July 20, 2011
European officials are considering steps previously rejected by Germany, including the use of precautionary credit lines, to prevent the spread of the region’s debt crisis, a person close to the talks said.
Other options up for discussion at tomorrow’s Brussels summit include enabling the main 440 billion euro ($626 billion) rescue fund to lend to recapitalize banks, said the person, who declined to be named because negotiations are in progress. Nothing will be decided until leaders convene.
Together with a second Greek aid package, the goal is to prove to markets that Europe has the will and the tools to prevent the 21-month sovereign debt crisis from engulfing Spain and Italy. The euro today rose against the dollar for a second day and Spanish and Italian bonds also gained as investors signaled optimism that policy makers are moving toward a deal. The cost of insuring against default on the sovereign debt of Greece, Portugal, Italy and Spain declined.
“There needs to be a program with a certain amount of shock and awe to impress the market that the leaders are on top of the crisis,” said Robin Marshall, a London-based money manager at Smith & Williamson Investment Management in London.
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