Germany faced mounting pressure from its eurozone partners on Friday to boost a rescue fund for troubled member states after French Economy Minister Christine Lagarde said governments were considering expanding it.
-- Lagarde says increase in bailout fund an option
-- Germany rejects boosting fund, pushing for broader deal
-- Premium to hold Spanish, Italian debt falls further
In a sign of significant differences within the currency bloc in the runup to a meeting of its finance ministers next week, Chancellor Angela Merkel's spokesman said the fund set up in May was big enough and sources told Reuters that Berlin was determined to resist increasing it unless the crisis worsened.
Lagarde told a news conference: "The increase in the European Financial Stability Facility (EFSF) is one option which we are looking at, of course." In response, the German government reiterated that it saw no need to commit more funds to the 440 billion euro ($590 billion) facility, which has so far been tapped only by Ireland. "The volume is at the moment absolutely sufficient to fulfil the duties of the rescue fund," said Merkel's spokesman Steffen Seibert.
Senior European sources told Reuters that the sense of urgency in Berlin for boosting the fund had diminished after successful bond auctions this week in Spain and Portugal, the two countries seen most at risk of a bailout following rescues of Greece and Ireland last year. Instead Germany is pushing for broader anti-crisis measures to be agreed at a summit of European Union leaders in March.
But it must overcome major differences with France to seal what German Finance Minister Wolfgang Schaeuble has promised will be a "comprehensive" new anti-crisis package. Among the contentious issues, officials say, are France's wish to let the EFSF buy the bonds of vulnerable euro members and Germany's insistence that other members of the currency bloc be forced to introduce legislation similar to the "debt brake" rule it adopted in 2009.
Germany is also against lowering the punitive interest rate the EFSF charges states for its loans, a step other eurozone members believe is necessary to allow struggling economies in the bloc to reduce their debt mountains.
"Germany is not ready for a deal, not yet," one senior eurozone official said on Friday when asked about the prospects of an agreement next week on boosting the EFSF and allowing it to buy sovereign bonds. Officials in Berlin were furious when European Commission President Jose Manuel Barroso urged an increase in the size of the EFSF earlier this week, a call that was echoed by European Central Bank President Jean-Claude Trichet on Thursday.
Schaeuble said in a speech in Frankfurt on Friday that speculating over an increase in the fund was not helpful. He has said, however, that he is open to a discussion about enabling the existing fund to be used in full. Only around 250 billion euros of the 440 billion euro fund are effectively available to eurozone countries because of a complex loan guarantee system. That would probably not be enough to bail out both Portugal and Spain.
Euro zone leaders have a chance to capitalise on this week's successful bond auctions with new measures that could mark a significant shift in the crisis, analysts say. The auctions helped push down the premium investors demand to hold Italian and Spanish government bonds over German benchmarks further on Friday.