Wednesday, 30 November 2011

Euro-Area Ministers Agree on Bond Guarantees, EFSF Financing

By Gregory Viscusi and Josiane Kremer

Nov. 30 (Bloomberg) -- Euro-area finance ministers approved enhancements to their bailout fund while backing off setting a target for how much firepower they plan to muster to stem a growing debt crisis.

After a series of stop-gap accords failed to protect Italy and Spain from widening bond yield, the ministers met in Brussels under growing pressure from U.S. leaders and financial markets to find ways to boost the European Financial Stability Facility’s effectiveness. They agreed to create certificates that could guarantee up to 30 percent of new issues from troubled euro-area governments and to create investment vehicles that would boost the EFSF’s firepower to intervene in primary and secondary bond markets.

“It’s impossible to give one number; it’s a process,” EFSF Chief Executive Officer Klaus Regling told a press conference in Brussels, backing off an earlier goal of 1 trillion euros ($1.3 trillion). “We will need money if countries make a request, and market conditions change over time.”

While saying it won’t meet the previously stated goal, Luxembourg Prime Minister Jean-Claude Juncker said the fund’s capacity will be “very substantial.”

The bond certificates could be up and running next month, Regling said, while the investment vehicles could be operational in January. “Many investors are interested and will participate if we have solidly commercial product,” Regling said. “But don’t expect massive inflows immediately. The needs will come over time.”
IMF Resources

Juncker, who heads the euro group of finance ministers, also said the euro area will work on boosting the resources of the International Monetary Fund so that it can “cooperate” more closely with the EFSF.

“There are some marginal technical changes regarding intervention in primary and secondary markets, but overall it’s very similar” to previously published documents on the EFSF’s role, said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “Dec. 9 might have more meat, hopefully, otherwise markets will be yet again disappointed.”

European heads of government meet Dec. 9 in Brussels, in a meeting that is likely to be dominated by the debt crisis that began in Greece two years, spread to Ireland and Portugal, before driving up Italian and Spanish bond yields over the summer, and now is hurting even Germany’s ability to sell debt and threatening France’s top debt rating.

--With assistance from Rebecca Christie, Angeline Benoit, Mark Deen, Lorenzo Totaro, Jonathan Stearns, Nejra Cehic and Rainer Buergin in Brussels, Stephanie Bodoni in Luxembourg and Sandrine Rastello in Washington. Editors: Patrick G. Henry, Jones Hayden

To contact the reporters on this story: Josiane Kremer in Brussels at; 
Gregory Viscusi in Brussels at

To contact the editor responsible for this story: James Hertling at