Not the €440bn European Financial Stability Facility then, but €366bn?
German paper Süddeutschen Zeitung reported on Wednesday that the EFSF would be €74bn smaller than the €440bn planned, because of the collateralisation needed to get that triple-A rating.
Citi summarises and translates on Thursday morning:
According to the report, the €440bn that will be backed by guarantees from the member countries would include a 20% oversubscription of guarantees of the loans in order to get an AAA rating. However, in the case of Germany, parliament approval includes the option to increase Germany’s share of the €440 bn – €123bn – by 20% after the green light from the parliament budget committee. So it would not require full German parliamentary approval in order to get the country’s full contribution for the EFSF to provide loans of €440bn plus an extra 20% guarantee.
Which would rather make sense, now that we think about it.
Most of the 16 eurozone countries guaranteeing the special-purpose vehicle (SPV) have committed to providing 120 per cent of their guarantees. It’s one way of getting around some of the circularity involved in creating an SPV propped up by the very eurozone members that may need it to bail them out.
The other way to avoid the you-scratch-my-back, I’ll-scratch-yours problem is, as BNP Paribas have already noted, to exclude countries needing the SPV’s assistance from being obligated to contribute to it. Which means most eurozone member countries’ obligations rise along with every new country that taps the EFSF. And with the SPV looking thinner than once thought, that could be problematic.
Greece has already ‘stepped-out’ of its commitments, and, if the result of the latest Spanish bond auction, the Thursday sale of €3bn worth of 15-year bonos, is anything to go by, it might soon need to be excused too.
Yields on offer are veering dangerously close to the ‘magic’ 5 – 6 per cent number that will likely be charged by the EFSF:
Oh dear.
Related links:
The eurozone bailout fund: A Q&A – FT Alphaville
SPVery complicated in Europe – FT Alphaville
The EU’s very own AAA SPV – FT Alphaville