EURO ZONE finance ministers formally launched the €500 billion European Stability Mechanism, setting the permanent bailout fund in motion amid uncertainty over the fate of Spain and Greece.
Although the ESM may be used to rescue the surviving Irish banks eventually, the ministers’ talks in Luxembourg last night were dominated by the Spanish budget and a new Greek austerity plan.
However, the fund’s arrival was presented as a decisive move forward for euro zone leaders in the wake of prolonged political bickering over the ESM’s scope and size.
“Thinking of where we were 2½ years ago when we had no instruments of crisis management – we had to create the Greek loan facility and the temporary European facility – we are moving forward and we are supplementing the economic and monetary union with one important building block,” said economics commissioner Olli Rehn. “Nobody is in party mood but I am less pessimistic for the moment for the euro zone than in the spring.”
The development follows an unsuccessful legal challenge in Germany’s highest court and the European Central Bank’s move to buy unlimited amounts of sovereign bonds to help any euro zone country which enters a policy programme with the EU powers.
Ireland, Spain and their allies fought hard during in June to persuade a reluctant Germany to allow the ESM to recapitalise banks directly, easing the burden on national finances.
The Government has pressed Europe for an early deal on this front but Spain remains reluctant to seek an extension of the EU aid plan for its banks, under which it was promised up to €100 billion.
Without going into the question of “legacy” bank debts, German minister Wolfgang Schäuble said the June agreement will be kept.
“That’s what we do with Greece, with Portugal and of course as with the agreement of the heads of state and government of end-June that says that once a European bank supervision has been implemented that then as part of the further conditions direct bank recapitalisation is an option.”
However, Mr Schäuble struck a cautious note. “Further conditions means an application by the member state in question, an adjustment programme that is agreed with the member state and we will talk about implementing a European banking supervision tomorrow. That’s harder done than agreed.”
While a lack of clarity from Spanish prime minister Mariano Rajoy about his exact intentions as regards any further rescue aid has fuelled scepticism in Brussels, there was tacit support in Luxembourg for his fiscal strategy.
“To a large extent I’m satisfied with the fiscal consolidation measures taken so far by the Spanish government,” said Jean-Claude Juncker, president of the group of euro zone ministers. “It is not up to me nor to us as members of the euro group to advise the Spanish government to make a request.”
Still, many European officials expect the country to seek a new round of aid to make use of the direct recapitalisation facility.
The outcome of any such application would be crucial for Ireland given EU leaders’ pledge to treat similar cases equally.
Greece remains in talks with the EU-International Monetary Fund-European Commission “troika” on a new €13.5 billion austerity plan, something it must advance in return for €31.5 billion in rescue aid. Athens wants more time to balance the books but has met resistance as an extension would necessitate an increase to its loan package. “Greece must find a way out of its crisis through reforms and consolidation. That cannot be done by other countries. They must do that,” said Dutch minister Jan Kees de Jager.
