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Eurozone agrees to boost rescue capacity

Eurozone finance ministers agreed on Friday to increase their financial firewall to 700 billion euros to...

World

Eurozone finance ministers agreed on Friday to increase their financial firewall to 700 billion euros to ward off a new flare-up of Europe's sovereign debt crisis, drawing a positive initial reaction from markets and G20 partners.

The 17-nation currency area agreed to combine two rescue funds to make 500 billion euros of new funds available in case of emergency until mid-2013, on top of 200 billion euros already committed to bailouts for Greece, Ireland and Portugal.

The executive European Commission had proposed raising the total to 940 billion euros, with 740 billion in new money, but EU paymaster Germany resisted a bigger increase.

International Monetary Fund (IMF) chief Christine Lagarde welcomed the decision, saying it would help the global lender raise more resources to fight contagion from the European crisis if needed.

The euro rose and Spanish bond yields fell as investors weighed the firewall move and a draconian Spanish austerity budget.

"Today's decision is a classic European compromise. It was as far as the German government was willing to go and it was the minimum most other Eurozone countries were expecting," said Carsten Brzeski, economist at ING bank in Brussels.

"Obviously, a bigger increase along the lines of earlier discussed options could have sent a stronger signal and would have been more convincing," he said.

"With today's increase, the role of the European Central Bank as Eurozone fire brigade is likely to continue."


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