Brussels, 25/01/2011 (Agence Europe) - On Tuesday 25 January, the EFSF passed the test of raising its first batch of €5 billion on the markets with a 2016 deadline. The 2.8% interest rate and the keen demand from investors (eight times oversubscribed) demonstrate markets' trust in the fund's bonds. Along with the €5bn raised earlier this month by the EU's EFSM (see EUROPE 10288), this EFSF €5bn is the first batch of the €67.5bn international aid package granted to Ireland at the end of 2010.
On Monday evening, the Irish government and opposition agreed to pass the Irish budget for 2011 by the end of the week, one of the conditions for the international aid package. Ireland has set itself the target of making €6bn-worth of savings from the €15bn planned in the austerity programme negotiated with the European Commission and the International Monetary Fund (see EUROPE 10266). Ireland has the target of bringing its public deficit back below the 3% GDP cut-off point in 2015. New general elections will be held in the country soon, probably on 25 February.
In an updated report on international financial stability, the IMF says: “The effective size of the European Financial Stability Facility should be increased and it should have a more flexible mandate. […] Further rigorous and credible bank stress testing is required along with time-bound follow-up plans for recapitalisation and restructuring of viable, undercapitalised institutions and closure of non-viable ones.”
The first meeting this year of eurozone finance ministers (Eurogroup) showed that it is examining the EFSF's clout (see EUROPE 10296). It is an intergovernmental fund based in Luxembourg and set up in May 2010 to ensure stability in the eurozone. It borrows from the markets based on guarantees supplied by eurozone countries of a total of €440bn, the countries providing the guarantees all having the top credit rating (AAA). The EFSF is reported to only be able to raise around €250bn. The chair of the Eurogroup, Jean-Claude Junker, said in an interview recently with German newspaper Der Spiegel: “After all, European leaders are in agreement on this issue. We don't want to expand the bailout fund, but we do want to make sure that it reaches its intended size.” The reflection process is part of a wide-ranging package of macroeconomic measures that the European Council is expected to endorse at the end of March 2011.
On Tuesday, the Spanish treasury issued €2.245bn three and six-month bonds at interest rates of 1% and 1.8% respectively, lower than the rates for similar bonds in the past. (M.B./transl.fl)