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Juergen Stark, ECB - European Financial Stability Facility EFSF Could Buy Bonds

The euro zone's rescue fund could recapitalize banks or buy government bonds, European Central Bank Executive Board member Juergen Stark was quoted as saying on Saturday. Europe is discussing ways to beef up the European Financial Stability Facility (EFSF), which has a headline value of 440 billion euros ($595 billion) but an effective lending capacity estimated at just 225 billion euros because of the need to secure a triple-A credit rating.

EU Van Rompuy: Political Will For Permanent EFSF Now Stronger

European Council President Herman Van Rompuy said here today that the political appetite for making the E440-billion European Financial and Stability Fund permanent has strengthened in recent weeks.

In response to a question on whether it would be wise to make the EFSF permanent, Van Rompuy said: "The general feeling among all the main players, all the 27, is that they will take every necessary step to safeguard financial stability. This political will is now a lot more clear than a few weeks ago."

"You can be sure that, if needed, we will take any step to guarantee financial stability," he said.

Van Rompuy also said that weaker eurozone states must meet their fiscal targets in order to improve investor confidence.

Europe Has to Stop Appearing Like a Headless Chicken - German views

The good news is that Portugal and Spain have both held successful bond sales this week. The bad news is that the European Commission and euro-zone leaders appear hopelessly divided on the size of the euro-zone rescue fund. German papers on Thursday decry the continuing lack of unity in the midst of the debt crisis.

There was a small glimmer of hope amidst Europe's economic gloom this week as first Portugal and then Spain managed to sell bonds at lower than expected interest rates. Yet uncertainty over the extent of the euro zone's debt crisis and division within the currency union's leadership about how to address it means that investors are still nervous.

EU in talks for a 1.5 tn euro crisis fund: Belgium

 

The European Union is in talks to double the eurozone debt crisis fund to 1.5 trillion euros (two trillion dollars), Belgian Finance Minister Didier Reynders told AFP on Thursday.

"I think that doubling the resources would be a reasonable objective,"

Reynders said in a telephone interview, adding that talks were ongoing.

"It must be noted that this does not mean taking money out of our budgets, these are guarantees that we are giving," he said.

 

How euro bonds would work

Help from above: European countries with debt problems currently have to pay high interest rates on the government bonds they issue. In order to avert the threat of sovereign debt defaults, Jean Claude Juncker, the chairman of the euro group, has proposed the introduction of EU bonds.

The rough politics of European adjustment

If Europe is going to “resolve” the current crisis in an orderly way, it is going to have to move very quickly – not just for the obvious financial reasons, but for much narrower political reasons.  I am pretty sure that the evolution of European politics over the next few years will make an orderly solution progressively more difficult.

For ten years I have used mainly an economic argument to explain why I believed the euro would have great difficulty surviving more than a decade or two.  It seemed to me that the lack or fiscal centrality and full labor mobility (and even some frictional limits on capital mobility) would create distortions among countries that could not be resolved except by unacceptably high levels of debt and unemployment or by abandoning the euro.  My skepticism was strengthened by the historical argument – no fiscally fragmented currency union had ever survived a real global liquidity contraction.

 

Merkel: No, no and ... no (to European Debt Agency)

The Iron Lady of Europe's most powerful economy is opposing calls for two measures that other policy makers believe could help ease the continent's debt crisis. Finance ministers from the 16 euro zone nations were meeting in Brussels today and were expected to discuss calls for boosting the EU's bailout fund and at the same time creating a new bond, dubbed the E-bond, that would be joint European government debt.

European Officials Split Over Bailout Fund Increase and joint European bonds

 

EURO OFFICIALS

 

 

European officials voiced divisions over the steps needed to stop the sovereign debt crisis as Germany opposes increasing the 750 billion-euro ($1 trillion) bailout fund and the introduction of joint European bonds.

What is 750 bn euro EFSF compared to 4,5 trillion euro state aid in the EU finance sector?

What is 750 bn euro EFSF compared to 4,5 trillion euro state aid in the EU finance sector? The volume of national support to the financial sector approved by the European Commission between October 2008 and October 2010 amounted to around € 4.5 trillion, the autumn State Aid Scoreboard shows. The amount actually taken up by banks in 20091 is around € 1.1 trillion. The bulk (76%) of this support comes in the form of State loans or guarantees to maintain interbank financing which would only have an impact on public finances, if they were called upon, whereas recapitalisation represents 12% and impaired asset relief 9%2. Excluding the crisis-related support, total aid remained relatively stable at € 73.2 billion in 2009 or 0.62% of GDP and continued to re-focus on less distortive horizontal objectives such as aid for research and innovation, protection of the environment and support to SMEs.

Commission Vice-President in charge of competition policy Joaquín Almunia commented: "The financial crisis led Member States to commit huge amounts of money to preserve financial stability. Whilst vital state aid to the financial sector has been permitted under specially adapted, crisis-specific rules, state aid to the non financial sector has remained broadly stable, and a positive aspect is that, in these circumstances, Member States have continued to re-orient State subsidies to research, environmental protection and other general-interest objectives, which create growth and jobs."

 

Deal done - Irish Bailout 85 bn euros, Interest Rate Set At 5.8%

The Government today agreed in principle to the provision of €85 billion of financial support to Ireland by Member States of the European Union through the European Financial Stability Fund (EFSF) and the European Financial Stability Mechanism; bilateral loans from the UK, Sweden and Denmark; and the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) on the basis of specified conditions.

The State’s contribution to the €85 billion facility will be €17½ billion, which will come from the National Pension Reserve Fund (NPRF) and other domestic cash resources. This means that the extent of the external assistance will be reduced to €67½ billion.

The purpose of the external financial support is to return our economy to sustainable growth and to ensure that we have a properly functioning healthy banking system.

The external support will be broken down as follows: €22½ billion from the European Financial Stability Mechanism (EFSM); €22½ billion from the International Monetary Fund (IMF); and €22½ billion from the European Financial Stability Fund (EFSF) and bilateral loans. The bilateral loans will be subject to the same conditionality as provided by the programme.

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