Euro zone to boost bailout fund firepower to 2 trillion euros: report

Sun Sep 23, 2012 1:01pm EDT
 
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BERLIN (Reuters) - Euro zone states are preparing to allow the bloc's permanent bailout fund to leverage its capital in the same way as its predecessor so it can reach a capacity of more than 2 trillion euros and rescue big countries if necessary, Der Spiegel said on Sunday.

The weekly news magazine said that the European Stability Mechanism (ESM) would have two instruments like its predecessor, the European Financial Stability Facility (EFSF), that would only allow public money to be used for particularly risky transactions such as buying Spanish bonds, while private investors would provide the rest.

It had always been expected that the ESM, which is expected to come into force on October 8 with a capacity of 500 billion euros, would have the same leverage ability as the EFSF and euro zone finance ministers reiterated this at their meeting in Cyprus earlier this month.

If the ESM gets approval to use the same leverage techniques as the EFSF, it would have a lending power of around 2 trillion euros without countries having to contribute any more capital to the fund.

But these leverage options have not been approved by all euro zone member states and Finland is especially reluctant to agree to them.

German Finance Minister Wolfgang Schaeuble supports the plan but Finland is preventing the Eurogroup from passing it quickly, the report said.

A spokeswoman for the German finance ministry confirmed that following the German Constitutional Court's ruling on the ESM, the guidelines in Europe were being reworked and that part of this would be covered by the ESM while the rest would come from private investors, which would be a kind of leverage.

This part was in the process of being approved in Brussels, she said.

The spokeswoman said that the ESM would have the same tools as the EFSF.   Continued...

 
A pensioner sits in a wheelchair in the Andalusian capital of Seville September 20, 2012. REUTERS/Marcelo del Pozo