Brussels, 04/08/2011 (Agence Europe) - Decisions taken on 21 July by eurozone leaders, although not yet implemented, already seem overtaken by events in recent days. The president of the European Commission, José Manuel Barroso, has written to the heads of state or government of the euro area to suggest that they re-assess the capacity of the European Financial Stability Facility (EFSF). He considers that the debt crisis extends beyond the fragile eurozone countries.
European stock exchanges experienced a further rush of fever at the end of the day on Thursday, with the spectre of contagion from the eurozone crisis looming up again.
“I take the opportunity to urge a rapid re-assessment of all elements related to the EFSF, and concomitantly the ESM, in order to ensure that they are equipped with the means for dealing with contagious risk”, Barroso writes in the letter addressed to the eurozone leaders. When asked whether this means an increase in funds, a European Commission spokesman replied that size was all part of the elements to be re-assessed. The EFSF had been set up in 2010 to help Ireland then Portugal. It has a size of €750 billion, with an effective lending capacity of €440 billion, considered insufficient for saving a country such as Italy. Barroso said “it is clear that we are no longer managing a crisis just in the euro-area periphery”.
The risk of contagion this week affected Italy and Spain, but the least indebted countries or countries which have better ratings from ratings agencies have also been put under pressure from markets and have seen the risk premium that they pay in order to be financed on the markets reach record levels, as in Belgium. In his letter, Barroso admits that “the 21st of July bold decisions are not having their intended effect on the markets”. In addition to the second rescue plan for Greece, the extraordinary summit of 21 July endorsed changes relating to the EFSF, which may intervene on the secondary debt market (where securities already in circulation are exchanged) and, where necessary, help to recapitalise banks in difficulty. These advances have still to be approved by the national parliaments after the summer break, and reticence is apprehended in a number of countries. Germany's Finance Minister Wolfgang Schäuble has already warned that he refuses to sign a blank cheque for the repurchase of bonds by the EFSF. (L.C./transl.jl)