Rescue fund to contain euro crisis
Euro finance ministers launched the permanent umbrella with a loan volume of 500 billion euros on monday in luxembourg.
"As of today, the ESM is operational," said fund head klaus regling. At the foundation meeting, ministers approved the statutes and appointed the board of directors. With residual funds from the predecessor EFSF, the europeans’ "firewall" now reaches 700 billion euros.
Eurogroup head jean-claude juncker, who also heads the board of governors of the new financial institution, summed up: "the euro zone is now equipped with a permanent and effective firewall."Federal finance minister wolfgang schauble (CDU) hopes this will calm the financial markets. The creation of the ESM shows: "we are predictable, we are reliable, and at some point the financial markets will also understand this."
Austria’s finance minister maria fekter gave a preview of the potential candidates: "there will probably be an application from cyprus. Slovenia also has difficulties."Portugal, ireland and greece had already received financial support from the EFSF. Recipients must meet precise conditions in return for aid.
Top treasury officials released a further 4.3 billion euros in aid for portugal from the 78 billion euro aid package, diplomats reported. The decision still has to be confirmed on tuesday by all 27 treasurers of the EU, but this is considered a matter of form. The country gets until 2014, one year more than planned, to print its deficit down to from three percent of economic output. After mass protests, the government was forced to reorganize the reorganization and reform program.
In order for the new ESM fund to provide relief on the financial markets, potential candidates such as spain and cyprus are to seek help soon. Eu commission president jose manuel barroso said after a meeting with cyprus president demetris christofias: "i hope that we (…) can reach an agreement more quickly."In the summer, a sum of 10 billion euros had been mentioned for cyprus, but this was recently no longer confirmed.
Many countries are reluctant to apply because they fear the tough conditions, such as austerity packages and reforms, as well as a loss of image. Spanish banks had already been promised up to 100 billion euros in july – but only about 40 billion euros of this is expected to be needed by the europeans. According to several ministers, madrid has so far not requested any further aid from euro partners for stabilization beyond the banking program.
On the day of the ESM’s launch, the rating agency fitch gave the euro rescue fund its top rating of AAA. No downgrade of the ESM’s credit rating is expected in the coming months either, the agency said. The reason for this is the "comparatively high capitalization" of the rescue fund. A good valuation is necessary for the fund to raise capital favorably on the financial markets. In contrast to the vorganger, the ESM is an international financial organization that will have 80 billion euros in paid-in capital next year. The EFSF will continue to run for the time being. The luxembourg treasurer luc frieden said: "if something goes wrong, we now have a fire extinguisher to step in."
In the future, key decisions will be made by the board of governors, which is made up of the finance ministers of the 17 euro countries. The new crisis fund can give financially weak countries loans or buy up their bonds on the financial markets. There is also the possibility of a preventive program with a credit line. When central european banking supervision is in place, the fund will also be able to give direct financial injections to ailing financial institutions. The exact conditions for this are still disputed.
