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Eurozone crisis fund ready to help Italy

The Local · 11 Nov 2011, 11:11

Published: 11 Nov 2011 11:11 GMT+01:00

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In an interview published in several European newspapers, EFSF chief Klaus Regling said preparations had been made to help Italy if the current turmoil continued.

"If a country comes and says it needs help immediately, we're ready," Regling was quoted in the German daily Süddeutsche Zeitung as saying.

Nevertheless, time was "running out" for Italy, the EFSF chief said. "The country needs a functioning government as soon as possible."

The sharp volatility seen on the markets was making it difficult to raise the firepower of the €440-billion ($598 billion) rescue fund to the €1 trillion that the bloc's leaders had hoped for, the Wall Street Journal and theFinancial Times quoted Regling as saying.

Investors have fled from bonds issued by highly indebted countries, he told the FT.

Luring them back by offering insurance on losses - the centrepiece of a plan agreed in Brussels on October 26 - would now probably use up more of the funds resources, Regling said, according to the FT article.

"The political turmoil that we saw in the last 10 days probably reduces the potential for leverage," he said. "It was always ambitious to have that number, but Im not ruling it out."

The Wall Street Journal quoted Regling as saying there were not likely to be large, up-front commitments, and that many potential investors would want to know which country or countries need help before putting cash into the new vehicle.

"Don't expect that there will be a few hundred billion sitting somewhere in December waiting to be used for our new instruments," Regling told the paper.

However, he added that it was not necessary to have such a sum in place and that the fund should be able eventually to raise what it needs.

For the EFSF to step in and help Italy, Rome would have to submit a corresponding request to the so-called euro group and if they and the European Central Bank agreed, a number of different instruments would be made available, the Süddeutsche Zeitung quoted Regling as saying.

The instruments included market purchases of new or already issued bonds or the provision of credit lines, but any assistance would be tied to strict conditions, he insisted.

Story continues below…

Regling said the EFSF could currently make €250 billion-€300 billion available in loans, since some of its current firepower of €440 billion had already been reserved for Ireland, Portugal and Greece. The fund would begin issuing short-term bonds in December, he said.

"We can borrow a lot of money from short-term bonds" with maturities of three, six and 12 months, he said.

The funds raised would be used to intervene quickly in the markets and buy up the bonds of countries in difficulty or recapitalise banks, he explained.


The Local (news@thelocal.de)

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Your comments about this article

12:37 November 11, 2011 by coffejohn
And what about France?

The next EZone country in the firing line.
12:48 November 11, 2011 by mos101392
Am no financial expert but if these countries are so deep in debt then how are they expected to pay back a bailout? It seems as though there will never be an end and they will always be in the red especially the southern European countries that are more concerned to sit outside a cafe drinking their coffee and have no care in the world.
16:27 November 11, 2011 by storymann
The problem is that the ECB or the private banking sector has bonds for security in the event of a default. How long can you restructure the loans and payments. If the debtor nations can not pay and their borrowing interest is at the highest levels ,they never will.

It would seem in the future write offs for these countries debt will be the norm.a default would expose every financial institution non solvency,especially the ECB, which in any definition is a poorly secured bank.The tax payers in the wealthier nations inevitably will be the ones holding the debt.
19:40 November 11, 2011 by jg.
@mos101392 Well, that's the crux of the problem. All EU member states are in debt - it is only that their degree of debt compared to GDP that varies. The EFSF seems a bit like rearranging the deck chairs on the Titanic - a collection of indebted EU members promising to bail out those Eurozone members who are about to go bust, in a bid to convince the markets that everything is under control. The only countries not in debt (the BRICS) are not keen to to contribute much of their hard earned cash without getting something substantial in return.

Had the EC enforced the treaties properly, several countries would not have met the relevant criteria and would not been allowed to join the Euro and some would not have been allowed to join the EU - and we would not be in this mess now.
09:14 November 12, 2011 by catjones
Financial World War.
17:12 November 12, 2011 by luckylongshot
This crisis is all about a small group of greedy private bankers squeezing the assets out of the people of Europe. If it were not for the Euro, countries could solve their problems by taking the issuing of money away from private banks and returning it to the state. This would allow states to issue money without interest attached to it. They could then swap what they borrowed from private banks and must pay interest on, for money they issue that requires no interest be paid on it. Crisis over but grumpy banks, The right to create money has been at the heart of a three hundred year battle which to date has been won by a small group of private banks and has led to the situation we have today where governments have to borrow from private banks to create money. It is now time to get the public involved in this battle. Destroy the Euro and end the monopoly that private banks have on issuing money or prepare for life as the slave of a group of ruthless bankers who will take everything you own.
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