The Treaty On Europe's Permanent Bailout Fund Will Be Signed Tomorrow

herman van rompuy eurozone europe

Photo: European People’s Party on Flickr

EU leaders will sign into law a new Treaty that will push up the implementation of the European Stability Mechanism to July of this year, said European Council President Herman van Rompuy today.This new legislation was at the centre of EU leaders’ informal summit on Monday. Leaders are still debating another treaty to establish a “fiscal compact” of automatic budget rules, a proposal which the U.K. and Czech Republic. 

The €500 billion ESM is the successor to the European Financial Stability Facility which is set to expire next year. The permanent fund was expected to go into place after that, however EU leaders are pushing up the start date in order to combine the EFSF’s €440 billion in firepower with that of the ESM in an effort to contain contagion that will spread from a peripheral default.

Analysts generally agree that the size of these combined funds would be far too small to contain the negative effects of an invigorated crisis, as it would not be significant enough to prevent Italy or Spain from collapsing in the event either country became illiquid.

Van Rompuy also tweeted that EU leaders will not consider expanding these funds until they meet again on March 1-2 in Brussels.

Positive headlines recently have calmed investor fears about an imminent banking crisis, however these bailout funds would be crucial to preventing a crisis from ravaging the eurozone if cynicism returns.

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