ECB capital increase under discussion: source

A capital hike is on the agenda of a meeting of ECB governors on Thursday, the source said, without identifying how much might be required.

ECB president Jean-Claude Trichet declined to comment.

In Berlin, a government source voiced support for an increase to shore up confidence amid an ongoing crisis in eurozone bond markets.

"Germany has always said it would support the ECB," the source said, before adding that more funds would demonstrate to markets "that the ECB is well capitalised if it buys more bonds."

The bank's subscribed capital currently stands at about 5.8 billion euros (eight billion dollars).

Economists said an increase would strengthen the ECB's safety net as it dealt with risk linked to purchases of public debt issued by countries on the eurozone periphery like Greece, Ireland and Portugal.

Last week, the central bank bought almost 2.7 billion euros worth of sovereign bonds, bringing the total since the Greek debt crisis worsened in May to around 72 billion euros.

Deutsche Bank economist Gilles Moec said "the timing (of the leak) is interesting," since it came just ahead of a key European Union summit that starts on Thursday.

The news might be "a reminder that the ECB's capacity for action is not as unlimited as it might be thought in a number of European capitals" and that governments must commit to resolving the debt crisis, Moec suggested.

Alternatively it could simply be a prudent accounting measure meant to beef up the ECB's capital, the economist explained.

"There is no contradiction between the two," Moec told AFP.

In its latest eurozone forecast, Ernst & Young said that if tension in markets for peripheral eurozone bonds remained acute next year, "the ECB may need to expand its bond purchase programme to help relieve some pressures."

Marie Diron, a senior economic advisor to the firm, told AFP she thought a capital increase "makes sense as the crisis as shown that the ECB's role has become much more wide-ranging than what was envisaged at the creation of EMU (European Monetary Union)."

"It would help strengthen the ECB's balance sheet and hence avoid the risk that it needs to print money to offset losses from exposure to the periphery," and with backing from Germany it would probably be approved, she added.

Both economists noted meanwhile that the ECB has been seeking to reduce its bond-buying role and has urged European leaders to increase the size of their temporary rescue fund, the European Financial Stability Facility (EFSF).

Trichet urged eurozone governments Tuesday to boost the 440-billion-euro EFSF, to give it "maximum capacity, quantitatively and qualitatively."

Diron, a former ECB economist, said: "Since the Irish crisis erupted the ECB has felt increasing uncomfortable in its role that seems to blur the line between monetary policy and fiscal policy."

Moec thought the central bank might want to issue "a reminder that there is no free lunch" for eurozone governments.