Euro-Area Permanent Crisis Mechanism Backed by EU Parliament
By Jonathan Stearns - Mar 23, 2011 5:47 PM GMT+0100 Wed Mar 23 16:47:11 GMT 2011
The European Parliament approved a planned treaty change to create a permanent debt-crisis mechanism for euro-area countries in 2013.
The European Union assembly endorsed the amendment to the EU treaty today in Brussels as government leaders prepare to sign off on a package of measures meant to soothe investors’ concerns about a possible debt default in the euro area. Governments approved most of the elements in the run-up to the March 24-25 EU summit.
Among the steps is the establishment of a European Stability Mechanism, which requires a treaty change. The ESM will succeed the European Financial Stability Facility, which was set up for
three years in 2010 after a loan package for
Greece failed to prevent increases in the borrowing costs of other euro nations with high budget deficits.
“The euro is a major success for
Europe and we want to secure its future,” said Elmar Brok, a German member who helped draft the position of the 27-nation EU Parliament. The assembly said it was satisfied that EU institutions would be adequately involved in the ESM, which is an “intergovernmental” arrangement among the 17 countries sharing the euro.
Debt-Crisis Package
The ESM will be able to provide loans totalling as much as 500 billion euros ($706 billion)
and will have the right to buy bonds directly from governments. Among the other measures in the debt-crisis package are a reduction for Greece in
interest rates on its loans, an extension of their maturity and a widening of the EFSF’s role -- which is now to sell bonds to finance rescue aid -- to include purchases of bonds on the primary market in the way that the ESM will be able to do.
The package “will be a real game-changer,” Jose Barroso, president of the European Commission, the EU’s executive arm, told the Parliament.
Other elements include toughening enforcement of EU limits on budget deficits, aligning national policies in such areas as wages, pensions and taxes and raising to the maximum 440 billion euros the lending capacity of the
EFSF, whose need for buffers to secure a AAA credit rating now caps possible aid from the facility at around 250 billion euros.
“The elements of a comprehensive economic-policy response are now finally there,” said EU Economic and Monetary Affairs Commissioner
Olli Rehn. “Determination to safeguard financial stability and a strong European commitment has prevailed: we will soon have what it takes to strengthen the foundations of the economic and monetary union and to reinforce confidence into the European economy.”
Rescue Loans
Lower interest rates on rescue loans for Ireland, which in November became the first country to tap the EFSF, is also a possibility. The leaders of other euro-area nations are seeking a pledge of support from Irish Prime Minister
Enda Kenny for efforts to promote more tax-policy coordination in Europe as a condition for cheaper loans.
The ESM-related EU treaty change is an addition that 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.”
(Bloomberg)
