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Malta approves beefing up bailout fund for European nations

October 10, 2011 |  3:34 pm

REPORTING FROM LONDON -- Following approval by the tiny island of Malta, a crucial plan to beef up Europe’s bailout fund for debt-strapped nations now lies in the hands of lawmakers in Slovakia, where the outcome remains up in the air.

The Maltese parliament voted unanimously Monday in favor of the plan, which would increase the rescue fund’s lending capacity to about $600 billion and enable it to buy government bonds and extend credit lines to distressed banks. European leaders hope the extra firepower will help contain the debt crisis that has rocked both the regional and global economy.

But the strengthened fund requires ratification by all 17 nations that use the euro, and in Slovakia, the only one left to decide, a junior party in the governing coalition has threatened to block the plan. Last-ditch talks with the dissidents on Monday reportedly failed to reach a resolution, leaving European officials and international investors on tenterhooks ahead of a vote expected in the Slovak parliament Tuesday.

Still, Europe’s main stock markets all closed higher Monday. The rally was fueled by hope that the proposed expanded bailout fund would eventually pass and that the leaders of France and Germany, the Eurozone’s most influential countries, would fulfill their pledge to present a new strategy for dealing with the debt crisis and the region’s shaky banks by the end of the month.

Markets were also buoyed by an agreement among Belgium, France and Luxembourg to shore up jointly owned Dexia bank, the first major lender to fall victim to the crisis because of its large holdings of Greek debt. Many experts say that Greece is in line to default in the near future, which would inflict heavy losses on banks across Europe; those without a sufficient capital cushion could be wiped out.


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-- Henry Chu