EUROPEAN COMMISSION president José Manuel Barroso intervened in the escalating euro zone debt crisis yesterday, calling for a “rapid reassessment” of all elements of the European Financial Stability Facility (EFSF), the €440 billion rescue fund which was revised two weeks ago.
In a letter addressed to euro zone governments and published by the European Commission ahead of European Central Bank president Jean-Claude Trichet’s scheduled press conference yesterday, Mr Barroso said the euro zone debt crisis was no longer just confined to the zone’s peripheral countries.
“The 21st of July bold decisions on the Greek package and the increased flexibility of the EFSF . . . are not having their intended effect on the markets,” he said, calling for “further improvement” to the EFSF and the European Stability Mechanism (ESM), the permanent mechanism which is intended to replace it from mid-2013.
Mr Barroso’s comments were swiftly rebuffed by Germany. While the German leader, Chancellor Angela Merkel, is currently on holidays, her officials described the letter as unwelcome and unnecessary.
A spokesman for the finance ministry said yesterday, however, that, it “wasn’t clear how reopening the debate two weeks after the summit would calm the markets”.
German officials have said that the reform of the EFSF will be addressed “very quickly” after the summer break and suggest the low summer volume of trading has given the Italian and Spanish turbulence greater significance than it merits.
The Dutch finance ministry also said the focus should be on implementing the summit decisions, not reopening the discussion.
Mr Barroso called on European leaders “to accelerate the approval procedures for the implementation of these decisions so as to make the EFSF enhancements operational very soon”.
Euro zone states agreed changes to the scope and nature of the EFSF at a July 21st summit, but these have yet to be ratified by individual member states.
Mr Barroso urged a “rapid re-assessment of all elements related to the EFSF, and concomitantly the ESM, in order to ensure that they are equipped with the means for dealing with contagious risk”.
He also said that market reaction reflects, among other reasons, the “undisciplined communication and the complexity and incompleteness of the 21st July package”.
Euro zone leaders voted not to increase the size of the EFSF at the July summit, with Germany in particular set against enlarging the size of the fund. The €440 billion ceiling would not be sufficient to aid Spain or Italy should they need financial assistance from the euro zone.
Mr Barroso also said that states should avoid introducing excessive constraints in terms of either additional conditionality or collateralisation of EFSF lending.
Markets were rattled by Mr Barroso’s comments, with all major stock markets seeing significant sell-offs. The Stoxx Europe 600 Index plunged to its lowest level in a year.
