March 7, 2012 / 12:20 PM / 7 years ago

Merkel worried about Portugal, coy on firewall-sources

BERLIN, March 7 (Reuters) - German Chancellor Angela Merkel told lawmakers in a closed-door meeting on Tuesday that she was concerned about a rise in Portuguese bond yields, according to several participants.

She also acknowledged that the euro zone’s two rescue funds could run concurrently but gave no indication that their combined lending capacity might rise above 500 billion euros, the participants told Reuters on Wednesday.

“The risk premiums on Portuguese bonds are a worry,” the participants quoted her as telling the meeting of her conservative bloc in parliament.

By contrast, she told the lawmakers she was encouraged by a decline in Spanish and Italian yields to around 5 percent.

Merkel ruled out any increase in the new permanent bailout facility, the European Stability Mechanism (ESM), at the meeting saying its planned ceiling of 500 billion euros would “not be touched”.

The participants said she declined to say whether her government would bow to pressure from partners to allow the combined resources of the ESM and the existing European Financial Stability Facility (EFSF) to push above that mark.

Major economies, notably the United States and China, are pressing Europe to boost its crisis defences as a condition for raising the resources of the International Monetary Fund (IMF) to combat euro zone turmoil.

Germany and its euro zone partners are due to take a decision by the end of this month on boosting their firewall. One solution would be to add the roughly 250 billion euros remaining in the EFSF to the full ESM ceiling, resulting in a combined firewall of some 750 billion euros.

But Merkel faces domestic pressure to resist this solution, which would increase German guarantees beyond the 211 billion euro ceiling that lawmakers have approved until now.

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