Last week, markets surged on all kinds of fantasies about about a leveraged EFSF to finally end the European crisis.
Financial ministers from across the eurozone stymied hopes for increasing the firepower of the European Financial Stability Facility today, speaking on the sidelines of a Eurogroup conference in Luxembourg.
Investors have speculated that a plan to increase the size of the EFSF — most likely through leveraging — could be imminent, and Eurogroup president Jean-Claude Juncker even hinted that alterations to the plan could be afoot at a press conference last night.
According to Reuters, there are two options being considered right now. The first would turn the EFSF into a bank, with virtually unlimited borrowing capacity from the European Central Bank. A second idea would allow EFSF to guarantee the first 20% in losses on sovereign bonds, significantly augmenting its firepower.
Reports also abound that private sector holders of Greek bonds could have to take a much larger haircut than previously expected. This could jeopardize the stability of European banks.
But those alterations may not bring investor confidence. Here’s a look at what’s EU leaders are saying:
– “In my personal view, Europe will need to make significant progress towards political unity with an executive branch and a parliament, both with extended responsibilities as in any democracy,” ECB President Jean-Claude Trichet said today, as reported by Bloomberg.
– Trichet also said he would oppose measures that would turn the EFSF into a bank in order to access ECB fund, saying that this could compromise the central bank’s independence.
– German Finance Minister Wolfgang Schaeuble said that the EFSF would not be allowed to inject capital into banks, arguing that this is a tool for national governments alone, according to ForexTV.com.
– Austrian Finance Minister Maria Rekter said she’ll oppose EFSF bond-buying in secondary markets because it could turn the institution into a “bad bank” (via Bloomberg). She added that increasing the size of the facility with taxpayer dollars wouldn’t be an option either; the fund “should be flexible in the operational work and in this flexibility I hope the amount is enough.”
– Slovakian MPs have yet to win sufficient support from the opposition to pass the initial EFSF expansion, according to Reuters. They’re set to vote on the July 21 proposal next week. That vote is seen as the biggest impasse ahead of EFSF ratification, with only the Netherlands and Malta left to vote.