Copenhagen, 30/03/2012 (Agence Europe) - On 30 March, eurozone finance ministers decided to raise the cap on lending capacity for the eurozone's bailout funds from €500bn to €700bn with an aim of preventing any further spread of the sovereign debt crisis, the “minimalist” view taken by Germany, the main contributor to the firewall, having won the day.
A very rare development took place in that the Eurogroup press conference due to report on the decision was cancelled. French newspaper Le Monde said this was due to a fit of pique by the Eurogroup chair, Jean-Claude Juncker, at the way had had been angered by the Austrian finance minister, Maria Fekter, who had broken with protocol by unveiling the deal to reporters. He said that if people went about announcing decisions before they were taken, then there was no need for a press conference.
The ministers decided that the €200bn already pledged by the European Financial Stability Facility (EFSF) in aid for Greece, Ireland and Portugal would not be taken off the lending capacity of the European Stability Mechanism (ESM), which will come on stream on 1 July 2012. The ESM will have a lending capacity of €500bn and the actual ability to lend will now be brought forward. Eurozone countries have promised to pay up all the ESM's initial capital within three years. Two instalments will be paid in this year, in July and October, two in 2013 and the last one in 2014. The exact size of the instalments has not been revealed. If no further bailouts are required, then the combined EFSF/ESM lending capacity will be capped at €700bn. Turning out their pockets by adding the cash already provided in the first Greek bailout (the European Commission's fund and bilateral loans from individual member states), the ministers say the firewall's total lending capacity will actually be €800bn.
From July 2012 onwards, any further bailout of a struggling eurozone nation will be financed by the ESM. Until the summer of 2013, the EFSF will, however, be able to boost the cash from the ESM while the ESM gets up to steam.
Move welcomed by the IMF. The IMF director general, Christine Lagarde, welcomed the decision to merge the ESM with the EFSF: “The combination of the ESM and the EFSF, along with other recent European efforts, will strengthen the European firewall and support the IMF's efforts to increase its available resources for the benefit of all our members.” The EU's partners at the IMF are demanding a substantial increase in the European financial firewall. At the meeting, the eurozone repeated its offer of an extra €150bn in funding for the IMF. (MB/transl.fl)