Currency Crisis: Brussels Plans Bigger Euro Rescue Package

The 750 billion euros earmarked for a rescue fund for Europe's common currency appears to be insufficient. European Currency Commissioner Rehn says he wants to consider "all options" for expanding the rescue fund. Meanwhile, Portugal succeeded in issuing 1.2 billion euros in bonds on Wednesday.

The European currency crisis threatened to worsen on Wednesday. Reports in a handful of newspapers stated that leaders of European Union member states are now making plans to expand the euro rescue fund.

In early 2010, the EU member states agreed to a rescue fund with cash and guarantees worth €750 billion. EU leaders set up the fund in order to protect member states from the threat of bankruptcy. Member states do not pay any money directly into the fund, but they do provide up to €440 billion in guarantees. The European Union also contributed a special credit line of €60 billion together with an additional €250 billion from the International Monetary Fund (IMF).

A report in Germany's Die Welt newspaper states that officials in Brussels are considering raising the amount of money available for loans in the fund -- either through increasing the current €440 billion sum of credit available or through technical changes to the fund. "We have a deceptive calm right now, a credible political signal of decisiveness needs to be delivered to the markets," the paper cited a diplomat as saying.

EU Currency Commissioner Olli Rehn also spoke out on Wednesday in support of expanding the rescue fund. He said the euro zone, the 17 countries that have adopted the euro including latest member Estonia, must consider additional steps. "We need to review all options for the size and scope of our financial backstops -- not only the current ones but also for the permanent European stability mechanism, too," he wrote in a guest column in the Financial Times.

Nervous Markets

News agency Reuters also reported that EU member states, in light of the continuing sovereign debt crisis, want to increase the size of loans available in the rescue fund. The issue is expected to be discussed at a meeting of EU finance ministers next Monday, a source with knowledge of the developments stated.

The Wall Street Journal also reported that European governments are considering an expansion of the euro rescue fund. The report states they want to increase the size of the current €440 billion in guarantees. They are also considering allowing the European Financial Stability Facility (EFSF) to intervene in bond markets. In other words, in the future, EFSF would be able to directly purchase government bonds from crisis-plagued countries. So far, it has only guaranteed repayment of those bonds.

Officials in Brussels say that no decision has been made. But the Wall Street Journal reports that they are urgently needed in order to quiet markets that have again become extremely nervous. Following the crisis in Greece and Ireland, concerns are now growing about Portugal.

The situation is very tight for the European country, which is being forced to pay ever-higher interest rates on its bonds. On Monday, the interest rate for long-term Portuguese loans rose to a record level of 7.3 percent.

Meanwhile, a poll released by Ernst and Young of leading German bankers undercored the gravity of the situation: Around half of those surveyed said they believed at least one European country may soon face insolvency.

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