Eurogroup looks to speed up work on bail out fund

Euro zone finance ministers today started preparations to expedite work on strengthening their bailout fund so as to enhance its market credibility by November-end, a month early.

With concerns over Italy and Spain also rising, leaders of the euro zone reached an agreement last week to beef up the €440 billion European Financial Stability Facility (EFSF) to convince markets they could keep Italy and Spain from being sucked into sovereign debt crisis, which has already claimed Greece, Ireland and Portugal.

The agreement of the leaders of the 17 countries using the euro to upscale the EFSF by 4-5 times would, however, need technical details from the finance ministers before the EFSF's enhanced powers could be demonstrated to markets.

According to analysts, the original plan was to have the details ready by the end of the year. However, there was a strong case for accelerating the finalisation of the technical details, due to market tensions rising after the last Greek episode and the general uncertainty as to what might happen next.
 
An announcement by Greece of a referendum to seek citizens' approval for an emergency finance package had, last month, triggered panic in the market and shock among fellow euro zone countries.

Greece has since dropped the referendum plan with its politicians agreeing yesterday to form a unity government to pass the unpopular €130 billion package.

However, markets remain worried about how the euro zone debt crisis would pan out as yields of Italy's benchmark 10-year bonds rose to 6.39 percent on Friday, from 5.88 per cent on 27 October.

Many economists believe that yields rising above 7 per cent would render the financing costs too high and virtually beyond reach of governments to support.