapanfor four days from Tuesday. InTokyo, he will meet his Japanese counterpart, Yoshihiko Noda.