Euro zone agrees temporary boost to rescue capacity
Copenhagen ? Euro zone finance ministers agreed on Friday on a temporary increase in their financial rescue capacity to prevent a new flare-up of Europe?s sovereign debt crisis, but markets may judge it too small to be convincing.
Austrian Finance Minister Maria Fekter said the 17-nation currency area would combine two rescue funds for a year to make more money available in case of emergency.
She put the total figure at some 800 billion euros, but that appeared to include money already spent to conjure up a more impressive headline number for investors.
?Obviously markets will only have confidence in us if we agree on a strong rescue fund,? Belgian Finance Minister Steve Vanackere told reporters.
?We can?t consider that the crisis is over. We must find a good middleway between those who seek a (maximum) firewall and those who want it kept to a minimum.?
A draft statement prepared for ministers and obtained by Reuters showed that in case of need before July 2013, the euro zone could combine the firepower of its two bailout funds to provide 940 billion euros rather than a planned 500 billion.
Ministers would allow the temporary 440-billion- euro European Financial Stability Facility (EFSF) to continue to run for a year in parallel with the permanent 500-billion-euro European Stability Mechanism (ESM), which starts work in July.
However, EU paymaster Germany favoured a smaller increase, and those figures included some 192 billion euros already paid or committed to Greece, Ireland and Portugal, plus money that could only be raised if euro zone states were to pay in more capital faster than planned to the ESM.
Fekter said the residual 240 billion euros from the EFSF would be used as a reserve buffer while the two funds run in parallel and the ESM?s capital is being built up.
Bond market players questioned whether the likely compromise would provide sufficient money to help Spain, the euro zone?s number four economy, if it needs a bailout to overcome a banking crisis due to the collapse of a real estate bubble.
?At the end of the day the key question is whether this new firepower is enough,? said Steve Barrow, head of G10 strategy at Standard Bank in London. ?Clearly if things turn down again, and especially if more bailouts are needed, the tricky issue of underfunding the ESM/ EFSF relative to the potential bailout need is bound to resurface.?
Commerzbank analyst Christoph Weil said the proposed boost, combined with extra assistance from the International Monetary Fund, would probably be big enough to ?offer shelter to Spain and Italy if necessary?.
?Nonetheless, there is reason to fear that investors will remain sceptical and continue to demand high risk premiums for peripheral bonds,? he wrote in a note.
The residual EFSF funds ? about 240 billion euros ? could only be called on if the ESM, which will initially have 200 billion euros available to lend, ran out of money to finance a new bailout during that period.
? Nampa/Reuters
Austrian Finance Minister Maria Fekter said the 17-nation currency area would combine two rescue funds for a year to make more money available in case of emergency.
She put the total figure at some 800 billion euros, but that appeared to include money already spent to conjure up a more impressive headline number for investors.
?Obviously markets will only have confidence in us if we agree on a strong rescue fund,? Belgian Finance Minister Steve Vanackere told reporters.
?We can?t consider that the crisis is over. We must find a good middleway between those who seek a (maximum) firewall and those who want it kept to a minimum.?
A draft statement prepared for ministers and obtained by Reuters showed that in case of need before July 2013, the euro zone could combine the firepower of its two bailout funds to provide 940 billion euros rather than a planned 500 billion.
Ministers would allow the temporary 440-billion- euro European Financial Stability Facility (EFSF) to continue to run for a year in parallel with the permanent 500-billion-euro European Stability Mechanism (ESM), which starts work in July.
However, EU paymaster Germany favoured a smaller increase, and those figures included some 192 billion euros already paid or committed to Greece, Ireland and Portugal, plus money that could only be raised if euro zone states were to pay in more capital faster than planned to the ESM.
Fekter said the residual 240 billion euros from the EFSF would be used as a reserve buffer while the two funds run in parallel and the ESM?s capital is being built up.
Bond market players questioned whether the likely compromise would provide sufficient money to help Spain, the euro zone?s number four economy, if it needs a bailout to overcome a banking crisis due to the collapse of a real estate bubble.
?At the end of the day the key question is whether this new firepower is enough,? said Steve Barrow, head of G10 strategy at Standard Bank in London. ?Clearly if things turn down again, and especially if more bailouts are needed, the tricky issue of underfunding the ESM/ EFSF relative to the potential bailout need is bound to resurface.?
Commerzbank analyst Christoph Weil said the proposed boost, combined with extra assistance from the International Monetary Fund, would probably be big enough to ?offer shelter to Spain and Italy if necessary?.
?Nonetheless, there is reason to fear that investors will remain sceptical and continue to demand high risk premiums for peripheral bonds,? he wrote in a note.
The residual EFSF funds ? about 240 billion euros ? could only be called on if the ESM, which will initially have 200 billion euros available to lend, ran out of money to finance a new bailout during that period.
? Nampa/Reuters
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