Euro zone leaders agreed in December that the permanent European Stability Mechanism (ESM) will take urgent decisions on loans to countries cut off from markets with a majority of 85 percent of votes, rather than unanimity as agreed initially.

Finland was the only country that could not back the change, because such an amendment to the draft ESM treaty would require the support of two thirds of the Finnish parliament -- a majority the Finnish government does not have.

The new voting system had been proposed by France and Germany as a way to bypass the opposition of small countries, like Slovakia and Finland, to granting euro zone financial support to sovereigns who lost the trust of markets.

Without the consent of Finland the permanent bailout fund, badly needed to boost market confidence in euro zone defenses against the debt crisis, cannot not be launched.

"Finland proposed that when support is granted under an emergency procedure, we would create some kind of financial provisioning in the books of the ESM for this support," one euro zone official involved in the talks said.

"We discussed it in recent days and the idea is acceptable to more or less everyone. So, if it does the trick with the Finnish parliament, it should be fine," the official said.

"The suggestion came from Finland. I am confident that this issue can be solved in the coming days," the official said.

MINISTERS TO FINALISE ESM TREATY ON MONDAY

Euro zone finance ministers, the Eurogroup, will discuss the ESM treaty on Monday to remove the last obstacles and submit the agreement to ratification in national parliaments.

Finland's Prime Minister Jyrki Katainen also said he was optimistic.

"I am sure we can find a good solution on ESM. There are negotiations ongoing on civil servant level and the news from those negotiations have been quite encouraging," he said.

The ESM will run alongside the 440 billion euro temporary bailout fund, the European Financial Stability Facility (EFSF), from mid-2012 for one year.

Unlike the EFSF, however, which replies on government guarantees to borrow money and lend it on, the ESM will have a paid-in capital of 80 billion euros and callable capital of 620 billion euros, making it more like a bank.

The combined lending capacity of both funds, is now capped at 500 billion euros, but euro zone leaders are to discuss whether to remove that limit in March.

"In the latest draft of the ESM treaty there is a possibility to make an automatic capital call to maintain the combined capacity of the EFSF and ESM at 500 billion," the euro zone official said.

"In other words, any loss of firepower in the EFSF would be automatically compensated by an increase in the firepower of the ESM during the transition period," the official said.

So far Germany remains opposed to removing the 500 billion limit, without which the euro zone would have a combined lending capacity of 1 trillion euros. More firepower could come from two leveraging schemes the EFSF is trying to put into operation.

LENDING LIMIT LINKED TO MARKET CONDITIONS

But German views may change if market conditions deteriorate.

"The discussion on the combined limit has not started yet, my guess is it will start in February," the official said.

"It will depend on market conditions and market access of member states. If ever conditions dramatically improve for Spain and Italy, some countries will be very reluctant to increase the capacity," the official said.

"If the conditions deteriorate or are tense, and the leveraging does not go well, it cannot be ruled out that then the question of the adequacy of the resources would become more important," the official said.

The official said loss of the highest AAA credit rating from Standard & Poors by France and Austria on Monday was unlikely to automatically translate into a lower rating for the ESM as well.

"The prospective AAA rating of the ESM is based on paid-in capital, AAA and AA ratings -- that is what the rating agencies told us last year," the official said.

"It does not work like in the EFSF, where the rating was equivalent to the proportion of the triple A guarantors, it is different," the official said.

"I would not say there is no impact, but the impact is certainly not clear cut and as mechanical as one could imagine."

The lower ratings of nine euro zone countries, downgraded by S&P on Friday, could however, have an impact on the ESM's lending capacity.

"The question is if the recent decisions will impact the lending capacity of the ESM under the AAA rating. We are still running simulations for this, further discussions will be needed with rating agencies," the official said.

"It is possible there would be an impact on the lending capacity, but I cannot tell you how much, no-one knows how much yet -- that is assuming the ESM wants to maintain triple A," the official said.

(Additional reporting by Terhi Kinnunen in Helsinki; Reporting By Jan Strupczewski)

By Jan Strupczewski