Tags: Europe Financial Crisis

Rescue Fund Head: Enough Money for Portugal, Spain

Thursday, 20 Jan 2011 12:19 PM

Europe's bailout fund has enough money to cover potential rescues of both Portugal and much larger Spain, while Greece doesn't need a debt restructuring as some investors fear, the head of the fund insisted Thursday.

European officials are contemplating whether and how to overhaul the 750 billion euro ($1 trillion) fund, which currently is able to lend out less than the full headline amount because of the need to secure a top credit rating.

Talk of an overhaul has been prompted by fears that possible rescues for Portugal and, particularly, Spain might overstretch the fund.

"I don't want to predict now whether these countries will need money; that is not the case at the moment, they are in a position to refinance themselves on the market at the moment," Regling told Germany's Deutschlandfunk radio.

"But if they were to come, then there is enough money. So there is no acute need to increase the EFSF," or European Financial Stability Facility, he added.

Eurozone governments make their 440 billion euro contribution to the bailout fund by guaranteeing bonds issued by Regling's EFSF. The remaining 310 billion euros come from the European Commission and the International Monetary Fund.

However, to get a triple-A credit rating for EFSF bonds — and make them attractive to investors — governments had to guarantee 120 percent of their value, while rescued countries have to deposit a certain portion of the loans they receive "as a cash buffer."

That takes the EFSF's lending capacity down to only about 250 billion euros, which many analysts say is insufficient to deal with a bailout of Spain.

"There may be possibilities to close this gap ... through other new mechanisms, and it certainly makes sense to consider that," Regling said.

Greece received a separate rescue loan package worth a total 110 billion euros ($148 billion) before the EFSF was established last year. Regling rejected suggestions that Greece is headed for a debt restructuring despite the bailout.

"The markets do indeed assume in their evaluation that Greece needs a restructuring, but that is not backed by developments — because the program in Greece is going well, the economic policy conditions connected with this credit," he said.

Reforms being pushed through to heal Greece's finances in the longer term will make the economy more dynamic, so the IMF, European Commission and European Central Bank believe "that Greece doesn't need a restructuring, that markets are overestimating this risk," Regling said.

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Europe's bailout fund has enough money to cover potential rescues of both Portugal and much larger Spain, while Greece doesn't need a debt restructuring as some investors fear, the head of the fund insisted Thursday.European officials are contemplating whether and how to...
Europe Financial Crisis
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2011-19-20
Thursday, 20 Jan 2011 12:19 PM
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