(menafn – ecpulse)
Amidst the efforts done by euro area officials to resolve debt crisis, following the approval Greece's second bailout, they will gather this week in Copenhagen to discuss the possibility of boosting the power of the European rescue fund to prevent the spread of debt contagion to the region's large economies, more specifically Italy and Spain, and other euro region’s troubled periphery nations.
The two-day meeting on March 30-31 will decide whether there will be an agreement over boosting the size of the fund to 750 billion euros, through combining the remaining of the EFSF (250 billion euros) and the ESM (500 billion euros), noting that there is a strong rejection from Germany and Finland to the expansion as they see the current size is enough to combat debt crisis.
The European Commission has recommended last week increase the size of the firewall to 940 billion euros through combining the powers of EFSF and ESM, where the Commission put different scenarios for such step, including raising the power to 940 billion euros or 700 billion euros only temporarily, where it will be cut back to 500 billion euros.
However, the Commission prefers permanent increase as it would provoke non-euro area nations to boost the IMF sources up to 1-trillion after their previous rejection to boost resources unless euro area members increase their firewall.
Now, Greece is granted another bailout yet it has to embark on tough reforms to lower its budget deficit to target, yet there are worries that Portugal and Ireland may track the Greek scenario.
On the other hand, the ECB has flooded the financial system with trillions to boost liquidity to banks while kept interest rate unchanged at 1.00% to bolster growth.
However, still the euro area needs several financial and economic reforms to get on the right track, according to Fed Chairman Ben Bernanke comments last week.
This month, the ECB governing council lowered its growth outlook for the current year and next compared with December's projections. The bank sees a range of -0.5% and 0.3% this year and between 0.0% and 2.2% in 2013.
In the U.K., eyes will track GDP for the fourth quarter (final reading), where expectations refer that there will be no revisions neither in the quarter nor on the annual as the former is expected to remain at -0.2% and later will steady at 0.7%.
The British government is trying to find a complete method to reduce budget deficit while bolstering growth, where policy makers are now relying on the decline in prices to enhance household spending to build growth.
Nevertheless, it seems that the rise in unemployment to the highest level in 16 year at 8.4% offset the positive impact of the decline in inflation to 3.4%.
The sharp austerity measures may cut off 700,000 public-sector jobs, where Osborne in his annual budget announced last week mentioned that unemployment would remain high at 8.7% this year.
However, he raised growth forecast to 0.8% this year from previous estimates of 0.7%, referring that the economy will avoid a renewed recession after shrinking in the last quarter of 2011.
In March, BoE opted to keep both interest rate and APF unchanged at 0.50% and 325 billion pounds, amid split from Posen and Miles that the APF should have been increased by additional 25 billion pounds.
