Brussels, 15/03/2011 (Agence Europe) - On Monday 14 March, eurozone finance ministers discussed the practicalities of putting into practice the agreement to increase the lending capacity and clout of the European bailout fund, an agreement in principle reached by eurozone heads of state and government at their summit on Friday (see EUROPE 10336). The talks focused on how member states would contribute to the temporary EFSF and the new ESM to replace it in July 2013. The Eurogroup (the meeting of eurozone finance ministers) will meet again on Monday 21 March to finalise the talks ahead of final decisions on dealing with the eurozone debt crisis to be taken by the European Council on 24 and 25 March.
The chair of the Eurogroup, Jean-Claude Juncker, said he had not the slightest doubt that the member states would manage to get over their “slight” disagreements and come up with a full eurozone crisis management programme at the end of the month in the form of an outline rather than draft legislation. EU Economic and Monetary Affairs Commissioner Olli Rehn was also confident, saying that progress was being made on all issues, namely consolidating public finances, reforming the financial sector, structural reforms and increasing the clout of the bailout fund. Most countries want draft legislation on these matters, along with the changes to the Lisbon Treaty to enable the ESM to be incorporated, to submit to their national parliaments.
EFSF. The eurozone summit decided to increase the effect lending capacity of the EFSF to €440 billion. An intergovernmental fund created in 2010 to ensure stability in the eurozone, it currently has some €440 billion in guaranteed finance, which means that it can raise up to €250 billion cheaply on the money markets (without jeopardising its AAA rating - the top rating). Juncker said that the ministers had looked at all the options for increasing the EFSF's lending capacity and when asked which option would prevail, said he thought that the consensus at the moment seemed to be by means of guarantees. Belgian Finance Minister Didier Reynders said that the EFSF guarantees would be doubled without member states having to provide any extra cash. Along with a decision about how much each country will contribute, another decision will be needed on the timing of the new contributions.
On the interest rates applying to EFSF loans, Juncker said that the changes made to the lending criteria for Greece would set an example. On Friday, the eurozone decided to cut the interest rate charged by the EFSF on the loans to Greece by 1% (from 5.2% to 4.2%) and the repayment period was extended from three years to seven and a half years. The ministers refused, however, to change the criteria applying to the Irish loans because Ireland refuses to raise its very low company tax rate, which Germany and France argue amounts to unfair competition.
The ministers hope the changes to the EFSF will come into force in the summer of this year.
ESM. Jean-Claude Juncker said that ministers had set out the capital options for the ESM, which will have a lending capacity of €500 billion. The leaders say this will comprise paid-in and callable capital and guarantees. Slovakia and Estonia say that the eurozone member states' contribution should be calculated as a proportion of their GDP rather than in line with how much countries contribute to the European Central Bank, and Juncker admitted that this question was one of the ones still pending.
Investing in sovereign debt. The EFSF and ESM will both be allowed to buy up bonds directly from the country in question and will decide whether to do so on a case-by-case basis, explained Rehn on Tuesday 15 March. He did not comment whether the funds could invest in the sovereign debt of countries that have already received international financial aid in return for an economic adjustment programme or whether the funds would be able to invest in any eurozone country. (M.B./transl.fl)