The European Central Bank is considering requesting an increase in its capital to help cope with the rising costs of fighting the euro zone debt crisis, euro zone central bank sources told Reuters.

The issue is that the ECB is worried about potential losses from its bond buying, one source said.

At the moment we are buying very modest amounts, but what if that is increased, and what if the bonds you buy are suddenly worth 30 percent less? the source said, referring to the risk of a writedown on a euro zone government's debt.

The central bank declined to comment.

The ECB disclosed on Monday that it had increased its purchases of euro zone government bonds to 2.667 billion euros ($3.5 billion) last week from 1.965 billion euros a week earlier. It was the biggest weekly total since June but well below levels seen at the height of the euro zone crisis.

Altogether, the ECB has bought 72 billion euros in bonds -- exclusively Greek, Irish and Portuguese, analysts believe -- since it began intervening in May to stabilize markets.

ECB policymakers have repeatedly signaled that the central bank cannot bear the brunt of fire-fighting against bond market attacks on highly indebted euro zone states, urging governments to increase reform efforts and boost EU contingency funds.

The Frankfurt-based central bank headed by Jean-Claude Trichet has greatly expanded its lending since the start of the global financial crisis in 2007. It has a subscribed capital of almost 5.8 billion euros compared to a balance sheet of 138 billion euros, according to its latest annual report.

All 27 of the European Union's national central banks contribute to the ECB's capital. The 16 countries already using the euro make up 70 percent with other EU members -- including Britain and Denmark which have opt-outs -- making up the rest.

One source said a doubling of the ECB's capital was among the options being discussed. Another said it was not clear how much the bank would ask for. Both said the request would go to euro zone member states.


EU leaders are due to discuss the relentless crisis at a summit on Thursday and Friday but are not expected to announce any new measures to ease concerns about the region's debt.

However, one senior EU source said intense efforts were under way behind the scenes to find ways to shield Spain from market pressure expected to mount early next year.

Two major international financial institutions said EU paymaster Germany had aggravated the crisis with talk about making bond investors pay in future, but Berlin seems set to get its way on that issue at this week's European Union summit.

The Bank for International Settlements (BIS) and the head of the European Investment Bank (EIB) both said German Chancellor Angela Merkel's drive to make private bondholders share losses in any future euro sovereign default had intensified the crisis.

The surge in sovereign credit spreads began on October 18, when the French and German governments agreed to take steps that would make it possible to impose haircuts on bonds should a government not be able to service its debt, the Basel-based BIS said in its quarterly review.

EIB president Philippe Maystadt said Merkel was absolutely right to demand a private sector contribution to financial rescues after an emergency safety net expires in 2013, but the way it was presented created total confusion.

EU leaders are set to approve a two-sentence amendment to the 27-nation bloc's Lisbon treaty that would create a permanent European Stabilization Mechanism to lend to distressed member states on strict conditions.

They will also endorse a statement by euro zone finance ministers that private sector investors will be expected to contribute, on a case-by-case basis, in any sovereign debt restructuring after 2013.

But at the insistence of Berlin and Paris, they are unlikely to increase the existing rescue fund or to take any action on a proposal for common European bonds to help resolve the crisis.

EU sources said euro zone finance ministers would work in January on a more systemic response to the crisis, which has already forced Greece and Ireland to take EU/IMF bailouts and threatens to spread to Portugal, Spain and even Italy.


Euro zone bond markets have entered an end-of-year lull as investors close their books, with yield premiums on peripheral debt just a touch wider on Monday. But EU officials fear another potential wave of selling early in the new year.

A German government spokesman said indications were that the summit would not take up a proposal for common euro zone bonds made by Jean-Claude Juncker, chairman of the currency area's finance ministers, and Italian Economy Minister Giulio Tremonti.

The spokesman also told a news briefing he was not aware of any examination of an extension of the existing European Financial Stability Facility, as reported by the Financial Times.

The senior EU source said experts were working on ways to make European crisis management instruments more flexible and better able to help countries before they get shut out of credit markets.

The crucial aim was to ringfence Spain, the fourth largest euro zone economy. Madrid was taking energetic measures to avoid being sucked down with the crisis, the source said.

The EU source said experts were studying how to access the EFSF's full 440 billion euros ($580 billion) if necessary, despite pledges to maintain a cash buffer given to secure a top notch AAA credit rating for the rescue fund.

Luxembourg Foreign Minister Jean Asselborn said the 'E-bond' proposal, designed to reduce the borrowing costs of troubled euro zone states and prevent speculation against their debt, had been excluded from the EU summit agenda.

(Additional reporting by ECB reporters around Europe, Jan Strupczewski in Brussels, Erik Kirschbaum and Annike Breidthardt in Berlin, Brian Love in Paris; writing by Paul Taylor; editing by Hugh Lawson)