An extension of the European Financial Stability Facility to €2 trillion as speculated about by markets is not on the table, Spanish economy minister Elena Salgado said today.
"It is not on the table, nor has it been discussed," she said in an interview on Spanish television.
The euro fell 0.35 per cent against the dollar to $1.3492 after Ms Salgado's comments. Before she spoke, the single currency had made a tentative recovery from yesterday's lows below $1.34 on talk policymakers were planning to boost the size of the EFSF, halve Greece's debts and recapitalise banks,
Yesterday European Central Bank governing council member Ewald Nowotny said an increase in the regional bail-out fund was being discussed but that it might not be as high as some expect.
Ms Salgado also said Europe's banks may need to be recapitalised further.
"At the IMF meetings the word that came up the most was 'fire-wall', so that countries have a set of measures to protect our economies ... part of those fire-walls may be the need for European banks to be recapitalised further."
As for Spain, she said the country's banks had already taken action to recapitalise.
Ms Salgado also said that she was in favour of a so-called "Tobin tax" on financial transactions to be imposed on European banks.
"Salgado poured cold water on the optimism that we saw first thing this morning," said Ian Stannard, head of European currency strategy at Morgan Stanley.
"The market took some relief from reports that European authorities were looking at leveraging up the EFSF, but the reaction (to Salgado) highlights just how fragile that recovery is".
"Even if we do see suggestions of an agreement any recovery will be limited and it will not take much for the euro to come back under pressure".
Reuters
