Sun, Aug 21, 2011 - Page 11 News List

Pressure for action on euro debt rises

COLLATERAL DAMAGE:With Germany opposed to a big increase in the bailout fund, political tensions are overshadowing the urgent need for economic unity

Reuters, VIENNA and BRUSSELS

For markets though, the issue of collateral may be more of a sideshow compared with the debate on additional support for the zone.

Germany, the eurozone’s chief paymaster, has repeatedly opposed a big increase in the bailout fund and says that common eurozone bonds would remove incentives for fiscal prudence, rewarding profligate nations.

European Central Bank Executive Board member Juergen Stark described jointly issued bonds on Friday as a “false solution.”

Despite that, BNP Paribas chief eurozone market economist Ken Wattret said he believed eurozone leaders would ultimately agree to launch common bonds and to increase the bailout fund.

“It would be helpful for markets if the EFSF [European Financial Stability Facility] were increased now, but the political reality is that this is unlikely to happen until at least later in the year,” he said.

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