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Top official: EU entering crucial 10 days for euro

November 30, 2011
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BRUSSELS—A top official says the European Union is entering a crucial phase in its effort to stabilize the euro currency shared by 17 countries.

EU Monetary Affairs Commissioner Olli Rehn says, "we are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union."

Rehn says work is needed on two fronts: making sure the eurozone has sufficiently credible firewalls in place to contain market turbulence, and further reinforcing economic governance.

He spoke Wednesday on his way into a meeting of EU finance ministers in Brussels.

The EU's 27 heads of government will meet next week to hammer out solutions to the euro's instability, which threatens to harm the global economy.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

BRUSSELS (AP) -- Eurozone ministers finally handed Greece an euro8 billion ($10.7 billion) rescue loan to fend off its immediate cash crisis yet failed to resolve overall fears about the viability of the euro.

Stock markets had risen hoping that intense bond market pressure would finally force the 17-nation eurozone into quicker and more robust action -- but that was not to be.

Even as Italy's borrowing costs skyrocketed to a euro-era record, the finance ministers failed to increase the European bailout fund to match earlier predictions and kicked other major financial issues -- like a closer fiscal union -- over to their bosses, the EU leaders meeting next week in Brussels.

The ministers did agree to use the fund to offer financial protection of 20 to 30 percent to investors who bought new bonds from troubled eurozone nations.

"We made important progress on a number of fronts," Jean-Claude Juncker, the eurozone chief, insisted late Tuesday. "This shows our complete determination to do whatever it takes to safeguard the financial stability of the euro."

The EU's monetary chief Olli Rehn said eurozone nations needed to work on many financial issues at once to ease global pressure on their currency.

"There is no one single silver bullet that will get us out of this crisis," Rehn told reporters.

But the question of how to beef up the leverage capacity of the European Financial Stability Facility from its current euro440 billion ($587 billion) to a hoped-for euro1 trillion ($1.3 trillion) was not resolved. The fund is supposed to be a firewall that protects European nations from the financial chaos of their neighbors.

Fund chief Klaus Regling refused to give a specific size for the fund after Tuesday's meeting, but assured reporters it was more than big enough to deal with Europe's immediate debt problems.

"To be clear, we do not expect investors to commit large amounts of money during the next few days or weeks," Regling said. "Leverage is a process over time."

Dutch Finance Minister Jan Kees de Jager said investors had appeared less eager than originally anticipated.

"It will be very difficult to reach something in the region of a trillion. Maybe half of that," he said.

Italy remained an enormous concern. Carrying five times as much debt as Greece, Italy was battered for the third straight day Tuesday in the bond markets, seeing its borrowing rates soar to unsustainable levels of 7.56 percent. Investors appear increasingly wary of the country's chances of avoiding default -- and making matters worse, the eurozone's third largest economy is deemed too big for Europe to bail out.

The ministers still insisted Italy's new prime minister has promised to balance Italy's budget by 2013.

"We have full confidence that Mario Monti will be able to deliver this program," Juncker said.

The eurozone ministers also called on the International Monetary Fund for more resources to help further protect Europe's embattled currency. But the IMF has only about $390 billion available to lend, which wouldn't be anywhere near enough to rescue Italy.

The eurozone ministers agreed to seek new ways to increase the resources of the IMF through bilateral loans that could protect EU nations facing financial trouble.

French Finance Minister Francois Baroin said it was "evident" that the eurozone was moving towards greater fiscal convergence and better coordination of budgets. He said, far from indicating a loss of national sovereignty, these moves would guarantee countries' sovereignty by helping them bring down their debt burdens.

"Reducing our debts is the best way to guarantee our sovereignty," he told reporters.

Eurozone countries have enormous debts that must be refinanced -- with euro638 billion ($852 billion) coming due in 2012 alone, 40 percent of which needs to be refinanced before May, according to Barclays Capital.

A failure of the euro would lead to drastic consequences around the world. Bank lending would freeze, stock markets would likely crash, European economies would go into a freefall, and the U.S. and Asia would take big hits to their economies as their exports to Europe collapsed.

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Angela Charlton in Paris, Melissa Eddy and Juergen Baetz in Berlin and Don Melvin and Greg Keller in Brussels and Christopher S. Rugaber in Washington contributed to this report.

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