European Commission President Jose Barroso called the euro area’s plan to create a permanent debt- crisis mechanism “indispensable” for financial stability in Europe.
He commented after the commission, the European Union’s executive arm, issued a favorable opinion of the decision by EU government leaders in December to amend the bloc’s treaty to establish a European Stability Mechanism in 2013 for countries that share the euro.
“This is an indispensable decision in order to confirm our determination to defend our common currency and to guarantee financial stability,” Barroso told the European Parliament today in Strasbourg, France. “The necessary conditions are in place to carry out a simplified revision of the treaty.”
The planned ESM will replace the EU financial backstop set up with the International Monetary Fund for three years last May after a 110 billion-euro ($149 billion) loan package for Greece failed to prevent increases in the borrowing costs of other high-deficit euro nations. The main pillar of the current 750 billion-euro system is the European Financial Stability Facility, which can sell bonds backed by 440 billion euros in national guarantees and use the money for rescue loans.
European finance ministers decided yesterday in Brussels that the ESM will be able to lend 500 billion euros. That’s twice the amount of the EFSF, whose need for buffers to secure a AAA credit rating limits the facility’s total lending capacity to around 250 billion euros.
Financial Assistance
The ESM-related treaty addition approved by EU government heads two months ago reads: “The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”
In addition to the verdict from the commission, a non- binding opinion from the EU Parliament is needed before the treaty change can go ahead. EU government heads intend to approve the ESM in late March as part of a “comprehensive” package of crisis-management measures including bolstering the temporary backstop and strengthening the enforcement of budget- deficit limits.
Source: http://www.bloomberg.com
He commented after the commission, the European Union’s executive arm, issued a favorable opinion of the decision by EU government leaders in December to amend the bloc’s treaty to establish a European Stability Mechanism in 2013 for countries that share the euro.
“This is an indispensable decision in order to confirm our determination to defend our common currency and to guarantee financial stability,” Barroso told the European Parliament today in Strasbourg, France. “The necessary conditions are in place to carry out a simplified revision of the treaty.”
The planned ESM will replace the EU financial backstop set up with the International Monetary Fund for three years last May after a 110 billion-euro ($149 billion) loan package for Greece failed to prevent increases in the borrowing costs of other high-deficit euro nations. The main pillar of the current 750 billion-euro system is the European Financial Stability Facility, which can sell bonds backed by 440 billion euros in national guarantees and use the money for rescue loans.
European finance ministers decided yesterday in Brussels that the ESM will be able to lend 500 billion euros. That’s twice the amount of the EFSF, whose need for buffers to secure a AAA credit rating limits the facility’s total lending capacity to around 250 billion euros.
Financial Assistance
The ESM-related treaty addition approved by EU government heads two months ago reads: “The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”
In addition to the verdict from the commission, a non- binding opinion from the EU Parliament is needed before the treaty change can go ahead. EU government heads intend to approve the ESM in late March as part of a “comprehensive” package of crisis-management measures including bolstering the temporary backstop and strengthening the enforcement of budget- deficit limits.
Source: http://www.bloomberg.com
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