MADRID/BERLIN (Reuters) – Ratings agency Moody’s warned Spain on Wednesday that its debt could be downgraded and Portugal took steps to revive its economy amid concerns about euro zone debt contagion on the eve of a European Union summit.

Moody’s said it was worried about Spain’s high debt funding needs, its heavily indebted banks and its regional finances, but it did not expect Madrid would have to follow Greece and Ireland in seeking an EU bailout.

The Portuguese government announced moves to cut red tape and boost growth, and said it would soon adopt quarterly fiscal targets, part of a broad effort to convince EU officials and financial markets it does not need a bailout.

Spain and Portugal have come under intense pressure in bond markets, raising concerns they could be driven into seeking an EU/IMF rescue when they hit funding crunches next year.

The cost of insuring Spanish debt against default and yields on its 10-year government bonds rose on Wednesday, an indication of the increased risk attached to Spain. The euro fell against the dollar and European stocks lost ground.

“Europe remains very fragile. Everyone sees a major crisis in the first few months of 2011 that would coincide with Spain’s refinancing operations,” said Arnaud Poutier, deputy head of IG Markets France.

EU leaders meet in Brussels on Thursday and Friday for their end-of-year summit, with efforts to overcome the region’s year-long debt crisis at the heart of their agenda.

BERLIN (Reuters) – Germany will remain at risk of attack in 2011 by Islamist militants trying to erode wavering support for military involvement in Afghanistan and to strike at the heart of the European economy.

For the past month, Germans have trudged about in the snow under the watchful gaze of hundreds of extra police stationed in transport hubs and other public places after the government unexpectedly raised its security alert.

The government did not identify a specific threat, but security officials have described a series of potential scenarios that could occur in Germany, including armed attacks similar to those that struck the Indian city of Mumbai in 2008.

The heightened security alert followed the discovery of a parcel bomb sent from Yemen to a U.S. target that passed through Germany, as well as a separate device from suspected Greek militants that reached Chancellor Angela Merkel’s office.

Germany has not suffered a major assault by Islamic militants since the attacks on the United States in 2001, although several attempts have been thwarted and its military presence in Afghanistan has kept it braced for strikes.

“As the third biggest provider of troops in Afghanistan, Germany continues to be a major target for terrorists,” said Rolf Tophoven, director of the Institute for Terrorism Research and Security Policy (IFTUS) in Essen.

“The risk of an attack is still very high,” he said. “The attack in Sweden showed you can’t contain all the risks because it’s impossible to have every lone operator on your radar.”

BERLIN, Dec 15 (Reuters) – Germany will remain at risk of attack in 2011 by Islamist militants trying to erode wavering support for military involvement in Afghanistan and to strike at the heart of the European economy.

For the past month, Germans have trudged about in the snow under the watchful gaze of hundreds of extra police stationed in transport hubs and other public places after the government unexpectedly raised its security alert. [ID:nLDE6AG14Q]

The government did not identify a specific threat, but security officials have described a series of potential scenarios that could occur in Germany, including armed attacks similar to those that struck the Indian city of Mumbai in 2008.

The heightened security alert followed the discovery of a parcel bomb sent from Yemen to a U.S. target that passed through Germany, as well as a separate device from suspected Greek militants that reached Chancellor Angela Merkel’s office.

Germany has not suffered a major assault by Islamic militants since the attacks on the United States in 2001, although several attempts have been thwarted and its military presence in Afghanistan has kept it braced for strikes.

“As the third biggest provider of troops in Afghanistan, Germany continues to be a major target for terrorists,” said Rolf Tophoven, director of the Institute for Terrorism Research and Security Policy (IFTUS) in Essen.

“The risk of an attack is still very high,” he said. “The attack in Sweden showed you can’t contain all the risks because it’s impossible to have every lone operator on your radar.”

MADRID/BERLIN (Reuters) – Ratings agency Moody’s warned Spain on Wednesday its credit rating could be downgraded, highlighting concerns about euro zone debt contagion on the eve of a European Union summit.

