European finance ministers will pursue plans on Monday to enhance the IMF's arsenal and press on with a drive for tighter fiscal rules in an attempt to assuage doubts they can overcome their sovereign debt crisis.

The EU ministers will discuss via a teleconference the draft text of a new euro zone fiscal compact so that it can be finalized by the end of January, EU officials said.

Having agreed to offer 150 billion euros to the International Monetary Fund to raise its crisis-fighting capacity, they will also consider the size of individual bilateral loans to the Fund in talks from 1430 GMT.

There are doubts about this scheme. Germany's Bundesbank said last week it would only contribute if non-euro zone and non-European countries did too and the level of outside commitment is not clear.

German Finance Minister Wolfgang Schaeuble saw little chance of the United States increasing its contribution to the Fund to help Europe.

Washington cannot make bilateral loans available to the IMF without Congress approving it ... and there's no chance of that and the American government has always made that clear, he told German radio.

Even with the year-end looming there is no let-up in the scramble to ease market pressure on euro zone strugglers.

The European Central Bank will offer three-year funds to banks for the first time on Wednesday to counter a freeze in interbank lending.

France hopes banks will use the money to buy euro zone bonds but Italy's Unicredit said last week this wouldn't be logical for banks under pressure to reduce risk and rebuild capital.

Despite new governments in Greece, Italy and Spain redoubling austerity efforts, market response to measures agreed at a December 9 EU summit has been cool, mainly because of the reluctance of the ECB to step up euro zone bond purchases and declare its readiness to do so.

As a result, ratings agency Fitch concluded on Friday that a 'comprehensive solution' to the crisis was technically and politically beyond reach. It warned that six euro zone economies including Italy and Spain could be hit with credit downgrades in the near future.

Standard & Poor's has said it could soon downgrade nearly all the euro zone's 17 members.

Speaking at a ceremony in Rome, Italian President Giorgio Napolitano called for a strengthening of the still insufficient firewalls necessary to defend sovereign debt and save the single currency.

ECB President Mario Draghi will testify to the European Parliament at 1530 GMT.

He told The Financial Times that the ECB could not start printing money and gave no signal that it would buy euro zone government bonds more aggressively.

Euro zone leaders agreed on December 9 to write into national constitutions a rule that budgets have to be balanced or in surplus in structural terms. If they are not, automatic corrective measures would follow.

Such rules would sharply limit government borrowing, bring down debt and, euro zone politicians hope, help restore market trust in the sustainability of public finances.

But constitutional changes will take a year or more and markets want reassurance now that money invested in euro zone debt is safe, especially after banks were asked to accept a 50 percent loss on their Greek bonds in October as part of a second bailout of the country which sparked the debt crisis.

To address market concerns that they do not have enough money to prevent the crisis from engulfing Italy and Spain, euro zone leaders brought forward by one year to July 2012 the launch of their 500 billion euro permanent bailout fund, the ESM.

Leaders will decide in March if the combined lending capacity of the temporary fund, the 440 billion euro European Financial Stability Fund (EFSF), and the ESM, should be capped at 500 billion euros, or raised by the amount already spent by the EFSF.

Draghi said politicians needed to move fast to make the EFSF operational. He declined to give a clear answer whether the ECB would keep buying government bonds once it was up and running.

RETICENT ECB

Italy's austerity budget, vital to Rome's attempts to get its accounts in order and do its part to try to save the euro from collapse, enters its final stretch this week with unions still on the warpath.

And Spain's incoming centre-right Prime Minister Mariano Rajoy will outline his first economic reforms and cost-cutting measures on Monday as he prepares to take the helm of a country battered by austerity, mass unemployment and the threat of recession.

But given the doubts about the IMF getting more money and the fact that the euro zone's rescue funds have taken so long to establish, investor focus remains overwhelmingly pinned on the ECB.

We believe the resolution of the euro debt crisis will remain the principal theme in 2012. All other themes are likely to be derivatives of the crisis, Deutsche Bank analysts Mark Wall and Gilles Moec said in a note. We see greater ECB involvement as inevitable. Very easy monetary policy for longer is also likely.

The central bank, which is forbidden by EU law from directly financing government deficits, welcomed the December 9 agreement on more fiscal discipline in the euro zone, but doused expectations it would ramp up sovereign debt buying in return.

Euro zone policymakers said the ECB's role in the crisis was impossible to communicate clearly because of legal and political constraints. But they said the bank would not, in the end, allow the crisis to threaten the survival of the currency bloc.

A declaration from the ECB that it would buy unlimited amounts of euro zone bonds for as long as necessary would immediately calm markets, but would probably break EU law and would relax pressure on politicians to reform their economies.

The ECB simply can't and won't say that, and it's very unreasonable to even expect it, one euro zone official said.

Instead, the bank was likely to keep quietly buying enough Spanish and Italian bonds to keep both countries on the market but with financing costs sufficiently high to keep pressure on their lawmakers to quickly accept tough reforms.

This is the most expensive approach, also not likely to work in the longer run, but still it is the only one possible, the euro zone official said.

Germany European union European central bank