Euro up despite no sign of rescue fund deal
Baku, 18 January (AZERTAC). The euro has risen sharply, despite signs that governments are in no rush to increase the eurozone rescue fund.
The single currency gained more than a cent against the dollar on Tuesday morning to more than $1.34.
Meanwhile, an agreement is emerging over the terms of a much tougher round of stress tests for European banks, to be conducted later this year.
European finance ministers are discussing the tests on the second day of a two-day meeting in Brussels.
The European Financial Stability Facility (EFSF) was set up in May last year, and benefits from eurozone government guarantees for 440bn euros (£368bn; $590bn).
But in order to maintain its maximum triple-A-rating, the fund is effectively limited to borrowing about just 250bn euros, which many investors fear may prove insufficient to fund any future bail-out of Spain.
On Monday, German finance minister Wolfgang Schaeuble downplayed the need to urgently upsize the EFSF, sending the euro lower against most currencies.
However, he later accepted that his government may have to raise its guarantee for the fund at least enough for it to be able to lend the originally-intended amount.
The euro has since pushed higher again as speculation grows that an agreement will eventually be reached.
The pound remained steady at about 1.1925 euros, as higher-than-expected UK inflation data raised the probability of an interest rate rise, boosting sterling.
Mr. Schaeuble said he wants the eurozone to do more than just bolster its crisis response fund, in order to "absolve us from the necessity to react again every couple of months".
He has called for a comprehensive package of policies, including improvements in competitiveness and greater fiscal co-ordination, and does not expect agreement to be reached until late March.
Jean-Claude Juncker, who is chairing the ministerial meeting, said that many options for bolstering the crisis response mechanism had been discussed, but none was favored.
"All of the ingredients of the solutions we have to form are on the table," he said. "The discussion was broad and will be narrowed in the next couple of weeks."
Mr. Juncker said ministers discussed the option of lowering the interest rate charged on bail-out loans.
The Irish Republic had to pay an average interest rate of 5.8% on its rescue loans, after Germany pushed for a penalty rate to ensure that governments only seek a bail-out as a last resort.
But markets fear that the high cost of borrowing will make it even harder for rescued governments to repay debts to private-sector lenders.
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