Correspondent's Choice

This story about a euro financial rescue mechanism was published by EurActiv on 10th May 2010.

EU finance ministers agreed last night (9 May) to establish a mechanism – based on loan guarantees and issuing euro bonds – to bail out failing members of the bloc in future, in a move to reassure global financial markets of the euro zone’s stability before they open today.

At another dramatic extraordinary meeting this weekend in Brussels, eurozone economy ministers managed to get the go-ahead from Germany to establish a rescue mechanism worth about €750 billion and meant to offer guarantees against the collapse of eurozone members while protecting the common currency.

There should not be a ‘new Greece’, according to the EU plans.

The new mechanism is composed of three parts. Up to €440 billion will be committed by eurozone member states as loan guarantees for collapsing states. The money will be offered as a promise and will only be disbursed if a debt-stricken eurozone country is unable to repay its debt.

The International Monetary Fund will contribute to the mechanism with a sum that is expected to be “half” of that pledged by member states, which sets a ceiling for the IMF of €220 billion.

The third tranche is made up of funds raised on financial markets by the European Commission. Brussels will increase to €60 billion the ceiling of a facility used to issue eurobonds to help countries at risk of bankruptcy.

The facility has been recently pumped up to a ceiling of €50 billion (see ‘Background’). With this fresh increase of the ceiling, the idea of introducing European Community bonds is expected to gain increased momentum.

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