Eurozone financial backstops likely to be boosted

PanARMENIAN.Net - Eurozone finance ministers are likely to agree to temporarily almost double their financial backstops on Friday, March 30, as one of the final moves to end the sovereign debt crisis, although Germany continues to favor a smaller increase, Reuters reported.

The 17 countries sharing the euro have already agreed to adopt balanced-budget rules in an effort to convince markets that eurozone public finances would be sustainable.

They also agreed to slap fines on countries that run excessive budget deficits or have large imbalances in their economies.

After a deal with investors this month to restructure Greek debt, increasing the amount of money the eurozone can use to help its members cut off from markets is one of the last things policy-makers can do to boost investor confidence.

A draft statement by the ministers, obtained by Reuters, showed that in case of an emergency over the next 15 months, the eurozone could raise the combined firepower of its two bailout funds to 940 billion euros from 500 billion now.

But this could happen only if during that time there was a need for a new bailout for a eurozone country and the new, permanent bailout fund, called the European Stability Mechanism (ESM), would run out of money to finance it.

The ESM, which is to go on-line in July, will have 500 billion euros of lending capacity and the temporary European Financial Stability Facility (EFSF) has 440 billion euros, of which 200 billion is already earmarked for financing Greece, Ireland and Portugal.

According to the draft statement, the ministers are to agree to allow the EFSF to service its existing commitments on top of the full 500 billion euros of new money that would be provided by the ESM. The combined lending power of both funds is now capped at 500 billion euros.

Any potential new bailouts after July would be handled by the ESM. If it does not have enough money, the remaining 240 billion euros of yet uncommitted EFSF money could be used.

"The current overall ceiling for ESM/EFSF lending will be raised such that the ESM and the EFSF will be able to operate, if needed ... at their full capacity for the period during which the EFSF remains available, i.e. until mid-2013," it said.