Discord over new bailout fund
Source: Bloomberg News |
October 21, 2011, Friday
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Print Edition
Print Edition
EUROPE'S new bailout fund may be authorized to provide credit lines amounting to as much as 10 percent of a country's economy, a draft document shows. Some German lawmakers said that would put an intolerable burden on taxpayers.
The enhanced fund, called the European Financial Stability Facility, may be able to offer loans to countries "before they face difficulties raising funds" in bond markets, the draft guidelines show.
The document also says the EFSF, which is authorized to buy government debt, should buy no more bonds in the primary market than private investors.
Lawmakers from German Chancellor Angela Merkel's coalition said the changes, if approved at this weekend's European Union summit in Brussels, may shift intolerable burdens to German taxpayers.
Frank Schaeffler, a lawmaker specializing in finance affairs, said "If you open the door to credit facilities of this enormous scale, they will be tapped. This is not what we mean by ring-fencing Italy and Spain. How can we create a fund big enough for this? This is surely not in Germany's interest."
As the summit approaches, the eurozone's biggest financial backers, Germany and France, are still at odds over how to expand the 440 billion-euro (US$600 billion) EFSF's firepower.
France favors making it a bank, boosting its financial clout with backing from the European Central Bank, a proposal Germany rejects, Finance Minister Wolfgang Schaeuble said this week.
European leaders in July pledged to increase the bailout funds as evidence mounted that Greece needed further aid and the cost of selling Italian and Spanish debt soared.
The German parliament last month approved legislation to revamp the fund, while Schaeuble vowed that "efficient use" of its capital stock would not entail raising Germany's burden of 211 billion euros.
The draft guidelines show that the enhanced EFSF may offer two types of "conditioned credit," depending on the severity of the threat to financial health.
Member states may access loans "swiftly" to prevent a crisis, with loans not merely to be seen "as a liquidity facility," the draft states.
The draft also addresses bond purchases, advising that the eurozone financial backstop should buy no more government bonds than private investors in any primary market purchase.
The enhanced fund, called the European Financial Stability Facility, may be able to offer loans to countries "before they face difficulties raising funds" in bond markets, the draft guidelines show.
The document also says the EFSF, which is authorized to buy government debt, should buy no more bonds in the primary market than private investors.
Lawmakers from German Chancellor Angela Merkel's coalition said the changes, if approved at this weekend's European Union summit in Brussels, may shift intolerable burdens to German taxpayers.
Frank Schaeffler, a lawmaker specializing in finance affairs, said "If you open the door to credit facilities of this enormous scale, they will be tapped. This is not what we mean by ring-fencing Italy and Spain. How can we create a fund big enough for this? This is surely not in Germany's interest."
As the summit approaches, the eurozone's biggest financial backers, Germany and France, are still at odds over how to expand the 440 billion-euro (US$600 billion) EFSF's firepower.
France favors making it a bank, boosting its financial clout with backing from the European Central Bank, a proposal Germany rejects, Finance Minister Wolfgang Schaeuble said this week.
European leaders in July pledged to increase the bailout funds as evidence mounted that Greece needed further aid and the cost of selling Italian and Spanish debt soared.
The German parliament last month approved legislation to revamp the fund, while Schaeuble vowed that "efficient use" of its capital stock would not entail raising Germany's burden of 211 billion euros.
The draft guidelines show that the enhanced EFSF may offer two types of "conditioned credit," depending on the severity of the threat to financial health.
Member states may access loans "swiftly" to prevent a crisis, with loans not merely to be seen "as a liquidity facility," the draft states.
The draft also addresses bond purchases, advising that the eurozone financial backstop should buy no more government bonds than private investors in any primary market purchase.
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