As of this writing the newly enlarged and empowered European Financial Stability Fund (EFSF) needs just two more national approvals to become a reality. Slovakia, which has a highly EFSF-skeptical bloc in its ruling coalition, is still debating it while tiny little Malta is expected to approve it in a few hours.
We’ve previously discussed the many evolutions of the shape-shifter known as the EFSF and watch with no little amusement as various authorities continue to lay out their unique vision of what the EFSF should be doing. Unsurprisingly, they all seem to want to use it to make their own lives easier!
- Reports say that French President Nicholas Sarkozy would like to use the EFSF, not as a last, but as a first resort to re-capitalize the French banks. So far Angela Merkel’s not having it, insisting that banks should first knock on the doors of their own shareholders, and then on the doors of their own national governments before daring to approach the EFSF. But France is afraid that bailing out its banks, which have more Greek debt than British and German banks combined, will imperil its own triple-A credit rating (which, in another example of the eurozone’s dangerous feedback loops, would also imperil the triple-A rating of the EFSF itself.)
- Last week Ireland’s deputy prime minister, Eamon Gilmore, told the FT that Brussels should allow Ireland to use the EFSF to cut the interest rates on its bail-out loans. Note that this would be the second time that Ireland has received relief on its interest payments; its interest rate was reduced from 6% to 4% when the second Greek bail-out was agreed, saving it some €600 to 800 million a year.
- European Central Bank Vice President Vitor Constancio (former head of the Portugese central bank) has said that the EFSF should not only take over the ECB’s role in purchasing Spain and Italy’s government bonds, but should do so in the primary markets.
The resources of the EFSF “should be dedicated to enhance sovereign debt new issuance of securities, thus multiplying their effect,” Constancio said. “It would be less efficient to spend most of the funds available in the secondary market or in supporting banks’ capitalization.” (Businessweek)
This would help the ECB to reclaim its moral high ground. Currently it’s deeply uncomfortable with the unconventional role it has been forced to play.
We can’t wait to see what they’ll all think of next.