Saturday

23rd Sep 2017

EU looking at trillions in shock-and-awe plan to end crisis

  • Close-up of euro banknote with added workmen, taken from an old advert for Italian car maker Fiat (Photo: Brett Jordan)

A plan involving a multi-trillion euro leveraging of the eurozone's rescue fund via the European Central Bank is under consideration as the EU comes under global pressure to act quickly to prevent the bloc's crisis kicking off a global recession.

A source close to the discussions confirmed that the plan is "real" but the full scale of the sums involved remain undecided.

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At a crunch meeting of the International Monetary Fund meeting in Washington where little else was on the table for discussion, according to reports out of the US capital, officials suggested that European Financial Stability Fund (EFSF) could be leveraged via the ECB to achieve the estimated €2 trillion needed were Italy and Spain to require financing.

EU economy chief Olli Rehn said on Saturday: "We need to build a bridge and I think this bridge will be developed on the basis of the current reform of the EFSF and as one part of that next stage we are contemplating the possibility of leveraging the EFSF resources to have more firepower and thus have a stronger financial firewall to support our member states doing the right thing."

The shock-and-awe plan would also involve massive bank recapitalisation requiring some tens of billions both from financial institutions raising the monies themselves and, if necessary, their own states or the EFSF.

The Daily Telegraph reported that in return for agreeing to such a programme, currently being devised by French and German officials, Berlin is demanding that Greece undergo a "managed default" within the eurozone, involving a haircut for investors of 50 percent on the face value of government bonds.

French EU spokesman Gael Veyssiere said such a default plan is "certainly not" in the works, however. "We have said publicly that there is no need for a recapitalisation of French banks and Greece is not going to default," he added.

He could not confirm or deny the wider reports of a multi-trillion rescue plan.

EU economy spokes Amadeu Altafaj-Tardio told this website: "This is a big salad, mixing different rumours we have seen in Washington and Athens. We have no information on such a thing. The figures sound massive to me."

"We have heard discussions from our international partners on how to leverage further the EFSF, but I would not call these negotiations on this issue. For the time being there are no formal discussions on such a possibility," he added.

"If France and Germany are preparing something, we are not aware of that. The French and German ministers in Washington did not raise it."

However, a contact familiar with the talks confirmed to EUobserver: "The numbers are undecided, but the parameters [in the media reports] are roughly correct."

The plan could involve a threat to the credit rating of those countries that contribute to the EFSF, notably triple-A-rated France.

In a G20 statement issued on Friday, the world's leading economies set a deadline of its upcoming meeting in Cannes on 4 November to commit to a comprehensive solution to the global crisis.

Separately at the weekend, Greek finance minister Evangelos Venizelos insisted default is not on the cards.

"Greece is and will always be in the euro," he said. "Greece is never going to default because that would have been catastrophic for the euro area and for many other countries beyond the euro area."

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In a tub-thumping speech to the European Parliament in Strasbourg, the president of the European Commission has mounted a blistering attack on the leadership of EU member states in the face of what he called the greatest challenge Europe has faced in its history.

Eurozone countries hold series of crucial votes

A swathe of European parliaments are this week due to decide on the strengthened temporary bailout fund, the EFSF, but the eurozone debate is moving faster than the political process.

US: EU has ‘not very much time’

Washington is piling the pressure on Europe - publicly and privately - to act as quickly as possible to move forward with an expected multi-trillion-euro plan to bring an end to the eurozone crisis before it drags the world into a second recession.

Ailing eurozone back on markets' radar

The eurozone appears to have come back onto the markets' radar amid, low inflation, bad economic news from Germany and Greece's bailout exit plans.

Investigation

EU bank accused of muzzling watchdog

An ongoing review of the the European Investment Bank's "complaints mechanism" could make the oversight branch less independent and less effective.

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