Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Major beef-up for the EFSF and ESM.
Not the way I read it.

The EFSF and ESM are given more flexibility in their action. However, there is no increase in the size of their available financial resources. And the EFSF's vaunted €750bn are mostly guarantees. From Wikipedia:

The EFSF can issue bonds or other debt instruments on the market with the support of the German Debt Management Office to raise the funds needed to provide loans to eurozone countries in financial troubles, recapitalize banks or buy sovereign debt. Emissions of bonds would be backed by guarantees given by the euro area member states in proportion to their share in the paid-up capital of the European Central Bank (ECB).

The Facility may be combined with loans up to €60 billion from the European Financial Stabilisation Mechanism (reliant on funds raised by the European Commission using the EU budget as collateral) and up to €250 billion from the International Monetary Fund (IMF) to obtain a financial safety net up to €750 billion.

If there is no financial operation in activity the EFSF would close down after three years, on 30 June 2013. If there is a financial operation in activity, then the Facility would exist until its last obligation has been fully repaid.

So the ESM can loan €60bn to the EFSF, and the IMF can loan it €250bn but the rest of the €750bn have to be raised from the market by issuing bonds guaranteed by the US member states.

In other words, the capital that the EFSF will have available to stabilize the markets has to come from the market itself.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Fri Jul 22nd, 2011 at 11:03:52 AM EST

Others have rated this comment as follows:


Occasional Series