EuroZone finance ministers agree to add some indeterminate amount of firepower using cash from unidentified sources to euro debt rescue fund

11/30/2011 8:30 am EST


Jim Jubak

Founder and Editor,

Do a lot of shotguns add up to a bazooka? That seems to be what EuroZone finance ministers are hoping.

At their meeting yesterday, finance ministers approved a slew of measures, each smaller than hoped and each with details still to be worked out, that together could, the group hopes, add up to a way to stabilize the current crisis.

Meanwhile, as if to focus everyone’s attention on the pending disaster, Italy sold 7.5 billion euros of bonds with the yield on the three-year bonds in the auction climbing to 7.89%. Last month the yield on three-year bonds sold at auction was 4.93%.

Okay, here’s what the EuroZone finance ministers approved:

  1. They approved the creation of tradable certificates that would guarantee up to 30% of the face value of newly issued government bonds. The guarantees would be backed by the European Financial Stability Facility. It’s not clear how much extra firepower this would give the rescue facility. Less than the earlier goal of 1 trillion euros. “It's impossible to give one number; it's a process,” said facility chief executive Klaus Regling. The guarantee certificates could be up and running in December.

  2. They agreed to create special purpose vehicles that would allow private investors and sovereign wealth funds to invest in the facility. It’s not clear if there is any demand or these investments—“Don’t expect massive inflows immediately,” Regling advised today--but the vehicles could be in place in January.

  3. They agreed to work with the International Monetary Fund to boost the resources that the fund has available for intervening in the euro debt crisis. It’s not clear to me how much EuroZone governments might contribute to the IMF—which isn’t exactly overfunded at the moment. So far the United States, China, and Brazil have all been lukewarm about contributing to the IMF so the fund can bail out EuroZone members.

Oh, and just in case you feel this is all just too vague, EuroZone finance ministers did prove they can take decisive action. They finally approved the disbursement of a 5.8 billion euro  ($7.7 billion) payout to Greece that was initially approved on October 21 and then withheld after then Greek Prime Minister George Papandreou called for a referendum on the EuroZone’s October rescue plan for Greece. The International Monetary Fund has still not approved its 2.2 billion share of the total 8 billion euro disbursement. Greece says it needs the funds by mid-December to pay its bills and refinance maturing debt. The IMF has promised to act by December 5.



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