Brussels, 02/07/2012 (Agence Europe) - The Finnish government will not veto the option of the eurozone bailout funds, EFSF and ESM, buying up the public debt of eurozone nations that meet their macroeconomic and budget commitments, but are finding it difficult to roll over their debt on the money markets. The pledge was made in a report on the outcome of the European summit for the Finnish parliament (see EUROPE 10645).
Last Friday, the eurozone summit decided that the bailout funds would be able to buy up the bonds of countries like Italy and Spain on the secondary markets. This option is already included in the bailout funds' terms and conditions and is set out, along with macroeconomic and budget conditions, in a memorandum to be signed by countries requesting the bond buy-up and institutional lenders.
On Monday 2 July, the European Commission said that any EFSF decision would have to be ratified by all 17 eurozone nations, as would any ESM decision, although the ESM itself, which is currently being ratified by eurozone nations, lays down a qualified majority decision-making process requiring the authorisation of countries accounting for at least 85% of the ESM capital. If the ESM is used to buy up bonds, then this makes it possible to get round opposition from Finland, the Netherlands and Austria which, between them, provide around 10% of the ESM's capital.
As ever, it all hangs on Germany. Any emergency ESM buy-up would require endorsement by the Bundestag. After the summit, the German chancellor, Angela Merkel, said that if certain funds are used by requesting countries, then this shall be done according to the guidelines on criteria for bond purchase on the primary and secondary markets. She added that the Commission's recommendations will form the basis of what is set out in the memorandum of understanding. On Friday, the Bundestag ratified the ESM, which now needs rubber-stamping by the German constitutional court.
Bank recapitalisation. The eurozone also decided that the bailout funds can provide unconditional loans to banks without the loans being included in the country's debt. The Commission says that activation of this mechanism through the ESM does not need unanimous backing from eurozone nations. Whether the aid for Spanish banks comes from the EFSF or the ESM, the bailout funds will not be top of the repayment list. Some observers wonder whether the ratifications of the ESM made before this decision still hold water because the set-up they ratified gave the ESM priority for loans repayment. (MB/transl.fl)