Top European officials insisted on Monday that they have enough financial firepower right now to deal with Europe’s government debt crisis — but did not rule out increasing Europe’s bailout fund in the future.
Eurogroup Chairman Jean-Claude Juncker, who chaired a meeting of the eurozone’s 16 finance ministers, said that there wasn’t any immediate need to increase the 750 billion euro (US$1 trillion) financial backstop despite concerns that it just isn’t enough. The fund is for eurozone governments in danger of running out of money.
“For the time being, there’s no need to increase,” Juncker said after the meeting.
In May, eurozone governments and the IMF set up the financial backstop for the currency bloc.
The majority is managed by the so-called European Financial Stability Facility (EFSF), which can issue up to 440 billion euros in bonds guaranteed by eurozone governments. The EU’s executive Commission can lend an additional 60 billion euros, while the IMF has said it would contribute up to 250 billion euros.
Klaus Regling, who heads the EFSF, said that Ireland’s 67.5 billion euro bailout agreed last month will use up less than 10 percent of the total backstop.
“There are sufficient resources left to deal with other relevant cases,” Regling said.
He said funding was not proving to be an issue and said he was getting interest in the facility’s future bond issues from all around the world and from all types of investors, including central banks, sovereign wealth funds and rich individuals.
Market participants suspect the stabilization in European bond markets since the meeting has been largely thanks to even more purchases by the central bank, under pressure from policymakers to do more to prevent Europe’s debt crisis from spreading — buying bonds supports their prices, taking pressure off the banks that hold them. It also lowers bond yields, which indicate the borrowing costs countries would face were they to go into the market for more credit.
The seeming stabilization in the bond markets may be one reason why a proposal earlier in the day from Juncker and Italian Finance Minister Giulio Tremonti for the creation of pan-European bonds to support governments with shaky finances failed to get a hearing.
That proposal was not discussed, according to Juncker, after Germany, the Netherlands and Austria quickly came out against the idea.
The most vociferous opposition came from Germany, Europe’s biggest economy. German Chancellor Angela Merkel said such bonds were legally impossible under the current EU treaties.
“It is our firm conviction that the treaties do not allow joint eurobonds, that is no universal interest rate for all European member states,” she said in Berlin.
The finance ministers also failed to make a decision on how to fund a new crisis tool that is supposed to support countries that run into financial trouble after 2013, when the current fund’s mandate expires.