BERLIN — The 16-nation euro currency will survive the debt crisis, German Chancellor Angela Merkel vowed Thursday, and a senior central banker said the European Union would be willing to increase its $1 trillion bailout fund if necessary.
Merkel and French President Nicolas Sarkozy also called for a swift conclusion of the negotiations for an Irish bailout.
Axel Weber, the head of Germany’s central bank and a leading rate-setter at the European Central Bank, said Thursday that European nations would be willing to boost the emergency fund by as much as $133 billion to fully cover the total public debt load of Greece, Ireland, Portugal and Spain.
But when Merkel and Sarkozy discussed the eurozone’stroubles on the phone Thursday evening, they said the $1 trillion emergency fund for the euro would remain unchanged until it expires in 2013, Germangovernment spokesman Steffen Seibert said in a statement.
The leaders of Germany and France, the eurozone’stwin economic engines, said their governments are working “under high pressure on a joint proposal for a crisis mechanism that is to replace the current one beyond 2013,” the statement said.
Merkel and Sarkozy were impressed by the austerity budget presented by the Irish government, adding they agreed that the negotiations involving the Irish government, the EU and the International Monetary Fund “should swiftly be brought to a conclusion,” Seibert said.
Amid the ongoing sovereign debt crisis in the eurozone, the 16-nation currency wallowed near two-month lows against the dollar Thursday, trading at $1.3364 - down from a recent high of $1.4244 on Nov. 4. Some analysts predicted it would drop further as other heavily indebted countries, such as Portugal and Spain, risk following Greece and Ireland in needing bailouts.
But, Merkel said, the euro currency will survive the debt crisis.
“I’m more confident than this spring that the European Union will emerge strengthened from the current challenges,” she told business leaders in Berlin, referring to May’s $146 billion bailout of Greece by the EU and the International Monetary Fund.
She said the crisis has strengthened the eurozone, leading EU leaders to agree on new rules for a tougher growth and stability pact, and bringing into operation the $1 trillion emergency fund.
“We now have a mechanism of collective solidarity for the euro,” she said. “And we all are ready, including Germany, to say that we now need a permanent crisis mechanism to protect the euro,” Merkel added.
Experts say that while rescuing Greece, Ireland or even Portugal is manageable for the EU’s emergency fund, bailing out Spain, whose economy is five times larger than any of the other three countries, would test its limits and threaten the euro’s existence.
The debt loads of Greece, Ireland, Portugal and Spain total a little more than $1.3 trillion, and Weber said about $1.2 trillion is already guaranteed - adding up the $146 billion Greek loan package, the $1 trillion fund and the government bonds bought by the European Central Bank - leaving only a gap of about $133 billion.
“It’s not the euro that is in danger, it’s the fiscal policy in some member states that got out of hand,” Weber said. “The euro is one of the world’s most stable currencies.”
However, a spokesman for the EU’s Monetary Affairs Commissioner Olli Rehn said there were no discussions to boost Europe’s emergency fund.
“The financial backstops are in place, and they are well and substantially funded,” said Amadeu Altafaj Tardio.
In the markets, investors continued to put pressure on Portugal and Spain, keeping their borrowing costs near euro-record highs.
That reflects market uncertainty about their ability to pay off debts amid an economic downturn and fears that they will also need bailouts. Markets demand a higher return on bonds issued by countries seen as a risky investment.
“Uncertainty has got a firm grip on the market, that much is clear,” said Filipe Silva, a debt manager at Portugal’s Banco Carregosa. “Comments by [European leaders] aren’t giving the market any sense of direction.”
Silva said there was a clear trend toward pulling investments out of the eurozone’s weaker economies.
The head of the EU’s bailout fund, Klaus Regling, also defended the integrity of the eurozone.
“No country will voluntarily give up the euro - for weaker countries that would be economic suicide, likewisefor the stronger countries,” Regling said in Germany’s Bild newspaper Thursday.
Earlier in the day, France and Germany’s foreign ministers said their nations would be able to provide swift assistance for Ireland, which is negotiating an estimated $115 billion EU-IMF bailout.
To get the bailout, Ireland on Wednesday unveiled a plan to cut $20 billion from its deficits through 2014. Opposition leaders in Dublin, however, vowed Thursdayto rewrite Ireland’s four-year austerity plan if they oust Prime Minister Brian Cowen in early elections next year.
Ireland’s deficit this year is forecast to reach 32 percent of GDP, a modern European record, fueled by the billions it has spent bailing out Irish banks who gorged themselves on overpriced real estate.
Information for this article was contributed by Gabriele Steinhauser, Barry Hatton, David Stringer and Shawn Pogatchnik of The Associated Press.
Front Section, Pages 5 on 11/26/2010