Moody’s said it was concerned about Spain’s high debt funding needs, its heavily indebted banks and its regional finances, but it did not expect Madrid would have to follow Greece and Ireland in seeking an EU bailout.

Spain and Portugal have now come under intense market pressure, raising concerns they could be driven into seeking an emergency rescue when they hit funding crunches next year.

The cost of insuring Spanish debt against default and yields on its 10-year government bonds rose on Wednesday, an indication of the increased risk attached to Spain. The euro fell against the dollar and European stocks lost ground.

“Europe remains very fragile. Everyone sees a major crisis in the first few months of 2011 that would coincide with Spain’s refinancing operations,” said Arnaud Poutier, deputy head of IG Markets France.

Spanish Economy Minister Elena Salgado said market movements were being exaggerated by thin volumes at year-end, but that it also made sense to enlarge a European financial rescue fund to make sure it could tackle the crisis.

EU leaders meet in Brussels on Thursday and Friday for their end-of-year summit, with efforts to overcome the region’s year-long debt crisis at the center of their agenda.

MADRID/BERLIN (Reuters) – Ratings agency Moody’s warned Spain on Wednesday that its debt rating could be downgraded, pushing Spain back into the euro zone debt spotlight ahead of an EU leaders’ summit starting on Thursday.

Moody’s said it was concerned about Spain’s high debt funding needs, its heavily indebted banks and its regional finances, but said it did not expect Madrid to have to resort to an EU bailout like Greece and Ireland.

Spain, which with Portugal has come under intense market pressure in recent weeks, raising concerns it could be driven into a bailout, needs to refinance around 60 billion euros of debt early next year, according to JP Morgan research.

Both the cost of insuring Spanish debt against default and yields on its 10-year government bonds rose on Wednesday, an indication of the increased risk attached to Spain.

Spain’s Economy Minister Elena Salgado said market movements were being exaggerated by thin volumes at year-end, but said it also made sense to enlarge a European financial rescue fund to make sure it could tackle the crisis.

EU leaders meet in Brussels on Thursday and Friday for their end-of-year summit, with the region’s year-long debt crisis and efforts to better tackle it the central issues on their agenda.

As well as approving a change to the EU’s treaty demanded by Germany to create a permanent system for handling crises from mid-2013, the leaders will discuss how they can improve the current temporary crisis resolution mechanism — a 750 billion euro ($1 trillion) joint EU/IMF loan facility.

BERLIN/FRANKFURT, Dec 14 (Reuters) – The European Central Bank could decide this week on whether to increase its capital – giving it a cushion against any losses on its bond purchases – after Germany threw its weight behind the idea on Tuesday.

The ECB’s policy-setting Governing Council will discuss a possible capital hike when it meets on Wednesday and Thursday, a euro zone central bank source said.

The ECB is considering the capital increase to allow for the risk of potential losses from the government bond purchases it is making to counter market selling pressure, euro zone central bank sources have told Reuters. [ID:nLDE6BC26C]

This week’s meeting is the Council’s last of the year.

Germany said it would back such a move, which would increase the ECB’s firepower for its bond buying programme — its contribution to a rescue package hastily brought in at the height of the euro zone’s debt crisis.

“If such a request comes, we will judge it positively,” a German official said, briefing reporters on the government line ahead of a summit of European Union leaders in Brussels on Thursday and Friday. The ECB will meet in Frankfurt.

“I don’t rule out that Mr (ECB President Jean-Claude) Trichet will mention this at the (summit) dinner,” the official added when asked about a possible ECB capital increase.

BERLIN (Reuters) – Germany threw its weight on Tuesday behind a potential capital increase by the European Central Bank, saying it would react positively to such a move if the ECB deems it necessary.

Euro zone central bank sources have told Reuters the ECB is considering requesting an increase in its capital from euro zone member states as a cushion against any potential losses from its bond buying programme.

“If such a request comes, we will judge it positively,” a German official said, briefing reporters on the government line ahead of a summit of European Union leaders on Thursday and Friday.

“I don’t rule out that Mr (ECB President Jean-Claude) Trichet will mention this at the (summit) dinner,” the official added when asked about a possible ECB capital increase.

