Spain hopeful for stronger EFSF fund, Weber has doubts

MADRID/BRUSSELS (Reuters) - Spain is confident euro zone leaders will agree to strengthen their multi-billion euro rescue fund at a summit next month, but European Central Bank member Axel Weber cast doubt on whether that should happen.

In an interview with Reuters, Spanish Prime Minister Jose Luis Rodriguez Zapatero said he was making headway in convincing financial markets Spain was getting its economy in order, and said he was confident Germany would support a stronger euro zone fund despite Chancellor Angela Merkel's domestic problems.

"We are winning the battle, but I still have my guard up because we have to implement all the reforms that have generated more confidence," Zapatero told Reuters Insider television.

The euro zone's 17 leaders will meet in Brussels on March 11 to discuss strengthening the European Financial Stability Facility (EFSF), the 440 billion euro fund set up last May and used to bail out Ireland, among other issues.

Germany remains reluctant to back an increase in the EFSF's effective capacity from around 250 billion euros to the full 440 billion because of domestic opposition to the move, but Zapatero said he was hopeful of Merkel's support in the end.

"I am confident, confident in the capacity and commitment of Chancellor Merkel," he said. "We know this is a very intense electoral year in Germany, but I am confident.

The expectation has emerged among EU policymakers that Germany will support a strengthened EFSF if the rest of the euro zone agrees measures to make their economies more competitive.

Those proposals and others on broader economic governance are expected to be included in a "comprehensive package" that EU leaders will discuss and hope to agree at a summit on March 24/25, possibly drawing a line under the year-long debt crisis.

But Weber, the outgoing head of the Bundesbank and an influential voice in the euro zone debt debate, wrote in a column in the Financial Times on Tuesday that current measures to tackle the crisis had gone far enough and no major adjustments to the existing rescue fund were required.

"Against this backdrop, the existing instruments for short-term crisis resolution are adequate and, despite repeated demands to the contrary, should not undergo significant adjustment," he wrote.

Yields on Spanish and other peripheral euro zone bonds rose on Tuesday, but it was more a reflection of unrest across North Africa, which prompted investors to seek safer assets such as German Bunds, traders said.

PORTUGAL ON THE HOT SPOT While Spain has taken steps to overhaul its economy that appear to have convinced markets that the worst may be over -- the spread of Spanish 10-year government bonds over German bunds has fallen around 30 basis points in the past month -- Portugal remains a point of concern.

A euro zone source told Reuters last week that there was now a consensus among EU member states that Portugal would have to seek a bailout by April, and that view remains common among officials in Brussels.

However, Portuguese Finance Minister Fernando Teixeira dos Santos told Japan's Nikkei newspaper during a visit to Tokyo he believed the country would continue to be able to fund itself in the markets without seeking euro zone aid.

"Portugal is tackling fiscal rebuilding to achieve its fiscal reform targets. The situation is different from Greece and Ireland," he was quoted as telling Japanese officials.

Portugal has around 4.3 billion euros of bonds falling due in April and another 4.9 billion in June. A portion of that debt may be sold in private placements in Asia, with both China and Japan having indicated that they could buy euro zone bonds.

Since Portugal's immediate funding needs to not fall until April, it can afford to wait until EU leaders meet to discuss their "comprehensive package" at the end of March to see if a deal then calms financial markets and provides a reprieve.

If the package does not include a strengthening of the EFSF -- which could disappoint financial markets, which want to see that the euro zone is prepared to put more money behind the fund -- that could pile further pressure on Lisbon.

Reflecting broad concern about Lisbon, the head of the European Bank for Reconstruction and Development, Thomas Mirow, told Germany's Sueddeutsche Zeitung on Tuesday: "I think that Portugal needs help to solve its debt problems."

If Portugal were to need a bailout, senior euro zone officials have indicated it would need between 80 and 90 billion euros of aid, meaning there would be more than enough in the EFSF, even if its effective lending capacity is not increased.

The concern then would be whether there is enough to bail out Spain or any other euro zone state were they to need it.

(Additional reporting by Sakari Souninen in Frankfurt and Paul Taylor in Madrid)

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