Europe's permanent bailout mechanism is almost certain to start its life next month without the two leverage vehicles that were agreed for its predecessor because of Finland's concerns about its exposure to the funds.
The leverage options were designed to allow the eurozone to mobilise far more than the €500 billion lending capacity ceiling on the new bailout fund, the European Stability Mechanism, by offering extra protection to investors. Officials had not given exact figures but Klaus Regling, chief executive officer of the bailout fund, has said they would allow the eurozone to mobilise more than €1 trillion in resources to stem the debt crisis.
Finance ministers from the eurozone discussed transferring the leverage vehicles to the ESM at a meeting in Cyprus last Friday. According to officials, there was broad support for the idea but objections from Finland blocked agreement.
With the ESM due to be launched on October 8, the leverage vehicles now won't be included in the ESM guidelines that will detail the tools available to the new rescue fund and the conditions for using them. That means the leverage vehicles aren't likely to be available for use if a broader Spanish request for a bailout from the ESM were to come soon.
Finland's concerns revolve around what the leverage vehicles would mean for the ESM's preferred creditor status, which means eurozone governments would, after the International Monetary Fund, be the best protected against losses on ESM loans or investments. Finland was concerned that the two leverage vehicles would have reversed that principle through a promise that governments—via the ESM—would have to pick up the first tranche of any losses if there were a restructuring or default. A spokesman for the Finnish Finance Ministry declined to comment.
Finland, which accounts for just 1.8 per cent of the ESM's capital, has long been cautious over its exposure to the currency bloc's bailout funds, under pressure from eurosceptic political groups. Its demand for a separate collateral deal with Greece delayed a broader agreement on that country's second bailout package. It also struck a side deal over the summer with Spain on its portion of the up to €100 billion in assistance for Spanish banks.
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