| Author (Corporate) | EurActiv |
|---|---|
| Series Title | EurActiv |
| Series Details | 25.3.11 |
| Publication Date | 25/03/2011 |
| Content Type | News |
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See also EU agrees eurozone fund financing Angela Merkel, the German chancellor, convinced her European counterparts to restructure a new €500bn eurozone bail-out fund so that members will not have to pay cash into the system so quickly. The new fund, to be called the European Stability Mechanism, launches in 2013 and will require €80bn in cash as well as €620bn in guarantees and callable capital. Under the terms of the deal, which was reached in the early hours of Friday morning, the ESM will be able to use €500bn to rescue debt-ridden countries that suffer a Greece-like implosion. Earlier this week eurozone finance ministers had agreed to put €40bn immediately into the fund upon its creation, with the rest being paid in over three years. But Ms Merkel’s coalition partners, the Free Democrats, resisted paying in so much so quickly, and the German chancellor was able to spread the payments to €16bn per year over five years. The sudden change by Germany angered some other EU members, including its normal allies in the Netherlands and Finland, but the German proposal was agreed to after a debate that lasted late into the night. “It’s hard to say which is more obstructive and less European, the True Finns or the Free Democrats,” said one senior EU official, referring to the surging Eurosceptic party threatening to win next month’s Finnish elections. The leaders also delayed a plan to increase the size of the current bail-out fund, the European financial stability facility, until June as uncertainty persists about how they boost its lending capacity from €250bn to the desired €440bn without jeopardising its triple A rating. The meeting also broke up without agreement on other parts of the so-called “grand bargain” to tackle the eurozone’s woes including revised terms on Ireland’s bail-out and further austerity measures by Portugal. Standard & Poor’s on Friday underlined the uncertainty surrounding Portugal by downgrading the country’s credit rating by two notches. Yields on Lisbon’s 10-year debt rose to a fresh euro-era high after S&P warned the country’s political crisis heightened the risk that it would be unable to refinance its debt. The euro, however, remained close to a four-and-a-half month high against the dollar as investors shrugged off the news of the latest downgrade of Portugal’s credit rating and dismissed delays to the new later timetable of the permanent restructuring fund. “The fact that the bolstering of the EFSF will be delayed until June is a not being viewed as a deal breaker because the current fund can easily cope with a Portuguese bail-out,” said Jane Foley, an analyst at Rabobank. Under the terms of the ESM deal, eurozone countries agreed that they would speed up their financial backing of the fund if a large country needed a bail-out and there was not enough cash in the fund to cover the size of the rescue. That provision raised hackles in Spain and Italy, which were concerned that they would have to pay in more cash while other countries with better credit records – such as Germany and the Netherlands – would only have to make additional loan guarantees. Silvio Berlusconi, the Italian prime minister, held up agreement even after financial experts from the 17 countries had come to a deal, officials said. But in the end, the countries agreed to tweak the wording to make the required commitments more vague. European leaders want to sign the amended treaty by the end of June. Before then, finance ministers will need to sort out some remaining technical details of the agreement and the overall deal will need parliamentary approval in several countries, including Germany and Finland. Additional reporting by Richard Milne Copyright The Financial Times Limited 2011.EurActiv and EU Observer reports on the new financial agreement related to the eurozone’s permanent bail-out that was adopted by the European ministries of finance on 25 March 2011. While EU heads of states discussed tensions in Libya over dinner on 24 March 2011, experts loyal to the eurozone's finance ministries were tucked away in a separate room trying to hammer out last-minute changes to the EU's permanent bailout facility - the European Stability Mechanism (ESM). Berlin's sudden change of heart over a previously-agreed funding schedule for the European Stability Mechanism had threatened to throw a spanner in EU leaders' efforts on 24 March 2011 to agree a package of measures to restore stability to the eurozone's wavering economy. |
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| Source Link | http://www.euractiv.com/euro-finance/financial-experts-give-rescue-fund-aaa-blessing-news-503505 |
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| Subject Categories | Economic and Financial Affairs |
| Countries / Regions | Europe |
