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Eurozone split on boosting firewall

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(SAARISELKAE) - The eurozone remained divided Saturday ahead of a decision next week on whether to boost its debt crisis rescue fund, with especially Germany and Finland sceptical.

The split was evident at an informal meeting of European officials in the northern Finnish town of Saariselkae.

Helsinki said it was as doubtful as Berlin about strengthening the "firewall" for countries with budget woes, despite repeated calls from the International Monetary Fund to ensure that countries such as Italy and Spain will be permanently protected.

A eurozone consensus is needed when eurozone finance ministers meet in Copenhagen on March 30-31.

"We're a bit sceptical (about) how big the rescue fund should be," Finnish Prime Minister Jyrki Katainen said on the sidelines of Saturday's talks.

The issue is sensitive in Finland, where providing aid to other EU members with weak finances, such as Greece, has proved controversial.

"The firewall must be high enough, but not too high, which could destroy the confidence of the sustainable countries" such as Finland, one of only four eurozone countries to retain a triple-A credit rating, Katainen warned.

The IMF, which holds its spring meeting in mid-April, is expecting the eurozone to take the first step before it boosts its own resources to assist the bloc.

The European Central Bank and the European Commission are on the same page.

"The ECB's position on this is clear. We think that even if the crisis is now a little bit calmer, we still think it's necessary to increase the European firewalls (so) that our international partners at the G20 will also do their (part)," ECB official Joerg Asmussen of Germany said.

EU Economics Affairs Commissioner Olli Rehn said there was "no room for complacency," adding: "We are for the moment in a milder recession, but it can be short-lived."

He urged the eurozone "to conclude the comprehensive crisis response by reinforcing the euro area financial firewall" and said he was confident a "satisfactory compromise" could be reached at a eurozone finance ministers meeting in Copenhagen next Friday and Saturday.

Rehn also warned Spain that it must maintain fiscal discipline and stick to its target of cutting the deficit to three percent of gross domestic product by next year in order to retain market confidence.

He was speaking after fears over Spain's fiscal health sent up the country's borrowing costs last week, and warned that the situation is still "fragile".

The Commission has presented three possible options for the firewall, according to an eurozone official speaking on condition of anonymity.

The most ambitious scenario would involve pooling the theoretical 440-billion-euro ($584-billion) capacity of the temporary fund, the European Financial Stability Facility (EFSF), with the 500 billion euros of the permanent European Stability Mechanism (ESM) -- a total of 940 billion euros.

"This is the option the EU Commission considers to be the best one, but it is unrealistic now" given the resistance from Germany and Finland, the official said.

Another proposal is to stick to the 500 billion euros in the ESM.

A third option would involve adding the EMS to the 192 billion euros already pledged in the EFSF -- a total of almost 700 billion euros -- or to the total EFSF pledge capacity of 250 billion euros for some 750 billion.

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