The Eurogroup agreed today to reinforce the 700,000 million euros its rescue fund, which has fallen below the expectations of the IMF, the G-20 and OECD, which called for a billion euros, but very much in line with Germany approaches, advocate a limited increase.
Austrian Finance Minister Maria Fekter, said that only 500,000 million fund would be available as “new money” to bail out the big eurozone economies such as Spain or Italy.
The Eurogroup issued a statement shortly after the details of the agreement makes clear that although the new approach is an improvement over the current situation, the real increase is modest.
So far, the maximum combined loan of the two “firewalls” that have the euro area, the European Financial Stability Fund (EFSF) and the European Stability Mechanism (MEDE) – amounted to 500,000 million euros, while now come to 700,000 million.
In both cases, 200,000 million already committed for bailouts of Greece, Portugal and Ireland.
“The roof of MEDE and EFSF (…) will rise to 700,000 million euros,” say the ministers in a statement.
But to find a blow, the ministers have decided to add 100,000 million had been paid under other formulas to Greece, Ireland and Portugal.
Specifically, they have added 53,000 million euros already awarded to Greece through bilateral loans and other 49,000 million was disbursed through the EU fund managed by the European Commission, European Financial Stability Mechanism (EFSM) for ransom.
The MEDE will be the main rescue fund from July to EFSF only remain active for funding the programs already initiated before that date.
The Eurogroup has accepted so both funds (EFSF and MEDE) elapsed in parallel until mid-2013 and that the former can be financed, if necessary, new programs during this transitional period until the permanent mechanism has acquired its full capacity of loan 500,000 million euros.
That means keeping the 240,000 million that have not been used as a reserve for the EFSF exceptional cases.
This mattress is due, Fekter explained, that the MEDE in July have not yet come into force when all the money that countries should enter, as is expected this year to pay two installments (in July and October), next year two capital injections and a final in the first half of 2014.
After all these calculations and amounts, the Eurogroup says that “the euro is mobilizing a firewall of approximately 800,000 million euros, over 1 billion dollars.”
Germany has been reluctant to accept other forms stronger to reinforce the rescue fund, which is why the ministers could only agree on the mechanism presented today, which is one of the least ambitious which could accommodate.
The European Commission this week had sent a document to the euro countries in making clear that progress only to the 700,000 million is not sufficient to restore confidence.
It remains unclear whether this reinforcement sufficient to calm the markets and the G20 members, who recently demanded the EU to increase its capability first firewall if you want to have increased resources to the IMF.
In the subsequent press conference, Vice President of the European Commission and Commissioner for Economic and Monetary Affairs, Olli Rehn, has described as “very important” decision and assured that it is a solution “durable”.
“I trust that today’s decision will pave the way for an increase in IMF resources at the spring meeting next month” of the international financial institution said.
Jörg Asmussen, executive committee member of the ECB, also called the strengthening of “important” and said that now “we Europeans can travel to the spring meeting of the World Bank and IMF in Washington, having done our homework.”
“You can now complete (this effort) with firewalls that are global resources of the IMF,” he said.
The IMF managing director, Christine Lagarde, said in Washington that the combination of EFSF and MEDE, along with other recent European efforts will strengthen the European rescue fund and supports the IMF’s efforts to increase available resources for the benefit of all members. “