It looks unlikely that the planned increase of around 1trillion euros to the eurozone debt rescue fund will be realised. Current bailout provisions have been adequate for countries such as Greece, Portugal and the Irish Republic, but if larger economies need help then more funds may be required.
Tuesday saw Eurozone finance ministers holding talks late into the evening trying to establish a deal to strengthen the European Financial Stability Facility. Following the meeting Jean-Claude Juncker, Chief of Eurogroup, stated that hitting the €1tn target was doubtful, although it was agreed that the latest €8bn tranche of bailout money would be released to Greece.
Jean-Claude Juncker said the expansion of the EFSF’s power would be “substantial”, stating that: “We haven’t lowered our ambitions but the conditions have changed, so it will probably not be one trillion euros but less.”
Current bailout provisions have been adequate for countries such as Greece, Portugal and the Irish Republic however if larger economies such as Spain and Italy need help then more funds may be needed.
It was agreed by ministers to allow the bailout fund to partially guarantee possible losses investors might occur when purchasing government bonds. The guarantee would provide a bondholder with “an amount of fixed credit protection of 20-30% of the principal amount of the sovereign bond.”
Ministers decided to generate co-investment funds to authorize public and private investors to partake in the EFSF. “All of this is unpredictable, and market conditions will also change over time so that’s why it’s not possible to give one number,” he said.
Increasing the power of the EFSF from its present lending capability is seen by investors as fundamental to tackling the debt crisis.