OECD urges eurozone rescue fund boost to 1tn euros

The head of the Organization for Economic Cooperation and Development (OECD) has said that the eurozone needs to double its bailout fund to 1tn euros ($1.3tn, £836m).

Angelo Gurria said the eurozone countries should boost their funds from the current limit of 500bn euros.

But German Chancellor Angela Merkel told the BBC that she would favour only a temporary increase to 700bn euros.

Some fear that the fund could not cope with another bailout.

So far, Greece, Republic of Ireland and Portugal have been bailed out.

Most recently, Greece was granted its second bailout of 130bn euros after passing some harsh austerity measures and forcing bondholders to write off half of its debts.

But - despite some calming of financial markets over the past few months - some still fear that large countries like Spain and Italy will also need to be bailed out.

'Investors more concerned'

Mr Gurria said that the finance ministers of the 17 nations in the euro, who are meeting later this week, should boost the fund, adding that the current commitments are not enough to restore market confidence.

Last month, G20 finance ministers also made the same call for eurozone countries to put more money in their rescue fund, as has the International Monetary Fund.

But backing for such a move will need to come from Germany, Europe's largest economy.

The BBC's world economics editor, Andrew Walker, said: "The idea floated by the chancellor involves keeping existing rescue loans outside the new bailout agency that is being established, and so could give the impression that Germany is not putting any more taxpayers money at risk.

"The case for more resources has been underlined in the last few weeks by signs in financial markets that investors are becoming more concerned about Spain as the government there tries to change its borrowing targets."

Spain last month said it would miss a deficit target of 4.4% of output for 2012 agreed with Brussels.

The Bank of Spain has said it expects the economy to shrink 1.5% in 2012 as the government faces a 22% unemployment rate, meaning low income tax revenues and high demand for benefits.

Source & Image : BBC