Japanese Officials: Europe Should Boost Its Rescue Fund

TOKYO (Reuters) - Europe should boost the total firepower of its rescue fund and frontload its funding to send a positive signal to investors and international partners that it is determined to solve its debt crisis, Japanese officials said on Monday.

Japan has repeatedly expressed its willingness to help Europe contain its debt crisis, but has also stressed it wanted to see a convincing action plan before making any firm commitments.

"Japan like other non-euro countries is prepared to do something, but unless European countries take decisive action it is hard to make those steps effective," a senior Japanese government official said.

Lifting the combined size of the current bailout fund (EFSF) and the new permanent European Stability Mechanism (ESM) beyond the current 500 billion euros would be a major step and an encouraging signal.

"We expect European countries will review the combined ceiling of 500 billion euro of EFSF (European Financial Stability Fund) and ESM in a very positive manner," the official told Reuters.

European leaders agreed in Brussels earlier this month to accelerate the launch of the ESM by a year to mid-2012 with an effective lending capacity of 500 billion euros ($650 billion), but questions have arisen about the size and timing of contributions.

Japanese officials said that while bringing forward the launch of the fund was positive, a more ambitious ceiling might be needed given that Europe had little success in bringing in outside investors to boost the firepower of the EFSF fund.

"The leveraging of EFSF money by investors' money doesn't look like materializing very well. That's why they are frontloading the ESM and the review of the ceiling of 500 billion euro is very important," said the official, who declined to be named.

"European countries may think what they've already decided is a major step forward, but markets want Europe to act more decisively."

German Finance Minister Wolfgang Schaeuble signaled over the weekend that Europe's biggest economy and its main paymaster could boost its contribution to the fund and support its swift launch, although any decisions would have to be made in January.

Since the beginning of the crisis more than two years ago, European leaders have orchestrated bailouts of Greece, Ireland and Portugal, set up a euro zone rescue fund and earlier this month agreed to boost the International Monetary Fund's resources by 150 billion euros.

Still, throughout the crisis that has also shaken Italy and Spain, investors have repeatedly been left with the impression that whatever was agreed in Brussels was too little, too late.

Japan, the United States, Canada and others have voiced their frustration with Europe's piecemeal progress and repeatedly called for bold steps that would create effective "firewalls" around the euro zone's weaker, heavily indebted economies.

Another Japanese government official reiterated on Monday that Tokyo, which led an international effort to boost the IMF's coffers after the Lehman crisis, was open to contributing more but that its decision depended on Europe's actions.

Officials in Tokyo said markets needed to see both effective defenses in the form of funds sufficient enough to cover the crisis-hit nations' financing needs and commitments to fiscal discipline.

"Fiscal discipline is very important. Even if we provide firewalls we need fiscal discipline," the official said.

While Tokyo has repeatedly voiced concern about developments in Europe, its plans to buy Chinese government debt did not reflect lack of confidence in the euro or U.S. dollar assets, another official said.

He said the plans, discussed during Prime Minister Yoshihiko Noda's visit to Beijing, aimed at strengthening economic ties between the two nations rather than diversifying Japan's exchange reserves, mostly made up of dollar and euro assets.

"The idea is not to depart from the dollar or U.S. government bonds or the euro, so it should not be interpreted as diversification of our portfolio," the official said.

"I don't have any doubts about creditworthiness of the dollar or U.S. government bonds. The dollar will remain the most important currency for the foreseeable future."

Copyright 2011 Thomson Reuters. Click for Restrictions.

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Comments

[KarateKid]

12:35 PM on 12/27/2011

Just personalize individually what these countries are doing. If you spent more than you made, you'll be in debt, and have to borrow or use the credit card to make ends meet and pay your bills, if you keep buying stuff, and you'll be paying high interest rates to do so. Then, when things don't get any better, another credit card company will issue you a pre-approved credit card.

Pretty soon, you'll have maxed out all your credit cards and the wolves will be at the door.

It's no different for countries.

[KarateKid]

12:31 PM on 12/27/2011

The Japanese ought to be working on putting more resources into cleaning up their nuclear power plant instead of acting like big shots. And, since THEIR bubble burst 20 years ago, things haven't been that great in Japan, either.

[Michael D Ballantine]

08:00 AM on 12/27/2011

the Japanese to the rescue, that's very funny. Has the Japanese central bank looked at its GDP to debt ratio recently. It makes Greece look rich by comparison. They cannot save the Euro and the longer they put it off, the more expensive breaking up the Eurozone will be. The experiment failed, it's time to call an end to it. Boot Greece, Portugal and Ireland out and maybe you can save Spain and Italy. This is ridiculous when seemingly rational people allow emotion to cloud their judgment. Europe needs some leaders, not a bunch of bankers running the show.

[Kenz300]

02:22 PM on 12/26/2011

Greece and Italy need to start by getting all the tax cheats in society to pay their fair share of taxes.

Those huge homes, expensive cars and expensive yachts are reported to be owned by people earning the minimum wage. The tax wealthy seem to be scamming the system and the tax collectors look the other way.

[Syllogizer]

03:19 PM on 12/26/2011

I very much doubt there is any solid evidence that it is tax cheats who are draining the Greek economy.

Paul Krugman had some great articles in his NY Times blog about the real cause of the Greek crisis.

[Kenz300]

03:23 PM on 12/26/2011

http://www.google.com/hostednews/afp/article/ALeqM5gwdVxegAnDo9DfP29PSnujzHmM3A?docId=CNG.f5463f39becc9822be974eff8f18854e.01

[imayes]

12:38 PM on 12/26/2011

Hmmm....sounds like a big Corporate Welfare scam in the making.

[Trustfunded1]

12:36 PM on 12/26/2011

Meanwhile Japan prints up more Samarai bonds for the 4th year straight.And all to cover up the worlds largest debt to GDP ratio in the world because it's tax revenue has fallen off a cliff.

Financially failed countries love giving bad advice.

[MrOnePercent2012]

11:49 AM on 12/26/2011

I know. Why don't they print some funny money just like we do in the US?

[Realist2011]

10:51 AM on 12/26/2011

Absolutely. Japan, just send Europe a giant check for whatever you'd like the amount boosted to.

Get a grip. The world is broke. The US and Europe is trying to devastate the taxpayers forever, in order to save the banks and Wall Street firms that caused this problem in the first place. They apparently think that these "financial criminals" will mend their ways if we bail them out often enough.

They won't, and we can't. We're toast.

[Protocolor]

10:35 AM on 12/27/2011

"The world is broke."

Hogwash.

The world economy has now, and only ever had, the exact same economic value that has been produced by people making things. It doesn't disappear and "spending" it doesn't make it go away. The world economy is slowing down not because of taxes, but because those who control the tools and resources needed to make things (capitalists, in the West) are sitting on those tools and resources and leaving them idle because they can't figure out how to make them profitable at this moment.

This is a massive capitalism fail. Expropriation from the capitalists (taxes on the rich will work) is the only way to get things moving again without resorting to World War III.

[Realist2011]

10:51 AM on 12/27/2011

Hmmmm. Okay, so the world isn't broke, it just doesn't seem to have any money. I don't see your point. Unless the rich are going to write the check to Europe, then, for all intents and purposes, we're broke. It's really simple.