PARIS (Reuters) - European governments will increase the size of the EU’s emergency rescue fund (EFSF) if need be and are determined to follow through on a plan to contain a debt crisis, French Finance Minister Francois Baroin said on Monday.
All governments need time to reduce borrowings built up when they intervened to combat the global economic downturn in 2008-09, he said in a radio interview following a weekend of emergency talks and statements by the Group of Seven, the European Central Bank and the leaders of France and Germany.
The euro zone’s 440-billion-euro safety fund would be used as needed, and enhanced if required, he said.
“The allotment is 440 billion and we’ve already said if we need to go further we will go further,” Baroin said, referring to an EU Summit deal in late July on deployment of the anti-contagion fund.
Spain and Italy had both announced further painful steps to reduce deficits and debt and the ECB was ready to take action, he said.
“Those in the markets who are asking questions and speculating should be in no doubt. There will be no faultline for them to exploit,” said Baroin, interviewed on Europe 1 radio.
“There will be no weakness in the July 21 agreement for the euro zone. There should be no doubt about its implementation,” he said.
“It’s been reaffirmed and it’s impossible to say it more emphatically than last night’s Franco-German accord. There is no ambiguity whatsoever about the ECB’s determination to go into an area where it obviously had not been very present so far,” he said, referring to purchasing of bonds in the secondary market.
The ECB said on Sunday it would “actively implement” its controversial bond-buying program to fight the euro zone’s debt crisis, signaling — without mentioning those countries by name — that it will buy Spanish and Italian government bonds to halt financial market contagion.
After a rare Sunday night conference call, the ECB welcomed announcements by Italy and Spain of new deficit cutting measures and economic reforms as well as a Franco-German pledge that the euro zone’s rescue fund will take responsibility for bond-buying once it is operational, probably in October.
In parallel, statements were issued by the G7 and G20 powers where they pledged to remain in close contact and take action to ensure market stability and growth.
The flurry of meetings and statements followed Friday’s downgrading of U.S. debt quality by rating agency Standard & Poor’s and a week in which a European debt crisis threatened to engulf larger nations as Italy’s borrowing costs shot higher.
Reporting by Brian Love; editing by Patrick Graham