Euro zone ministers agreed on Tuesday to ramp up the firepower of their rescue fund but couldn't say by how much and raised the possibility of asking the IMF for more help after Italy's borrowing costs hit a Euro lifetime high of nearly 8%.
Two years into Europe's sovereign debt crisis, investors are fleeing the Euro zone bond market, European banks are dumping government debt, deposits are draining from south European banks and a looming recession is aggravating the pain, fuelling doubts about the survival of the single currency.
The 17 ministers agreed on a detailed plan to insure the first 20-30% of new bond issues for countries having funding difficulties and create co-investment funds to attract foreign investors to buy euro zone government bonds.
Both schemes would be operational by January with about 250 billion Euros from the euro zone's EFSF bailout fund available to leverage after funding a second rescue program for Greece, Euro-group chairman Jean-Claude Juncker said.
The aim was for the IMF to match and support the new firepower of the European Financial Stability Facility, Juncker told a news conference.
We also agreed to rapidly explore an increase of the resources of the IMF through bilateral loans, following the mandate from the G20 Cannes summit, so that the IMF could adequately match the new firepower of the EFSF and cooperate even more closely, he said.
But with China and other major sovereign funds reticent about investing more in euro zone debt, EFSF chief Klaus Regling said he did not expect investors to commit major amounts to the leveraging options in the next days or weeks, and he said he couldn't put a figure on the final size of the leveraged fund.
The Euro-group ministers agreed to release their portion of an 8 billion Euro aid payment to Greece, the 6th instalment of 110 billion Euros of EU/IMF loans agreed last year and necessary to help Athens stave off the immediate threat of default.
Juncker said the money would be released by mid-December, once the IMF signs off on its portion early next month.
With Regling unable to put a single figure on the scaled up EFSF, which EU leaders had hoped would reach 1 trillion euros, Finance ministers said the IMF may have to provide more help, possibly bolstered with European money.
We will have to look at the IMF which can also make available additional funds for the emergency fund. I think countries in Europe and outside of Europe should be prepared to give more money to the IMF, Dutch Finance Minister Jan Kees de Jager told reporters.