Since May the ECB has bought 72 billion euros of government bonds as part of a 750 billion euro EU/IMF rescue package hastily brought in at the height of the euro zone’s debt crisis. Most analysts believe it is concentrating its purchases on euro zone debt trouble spots Ireland, Greece and Portugal.

Asked what the ECB would expect to achieve by raising additional capital, the German official said:

“I imagine the ECB would hope to strengthen its basis in order to show the markets that it was well capitalised, if for example, it wanted to buy additional sovereign bonds.”

BERLIN/FRANKFURT, Dec 14 (Reuters) – European Union paymaster Germany said on Tuesday it was willing to give the European Central Bank more capital if needed to help fight a sovereign debt crisis that continues to shake the euro zone.

ECB sources told Reuters on Monday that the central bank was considering requesting a capital increase from euro zone states to cover the risk of losses on government bonds it has bought to support the 16-nation single currency area.

A Berlin government official, briefing reporters ahead of an EU summit on Thursday and Friday, said ECB President Jean-Claude Trichet might raise the matter at a dinner with EU leaders.

“The government supports the ECB in all that it deems important … If such a request comes, we will judge it positively,” said the official, speaking on condition of anonymity. He said the ECB had not yet made a formal request.

The German official said a bigger ECB capital base would show financial markets that the central bank had enough capital to buy new government bonds if needed. [ID:nLDE6BD1BK]

One euro zone central bank source said the ECB was eyeing a doubling of its subscribed capital of almost 5.8 billion euros, which compares to a balance sheet of 138 billion euros, according to its latest annual report. [ID:nLDE6BC1GS]

A euro zone financial source in Brussels confirmed that raising the ECB’s capital was one of the crisis management options under discussion. The ECB declined comment.

BERLIN, Dec 3 (Reuters) – Germany said on Friday there were “no plans and no desire” for joint fiscal policy in the euro zone, pointing out that reforms under way already provide for closer cooperation between member states on economic policy.

Spanish Prime Minister Jose Luis Rodriguez Zapatero this week called for the euro zone to develop a much more integrated fiscal policy as well as a common economic policy to counter the sorts of pressures that sparked debt crises in Greece and Ireland.

“There are no plans and there is no desire for a joint fiscal policy,” said chief government spokesman Steffen Seibert. “A decisive reform of the stability and growth pact already leads to closer cooperation on economic policy.”

Seibert told a regular news conference the case of Ireland’s corporate tax illustrated this. Dublin has rejected suggestions from European politicians, including in Germany, that it should raise its low corporate tax to reduce its deficit.

European Central Bank President Jean-Claude Trichet on Friday urged euro zone governments to press ahead with a “quantum leap” in fiscal governance in response to the crisis.

The official position of most EU leaders is that deciding on tax levels is a matter for individual governments.

But there is discussion in the euro zone, led by France, on the need for some form of fiscal union or “economic government” in the 16-member euro zone — an idea Chancellor Angela Merkel began supporting in early 2010.

By Dave Graham

BERLIN (Reuters Life!) – Percy MacLean can call on 250 years of experience to weigh up how immigrants integrate in Germany. Since his Scottish ancestor arrived in 1753, the family has produced mayors, members of parliament and even a Nazi.

Today, the 63-year-old MacLean, a chief judge in Berlin’s administrative court, says Germany risks losing the openness that allowed his family to flourish for generations because of a divisive national debate over the integration of Muslims.

In an interview with Reuters, MacLean said tendentious arguments now being aired publicly contained the seeds of what could spawn the kind of right-wing populism and xenophobia Germany witnessed in the run-up to the Holocaust.

Muslims have been in the media spotlight since central banker Thilo Sarrazin stirred up a row this autumn by asserting Turkish and Arab families were dumbing down Germany, swamping it with a higher birth rate and threatening the indigenous culture.

“Things can get very explosive once you start mentioning genes and intelligence,” MacLean said. “Talking down to them is totally wrong. We are the ones who invited them over here.”

“Sarrazin has opened fire on these people in a way that marginalizes them, fuels prejudice, and worst of all, gets into genetics which creates people of first, second and third class.”