Thursday, 14 June 2012

Europe needs another stability fund

What? Another stabilization fund for the Eurozone? Seems so, according to the FT....

France is pressing the EU to adopt a financial stability package to stem the eurozone crisis, believing negative market reaction to the €100bn bailout of Spain's banks shows the need for more comprehensive action.

How will this bailout fund be different from previous efforts? France would like to grant the European Stability Mechanism a banking license, so that it can lend to other banks.

French officials have long argued that the rescue fund should be given a banking licence so that it can leverage its capital and increase its firepower. This would require a change in the treaty establishing the fund which has yet to be ratified by a number of countries, including Germany. The case was supported by the previous centre-right government of Nicolas Sarkozy but vetoed by Berlin. Paris wants the issue put back on the table.

If the ESM were to get a banking license, it would be able to leverage the initial capital provided by Eurozone states. In other words, the Eurozone would have a massive public sector bank, lending to bankrupt private banks, in order to keep the latter floating. Giving out money is always easy; getting repaid could be a problem.

If the new French administration like it, then it must be a great idea. What could possibly go wrong?

1 comment:

Stevie b. said...

the whole thing is rid-dick-ulus!

We need a 2-division Europe with a 2nd division (devalued) Euro-b.
Promotion/demotion according to performance say once every 5 years - or sooner if the necessity seems glaringly obvious.