The ministers backed efforts by Greece to keep the interest rate on newly issued bonds below 4 percent, Jean-Claude Juncker, who represents the 17 nations using the euro currency, told a news conference. That is below the level offered by bondholders in exchange for their current holdings of Greek debt..

“The negotiations will have to be resumed on that point as we don’t have a final picture,” said Mr. Juncker, referring to the interest rate on Greek debt.

At stake is the need to pare Greek debt to levels where the country can conclude a bailout with the European Union and the I.M.F. that would give it the cash it needs to repay loans coming due in March and, officials hope, allow Athens to finance its needs through 2013. Without such a package, Greece could be faced with a chaotic default that would further destabilize the rest of the euro zone.

Efforts to address another aspect of the region’s debt crisis took a step forward late Monday, as ministers made progress toward establishing a permanent rescue fund, the European Stability Mechanism.

Olli Rehn, the European Union’s commissioner for economic and monetary affairs, said the ministers were able to complete most of the details of the permanent fund, which should be “in place and operational” by July after member states ratify the agreement.

Setting up a permanent fund and giving it adequate financial firepower is a priority for European leaders including Chancellor Angela Merkel of Germany and for officials like Christine Lagarde, the head of the I.M.F.

An obstacle to establishing the fund was cleared on Monday night when ministers found a way to ease concerns in Finland, one of the contributing nations, that it would not incur additional liabilities without prior consent.

Earlier Monday, Ms. Lagarde suggested that the 440 billion-euro European Financial Stability Facility, a temporary bailout fund established in 2010, could be rolled into the 500 billion-euro permanent fund.

The fund is expected to be less exposed to downgrades by ratings agencies than the existing European Financial Stability Facility.

“I am convinced that we must step up the fund’s lending capacity,” to help defend “innocent bystanders” elsewhere in the world who are hurt by the euro contagion, Ms. Lagarde said. “A global world needs global firewalls.”

Mrs. Merkel said that she wanted to see the new fund put into operation quickly. She also said Germany was willing to speed up its share of payments.

Despite continuing concerns about Greek debt, the euro strengthened to an almost three-week high against the dollar after the French finance minister, François Baroin, said in Paris that negotiations with Athens were making “tangible progress.”

Evangelos Venizelos, the Greek finance minister, said as he arrived in Brussels that Greece was ready to complete a private sector debt swap “on time.”

Private sector bondholders are seeking yields of nearly 4 percent, but Greece, as well as Germany and the I.M.F., argue that a yield closer to 3 percent is necessary to give the restructuring a serious hope of success. With the talks at an impasse, the pressure is now mounting on finance ministers to push for a solution.

Reinforcing the need for a deal, Mrs. Merkel said she wanted agreement “soon enough that no new bridge loan whatsoever will be needed” for Greece.

Even as ministers prodded financiers to do their part to ease the crisis in the euro zone, the I.M.F. pressed European governments to bolster the bailout funds available for euro zone countries so that the region’s problems could be contained.

Ms. Lagarde called on European leaders to complement the “fiscal compact” they agreed to last month with some form of financial risk-sharing. She mentioned bonds backed by debt securities issued by the euro zone or a debt-redemption fund as possible options.

While the sense of crisis has ebbed and markets have calmed since the European Central Bank last month announced longer-term refinancing operations to inject nearly 490 billion euros of liquidity into the banking system, analysts say the central bank has only bought time for leaders to put the 17-country currency bloc on firmer footing.

Without more such actions from governments and the central bank to reassure financial markets, Ms. Lagarde said, “countries like Italy and Spain, that are fundamentally able to repay their debts, could potentially be forced into a solvency crisis by abnormal financing costs.”

Ms. Lagarde also called for more fiscal integration among euro members, saying, “it is not tenable for 17 completely independent fiscal policies to sit alongside one monetary policy.” She called for new measures to increase the sharing of risk, including possibly jointly issued euro area debt instruments, or, as Germany has proposed, a debt redemption fund.

The monthly meeting of the ministers in Brussels came at a time of widespread gloom about the broad European economy. Austerity budgets in the euro zone are reducing demand and weighing on growth.

Even Germany, where factories are bustling, is feeling the effects. The Federal Statistical Office said last month that the German economy probably contracted by about 0.25 percent in the fourth quarter of 2011 from the previous three months.

The economy of Spain, which is struggling with an unemployment rate of more than 20 percent, may contract about 1.5 percent this year, the Bank of Spain estimated.

James Kanter reported from Brussels and David Jolly from Paris. Reporting was contributed by Melissa Eddy in Berlin and Landon Thomas Jr. in London.

Article source: http://www.nytimes.com/2012/01/24/business/global/lagarde-urges-europe-to-beef-up-bailout-funds.html?partner=rss&emc=rss