The funds available to bail-out troubled Eurozone economies are to be increased to a total of €700bn, a 40 per cent increase over what was expected, following a meeting of European finance ministers.
The European Stability Mechanism is due to start up later this year, and was originally to have €500bn available to it. Fears were raised, however, that the short-term allocation of some of that funding to Greece, Ireland and Portugal may hamper the liquidity it can actually access. Now, finance ministers have come to an agreement that the €200bn locked up in those countries is to be set aside, allowing the full €500bn to be available even before those countries have paid off their debt.
In addition, €240bn of funds currently used by the existing European Financial Stability Facility (the temporary body which the ESM is due to replace) will be carried over for a “transitional period”, allowing the full ESM to not be up and running until mid 2014.
Although achieved in a different manner, the money available is around the same as the amount discussed at the beginning of the week, when it was believed the extra capitalisation would be achieved by allowing the full €440bn of the EFSF to run in tandem with the ESM over the transition.
The two major holdouts to that plan were Germany and Finland. The German government has been wary of approving such increases due to pressure from home, where they are already seen as taking on a unfairly large proportion of the burden of the Eurozone’s problems, while the Finns, one of four AAA Eurozone countries left, wre concerned that adding too much debt to the creditor countries could destabilise the system. The Finnish prime minister told the Financial Times:
It must be high enough but it can’t be too high, because otherwise the liabilities of the firewall easily become too challenging for the member countries and then it would destroy the credibility of the member countries’ economy.
There was some minor awkwardness with the public unveiling of the new policy. The Austrian finance minister, Maria Fekter, accidentally-on-purpose announced the change before the meeting had actually concluded, leading Jean-Claude Juncker, the chair of the council of finance minsiters and Luxemburg’s prime minister, to cancel a planned press conference, saying:
There was no point in having a press conference because the Austrian finance minister announced it.
Fekter later apologised.
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