Eurozone’s new permanent rescue fund was launched on Monday at a meeting of finance ministers in Luxembourg. Funded by taxpayers’ money, the so-called European Stability Mechanism will have a 500 bn euro budget to help finance debt-ridden countries.
The start of the European Stability Mechanism marks an historic milestone in shaping the future of the European monetary Union. The Euro area now is equipped with the effective firewall which of course is a crucial component of our strategy to ensure financial stability in the Union’, said president of the Eurogroup Jean-Claude Juncker.
Germany is the biggest contributor to the bailout fund. But the German solidarity towards struggling eurozone economies does not come for free. Bailed out coutries must implement tough austerity measures and reforms in exchange for help.
‘As of today the ESM is fully operational with lending capacity of 200 billion euro that will grow in the next 18 months. In addition to that we will have the 92 billion euro of the EFSF which is committed for the macroeconomic adjustment program of Ireland, Portugal and Greece’, said Managing Director of the ESM Klaus Regling.
The fund’s first task will be helping recapitalise the Spanish banking sector. 40 bn euros have already been agreed.
Whether Madrid will request a full-blown bailout is a question that still remains unanswered. German Finance Minister Wolfgang Schäuble said as he arrived for the meeting that Spain was not asking for help and did not need it.
Greece was also on the agenda.
Eurozone finance ministers and the International Monetary Fund also held a long debate on whether Greece should be granted 2 more years to meet its deficit target. While the IMF is believed to favour the idea, countries such as the Netherlands and Finland remain opposed.
‘We also stress that before the next disbursement; Greece should clearly and credibly demonstrate its strong commitment to fully implement the program. The 89 prior actins agreed in March implemented by the 18 of October at the latest’, said Juncker.
‘Greece the review of the program continues and it is making progress. I believe that there is the necessary willingness on the part of the Greek authorities to agree the measures needed to set Greek public finances back on a sustainable path’, said Olli Rehn.
Meanwhile, Angela Merkel is in Greece in what is her first visit to the country since the euro crisis started. Heavy police presence will be expected across Athens as protests against the Chancellor’s visit have been organised.