LUXEMBOURG — Europe sought to put a firewall between the financial turmoil ravaging Greece and the destinies of Ireland and Portugal, the two other eurozone countries that already have received international aid.
The region’s finance ministers signed off Monday on important changes to their bailout funds, which they hope will reinforce confidence in the eurozone’s struggling economies even though Greece’s crisis is at a new boiling point.
As Greece risked defaulting on its debt next month, market pressure was increasing on countries such as Portugal, where borrowing rates hit record highs on Monday.
“Times are difficult, the reform fatigue is visible in the streets of Athens, Madrid and elsewhere, and so is the support fatigue in some of our member states,” said Olli Rehn, the European Union’s monetary affairs commissioner.
But Mr. Rehn urged countries to press on with the austerity. “We are about to complete a decisive response to the worst crisis since the Second World War,” he added.
To boost market confidence, ministers agreed to raise their guarantees for bailout loans from the current rescue fund from $630 billion to $1.1 trillion, said Klaus Regling, who manages the Luxembourg-based fund. That will allow the fund to lend out a total of $630 billion, up from about $357 billion currently.
The European Financial Stability Facility (EFSF), as the fund is known, requires significant over-guarantees to get a good credit rating and raise cash.
The increase had been agreed upon in principle in March, but putting it into force required states to almost double their commitments to the fund — an unpopular move at a time when citizens in well-off countries are increasingly frustrated with the cost of helping their weaker neighbors.
On top of that, the ministers also made an important change to their future rescue fund, which they hope will help already bailedout countries regain access to debt markets.
The so-called European Stability Mechanism (ESM), which will come into force in mid-2013, when the EFSF expires, will not have preferred-creditor status when it helps countries that already have been bailed out, said Jean-Claude Juncker, the Luxembourg prime minister who also chairs the meetings of eurozone finance ministers.
That means the fund would not be repaid before any private creditors. Giving the fund preferred-creditor status has been criticized for discouraging private investors, who would be last in line to be repaid in the case of a default.
The ESM kicks in at a time when Ireland and Portugal have to re-enter international debt markets and start raising some money again by selling bonds.
However, investors will be reluctant to buy these bonds if they have a high risk of not being repaid if the economic situation in the two countries worsens again.
The ESM will retain preferred creditor status for bailouts for countries that have no previous support programs.
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