WRAPUP 1-France says EU pondering larger bailout fund

Fri Jan 14, 2011 6:23am EST
* Lagarde says increase in bailout fund an option
* Premium to hold Spanish, Italian debt falls further
* Policy options to go to EU leaders summit in March
* Funds could be reconfigured to buy sovereign bonds
By Daniel Flynn and Leigh Thomas

PARIS, Jan 14 (Reuters) - European governments are
considering increasing the size of their rescue fund as part of
a package of measures to tackle the debt crisis in the euro
zone, France said on Friday.

French Economy Minister Christine Lagarde said ministers
would also discuss whether European stabilisation funds should
be allowed to purchase sovereign debt of the bloc's weaker
members on the secondary market.

"The increase in the European Financial Stability Facility
(EFSF) is one option which we are looking at, of course,"
Lagarde told a news conference.

Senior European officials have been calling for an expansion
of the 440 billion euros European Financial Stability Facility,
established after Greece was bailed out in May, but a French
government spokesman said earlier this week it was sufficient.
Germany remains opposed to any outright increase though it
says a "comprehensive package" to solve the bloc's debt crisis
is in the works.

German Finance Minister Wolfgang Schaeuble said on Thursday
debate about boosting the fund was not realistic. However, he
said he was open to discussion about enabling the existing fund
to be used in full.

Worries about whether the EFSF is large enough focus on
estimates that only around 250 billion euros of the 440 billion
($592 billion) fund are effectively available to euro zone
countries because of a complex loan guarantee system -- not
enough to bail out high debtors Portugal and Spain.
Analysts say Berlin might agree to raising the effective
capacity to 440 billion euros in exchange for stronger
commitments to fiscal discipline from its peers.

After successful bond auctions by Portugal, Spain and Italy
this week, analysts say there is a window of opportunity for
euro zone leaders to capitalise with new measures that could
mark a significant shift in the crisis.

The premium investors demand to hold Italian and Spanish
government bonds over German benchmarks fell further on Friday,
supported by the successful bond auctions.
Source: Reuters.Com