Wolfgang Schauble admits euro bail-out fund won't halt crisis

According to Wolfgang Schauble, Germany's finance minister, European finance ministers could not agree on the terms of the European Financial Stability Facility. He also admits that the bail-out will not halt the crisis heading toward to euro zone.

November 30, 2011
By Louise Armitstead, Chief business correspondent
Gold Standard IRA

Mr Schauble said eurozone finance ministers, who are meeting in Brussels, could not agree on the terms of the European Financial Stability Facility (EFSF).

He told Germany’s Handelsblatt that although Europe needed a fund “capable of action”, plans for the EFSF were too “intricate and complex” for investors to understand.

The finance ministers, who were meeting ahead of a full Ecofin summit today, acknowledged the €440bn (£376bn) fund would not win support to leverage it up to €1 trillion. Its capacity would be between €500bn and €700bn instead – a total that is unlikely to be big enough to rescue Spain and Italy.

Eurozone finance ministers also agreed to explore ways of boosting the IMF's resources through bilateral loans so that the international lender can match the leveraged capabilities of the eurozone's bailout fund.

However, the ministers concurred that the €8bn of international aid to Greece should be disbursed before Athens runs out of cash in two weeks. Evangelos Venizelos, Greece’s finance minister, said: “In Greece we have all the necessary conditions in order to go ahead with the next disbursement.”

It was seen as a small advance amid the crisis. Italy was forced to pay a crippling 7.89pc – the highest level since 1996 – to raise €3.5bn of three-year debt. A confidential EC report discussed by finance ministers said Italy may have to adopt even tougher austerity measures to avoid insolvency.

Meanwhile, the ECB admitted it had failed to attract enough deposits from European banks to balance out the sovereign bonds it has recently bought. As part of its strategy called “sterilisation” the bank said it had asked European banks for €203bn of deposits for a week but had only attracted €193bn. Although small, the €9bn shortfall was a rare failure.

Raoul Ruparel, of the respected think tank Open Europe, said: “The fact banks seem to be hesitant to commit to even one-week ECB deposits highlights just how uncertain the situation has become – banks are keen to hold on to any liquidity given that the situation is now so serious it can change from day to day.”

The failure has also led to questions over the bank’s ability to buy bonds without being allowed to print money. Germany is staunchly opposed to such quantitative easing but may be forced to capitulate – or insist on less ECB intervention in the bond markets – if the central bank is unable to “sterilise”.

The yields on French, German and Spanish debt rose. But the euro and most stock markets rallied amid relief Italy was able to raise the cash at all. The Euro Stoxx was up 0.56pc, while in London the FTSE 100 closed up 0.46pc.

Traders were also watching French sovereign bonds amid reports that France’s AAA rating was under threat from Standard & Poor’s.

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