EU to enlarge rescue fund

Malta will have to contribute about €50 million in additional guarantees over and above the €400 million it has already committed to the provisional eurozone rescue fund, following an agreement reached yesterday.

During a meeting of EU finance ministers in Brussels, member states agreed to further boost the fund to €500 billion from €440 billion once it is converted to a permanent nature from 2013 onwards.

After the meeting, Finance Minister Tonio Fenech confirmed this agreement would mean Malta having to boost its share. However, he underlined that this would only be done from mid-2013 onwards when the permanent mechanism kicks in.

Following the Irish financial crisis last May, the 17-member eurozone decided to create a €440 billion temporary financial support mechanism, known as the European Financial Stability Mechanism (EFSM), to support member states finding themselves in difficulties.

This facility will be converted into a permanent fund from 2013 onwards, to be known as the European Stability Mechanism (ESM).

Although originally it was estimated that the €440 billion fund would be enough, EU finance ministers yesterday agreed this should be increased when it starts operating on a permanent basis. They also agreed that a revision of the fund’s capacity had to be made every two years.

Although there is a capacity of €440 billion, in reality the fund can only lend €250 billion because it has to keep cash reserves to maintain its triple-A credit rating. So the ESM will have double the effective lending capacity.

The Eurogroup’s president, Luxembourg’s Prime Minister Jean Claude Juncker, said the mechanism would also be supplemented by contributions from EU countries outside the eurozone and the International Monetary Fund.

Economic and Monetary Affairs Commissioner Olli Rehn said there was an “unwritten agreement” with the IMF to provide 50c for every €1 eurozone members contributed.