Markets trade lower over deadlock to expansion of EFSF – a delay which could cause ‘serious consequences’.
European markets traded lower as the Slovak Parliament struggled to reach an accord over the expansion of the European Financial Stability Facility (EFSF).
The governing coalition of Slovakia – the only eurozone state yet to ratify strengthening the facility – is still attempting to reach an agreement on the matter.
The EFSF was created by the euro area member states (EAMS) on May 9 last year within the framework of the Ecofin Council. The facility, as part of its overall rescue package of €750 billion, is able to issue bonds guaranteed by EAMS for up to €440 billion for on-lending to members in difficulty.
This is subject to conditions negotiated with the European Commission in liaison with the European Central Bank and International Monetary Fund, and to be approved by the Eurogroup.
“It’s possible that, come December, the talks will be of a Greek restructuring,” he said. “If it comes to that, an expanded EFSF will be necessary to mitigate the possible spread of contagion to the eurozone’s periphery.”
Vanden Houte suggested that discussion in the markets had moved on from the July 21 talks on an expansion of the EFSF and on to the possibilities of leveraging the fund.
A Slovak rejection of the expansion would not only keep the fund at the smaller size, but would also delay any agreement on leveraging options. If markets have been working on the basis of the expanded fund, this could mean a severe blow for market confidence.
A delay would be problematic for Angela Merkel and Nicolas Sarkozy’s stated hopes to have a concrete plan for safeguarding the eurozone in place by the end of the month – a deadline already threatened by a week-long delay in the EU summit on the debt crisis.
“The crisis has reached a systemic dimension,” Trichet told legislators in Brussels. “Sovereign stress has moved from smaller economies to some of the larger countries. The crisis is systemic and must be tackled decisively.”