Wednesday, November 30, 2011
IRELAND’S next bailout tranche of €8.5 billion was approved by eurozone finance ministers yesterday as they struggled to find a way to fund Spain and Italy, both under massive pressure from the markets.
The next round of funds will come in January following the fourth review of Ireland’s books by the EU/IMF. The IMF will provide €3.8bn, the EU €4.2bn and €500 million will come from Britain. Ministers also agreed, following almost two months of delays, to release the €8bn tranche for Greece after political leaders signed up to the tough conditions.
The finance ministers are trying to find a way to increase the fire power of their bail out fund, the European Financial Stability Fund (EFSF), having admitted that their original idea to leverage it to €1 trillion is unlikely given the tough market conditions.
Instead thanks to offering first loss protection of 20% to 30% for investors through a Special Investment Vehicle they hope to increase the amount of money available to around €600bn and to a maximum of €800bn. This scheme would be available in January at the earliest.
They need to come up with a fast solution, as investors dump euros and banks are refusing to lend to one another. Tentative moves towards agreeing Treaty change that would lead to Germany accepting eurobonds is a year off, if it can be agreed.
As he arrived for the meeting Finance Minister Michael Noonan, however, made it clear he did not expect any major decisions would be taken at last night’s meeting or when ministers from all 27 EU countries get together today. The serious issues will be decided at the EU summit on Friday week, he said.
EFSF head Klaus Regling also outlined the technical arrangements for the second option, an insurance scheme on bond losses.
Leveraging the EFSF, however, will fall far short of the kind of money needed to keep Italy and Spain afloat. Italy paid close to 8% for €7.5bn for a 10-year bond, up from 6.6% a month ago. They were taking some comfort from the fact that it was slightly oversubscribed.
The country is hoping to build up its reserves to meet €200bn due early next year. France and Spain are due to go to the markets tomorrow to raise €8bn. This will be watched closely, especially following reports in French media that the country’s triple-A rating could be downgraded within the next 10 days.
The Dutch finance minister Jan Kees de Jager admitted that the EU now has to consider other options to raise the funds. "We have to look for other solutions to compliment the EFSF and that in my mind will be the IMF", he said.
The Netherlands, one of the eurozone’s six triple-A countries would prefer that the IMF intervenes, raising the funds from other countries.
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