Business | Economy
EU agrees on mechanism to operate stabilisation fund
IMF calls for progress on fiscal, structural reforms
- Financial Times
- Published: 00:00 June 9, 2010
- Image Credit: Bloomberg News
- Olli Rehn, the European Union’s economic and monetary affairs commissioner, believes there is no uncertainty now about the euro zone’s ability to provide financial support.
Luxembourg/Paris/Frankfurt: Finance ministers from the 16 euro zone countries reached an agreement late on Monday on the key mechanism by which they will operate the landmark 750 billion euro (Dh3.2 trillion) stabilisation facility for the euro zone's most vulnerable members.
Under the agreement, the "special purpose vehicle", established by the deal and capable of raising up to 440 billion euros, will be based in Luxembourg and be backed by individual guarantees provided by all 16 members of the euro zone.
It will have a board of directors and will provide assistance to an ailing country only if a restructuring programme is agreed with that country.
Although guarantees will be provided by states individually — rather than jointly and severally — there will be surplus "cushion" arrangements to ensure against the failure of any of the guarantors to supply their share of funds.
"The relations amongst member states as guarantors are now clear. There is no uncertainty left... about the ability to provide support," said Olli Rehn, EU commissioner for economic and monetary affairs.
Officials said they believed the arrangements should secure the "best possible" credit rating for the new vehicle.
The facility was agreed last month in the wake of intense pressure on the 16 euro countries to tighten fiscal rules and economic governance.
However, debate and uncertainty had continued in recent weeks over the way this stabilisation fund would work in practice and how the potentially huge sums of money involved could be raised.
The International Monetary Fund, meanwhile, urged "decisive action" to complete Europe's monetary union and warned that global growth prospects could be hit by insufficient progress on fiscal and structural reform.
Crisis management was "not an alternative to the corrective policy actions and fundamental reforms needs to reinforce the foundation of the European monetary union," it said in its latest review of euro zone policies.
The Washington-based organisation urged an accelerated restructuring of the euro zone's financial system, with banks that were dependent on public support being "forced to raise additional capital".
It also called for measures to enforce government budget discipline.
Some of those issues were set to come under discussion as ministers moved on Monday to the second meeting of the special economic governance taskforce trying to move on from the chaotic decision-making of the past few months.
Meanwhile, finance ministers from all 27 EU states, who also met in Luxembourg Monday, are expected to give EU officials more powers to intervene if they suspect individual countries' data is flawed.
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