The European Stability Mechanism Treaty is to be sent to Parliament for ratification “as soon as possible” according to Prime Minister Lawrence Gonzi. It is expected to be ratified by June at the latest, Dr Gonzi told The Times Business.
Germany is resisting appeals for more money
Malta is expected to sign the new €500 billion European Union permanent bailout fund later on this month in Brussels.
Asked at the end of this week’s informal EU summit about the government’s plans for the ratification of the ESM, Dr Gonzi said that the ratification process by the Maltese Parliament is expected to be concluded in the coming months, definitely by June, as the new fund has to enter into force in July.
Last Monday, all 27 EU member states gave their go-ahead for the €500 billion fund to come into force in July this year, a year earlier than planned.
The fund, which will replace the current temporary €440 billion European Financial Stability Facility (EFSF) that has already been used to bail out Ireland and Portugal, is being activated early to cope with the worsening debt crisis.
“The early entry into force of this permanent firewall will prevent contagion in the euro area and further restore confidence,” European Council President Herman Van Rompuy said.
Malta – the smallest economy in the eurozone – will be making the lowest contribution to the fund, investing some €58 million over a five year period. On the other hand, Germany will be contributing €190 billion.
Despite the efforts being made to shore up confidence in the EU among the international financial markets, many observers are still sceptical that the fund will be able to ward off speculation about Italy and Spain.
British Prime Minister David Cameron said it was “vital that eurozone countries establish a firewall big enough to deal with the crisis”.
Calls have been growing for a doubling of the funds in the ESM, most notably from Italian Prime Minister Mario Monti and IMF head Christine Lagarde. However, Germany has so far resisted appeals for more money, though Chancellor Angela Merkel said at the summit that the signing of a new fiscal discipline treaty could “pave the way for more solidarity”.
Future funding from the ESM will be conditional on countries ratifying the Fiscal Pact Treaty by March 2013, and from 2014, aid will only be given to countries that respect the debt limits laid down in the treaty.
EU leaders are now expected to reassess the adequacy of resources in both the ESM and EFSF in March, possibly allowing the two funds to operate together to boost EU rescue funds to up to €1 trillion.
ESM explained
What is it?
A permanent bailout fund backed by eurozone governments that can lend up to €500 billion in rescue aid to other eurozone members on condition that they implement strict austerity plans.
Where does the money come from?
From issuing bonds in financial markets. These are backed by capital pledges from the 17 euro member states, with €80 billion paid in up-front (over five years) and €620 billion of callable capital, i.e. to be paid in and used only if required. Proceeds from the bonds raised will be used first to fill up a reserve fund and any profits after that will either go back to member states or be used to fund bailouts.
Why is it needed?
The EFSF, which was set up as a temporary fund for legal reasons, is due to run out in July 2013. The ESM is a permanent sovereign bailout fund, written into EU law. The Lisbon Treaty has been amended to allow for its creation.