Luxembourg, 08/06/2010 (Agence Europe) - On Monday 7 June, eurozone ministers finalised the financial stabilisation mechanism on which they had agreed on 9 May (EUROPE 10137). With the signing of documents on the creation of a financial facility, the Europeans have acquired an additional intervention ability of €400 billion in order to help eurozone countries experiencing difficulties that could undermine the eurozone's integrity. Debt issuance from this entity will be guaranteed by member states and will serve to buy up bonds from a state that is no longer able to refinance at reasonable rates. Furthermore, it will not be necessary to call for national parliament endorsement every time the mechanism is triggered.
Essentially intergovernmental, this European Financial Stability Facility therefore completes the initiative that includes a Community package through an allocation of €60 billion under Article 122.2 of the EU Treaty. The whole mechanism may be completed by International Monetary Fund (IMF) credit lines of up to €250 billion. Thus, when necessary, a total of about €750 billion may be made available.
The Facility's statutes and internal rules of procedure were endorsed on Monday during the Eurogroup meeting, as well as the framework agreement between the SPV (Special Purpose Vehicle) and the eurozone states. This ad hoc structure, which comes under Luxembourg law, will be operational during June once the states making up 90% of its shareholders have completed parliamentary ratification procedures. It will have a directorate general to be appointed in coming days, confirmed Jean-Claude Juncker after the Eurogroup meeting. The last discussions were on arrangements to ensure best possible quality and credit rating to debt instruments issued by the Facility.
Amongst the initiatives chosen to ensure the best possible credit rating, it is foreseen that the guarantee provided by each member state will be proportional to its share of the capital of the European Central Bank, plus a further 20% (the total guarantee is therefore larger than the amount of the issue). The system is one of individual guarantees by member states but, by way of precaution, additional amounts have been foreseen for each country should some member states taking part in the mechanism not be able to put their contribution forward. Therefore, each country guarantees its share of the total and no more, to the approval of Germany, which did not want a united guarantee as it sees this as a preliminary step to a “Union of budgetary transfers”.
“There is no longer any doubt about the eurozone's ability to keep its commitments”, Olli Rehn, the European commissioner for economic and monetary affairs, was pleased to say. The mechanism that has been finalised is “a very important element for stabilisation of the system”, said IMF Director General Dominique Strauss-Kahn as he left the Eurogroup meeting. “It took a little while to set it up, which is only natural with 16 countries around the table. It is a complex operation, but now the matter is concluded and the mechanism will be able to work”, he said. (A.B./transl.jl)