Forex News – Talks of increasing EFSF bailout fund helps lift euro

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European officials are considering providing “seed money for a special purpose vehicle” that would issue bonds and buy European sovereign debt in efforts to contain the euro zone debt crisis, CNBC reported on Monday, citing a top European financial official. “Our understanding is the plans for levering the EFSF are already well advanced,” CNBC said.

The news helped lift equity markets and boosted the euro.

Meanwhile, European Central Bank Governing Council member Ewald Nowotny said at Harvard University in Cambridge, Massachusetts that an increase to the European Financial Stability Facility (EFSF) is being discussed and is likely but might not be as large as some have speculated.

“It is something more than it is now” but “might not be a trillion (euros),” Nowotny said.

Recently there has been rumours that the rescue fund could be increased to as much as 2 trillion euros from the current 440 billion euros.

Nowotny said he would not speculate on a possible haircut on Greek debt or, down the line, for Italy or Spain. He said the European Union will solve its economic and credit problems over time.

“It is not a short-term problem, it’s a structural problem,” Nowotny said. Safety nets are designed “to buy time until the structural changes can be made” but can not be “a bridge to nowhere.”

The ECB official also strongly defended the condition of the euro in the face of the battering from debt crises cascading from Greece to other euro member countries.

“We do not have a problem of the euro as a currency. The euro as a currency is working” — specifically, fulfilling its role of fostering price stability, Nowotny said.