Eurozone ministers finally handed Greece an 8 billion euro (US$10.7 billion) rescue loan to fend off its immediate cash crisis yet failed to resolve overall fears about the viability of the euro.
Even as Italy’s borrowing costs skyrocketed to a euro-era record, the finance ministers failed to increase the European bailout fund to match earlier predictions and kicked other major financial issues — such as a closer fiscal union — over to their bosses, the EU leaders meeting next week in Brussels.
The ministers did agree to use the fund to offer financial protection of 20 percent to 30 percent to investors who bought new bonds from troubled eurozone nations.
“We made important progress on a number of fronts,” Eurogroup President Jean-Claude Juncker said late on Tuesday. “This shows our complete determination to do whatever it takes to safeguard the financial stability of the euro.”
EU Economic and Monetary Affairs Commissioner Olli Rehn said eurozone nations needed to work on many financial issues at once to ease global pressure on their currency.
“There is no one single silver bullet that will get us out of this crisis,” Rehn told reporters.
However, the question of how to beef up the leverage capacity of the European Financial Stability Facility from its current 440 billion euros to a hoped-for 1 trillion euros was not resolved. The fund is supposed to be a firewall that protects European nations from the financial chaos of their neighbors.
European Financial Stability Facility chief executive officer Klaus Regling refused to give a specific size for the fund after Tuesday’s meeting, but assured reporters it was more than big enough to deal with Europe’s immediate debt problems.
“To be clear, we do not expect investors to commit large amounts of money during the next few days or weeks,” Regling said. “Leverage is a process over time.”
Dutch Finance Minister Jan Kees de Jager said investors had appeared less eager than originally anticipated.
“It will be very difficult to reach something in the region of a trillion. Maybe half of that,” he said.
Italy remained an enormous concern. Carrying five times as much debt as Greece, Italy was battered for the third straight day on Tuesday in the bond markets, seeing its borrowing rates soar to unsustainable levels of 7.56 percent. Investors appear increasingly wary of the country’s chances of avoiding default — and making matters worse, the eurozone’s third-largest economy is deemed too big for Europe to bail out.
The ministers still insisted Italy’s new prime minister has promised to balance Italy’s budget by 2013.
“We have full confidence that [Italian Prime Miniter] Mario Monti will be able to deliver this program,” Juncker said.
The eurozone ministers also called on the IMF for more resources to help further protect Europe’s embattled currency. However, the IMF has only about US$390 billion available to lend, which would not be anywhere near enough to rescue Italy.
The eurozone ministers agreed to seek new ways to increase the resources of the IMF through bilateral loans that could protect EU nations facing financial trouble.
French Finance Minister Francois Baroin said it was “evident” that the eurozone was moving toward greater fiscal convergence and better coordination of budgets.
He said, far from indicating a loss of national sovereignty, these moves would guarantee countries’ sovereignty by helping them bring down their debt burdens.