July 9 set for EU bailout fund

Berlin: The European Union is targeting July 9 as the start date for its permanent Eurozone rescue fund, the €500 billion European Stability Mechanism, an EU official said.

Parliaments across the 17-nation currency union must ratify the fund before it becomes available to counter the financial crisis spawned in Greece. Until it receives 90 per cent of its expected capital allotment, officials must turn to the temporary European Financial Stability Facility, a €440 billion fund with €240 billion available.

Meanwhile, German Chancellor Angela Merkel hardened her opposition to joint debt sharing in the Eurozone as President Barack Obama singled out Europe’s leaders for not doing enough to arrest the financial crisis.

Merkel rejected joint debt issuance in the 17-nation Eurozone as a solution, saying “under no circumstances” would she agree to Germany-backed euro bonds.

Now, some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right,” Merkel said in a speech to members of her Christian Democratic Union in Berlin on Saturday. Instead, what’s needed is an economic overhaul to tackle the lack of competitiveness in Europe, she said.

Merkel is the pivotal player in efforts to resolve the crisis now in its third year. As Spain struggles to avoid becoming the next country to call for a rescue and the euro slides near a two-year low against the dollar, US President Barack Obama added to pressure from the European Central Bank, France and Italy to do more to halt the spread of contagion.

The start date depends mainly on the outcome in Germany, where lawmakers may vote as late as the first week of July. Considering the national approvals required, euro officials hope the July 9 target date will hold, said the official, who declined to be named because the planning isn’t public.

The ESM is the centrepiece of Europe’s $1 trillion firewall to stave off financial contagion from the debt crisis that has wreaked havoc on markets and pushed Greece, Portugal and Ireland to seek bailouts. The ESM represents the Eurozone’s capacity for further aid programmes, since the rest of the firewall is made up of €300 billion already committed to the rescue effort.

The euro has dropped 6.8 per cent against the dollar over the past two months, nearing a two-year low yesterday as investors grow concerned the currency area may splinter. The euro closed at $1.2415 in Brussels yesterday, up from an earlier low of $1.2288.

German share:

Germany will contribute 27 per cent of the ESM’s capital, so if lawmakers there vote this month, the fund could be operational by July 1. The ESM will share staff with the existing EFSF in Luxembourg, where hiring and other preparations are under way. Participating countries must hand over the first installments of paid-in capital within 15 days of ESM ratification.

Getting the ESM in place will be an important signal to markets that the euro area continues to support the crisis- fighting plan, said Michala Marcussen, global head of economics at Paris-based Societe Generale SA. So far Portugal and France have ratified the ESM, with parliaments across the euro area slated to address the issue in coming weeks.

“It seems to be taking longer, but they are pushing,” Marcussen said. “There does seem to be a possibility it’s delayed. It’s not a problem practically but it adds to uncertainty revolving around the whole situation and that’s the issue.”