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The euro rose Friday on reports that the European Central Bank may channel as much as €200-billion into the International Monetary fund to boost the IMF's debt-crisis fighting abilities.

The funding reportedly would be used to underwrite loans to Italy or Spain should their soaring bond yields prevent them from raising new debt at sustainable prices.

The go-ahead to examine the idea of using the ECB, which itself is funded by the national banks of the 17 euro zone countries, to pump up the IMF was raised by ECB bank boss Mario Draghi on Nov. 29.

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The proposal, if approved, is seen as a back-door way of allowing the ECB to, in effect, take a key role in sovereign bailouts. Under current rules, the central bank is not allowed to offer direct budget financing. Instead, it can offer unlimited liquidity to banks or buy sovereign bonds on the secondary market.

''If we could see the proposed combination of IMF and ECB action, obviously that would be very, very credible to the market,'' Swedish Finance Minister Anders Borg said Nov. 30.

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About the Author
European Columnist

Eric Reguly is the European columnist for The Globe and Mail and is based in Rome. Since 2007, when he moved to Europe, he has primarily covered economic and financial stories, ranging from the euro zone crisis and the bank bailouts to the rise and fall of Russia's oligarchs and the merger of Fiat and Chrysler. More

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