Europe faces a crucial ten days to save the eurozone, a leading EU monetary chief warned after finance ministers from the currency bloc admitted they may need IMF help to increase the firepower of their bailout fund.
10:45AM GMT 30 Nov 2011
"We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union," Economic and Monetary Affairs Commissioner Olli Rehn said on Wednesday as EU finance ministers met in Brussels.
His comments came as Gerard Lyons, chief economist at Standard Chartered, said: "The euro cannot survive in its present format."
"Throughout the year I have stressed that the world economy could suffer a double-dip if it was hit by one of three factors: an external shock, a policy mistake or a loss of confidence. Unfortunately, in recent months, the euro area has been hit by all three. And that is why the euro area will slip back into recession in 2012," he said in his Economic Outlook for November.
He warned that the scale of the downturn will be determined by eurozone leaders' policy actions and the extent to which confidence is hit.
Confidence in Europe remained low in financial markets on Wednesday on disappointed at attempts to increase the firepower of the eurzone bailout fund.
Italian and Spanish borrowing costs continued to rise and stock markets fell after Wolfgang Schauble, Germany's finance minister, said Europe's "big bazooka" rescue fund is not ready and won't stem the region's debt crisis.
Eurozone finance ministers, who were meeting ahead of the Ecofin summit today, acknowledged the €440bn (£376bn) fund would not win support to leverage it up to €1 trillion. Its capacity would be between €500bn and €700bn instead – a total that is unlikely to be big enough to rescue Spain and Italy.
On Wednesday, Swedish finance minister Anders Borg renewed pressure on the European Central Bank to help halt the debt crisis.
"We need to keep all options on the table, to my mind price stability is secured in Europe - therefore there is some room also for the central bank to maneouvre on this issue," Mr Borg said as the 27 EU ministers gathered to pick up the thread of overnight eurozone ministerial talks.
He also said IMF contributors had to raise their input.
Belgium's Didier Reynders said finding a solution that would deliver a big enough pot of money to deal with debts that easily dwarf existing bailouts for Greece, Ireland and Portugal would need "the (European) central bank as well as the IMF".
The call for a bigger role for the ECB will lead to a clash with Germany which opposes such a move and last week got France and Italy to agree to stop pressuring the central bank to help.
Christine Lagarde, the head of the IMF, warned in September that its $384bn (£248bn) war chest designed as an emergency bail-out fund is inadequate to deliver the scale of the support required by troubled states.
Members of the IMF have agreed to increase the fund's resources but a senior G20 official in Asia told Reuters on Wednesday that no progress had been made so far.
The United States has insisted that the European Union has enough resources to stem the crisis without outside help.
