The main challenge is to boost confidence
Finance ministers of the euro zone agreed to set up a special purpose vehicle to safeguard the stability of the euro. The company will operate under Luxembourg law. It will be able to borrow up to EUR 440 billion by issuing bonds guaranteed by euro zone states. Eurogroup Chairman Jean-Claude Juncker says that the facility will be operational soon.
“The facility will be operational as soon as countries representing 90 percent of shareholdings have completed their national procedures, which is expected in the course of June”, says Jean-Claude Juncker on Reuters news agency.
According to EU officials, the countries setting up an emergency loan company for the euro zone will each guarantee 120 percent of their share of the loans to secure the highest rating for the debt. The goal is to help countries other than Greece that are struggling because of the debt crisis.
500 billion Euros come from the European Union. The money is divided into a 440 billion pool for the 16 members of the euro zone and 60 billion for all EU members. In addition to this, the International Monetary Fund (IMF) will contribute at least EUR 250 billion.
The safety facility will cost EU states nothing, unless the country which receives the assistance defaults. In that case, either the EU budget or euro zone members will have to make good on their earlier guarantees. No money will be spent upfront as member states only offer guarantees, not cash.
(photo: SIP/Luc Deflorenne)