Correspondent's Choice

This story about the EU bail-out plan was published by EurActiv on 22nd October 2010.

EU Budget Commissioner Janusz Lewandowski warned yesterday (21 October) about the dangers of setting up a permanent mechanism to bail out bankrupt member states, as requested by France and Germany, saying it could threaten the EU’s spending power.

“The question remains open whether there should be a permanent or non-permanent rescue mechanism. The implications for the budget are huge,” Lewandowski told a small group of journalists in Brussels.

“The budget is about delivering what has been promised. For me this is very important. We should be realistic about using the budget as a guarantee, as a collateral on such a big scale,” warned the Polish commissioner.

The “big scale” guarantees currently amount to €110 billion, which is the maximum that the European Union can collect on the markets to support a country with serious budgetary difficulties at favourable rates.

The money is obtained by issuing bonds which are guaranteed by the EU budget.

As a consequence, raising the ceiling of bond emissions increases the exposure of the EU budget. “In case of default we should be very watchful of what the maturity and repayment requirements are,” Lewandowski warned.

Of the €110 billion that can be used as a guarantee, €50 billion is earmarked to help non- eurozone countries by means of a specific facility, whose ceiling was recently doubled from a previous €25 billion cap to help Eastern member states in deep financial crisis.

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