Brussels, 12/03/2011 (Agence Europe) - During the small hours of Saturday morning 12 Mach, the heads of state and/or government of the eurozone took everyone by surprise by lifting the veil on their comprehensive response to address the sovereign debt crisis. They decided to increase by €440 billion the effective lending capacity of the European Financial Stability Facility (EFSF) created in May 2010 to guarantee eurozone stability. This instrument, as well as the European Stability Mechanism which is to replace it mid-2013, will have the capacity to intervene on the primary market to buy up sovereign debt instruments, a competence that has long been challenged by virtuous countries, especially Germany. The rate of interest fixed for loans granted to Greece will be reduced by 1%, which is not the case for loans granted to Ireland - as if Dublin were being punished for its intransigence with regard to tax issues. Furthermore, the 17 euro area countries agreed in principle on the “Pact for the Euro”.
The president of the European Council, Herman Van Rompuy, welcomed the fact that the European leaders had agreed to three elements aimed at both the EFSF and the future ESM. He set out these three features: - “We will make sure that the full amount is available; 440 billion for the Facility and 500 billion for the Mechanism” through “guarantees” provided by participant countries; - “concerning the flexibility of the instruments, the Facility and the Mechanism will have the capacity to intervene on the primary market in the context of a programme”, a programme with “conditionality”; - and “to better take into account debt sustainability we will lower the interest rates,, while staying in line with the IMF pricing principles”. The maturity time of debts granted to Greece has thus been extended to seven and a half years (compared to four and a half at present), while the interest rate has dropped 1% (from 5.2% to 4.2%). Increased flexibility of the EFSF and ESM will be made subject to conditions, the president of the European Commission, José Manuel Durão Barroso, said.
French President Nicolas Sarkozy said intervention by the two rescue funds would mainly take the form of loans where needed but bond issues on the primary market could also be accepted. Although this may seem trifling, he said, it has taken an “enormous amount of work” to achieve. The European Central Bank would have liked the rescue funds to be able to buy up existing debt instruments. (M.B./L.C./transl.jl)