Brussels, 21/03/2011 (Agence Europe) - At their special meeting on Monday 21 March on the details of the new European bailout funds (the EFSF that is providing aid for Ireland and the European Stability Mechanism - ESM - that will replace it in July 2013), EU finance ministers worked on the practicalities of the recent decisions taken by the eurozone summit (see EUROPE 10335). On 24 and 25 March, the European Council will make the final decisions on measures to deal with the eurozone sovereign debt crisis, including the bailout funds.
The ESM will have a lending capacity of €500 billion. The member states will contribute to it in the form of paid-up capacity, callable capital and guarantees. On Monday, the ministers were examining how much each nation would be required to pay into the ESM. Germany's finance minister, Wolfgang Schaüble, said in an interview with German newspaper Süddeutsche Zeitung that the ESM would have some €80 billion in capital.
Slovakia wants calculations of how much each country is to pay into the ESM to be done differently from the European Central Bank's method that uses GDP and population. Slovakia says the ESM contributions should properly reflect economic wealth or state indebtedness and the relative weight of the financial industry. Contributions to the ESM should increase debt rather than the deficit.
On a case-by-case basis depending on the country to be bailed out, the ESM would involve private investors. Like the EFSF, it will be able to invest in the sovereign debt of a struggling country, buying the bonds directly from the government in question, as long as the country introduces an austerity programme. In a speech on Monday to the European Parliament (see separate article), the president of the ECB, Jean-Claude Trichet, said that the volume of the EFSF and ESM were commensurate, but the ban that the eurozone heads of state want to introduce on the ESM investing on the secondary markets (buying sovereign debt from banks or the ECB) was not what the ECB would have recommended. On the involvement of private investors in restructuring a member state's debt, Trichet made a “useful clarification that eurozone member states say that Europeans have the same rules as the rest of the world”.
EFSF. Ireland wants to renegotiate the strings attached to its recent loans (issued at an interest rate of 5.8%). Germany and France are pressurising it to increase its low company tax rate (12.5%) in return but on Monday, Irish Finance Minister Michael Noonan refused to do so. The austerity package imposed on Ireland by the EU and the IMF does not require it to increase company tax. Irish newspapers say the Irish government could introduce a debt brake into its legislation, as suggested by the pact for the euro and the country might join talks on introducing a harmonised calculation method for company tax in line with the recent legislation published by the European Commission (see EUROPE 10338). The interest rate charged on Greece's loans was reduced by 1% and the country has been given 7 years to pay them back, which could set a precedent for any changes to the Irish criteria.
If the lending criteria are eased for Ireland, this might encourage Portugal, a country on the edge of a political crisis, to call for international aid. On Monday, Portuguese Finance Minister Fernando Teixeira dos Santos said that any political crisis right now would make it more difficult for Portugal to roll over its debt and might push the country to request foreign financial aid. The main Portuguese opposition party has rejected the austerity measures announced at the eurozone summit by Prime Minister José Sócrates, who has threatened to resign if the measures are not voted through.
The lending capacity of the EFSF will be increased to €440 billion through a doubling of the financial guarantees provided by eurozone countries. (M.B./transl.fl)