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ESM ready to be tapped

October 8, 2012

Eurozone finance ministers have launched a permanent bailout fund for the bloc's members. The European Stability Mechanism is designed to provide help to nations in financial distress, but there are strings attached.

https://p.dw.com/p/16ML7
Spain's Economy Minister Luis de Guindos (L) talks with his Luxembourg counterpart Jean-Claude Juncker (C) and European Economic and Monetary Affairs Commissioner Olli Rehn (R) during a meeting of the Board of Governors of the European Stability Mechanism (ESM) ahead of an eurozone finance ministers meeting in Luxembourg October 8, 2012. Euro zone finance ministers will launch their 500 billion euro permanent bailout fund on Monday, putting in place a major defence against the debt crisis that now threatens Spain. The fund, called ESM, will be used to lend to distressed euro zone sovereigns in return for strict fiscal and structural reforms that aim to put economies that have lost investor trust back on track. REUTERS
Image: Reuters

Finance ministers of the 17-member eurozone on Monday came together in Luxembourg to launch their new and permanent bailout fund as a major defense against the protracted debt crisis in large parts of the bloc using the single currency, the euro.

"The European Stability Mechanism is established," Luxembourg's Prime Minister Jean-Claude Juncker said, after he and the other finance ministers had signed off on the measure. "This is a historic milestone."

The ESM replaces the temporary European Financial Stability Facility, which was determined to be insufficient to help all member countries in need of fresh capital to get their national economies back on track.

The ESM will eventually have access to 700 billion euros ($907 billion) and is due to reach the full amount by 2014. Resources from the fund will only be made available to eurozone members in return for the implementation of strict fiscal and structural reforms.

Spain the first beneficiary?

The permanent fund looks set to be tapped for the first time in November in line with an agreement to help crisis-stricken Spanish banks in their recapitalization drive after they were hit by the collapse of the domestic real estate market.

Madrid said it would need about 40 billion euros to get ailing banks afloat again, but EU competition authorities will still have to approve recapitalization conditions for each of the Spanish banks in trouble. The ESM might also be tapped for an additional precautionary credit line that the Spanish government is believed to be set to apply for soon in order to improve investor confidence and keep borrowing costs at bay.

At their meeting in Luxembourg, eurozone finance ministers were also expected to continue talks about a proposal by EU President Herman Van Rompuy to create a separate, but single budget for euro area nations. But the Austrian Finance Ministry said in a statement on Monday it took a skeptical view of a centralized budget.

"Speaking about such a budget without knowing exactly which tasks it would have certainly won't lead to the desired results," the ministry argued.

hg/pfd (Reuters, dapd)