Italy ‘wants to double size of eurozone bailout fund’

Italian Prime Minister Mario Monti is pushing to double the size of Europe’s permanent bailout fund to €1tn ($1.3tn), a German media report to be published today said. News weekly Der Spiegel said Monti wanted the planned €500bn European Stability Mechanism (ESM), which is scheduled to replace the European Financial Stability Facility (EFSF) in July, to have twice the firepower to help stricken states. Der Spiegel, which did not cite its sources, said Monti argued that such a move would reassure markets while driving down borrowing costs for the debt-wracked countries of the eurozone. “He has also informed the German government of his aims,” it said. Spiegel added that Monti had won backing for the proposal from European Central Bank President Mario Draghi, who it said proposed using unused money from the EFSF to boost the size of the new fund to about €750bn.A spokesman for Chancellor Angela Merkel on Friday again ruled out Berlin, the eurozone’s paymaster, boosting its contributions to the European bailout funds. “We have no doubt that the EFSF, for example, has the means necessary to fulfil its current obligations,” Seibert told a regular news conference. “If the ESM is brought forward, in the summer of this year, it will be another fund with another capital structure and that will also of course be in a position to fulfil the necessary tasks.” Meanwhile, Finance Minister Wolfgang Schaeuble told the weekly Frankfurter Allgemeine Sonntagszeitung that he was pleased with progress on the European Union’s rescue efforts, ahead of a crunch summit on January 30. “If you look at the first weeks of the year, the confidence of market participants seems to be slowly returning,” he said. “The eurozone states have taken the right and important steps on a new path in recent months. “The ESM is being brought forward, leaders have agreed on the outlines of a fiscal pact which paves the way toward a stability union and the countries in the sights of the markets have decisively taken on the necessary budget consolidation and important reforms. Now they just need to continue down that path.”Spanish, Finance Minister Cristobal Montoro meanwhile said in an interview published yesterday that his country’s public deficit target for this year should be changed because it is based on outdated growth forecasts.Spain’s new conservative government has raised taxes and slashed spending since coming to power last month to try to meet a 2012 target agreed with the EU of cutting the deficit to 4.4% of gross domestic product. It says the deficit hit around 8% of output last year, down from 9.3% in 2010 but way above the official 6% target agreed with Brussels by Spain’s previous Socialist government. “It is obvious that when the target was set to reduce the deficit from 6% to 4.4%, it was based on a scenario of economic growth and not of recession as we find ourselves in now,” Montoro told daily La Vanguardia. “When Brussels said that Spain should reduce the deficit to 4.4% it was because it predicted growth of 2.3%. “That scenario would suppose a rise in tax revenues, but with a recession tax revenues will once again fall.” Spain’s new government expects the country will go into recession this quarter. Last week the International Monetary Fund (IMF) said it expects the Spanish economy will shrink by 1.7% this year. “The scenario has changed as the IMF has said, and the government is waiting for Brussels to also change its scenario and adapt it to the new situation,” said Montoro. Spain only emerged at the start of 2010 from an 18-month recession, triggered by the global financial crisis and a property bubble collapse, which destroyed millions of jobs and left banks with mountains of bad loans. The collapse forced a major restructuring of the financial sector and tough spending cuts which the new government has vowed to deepen in order to create jobs and reassure the financial markets that lend to Spain.