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Germany will allow the rescue fund to buy debt from eurozone countries with problems

 

 

 
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Barcelona (Redacción) .- Germany will allow the rescue fund to buy debt from eurozone countries with problems, such as Spain or Italy. It reports the online edition of the British Guardian, Chancellor Angela Merkel shortly allow the use of 750,000 million euros of the bailout fund. the European Financial Stability Fund (EFSF), to buy government bonds affected by the crisis.

This measure is taken in order to drastically reduce the high borrowing costs of Spain and Italy and “prevent the disintegration of the single European currency,” says The Guardian .

The German opposition to allow the EFSF to lend money directly to eurozone countries with problems has been a constant, mainly because of fear that it is Berlin who ends up paying the costs and that Greece, Portugal and Ireland escape the harsh conditions who are bound to receive their respective ransoms.

Different formulas

Image result for european unionThe news in this sense has been repeated since last week. One of the formulas in which the European Union (EU) has been working, and which seems to be the idea accepted by Merkel according to the British newspaper, is that the amount borrowed is not considered a “preferential” debt, since This would imply that the State should pay for its payment before the rest of the public debt that it places in the markets.

For this, the resources should come from the EFSF, the solution accepted by Merkel, because they do not have this condition of preference. However, if the funds came from the ESM (the European Stability Mechanism), which is not yet in progress unless it is ratified by the parliaments of some States, it would have this character of senior debt.

In the search for formulas that minimize the damage that can be caused to Spanish sovereign debt by injection into the European fund bank, the EU, according to EU sources told Efe in Los Cabos, where the G20 summit is held, decision margin is scarce, given that today direct aid is discarded to the bank, and therefore, the injection of resources must be made through the Spanish State. “Spain is the first case that is presented and there are not many options, but we will try to put on the table measures that allow the aid to be relaxed,” said a senior official.

One of the possibilities on the table, said the same sources, is to extend the term of the loan that will be granted to the bank so that the impact on the increase in the debt will be diluted.

In any case, said the same sources, it is necessary to look for a way that “reduces to the maximum” this effect of “contamination” between the aid to the bank and the sovereign debt. Since Spain and the Eurogroup announced a pact ten days ago to recapitalize the bank with up to 100,000 million euros, the markets have put a great pressure on the Spanish debt, which has achieved historical returns in the secondary market.

“I am sure that the market will recognize the effort that the Spanish State is making once the aid is completed,” the senior official said today.
The assistance that Spanish banks will receive would be injected through the Publicly Ordered Banking Restructuring Fund (FROB), because the European Stability Fund does not allow direct assistance to banks but through the States.

This mechanism, in any case, has generated some negative reactions at the G20 summit, given the evidence that aid to banks will have an impact on sovereign debt and will lead to the punishment of markets. This was highlighted on Monday by the President of the European Commission, Jose Manuel Durao Barroso, who said that once Spain asks for the aid, it will be necessary to open a negotiation to find a mechanism that allows the aid “not to contaminate the sovereign debt. ” Spanish.

In turn, the Spanish Prime Minister, Mariano Rajoy, took advantage of the G20 plenary to show his dissatisfaction with the system devised for aid, which he considers “tremendously harmful” because it links banking risk to sovereign risk. Spain negotiated for weeks the possibility that the aid was granted directly to the bank, but it was not possible due to the opposition of some countries, led by Germany.

Today, the German Chancellor, Angela Merkel, said that at the summit of Los Cabos the G20 asked Spain “clarity” on the terms in which it will receive the aid to recapitalize the bank, which is calculated a capital needs of more of 40,000 million. The spokesman for Economic Affairs of the European Commission, Amadeu Altafaj, said today that the possibility defended by Spain of directly recapitalizing the bank “is not something that can be imagined in the short term.”

The spokesman added that the first thing now is to complete the ratification of the treaty of the European Stability Mechanism (ESM) so that it can enter into force on July 9. He also reiterated that the direct recapitalization of entities is not contemplated in the current treaty of the ESM, so we will have to work with what is on the table and think about its ratification before its modification. The help of up to 100,000 million euros to the Spanish banking system by the eurozone will be one of the main topics of the meeting of finance ministers of the Eurogroup to be held on Thursday in Luxembourg.

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