The European Financial Stability Facility announced that eurozone finance ministers have agreed measures already discussed to boost the fund’s firepower – the 20 to 30 per cent guarantee on sovereign bonds, and allowing the fund to create “co-investment funds” to buy bonds either directly or in the secondary market. From the media statement:
EFSF will be able to use both leverage options simultaneously. The final amount of “firepower” achieved through the use of the options will depend upon the concrete use and mix of the instruments and particularly the exact degree of protection between 20% and 30%. EFSF has currently a lending capacity of €440 billion and firm commitments regarding Ireland and Portugal totalling €43.7 billion.
EFSF is also expected to finance a second aid programme for Greece and fulfil tasks such as financing recapitalisation of financial institutions in non-programme countries. Without knowing the exact amounts needed, EFSF should be able to leverage own resources of up to €250 billion. Deployment of either instrument using leverage will only be made following a request from a Member State. Any support from the EFSF will be linked to strict policy conditionality, monitoring and surveillance procedures.
Problem is, it’s become more and more clear that whatever the final amount of firepower achieved through these options probably won’t be adequate. The finance minister talks in Brussels also looked at channelling ECB funds through the IMF, reports the FT:
Exploratory discussions at a meeting in Brussels on Tuesday evening will cover options to further leverage the European financial stability fund or establish new ways to provide credit lines, including by funnelling European Central Bank loans via the IMF to struggling countries.
A broad range of scenarios will be considered and no concrete decisions are likely, but ministers may order options to be worked up ahead of a crunch summit of European Union leaders next week.
The Netherlands’ and Luxembourg’s finance ministers chimed in with their support for the IMF approach. Over to you, Germany.
Related links:
Fears of shortfall lead to moves to boost EFSF - FT
The eurozone really only has days to avoid collapse – FT