* Euro zone ministers take no extra action on debt crisis
* IMF chief had urged increase in safety net, ECB bond buys
* EU’s Rehn says euro bonds “intellectually attractive”
(Recasts with ministers remarks after meeting)
By Jan Strupczewski and Andreas Rinke
BRUSSELS/BERLIN, Dec 6 (Reuters) - Jean-Claude Juncker, the chairman of the Eurogroup countries, said the idea of euro zone bonds was not raised at a finance ministers’ meeting on Monday and the EU debt crisis fund had enough resources to weather the threat of contagion.
The ministers took no extra action to quell the euro zone debt crisis at the meeting, and German Chancellor Angela Merkel, speaking in Berlin, rebuffed calls for a bigger financial safety net or joint euro bonds.
“We don’t have any new decision to announce to you,” Juncker told reporters after the five-hour meeting, saying ministers had discussed Spain and Portugal and held lengthy talks with the managing director of the International Monetary Fund, Dominique Strauss-Kahn, on the general economic situation in Europe.
“As regards the economic assessment of the IMF, we probably agree on the economic outlook,” said Olli Rehn, the European commissioner for economic and monetary affairs.
“Recovery is taking hold and it is progressing but at the same time it is essential that we contain the financial bushfires so they will not turn into a Europe-wide forest fire.” <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Take a Look on euro zone debt crisis, click [ID:nLDE68T0MG]
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Reuters Insider show with Goldman Sachs’ Jim O’Neill, click
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BREAKINGVIEWS column on E-bonds, click [ID:nLDE6B50K6] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Before the meeting, Strauss-Kahn had urged the ministers to increase the size of a 750 billion euro ($1 trillion) bailout mechanism for debt-stricken states and suggested the European Central Bank step up purchases of government bonds, an IMF report obtained by Reuters showed. [ID:nLDE6B40CZ]
But EU paymaster Germany, Europe’s biggest economy, rejected any such moves and dismissed a call by two veteran finance ministers for joint euro bonds guaranteed by all governments.
“I see no need at this time to increase the fund,” Merkel told a news conference in Berlin. “Only a very small percentage of it has been used.”
She was supported by Dutch Finance Minister Jan Kees de Jager, who said it was premature to discuss what would happen if the fund ran out of money. [ID:nLDE6B515J]
Both Rehn and Juncker played down demands for immediate further steps to tackle the crisis, and the head of the crisis fund said it had enough money to deal with any more bailouts after Ireland’s 85 billion euro package. [ID:nLDE6B524U]
Ireland last week became the second country after Greece to require an EU/IMF financial rescue.
Some diplomats say putting more money on the table now might be interpreted as a sign that the EU is preparing for a possible bailout of Spain, the euro zone’s fourth largest economy, and could increase rather than calm market volatility.
Merkel also said European Union treaty rules did not allow for issuing common bonds, which she said would reduce the element of competition and remove the interest rate incentive for fiscal good behaviour. [ID:nBAT005842]
BOND BUYING UP
The ECB engineered a dip in the soaring borrowing costs of weaker euro zone states last week by stepping up purchases of mainly Irish and Portuguese government bonds. Figures issued on Monday showed the central bank bought 1.965 billion euros’ worth of government bonds in the week to Dec. 3, its biggest weekly tally since the end of June. [ID:nFLA6NE6FS]
But yield spreads of euro zone periphery countries over safe-haven German Bunds resumed their rise on Monday, as did the cost of insuring their debt against default, as investors doubted finance ministers would agree on a common approach.
Many analysts say only sustained, massive central bank bond-buying can reverse the trend. [GVD/EUR]
Wide differences remain among euro area governments over how to overcome the debt crisis that threatens to spread to Portugal, Spain and possibly Italy.
Rehn said the critical issue was for Portugal, Spain and others to get their finances in check and consolidate their budgets so that no rescue would be necessary in future.
“We commended Spain for its substantive reform programme with actions on all fronts, fiscal, structural, financial,” he said. “As regards Portugal, we welcome the recently passed ambitious budget for 2011 and we expect that this step will be followed by the substantiation of consolidation measures to reach the 4.6 percent fiscal deficit target for next year.”
Juncker and Italian Finance Minister Giulio Tremonti had earlier outlined a proposal in Monday’s Financial Times for a joint sovereign bond, or “E-bond”.
They said it would send a signal of “the irreversibility of the euro” to citizens and markets, where some experts have started to question the future of the currency. But Juncker said the proposal had not even been raised at the meeting.
Under the Juncker/Tremonti plan, governments could issue euro bonds equal to a maximum 40 percent of their gross domestic product -- less than the EU treaty limit of 60 percent. Beyond that limit, they would have to issue national bonds, which would carry a higher yield depending on their country’s credit risk. [ID:nLDE6B40HG]
Rehn told reporters he found the idea “intellectually attractive” but the EFSF safety net, based on loans guaranteed by member states, was the only game in town for now.
On Tuesday, ministers from the broader 27-nation European Union are expected to approve formally an 85 billion euro aid package for Ireland and discuss the reform of EU budget rules.
One influential economist, Jim O’Neill, chairman of Goldman Sachs Asset Management, said the idea of common euro zone bonds made sense, and new ideas now emerging would eventually underpin European monetary union with stronger central leadership.
O’Neill, whose division manages some $800 billion in assets, also said it was worth considering buying a basket of euro zone peripheral sovereign debt at current prices. [ID:nLDE6B512C] (Additional reporting by Sylvia Westall and Michael Shields in Vienna, Kirsten Donovan and Michel Rose in London, John O’Donnell and Marcin Grajewski in Brussels; Writing by Paul Taylor and Luke Baker; Editing by Tim Pearce)