Euro-zone finance ministers agreed on Tuesday on details to expand the bloc's bailout fund but acknowledged it would have less capacity to help troubled nations than once hoped, and suggested future efforts to resolve the worsening crisis would depend on the European Central Bank and the International Monetary Fund coming to their aid.
An analysis presented at the meeting suggested the fund might raise between €500 billion and €750 billion ($700 billion to $1 trillion), according to a person familiar with the matter, far short of the €1 trillion or even €2 trillion that many had expected. After the meeting, officials didn't give a figure for its expected size.
But such sums would fall shy of the amount that would be needed to convince financial markets there is enough in the pot to rescue Italy and Spain, as well as to support Europe's troubled banks.
The rising debt-financing costs of Italy, represented at the meeting by its new prime minister, Mario Monti, were a major concern of the meeting, officials said, adding there were worries about the country's heavy borrowing need of about €400 billion next year.
An IMF official said the Washington-based fund could at present provide €100 billion to help Italy, if it came to that. That means that to assemble a credible backstop, the Europeans would need to raise a substantial amount of money elsewhere.
Jean-Claude Juncker, the Luxembourg prime minister who leads the finance ministers' meetings, said they "would continue to explore further options to expand" the fund.
Mr. Juncker reiterated European government support for proposals to strengthen the IMF, including through increased "bilateral loans." He gave no indication that there was progress on overcoming objections from other countries, including the U.S., which wants the Europeans to take primary responsibility for sorting out the crisis.
Before the meeting, Luxembourg's finance minister, Luc Frieden, said the €1 trillion target would be "very difficult to reach," because markets have soured on euro-zone assets. Plans to boost the fund revolve around garnering interest from private investors. Mr. Frieden said the bailout fund would have to act "together with" the IMF and the ECB.
The failure so far of euro-area governments to assemble a mammoth fund to rebuild confidence in the region's bond markets, coupled with further increases in borrowing costs for many of them, leaves them casting around for further measures to stem the crisis, which they hope to announce at a European summit on Dec. 8 and 9.
Ministers agreed on Tuesday to push ahead on proposals put forward last week in Brussels to tighten budget discipline in the euro area.
Another plan, being promoted by Germany and France, is for euro-zone governments to agree on a legally binding pact to centralize control of national budgets. They hope the agreement can be reached without resorting to time-consuming changes in European Union treaties and will be enough to persuade the ECB to step in forcefully to support the bond markets of weak governments.
European politicians have for months been reluctant to call publicly on the ECB to take a larger role.
The central bank is independent of the euro-zone governments, and it guards that status fiercely. With a lack of private-market interest in financing weak euro-zone countries, the ECB's virtually unlimited firepower—it can, after all, print euros—is seen by many analysts and economists as the only viable solution. Now, the reluctance to call for help is ebbing away.
Finland's finance minister said the bloc will have to look to the ECB as a last-resort option "if nothing else works," and the Belgian finance minister said ministers would "put on the table some proposals" to give the ECB and the IMF a more active role. The IMF is already a major player in the euro-zone rescue effort. It is providing €30 billion of Greece's €110 billion bailout, one-third of Portugal's €78 billion bailout, and a chunk of Ireland's aid as well.
However, it doesn't have the resources available, on its own, to lend hundreds of billions of euros to Italy. Yet national governments still aren't singing the same tune on whether the ECB should ramp up its printing presses. Resistance to the proposal is strong in Germany and the Netherlands.
"I know some in the U.S. are saying: Have the ECB solve the crisis," Dutch Prime Minister Mark Rutte said in an interview in Washington before meeting President Barack Obama on Tuesday afternoon.
"Well, that would mean two things: You would have a lot more money in the system with the risk of inflation and…it would take off the pressure on Greece and Italy and others to reform." Mr. Rutte said he believes the IMF should "get more involved," and that the Netherlands was willing to kick in some money to increase the IMF's available resources.
The ministers approved two methods to increase the firepower of the European Financial Stability Facility, the bloc's bailout fund. The EFSF will have around €250 billion after accounting for its current and expected commitments to Ireland, Portugal and Greece. Klaus Regling, the fund's chief executive of the European Financial Stability Facility, said increasing the fund's leverage would take time.
"We don't expect commitments from investors in the next days," he said.
Both methods involve seeking supplementing that sum with private finance. Under one, the EFSF would fund so-called "protection certificates" to be attached to new bonds issued by troubled euro-zone countries. The certificates would entitle holders to claim 20% to 30% of the bond's face value in case of default. In that way, €20 or €30 of EFSF money could induce private investors to purchase €100 of a country's bonds.
However, it doesn't have the resources available, on its own, to lend hundreds of billions of euros to Italy. Yet national governments still aren't singing the same tune on whether the ECB should ramp up its printing presses. Resistance to the proposal is strong in Germany and the Netherlands.
"I know some in the U.S. are saying: Have the ECB solve the crisis," Dutch Prime Minister Mark Rutte said in an interview in Washington before meeting President Barack Obama on Tuesday afternoon.
"Well, that would mean two things: You would have a lot more money in the system with the risk of inflation and…it would take off the pressure on Greece and Italy and others to reform." Mr. Rutte said he believes the IMF should "get more involved," and that the Netherlands was willing to kick in some money to increase the IMF's available resources.
The ministers approved two methods to increase the firepower of the European Financial Stability Facility, the bloc's bailout fund. The EFSF will have around €250 billion after accounting for its current and expected commitments to Ireland, Portugal and Greece. Klaus Regling, the fund's chief executive of the European Financial Stability Facility, said increasing the fund's leverage would take time.
"We don't expect commitments from investors in the next days," he said.
Both methods involve seeking supplementing that sum with private finance. Under one, the EFSF would fund so-called "protection certificates" to be attached to new bonds issued by troubled euro-zone countries. The certificates would entitle holders to claim 20% to 30% of the bond's face value in case of default. In that way, €20 or €30 of EFSF money could induce private investors to purchase €100 of a country's bonds.
"September and October were two very bad months...we saw a [deposit] outflow on the order of €13 billion to €14 billion. That is a very big number. Likewise, in the first 10 days of November, that rate of outflow continued," Mr. Provopoulos said.
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