Europe plans changes to bailout funds
Source: Agencies |
June 21, 2011, Tuesday
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Print Edition
Print Edition
EUROPE sought yesterday to put a firewall between the dire financial situation of Greece and the destiny of Ireland and Portugal, the two other countries that have already received international aid.
The region's finance ministers signed off on important changes to both its current and future bailout funds, which they hope will reinforce confidence in the eurozone's struggling economies as the debt crisis in Greece was reaching a new boiling point.
The ministers agreed to raise their guarantees for bailout loans given out from the rescue fund to 780 billion euros (US$1.1 trillion) from 440 billion euros, said Klaus Regling, who manages the Luxembourg-based fund. That will allow the fund to lend a total of 440 billion euros, up from about 250 billion euros.
The European Financial Stability Facility, as the fund is known, requires significant over-guarantees to get a good credit rating and make the bonds attractive to investors.
On top of that, the ministers also made an important tweak to their future rescue fund, which they hope will help already bailed out countries regain access to debt markets.
The so-called European Stability Mechanism, which will come into force in mid-2013, when the EFSF expires, will not have preferred creditor status when it helps countries that have already been bailed out, said Jean-Claude Juncker, the Luxembourg prime minister who also chairs the meetings of eurozone finance ministers.
Having preferred status means the fund would be repaid before any private creditors. That had been harshly criticized by many economists, who said it would deter banks and other investment funds from lending money to struggling countries.
The region's finance ministers signed off on important changes to both its current and future bailout funds, which they hope will reinforce confidence in the eurozone's struggling economies as the debt crisis in Greece was reaching a new boiling point.
The ministers agreed to raise their guarantees for bailout loans given out from the rescue fund to 780 billion euros (US$1.1 trillion) from 440 billion euros, said Klaus Regling, who manages the Luxembourg-based fund. That will allow the fund to lend a total of 440 billion euros, up from about 250 billion euros.
The European Financial Stability Facility, as the fund is known, requires significant over-guarantees to get a good credit rating and make the bonds attractive to investors.
On top of that, the ministers also made an important tweak to their future rescue fund, which they hope will help already bailed out countries regain access to debt markets.
The so-called European Stability Mechanism, which will come into force in mid-2013, when the EFSF expires, will not have preferred creditor status when it helps countries that have already been bailed out, said Jean-Claude Juncker, the Luxembourg prime minister who also chairs the meetings of eurozone finance ministers.
Having preferred status means the fund would be repaid before any private creditors. That had been harshly criticized by many economists, who said it would deter banks and other investment funds from lending money to struggling countries.
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