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October 21, 2011 at 09:05 AM
As France and Germany battle over whether and how much to modify the European Financial Stability Facility, the European Union has come up with a proposal to merge the existing temporary facility and the coming permanent one, to the tune of some 940 billion euros ($1.3 trillion).
Bloomberg reported that after the failure of an agreement to leverage the EFSF because of opposition from the European Central Bank, a new proposal has taken its place: a merger of the existing facility, which is temporary, with the permanent rescue fund, the European Stability Mechanism, set to replace it in 2013. In addition, a ceiling on bailout spending would be discarded. This would combine the two mechanisms’ resources for a total of $1.3 trillion in available funding.
Five scenarios are currently under consideration to deal with the Greek financial crisis. They range from the July agreement, now largely considered inadequate, to a hard restructuring that would require investors to write down some 50% of Greece’s public debt. The stability facility has already spent or committed 160 billion of its 440 billion euros available; some of that is in 30-year loans to Greece.
