Brussels, 18/03/2011 (Agence Europe) - EU finance ministers will gather for an extraordinary meeting on Monday 21 March to try to conclude discussions on the scope of the European rescue funds: the European Financial Stability Facility (EFSF), which was set up in May 2010 to ensure the stability of the euro area and the European Stability Mechanism (ESM) which will replace it in mid-2013. These discussions, designed to tidy up and confirm the decisions taken at the eurozone summit (see EUROPE 10335), will contribute to the European Council's exhaustive response to the sovereign debt crisis on 24-25 March.
The euro area countries want to raise EFSF lending capacity to €440 billion, current securities on this sum being insufficient. New financial commitments, then, are required. This should be done solely through increasing securities. Germany would have liked a capital injection from the countries in greatest difficulty.
Ireland. Re-opening the inter-governmental agreement setting up the EFSF provides Ireland with the opportunity to renegotiate the conditions linked to the loan granted it. Ireland considers punitive the 5.8% interest rate on loan repayment when the EFSF is raising funds at a rate of less than 3%. At the euro area summit, Germany and France asked it to amend its business tax rate of 12.5% in exchange for a change in the rate for the EFSF loan. Dublin, however, has so far refused to budge on this issue. The economic adjustment programme negotiated in exchange for financial aid makes no provision for any change in the Irish business tax rate. Luxembourg questioned linking the two issues. If an agreement is to be reached with Ireland, the case of Greece, which won a 1% reduction on its loans and a seven-year extension on their maturation in exchange for a drastic €50 billion privatisation programme, could provide an example.
The ESM will have a lending capacity of €500 billion. Member states' contributions will come from capital paid in, callable capital and securities. Ministers have still to agree on the technical details and the order of national contributions. Slovakia does not want the distribution key to be the same as the one which determines member states' contributions to the European Central Bank (ECB). The ESM will, on a case-by-case basis, allow the involvement of private creditors in cases of restructuring of the debt of a country in difficulty. Just like the EFSF, it will be able to acquire, subject to certain conditions, sovereign debt bonds directly from the issuing country. (M.B./transl.rt)