Austria: Euro bailout fund will be $1.1 trillion

[March 30, 2012]  COPENHAGEN, Denmark (AP) -- The 17 countries that use the euro are to build a euro800 billion ($1.1 trillion) financial firewall against their debt crisis -- although euro300 billion ($400 billion) of that has already been used for previous bailouts -- Austria's finance minister said Friday.

That gives the eurozone some euro500 billion in fresh money to help debt-ridden countries.

Maria Fekter said the figure should send a convincing message to financial markets and the eurozone's international partners that the currency union can effectively contain its two-year-old debt crisis.

The eurozone is under pressure to build a strong defense against further financial problems among its members. Some euro300 billion in financial help has already been used to bail out Greece, Ireland and Portugal. Many economists fear that without a sufficiently large financial safety net, big economies like Italy or Spain could also come under threat.

While the euro800 billion ceiling is much higher than the euro500 billion limit that had been agreed last year, it still falls short of the euro1 trillion that international institutions like the International Monetary Fund and the Organization for Economic Cooperation and Development had suggested.

To ease the transition from the eurozone's interim bailout fund, the European Financial Stability Facility, to its new rescue vehicle, the European Stability Mechanism, some euro240 billion left in the EFSF will remain available until mid-2013. The ESM is supposed to come into force in July.

Fekter said that allowing the two funds to run in parallel for one year will give the eurozone time to build up the ESM closer to its full euro500 billion capacity. The ESM depends on a euro80 billion capital base, which is backed bu by euro620 billion in guarantees from its member governments, which it can then use on the financial markets to raise money. The capital base will be paid into the ESM in several installments until 2014.

However, Fekter stressed that the euro240 billion that is still left in the EFSF could only be used as a last resort and if agreed by all the euro countries.

[Associated Press]

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