Klaus Regling, EFSF chief executive, reported to eurozone finance ministers that the fund had received a positive market response, but said it was impossible to give a figure at this stage for how much money could be raised.
"We haven't lowered our ambitions but the conditions have changed, so it will probably not be €1 trillion but less," explained Jean-Claude Juncker, the Luxembourg finance ministers who chairs the Eurogroup. Officials now frequently cite a figure closer to €750 billion.
Details of whether and how the IMF should be involved in the EFSF rescue efforts also remained hazy following a meeting in which finance ministers firmly denied rumours that the European Central Bank (ECB) would become involved in future eurozone rescue plans.
IMF – ECB nexus unclear
Speaking after the meeting, Finance Commissioner Olli Rehn reiterated that the the Eurogoup is seeking the involvement of the IMF in the its rescue efforts “through bilateral loans or investments”.
Asked about how direct bilateral loans from eurozone member states could be channeled to each other through the IMF, Rehn said: “That is something that needs to be discussed with the IMF and we are consulting member states.”
Juncker acknowledged that the use of the IMF resources through bilateral loans was a way that the firepower of the EFSF could be matched.
There has been speculation that the European Central bank might act as a broker for any use of the IMF as a middleman of eurozone transfers.
Rehn said that he had not seen any such institutional plans thus far. Indeed no mention was made to a potential role for the ECB after the meetings, despite persistent rumours that Germany had finally eased its stance on the matter.
The silence itself indicates that an endgame is apporoaching according to commentators. Sony Kapoor, the managing director economic think tank Re-Define, said: “The decision of EU politicians to stop publicly exhorting the ECB to do more is probably the first step towards the ECB doing more. While it is not clear what form enhanced ECB support would take or indeed when it would be provided, that fateful day is not far.”
It is widely acknowledged that any ECB involvement will be strictly conditional on the nature of fiscal consolidation, and the thorny issue of the treaty changes that will be required to bring these about, which will come before the EU heads of state on 9 December.
Three-speed Europe
Potential treaty change could come in three different guises at the summit: adoption by all 27 EU member states, adoption by the 17 eurozone countries, or possibly even by a smaller caucus of the eurozone, if countries such as Finland and Ireland were unable to sell hard fiscal integration to their increasingly sceptical publics.
The direction preferred by France and Germany - and therefore likely to be definitive - will become clearer by the end of this week, since French President Nicolas Sarkozy will deliver a crucial speech on European issues tomorrow in Toulon. On Friday morning German Chancellor Angela Merkel will give a similarly significant speech in the German Bundestag.
EFSF levers cleared
In a statement, the EFSF gave details of the two schemes being examined to boost the EFSF's firepower:
- Firstly giving a bondholder an amount of fixed credit protection of 20-30% of the principal amount of the sovereign bond, a measure to be used under precautionary programmes, and
- Secondly, create co-investment funds allowing public and private investors to participate in the EFSF.
The fund would be ready to leverage under the options from January next year, according to Regling.
Eurogroup policy and assistance approved
Meanwhile, the Eurogroup cleared further assistance to Greece and Ireland.
Dublin was commended by the group for the successful implementation of its adjustment programme, the successful review of Ireland clears the way for its next tranche of financial assistance – €8.5 billion from Europe – to go ahead in January as planned.
Juncker also welcomed written representations from Greek Prime Minister Lucas Papademos and opposition parties undertaking to implement the programme outlined at the last eurozone summit of 26 October.
The next tranche of Greek aid will be released in December following final International Monetary Fund approval at the beginning of that month, Juncker said.
The Luxemburg prime minister also said that the group had "full confidence" in new Italian Prime Minister Mario Monti's policy priorities. He also congratulated Belgium for producing a detailed budget, though he added that this remains fully to be considered by the Eurogroup.
