Eurozone states are preparing to allow the bloc's permanent bailout fund to leverage its capital in the same way as its predecessor so it can reach a capacity of more than €2 trillion and rescue big countries if necessary, Der Spiegel reported yesterday (23 September).
The German weekly news magazine said that the European Stability Mechanism (ESM) would have two instruments like its predecessor, the European Financial Stability Facility (EFSF), that would only allow public money to be used for particularly risky transactions such as buying Spanish bonds, while private investors would provide the rest.
It had always been expected that the ESM, which is expected to come into force on 8 October with a capacity of €500 billion, would have the same leverage ability as the EFSF and eurozone finance ministers reiterated this at their meeting in Cyprus earlier this month.
If the ESM gets approval to use the same leverage techniques as the EFSF, it would have a lending power of around €2 trillion without countries having to contribute any more capital to the fund.
But these leverage options have not been approved by all eurozone members and Finland is especially reluctant to agree to them.
German Finance Minister Wolfgang Schäuble supports the plan but Finland is preventing the Eurogroup from passing it quickly, the report said.
A spokeswoman for the German finance ministry confirmed that following the German Constitutional Court's ruling on the ESM, the guidelines in Europe were being reworked and that part of this would be covered by the ESM while the rest would come from private investors, which would be a kind of leverage.
This part was in the process of being approved in Brussels, she said.
The spokeswoman said that the ESM would have the same tools as the EFSF.
She also said that German liability remained capped at €190 billion and added that when work had been completed at an EU level, the result would be presented to the German Bundestag, the lower house of parliament, for approval.
The figure of €2 trillion was, however, incomprehensible, she said.
A spokesman for the European Commission declined to comment.
A separate report in Germany's Focus magazine said that Schäuble and German Chancellor Angela Merkel wanted to beef up the position of the EU Commissioner for Economic and Monetary Affairs, Olli Rehn, to give him the sole power to decide in deficit proceedings against states which do not stick to their targets.
Merkel and Schäuble also want the EU commissioner to have the power to demand amendments to draft budgets which include excessive deficits, the magazine said.
A spokesman for the finance ministry declined to comment on the Focus report and pointed both to ongoing discussions and to the task of heads of government to think about ways to strengthen the currency union.
Eurozone finance ministers agreed on 30 April on a temporary increase, up to €700 billion, of their financial rescue capacity to prevent a new flare-up of Europe's sovereign debt crisis.
This would allow the temporary €440 billion European Financial Stability Facility (EFSF) to continue to run for a year in parallel with the permanent €500 billion European Stability Mechanism (ESM), which starts work in October.
A statement by the Eurogroup, issued after the meeting, said: "The current overall ceiling for ESM/EFSF lending, as defined in the ESM Treaty, will be raised to €700 billion." However, it added that: "As of mid-2013, the maximum lending volume of ESM will be €500 billion," its initial level.
- 8 Oct.: Next meeting of EU finance ministers. ESM permanent rescue fund becomes operational
EU Council of Ministers
- Statement: Eurogroup: ESM to be fully operational by the end of October (14 Sept. 2012)
- European Stability Mechanism Treaty (ESM) [FR] [DE]