Luxembourg, 20/06/2011 (Agence Europe) - On Monday 20 June, the finance ministers of the eurozone and of the EU put the finishing touches to the legal texts modifying the intergovernmental EFSF facility and instituting the European Stability Mechanism (ESM). The ESM will replace the EFSF in mid-June 2013. The ministers must now launch the national procedures to ratify these texts.
The EFSF facility, which was used to support Ireland and Portugal, will see its effective loan capacity raised to €440 billion. The guarantees provided by the eurozone countries will rise from €440 billion to €780 billion, said its executive director Klaus Regling. The member states will now guarantee loans at a level of 165%, rather than 120% as is the case today. In this way, the EFSF will no longer be obliged to carry out cash reserves and to borrow more than it lends to a country in difficulty, whilst keeping its highest financial rating (AAA). Changes to the treaty on which the EFSF is based also make it possible to include Estonia and to reduce the rate of the loans granted, said Eurogroup President Jean-Claude Juncker. It also allows the Facility to operate on the primary market to buy sovereign debt instruments of issuing countries in difficulty.
ESM. The European Stability Mechanism, which will be operational from mid-2013, will effectively be able to lend €500 billion. It will have initial capital of €80 billion, €620 billion in the form of callable capital and guarantees of the participant countries. Like the EFSF, it will be authorised to operate on the primary market. There is an option for the participation of the private sector, on a case-by-case basis and under IMF rules. If the debt of a country calling for the intervention of the mechanism is sustainable, this participation could be based on the Vienna initiative model, explains Regling. If there is a solvency problem with the debt of the country in question, private investors will be invited to take part in an active debt restructuring programme, he added. For both the EFSF and the ESM, the activation of the European rescue funds is subject to strict conditions in the form of an economic adjustment programme to be implemented. (M.B./transl.fl)