EURO ZONE finance ministers struck an outline political deal last night under which a new permanent bailout fund, with a €500 billion lending capacity, will replace the existing temporary facility.
As talks inch forward to intensify Europe’s response to the sovereign debt crisis, the decision means the new fund will have significantly greater capacity than the existing facility when its operations begin in mid-2013
However, the scale and scope of the overall framework remains to be agreed and are subject to a wider comprehensive package which EU leaders hope to sign off on by the end of next month.
Agreement remains elusive on that front and the ministers resolved yesterday to convene an additional meeting on March 21st if they cannot strike a deal at their next scheduled meeting on March 14th.
These engagements are designed to prepare the ground for a comprehensive pact at an EU summit on March 24th and 25th, a gather of EU leaders which will follows special euro zone summit on March 11th.
As he arrived in Brussels, Minister for Finance Brian Lenihan said the question of “haircuts” for senior bank bondholders or debt restructuring was not on the agenda.
“I think there has to be a realism in Ireland about where we stand. I know that Deputy Kenny met chancellor Merkel today in a political meeting and it’s important that party political meetings takes place,” he said.
“But everyone must understand that Europe expects us to implement the programme. The programme has been agreed, it’s viewed to be in the best interests of Ireland, and that programme offers Ireland a future, in terms of competitiveness, in terms of downsizing our banking sector, in terms of correcting our public finances.”
At issue in talks yesterday was the size of the permanent European Stability Mechanism (ESM), which will replace the temporary European Financial Stability Facility (EFSF) in two years’ time. Although the EFSF benefits from loan guarantees amounting to €440 billion, its lending capacity at present is limited to some €250 billion.
While an increase in the EFSF’s capacity is still under negotiation, ministers resolved that the new ESM fund should have capacity twice that size.
“We agreed today on the amount for the permanent stability mechanism,” said euro group president Jean-Claude Juncker.
The IMF will contribute to the effort in a ratio of 1 to 2 against the European contribution, said economics commissioner Olli Rehn, meaning the overall lending capacity will be at least €750 billion.
The likelihood of contributions from the 10 non-euro countries means the capacity may well be bigger than that.
There is no consensus yet on all potential changes to the EFSF but ministers are moving towards accord on increasing its scope and scale.
