Euro zone countries are likely to agree to lend 150 billion euros (127 billion pounds) to the International Monetary Fund via bilateral loans from their central banks, a senior euro zone source said hours before the start of an EU summit on Thursday.
However, the source said a proposal to give the euro zone's permanent bailout fund, the European Stability Mechanism, a banking licence -- which could allow it to access European Central Bank funds, boosting its firepower -- had been rejected.
The idea of giving the ESM a banking licence is off the table, the source said. Germany has opposed that idea, floated by EU Council President Herman Van Rompuy and backed by France.
Bilateral loans to the IMF have been proposed as a way of giving the fund sufficient capacity to on-lend to euro zone countries in distress. That would sidestep the European Central Bank, whose mandate does not allow it finance deficits directly.
There is likely to be agreement to increase IMF resources through bilateral loans of about 150 billion euros from euro zone national central banks, the source said, adding there were hopes that countries outside the euro zone could contribute another 50 billion euros to the IMF.
The source was confident an agreement would be found on how the bloc's Lisbon treaty could be adapted to better tackle the debt crisis, but said the exact text of those changes would be agreed later and finalised by a March summit.
(Reporting by Jan Strupczewski; editing by Mark John and Rex Merrifield)