Barroso Urges Faster Start-Up of Permanent $678 Billion Euro Bailout Fund
European Commission President Jose Barroso called for the faster creation of a permanent-rescue fund and appealed to central bankers to use their powers as the ultimate line of defense against the debt crisis.
Due to be set up in mid-2013, the permanent fund, known as the European Stability Mechanism, will wield a 500 billion-euro ($678 billion) war chest that could be used more flexibly than the current guarantee-based interim backstop and will include provisions for managing a sovereign default.
“We should do everything possible to accelerate the entry into force of the ESM,” Barroso told the European Parliament in Strasbourg, France, today. He warned that the debt crisis had reached a “serious” stage and ruled out the ouster of Greece from the euro.
Coming amid global criticism of Europe’s crisis response, Barroso’s speech marked an effort to wrest powers away from the euro area’s 17 national governments, which he said operate at a pace “dictated by the slowest.”
Offering an array of remedies, Barroso called for a financial-transaction tax that could raise 57 billion euros annually, said he will press ahead with proposals for common bonds and urged the scrapping of the unanimity rule in European Union decision-making.
As political leaders mull Greece’s next loan and an improved rescue framework, Barroso pointed to the European Central Bank as the institution best equipped to fend off speculators in the interim.
The ECB needs to “do whatever is necessary to ensure the integrity of the euro area and to ensure its financial stability,” Barroso said.
Efforts to shore up Europe’s finances moved ahead today with the parliament’s passage of a six-part legislative package that stiffens sanctions on countries with runaway budget deficits and toughens the monitoring of boom-bust cycles.
Policymakers are weighing how to go further, identifying the group of euro-area finance ministers as the weakest link in the system. How to strengthen it will be a subject at an Oct. 17-18 summit in Brussels.
Apart from rhetorical support for Greece, at the epicenter of the debt crisis, Barroso gave no indication whether the country will qualify for the next 8 billion-euro loan disbursement next month. A decision will be made at an extra October meeting of finance ministers that was announced today.
To pave the way toward that judgment, experts from the commission, the ECB and the International Monetary Fund will return to Athens tomorrow to assess the latest round of Greek budget cuts cobbled together under international pressure.
Barroso said work is progressing on ways to make the “most efficient” use of the 440 billion-euro temporary rescue fund, set to be endowed with additional powers by mid-October.
Nine of the 17 euro countries have ratified the upgrade of the temporary fund, the European Financial Stability Facility. The vote in Germany, Europe’s anchor economy, is tomorrow.
The permanent fund is now at the start of a ratification process that requires all 27 EU governments to endorse an amendment to the bloc’s governing treaties.
Barroso touted the proposed financial transaction tax as the price banks must pay for the 4.6 trillion euros in aid and guarantees offered by European governments since the outbreak of the financial crisis in 2008.
“It is time for the financial sector to make a contribution back to society,” he said.
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