National governments retain control of lending
Governments were forced to improvise in the design of financial measures to contain the debt crisis.
Faced simultaneously with limits on the EU budget and wider scope for EU action under the Lisbon treaty, governments were forced to improvise in the design of financial measures to contain the debt crisis. The final form of the these measures is not just a series of compromises between member states; it also reflects national concerns about the ambitions of the European Commission.
Governments agreed on 10 May to create a “European financial stabilisation mechanism”, which would draw on unused money in the EU budget (currently estimated at €60bn), alongside a €440bn “European financial stability facility” to be financed intergovernmentally. Both mechanisms would provide loans to eurozone countries facing financial difficulties, conditional on implementation of budgetary reforms by recipients.
Under the €60bn mechanism, the Commission would use the money available in the EU budget as a guarantee to raise funds on the financial markets. Those funds would then be provided to the country in difficulty.
Emergency loans
Under the €440bn facility, a special purpose vehicle (SPV) would finance emergency loans by issuing debt instruments, such as bonds. The SPV’s borrowing would be guaranteed from eurozone governments and from Poland and Sweden (non-eurozone countries that volunteered to take part). The size of each member state’s guarantee would be calculated according to their share of the paid-up capital of the European Central Bank.
The €440bn facility would be used only when the €60bn mechanism is insufficient to meet a country’s needs.
The International Monetary Fund will also provide loans to countries which receive assistance from the mechanism and the facility.
The Commission had proposed that it, rather than an SPV, should continue to raise money on the financial markets once the €60bn mechanism was exhausted, backed by guarantees from national governments. But member states were reluctant to provide direct guarantees to an organisation that they did not fully control and they rejected the proposal.
Difficult details
Governments nevertheless found it difficult to agree the details of how the SPV’s liability would be structured. Germany wanted each of the 18 participating countries to be liable for an amount no greater than its share of the guarantees. France, however, argued that a shared liability was needed to secure the highest possible credit rating for the SPV and so reduce its borrowing costs.
The compromise agreed is that each member state will be liable for an amount equivalent to 120% of their guarantees to the SPV.
The founding documents of the SPV were signed by member states on 7 June, and it is expected to be operational before the end of the month. The statutes of the SPV say that it will enter into no new loan agreements after June 2013 unless the date is revised. The statutes say that the SPV will be “dissolved and liquidated when its purpose is fulfilled”.
Click Here: Fjallraven Kanken Art Spring Landscape Backpacks