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15th May 2021

EU moots changing bailout rules to calm markets

  • Finance ministers are looking at ways to stem contagion from Greece (Photo: Council of the European Union)

Pressed by Italy's sudden trouble on the markets, eurozone finance ministers on Monday night (11 July) decided to increase the "flexibility and the scope" of the eurozone's bailout fund (EFSF), so far a taboo for Germany and the Netherlands.

"The length of the meeting illustrates that ministers are very concerned of recent market developments and subsequently they took important steps to reinforce our collective crisis response," economics commissioner Olli Rehn said during a press conference at the end of eight-hour long talks.

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With Italy's debt second only to Greece and markets worried that a fresh bailout for Athens with private investors' involvement, would set a precedent to be replicated should Portugal need another bailout, ministers were struggling to cobble together a solution to stop contagion spreading to other euro-countries.

Eurogroup chief Jean-Claude Juncker said the rules of the Luxembourg-based European Financial Stability Facility - a bond-issuing institution involved in the Irish and Portuguese bailouts - would be changed. But he gave no details, saying the specifics would be decided "very shortly", and no timetable.

At the insistence of Germany and the Netherlands, the €750 billion fund was so far not allowed to buy any bonds from eurozone countries in trouble. On his way into the meeting, German finance minister Wolfgang Schaeuble on Monday repeated that "there can be no talk of that...it's more important to implement, step-by-step, what we have already decided."

But at the final press conference, both Rehn and Juncker did not rule out that the EFSF would be allowed to do exactly that.

"There are a variety of ways of enhancing the flexibility of the EFSF and this is one of those. At this stage we don't exclude any options," Rehn said.

When asked if an extraordinary eurogroup meeting was to take place before the next regular one in September, Juncker said: "No, no. But we will take a decision shortly."

As for the warning by ratings agencies that involving the private sector in a second Greek bailout would be considered a default, Juncker was firm: "there will be private sector involvement. This was a decision by the European Council."

He said that negotiations with the private sector would soon conclude, as already "certain avenues" had been put forward by the Institute of International Finance, which is co-ordinating meetings with top bankers.

The participation of private lenders is a key condition for Germany to agree to a second Greek bailout which ministers say will be wrapped up "shortly"

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