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Beginning the rescue fund

· Agreement of EU finance ministers ·

Europe opens the door to the new rescue fund programme ESM. Meeting in Brussels, the finance ministers finalized the new European stability mechanism. The treaty sanctions an initial endowment of 500 billion Euros, while at the same time it foresees that its adequacy may be reviewed shortly. The fund will enter into force in July at the latest. According to the chairman of Eurogroup, Premier Jean-Claude Juncker of Luxembourg, ESM could be activated in emergency situations with a two-thirds majority of the members of the Eurozone states. The support for countries in difficulty will be based on strict conditions. The adequacy of the total funds will be reviewed before the present treaty enters into force, the preamble states, confirming a decision made in December by European governments. At a press conference yesterday evening, the commissioner for economic affairs and monetary affairs Olli Rehn underlined that the possible increase in the fund will be discussed soon.

A document prepared for the discussion yesterday affirmed that the decision to double the fire power of ESM to 1 trillion Euros could be considered significant by the markets and international partners. Also of note, the finance ministers discussed the draft of intergovernmental treaty which will set out a new budgetary discipline. In this regard Juncker declared that “this text is a good basis for the discussions that the heads of governments at the end of the month”. The goal is to sign the agreement before March.

Regarding this initial endowment of 500 billion Euros it is to be noted that there is speculation that Germany will accept a possible 750 billion Euros. The director of the International Monetary Fund (IMF) Christine Lagarde urged Europe yesterday to increase the resources of the rescue fund in order to prevent various countries from falling into bankruptcy. For her part, German Chancellor Angela Merkel, who met Lagarde on Sunday in Berlin, underlined that the priority is to get the permanent fund ESM working. Germany would be prepared to anticipate the flow of capital ahead of schedule. According to sources close to the German government, the government itself is available to run EFSF (which still has 250 billion Euros) and ESM in parallel, a possibility already discussed by Lagarde. Thus the total strength of the funds would rise to 750 billion Euros. Analysts point out that Berlin has not closed the door on an increase of revenue of ESM. Concerning the work in Brussels, today a first meeting of the German Chancellor and the President of Spain Mariano Rajoy is scheduled. Yesterday evening the President of the Italian Council of Ministers Mario Monti explained to his colleagues of Eurogroup the strategy of economic policy of his government, receiving “great appreciation” from Olli Rehn, who especially expressed his satisfaction for the conditions and speed of the measures. Rehn expressed his hope that Italy intervenes in the labour exchange “with the same determination” displayed through the provisions to budget consolidation. Appreciation for decisions made by the Italian government was also expressed by Jean-Claude Juncker, who spoke in addition about “important measures”.

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Oct. 18, 2019

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