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| The European Stability Mechanism is Officially Launched |
| (2012-10-09) |
| Last updated: 2012-10-10 13:27 EET |
As of Monday, the Eurozone has a new permanent and efficient financial protection instrument, the Eurogroup president Jean-Claude Juncker has announced. Designed to provide funding to states experiencing financial difficulties, the European Stability Mechanism is bound to become a component of paramount importance in the overall strategy aimed at guaranteeing the stability of the single currency area. Juncker, who is also the chairman of the Mechanism’s board of governors, argues the mechanism marks a historic milestone in shaping the future of the European Monetary Union.
The European Stability Mechanism (ESM) will take over the tasks of the European Financial Stability Facility (EFSF) and will turn fully operational when member states remit the funds. The ESM has temporarily taken over the bailout programmes for Greece, Ireland and Portugal as well as for the Spanish banking system. Managing Director Klaus Regling, who has so far overseen the Eurozone’s temporary stability, says:
Klaus Regling: “The European Stability Mechanism is fully operational. It has a lending capacity of 200 billion euros that will grow in the next 18 months to reach 500 billion euros. In addition some 192 billion euros will become available as part of the temporary fund to Ireland, Portugal and Greece”.
The European Stability Mechanism will be able to obtain funding at low interest rates, as a result of the “triple A” rating Fitch agency assigned to the mechanism right after its official launch. Financial analysts argue the Mechanism is of key importance, as it might directly recapitalize Eurozone’s banks without deepening the countries’ debt levels. A prerequisite for the Mechanism’s efficiency is that member states should set up a common banking surveillance system as of early 2013.
The prospect of the direct recapitalization of banks is of particular interest for Spain, which in June was forced to seek a credit line worth 100 billion euros in order to keep its banking operations in the black. Greece however remains the Eurozone’s thorniest financial problem. Athens is currently waiting for the disbursement of a new installment worth 31.5 billion euros as part of the international bailout package, without which it risks defaulting on its payments by the end of November.
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