Rehn: Rescue fund leveraging on the table
EU economy commissioner Olli Rehn said on Monday (3 October) that European finance chiefs are considering different options on how to leverage the eurozone’s multi-billion-euro rescue fund to give it further firepower.
"We are reviewing options on optimising the use of the [European Financial Stability Fund] in order to get more out of it and make it more effective as a financial firewall to contain contagion. Leveraging is one of the options," he said speaking to reporters in Luxembourg.
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Finance ministers are meeting in Luxembourg to assess the heavily indebted Greek government’s latest announced efforts to deliver on its promises of austerity and structural adjustment made to international lenders.
There are growing fears that were Spain and Italy to be cut off from market funding, the existing €440 billion rescue fund would be insufficient to bail out such large economies and even an expansion of the war-chest to €780 billion agreed by eurozone leaders in July may not be enough.
As a result even more radical options, such as the leveraging of the fund were understood to be a topic of discussion, but this is the first time that a senior EU leader has officially mentioned the subject.
“We will discuss this with the ministers,” he said. “There are options including the [European Central Bank] and options not including the ECB. This is something we will discuss today."
One possibility is that the EFSF could issue triple-A-rated bonds that could then be placed with the ECB as collateral against loans that could then be distributed to indebted eurozone states.
The attraction of this option is that this could be performed without having to return once again to eurozone member countries for further guarantees at a time when citizens and some political forces are growing increasingly resistant to the idea of what appear to them as ever-expanding bail-outs.
The commissioner also gave his blessing to the latest round of cuts and structural adjustments announced by the Greek government, despite an acknowledgement that Athens will not be able to meet its deficit reduction targets for this year or next. With an economy in free-fall, government revenues have fallen well below projections.
“Greece has taken important decisions in the past weeks, also including yesterday,” Rehn said.
On Sunday, Athens said that it will slash a further €6.6 billion from spending in an attempt to chase after budget shortfalls. The country’s finance minister also offered further details on a plan to put some 30,000 public-sector workers into a so-called labour reserve where wages are to be reduced by 40 percent ahead of presumptive lay-offs within a year.
The next day, the government presented the draft budget for 2012 to parliament. MPs are expected to vote on the bill by the end of the month.
“We are currently assessing whether Greece will meet its fiscal targets with the current measures,” he added. Officials from the so-called EU-ECB-IMF troika have returned to the Greek capital to continue their assessment of the government’s austerity efforts.
So long as the troika give the all-clear, eurozone finance ministers and the IMF board are expected to rapidly approve the dispersal of the sixth tranche of bail-out cash to the country, a sum amounting to €8 billion.
Without the funds, the country will likely run out of money to pay public servants and pensions by the middle of the month.
"We're reviewing figures and assessing measures. It seems Greece is likely to miss its target this year. Next year, the concrete measures agreed so far go a long way to meet the fiscal targets. We will assess the measures,” he continued.
The commissioner also said that ministers would have to confront not one but three major dangers.
"We have a very important meeting at a critical juncture today. We are facing three main challenges: stalling growth, stressed sovereigns and still vulnerable banks," he said.