Financial disaster looms closer as Italy’s borrowing costs increase dramatically and the entire region grapples with debt crises. Euro zone finance ministers have agreed to boost their rescue fund, though have not revealed by how much. They may also be forced to turn to the IMF for additional aid.
For the past two years, investors have been abandoning the region’s bond market, as European banks dump government debts and recession fears heighten, threatening the single currency.
“The situation in Europe and the world has significantly worsened over the past few weeks. Market stress has intensified,” said Christian Noyer, the central bank governor of France and governing member of the European Central Bank. “We are not looking at a true financial crisis- that is a broad-based disruption in financial markets.”
On Tuesday, the Eurogroup, which consists of finance ministers from the 17 euro zone members, approved a thorough plan to secure the initial 20-30% of the new bond issues for struggling countries. The group’s chairman, Jean-Claude Juncker, said the goal is was to have the International Monetary Fund match and support the European Financial Stability Facility’s new project.
“We also agreed to rapidly explore an increase of the resources of the IMF through bilateral loans, following the mandate from the G20 Cannes summit, so that the IMF could adequately match the new firepower of the EFSF and cooperate even more closely,” Juncker said.