OECD calls for 1.0-tn-euro eurozone debt fund

The eurozone came under new pressure to boost the firepower of its debt rescue fund on Tuesday, with the 34-nation OECD pressing for a safety net of at least 1.0 trillion euros ($1.33 trillion). "The European firewalls should be expanded further and made more credible to restore confidence," the Organisation for Economic Cooperation and Development said in a report on the eurozone economy. "To ease market tensions, the funds should be available on a scale sufficient to withstand possible future requests for financial assistance," said the Paris-based economic forum. Eurozone finance ministers are meeting on Friday and Saturday in Copenhagen to decide whether to increase the size of their debt rescue mechanism amid resurgent concerns about the financial health of Spain. The OECD said the refinancing needs of vulnerable eurozone nations could top 1.0 trillion euros over the coming two years and in addition contributions may be necessary to recapitalise banks. Spain faces refinancing needs of some 370 billion euros over the next three years, while Italy will need 750 billion euros to finance its debt. "Although it is unclear that funds on this scale would ever need to be drawn down, the availability of credible firewalls may enhance confidence," the OECD report said. "Ultimately, the scale and form of funds needed will depend on how confidence returns, as well as economic and financial developments." OECD Secretary General Angel Gurria, warning that the current funding commitments were not enough to restore market confidence, said a "credible" firewall would give governments "breathing space" to focus on reviving growth. "Make it large, make it prominent," Gurria told a news conference in Brussels alongside European Economic Affairs Commissioner Olli Rehn. "We are not out of the woods," Gurria said, referring to the eurozone debt crisis that has festered for more than two years. The OECD's call has little chance of being heard, however, with Germany backing a smaller increase in the new European Stability Mechanism after months of international pressure to back a bigger fund. Leading industrialised and emerging countries have delayed a possible increase in the International Monetary Fund's resources as they want to see the eurozone stump up more to fight its own crisis first. Eurozone governments have debated whether to combine the lending capacity of the temporary European Financial Stability Facility (EFSF), used to rescue Portugal, Ireland and Greece, with the permanent ESM. German Chancellor Angela Merkel said on Monday that Berlin was now open to combining 500 billion euros from the ESM with some 200 billion euros for debt-ridden countries from the EFSF. This option would give the eurozone around 700 billion euros on paper but in reality it would likely still only amount to 500 billion euros since the extra 200 billion euros -- already committed to Greece, Ireland and Portugal -- would be run in parallel and not as part of ESM. The European Commission has proposed other options, including one that would give the eurozone a rescue fund totalling 940 billion euros. This option, however, is unlikely to be agreed. Finland, another key player in the debate as it is one of only four countries in the bloc still boasting a triple-A credit rating and that has been reluctant for a big boost, postponed taking a position until Friday. Finance Minister Jutta Urpilainen stressed that it is "important that the risk to Finland will not increase a lot." "We need a real firewall, instead of constantly spending money on fire extinguishers," fumed the head of the liberal lawmakers in the European Parliament, former Dutch prime minister Guy Verhofstadt. He said procrastination had increased the cost. "At this point not even the simple merger of the two funds would be sufficient to convincingly improve our 'defences', especially if bigger EU countries, like Spain for instance, show signs of lacking solvency," he added. Spain's borrowing rates have begun to creep up again recently after a respite of several months after it emerged the country missed its 2011 target of curbing the public deficit to 6.0 percent of gross domestic product by a wide margin, shocking its European partners with a deficit of 8.51 percent.