Euro zone finance ministers have decided to take their time over beefing up the currency area's rescue fund as debt-stricken Greece denied a minister's comment that it should stretch out all its debt repayments.
The 17 euro zone ministers showed no indications they were closing in on any firm decisions after their monthly meeting on Monday. The chairman of euro zone finance ministers, Jean-Claude Juncker, said they discussed many options, but favoured none.
Germany, the biggest euro zone economy that is key to any agreement on changes, said there was no rush to boost the European Financial Stability Facility since bond markets were calmer and an overall package should be prepared for late March.
Market developments in the last week have, thank God, taken the urgency out of these discussions, German Finance Minister Wolfgang Schaeuble said.
Greece, the first country to receive an EU-IMF bailout last May, moved swiftly on Tuesday to quash a hint that it may seek to reschedule its entire outstanding debt to enable it to overcome its debt crisis.
I do not believe in haircuts but in extending the repayment period on debt, Deputy Prime Minister Theodore Pangalos, a maverick whose comments do not always reflect government policy, told Skai TV on Monday evening.
Debt payment extension may refer not only to the 110 billion euros (of emergency funding) but the entire debt, he said.
Many economists believe Greece will eventually have to default or restructure its debt, but a finance ministry official who requested anonymity said Athens was not discussing stretching out repayment of its entire outstanding debt.
The government has a very specific agenda ... there is preliminary agreement to extend repayment of Greece's EU/IMF bailout loans and that's it, the official said.
Juncker said the euro zone ministers discussed in general terms the possibility of reducing the interest rates charged on rescue loans to Greece and Ireland, and lengthening the maturity on Greece's 110 billion euro emergency package.
As concerns the lengthening of the Greek maturity, we are not discussing this in detail as this is part of the comprehensive package we are supposed to deliver, he said.
The euro rebounded in early European trading, jumping above $1.3400, after sliding in Asia as hopes were dashed for an immediate agreement to increase the size of the bailout fund.
Analysts expressed concern that the euro zone was veering away from early action now that bond markets are temporarily calmer following successful debt auctions by Portugal and Spain.
What indications we have heard from European officials over the past several days is that they just don't feel the same sense of urgency that the market does, said Todd Elmer, currency strategist at Citi in Singapore.
GREATER LENDING POWER
The EFSF was set up last May, after the Greek bailout, to help any other euro zone countries that got shut out of credit markets. Ireland had to tap the fund in December after its public debt ballooned following a bank crash due to the bursting of a real estate bubble.
The EFSF borrows money on markets with euro zone government guarantees of up to 440 billion euros. But to obtain the top credit rating of triple A, the lenders have to set aside cash reserves effectively reducing the amount the fund can lend to countries in need to about 250 billion euros.
Markets want to see more money available for the fund because they estimate the current amount would not be sufficient if both Portugal and Spain applied for emergency financing.
Schaeuble acknowledged that the effective lending capacity of the EFSF would have to be increased but said it would have to be part of a package of measures to be adopted in March.
Ministers of the six euro zone countries with a triple A rating -- Germany, France, the Netherlands, Finland, Austria and Luxembourg -- held a separate meeting on Monday, diplomats said, but there was no public indication of the outcome.
Euro zone policymakers are expected eventually to increase the firepower of the rescue fund by 260 billion euros to reach 700 billion, a Reuters poll shows.
Last week, the European Commission and the European Central Bank called not only for the EFSF to have more money but also to use it in a different way -- for example to buy government bonds on the secondary market, like the ECB does now.
Germany has so far opposed the idea and Juncker would not give any details on what support that idea had among euro zone finance ministers on Monday.
BELGIUM THE LATEST TEST
Belgium provides the latest test of investor sentiment over euro zone debt on Tuesday with an issue of three-month and 12-month treasury certificates.
The country was largely untouched by the euro zone's debt crisis until November, when contagion concerns grew.
The lack of a government for seven months is feeding market fears political paralysis will undermine efforts to cut a public sector debt that is almost as large as annual economic output.
Bolstering market sentiment, the ECB said on Monday it bought 2.3 billion euros in euro zone government bonds last week, its biggest weekly purchase for more than a month. The buying helped calm markets, enabling Spain and Portugal to stage successful auctions.
Madrid canceled a planned bond auction on Monday and decided instead on a 10-year bond sale through a syndicate of banks, to raise 6 billion euros.
(Reporting by euro zone bureaux; writing by Paul Taylor, Editing by Mike Peacock)