PARIS Feb 2 The euro zone's EFSF and ESM
rescue funds need their combined resources doubled to help keep
a lid on the bloc's debt crisis, a senior OECD official said,
adding to pressure on Germany to agree to a strengthening of the
region's bailout firewalls.
Without an increase in the funds to 1 trillion euros and
reforms to boost growth, the euro zone remains exposed to the
risk of fracturing, wrote Adrian Blundell-Wignall, a special
advisor on financial sector issues to OECD Secretary General
Angel Gurria, in a research report published on Thursday.
The OECD called for the euro zone's crisis funds to be
boosted as long ago as the Jackson Hole symposium in August, but
the comments mark the first time a senior advisor to the
organisation has mentioned such a high figure as part of a
They also echo appeals from both within and outside the euro
zone, with International Monetary Fund head Christine Lagarde
and Italian premier Mario Monti recently saying they believed
the 500-billion euro ESM may need to be beefed up.
German Chancellor Angela Merkel, mindful of the heavy
funding commitments towards euro zone stability that Europe's
dominant economy had already made, has thus far deflected calls
for the funds to be strengthened.
Blundell-Wignall also said private investors were unlikely
to stump up enough resources for the two funds, which leaves few
other options although one would be to grant the European
Financial Stability Facility a banking licence so it can borrow
from the European Central Bank, Blundell-Wignall said.
Other two means of raising sufficient cash would be tapping
the International Monetary Fund and sovereign wealth funds,
which would likely require guarantees to get on board.
"The size of resources the EFSF/ESM may need for all
potential roles, particularly bank recapitalisation, should not
be underestimated," wrote Blundell-Wignall.
"This is not independent of what the ECB does, but it could
be around 1 trillion euros. The current EFSF/ESM resources of
500 billion euro are not enough."
While the ECB will have to keep supporting euro zone
government bond markets, investors will need to accept a
reduction in the value of their Greek debt holding of at least
50 percent, Blundell-Wignall said.
The Greek government and private bondholders have been in
negotiations for nearly seven months over restructuring Greece's
debts, with the aim of reducing Athens' debt burden by around
100 billion euros.
A deal is expected to be wrapped up in coming days.
(Reporting by Leigh Thomas; Editing by John Stonestreet)