This three-pronged rescue system would form part of a carefully-crafted package EU leaders hope will win over financial markets, just two months after a similar summit failed to convince bond investors Europe could contain its spiralling debt crisis. The rescue system would be introduced alongside proposals to rewrite EU treaties with far tougher budget rules for the eurozone.
The proposal, being debated by “sherpas” ahead of Thursday’s crucial eurozone summit, could also include speeding up cash payments into the new €500 billion fund – known as the European Stability Mechanism (ESM) – to give it more heft and improve its creditworthiness in the eyes of credit rating agencies.
Supporters of the proposals acknowledge they are controversial and the subject of intense debate by officials negotiating new ESM treaty language. Some northern creditor countries, where bail out backlash has threatened to topple national governments, have shown reluctance.
But the proposals’ backers argue that allowing the ESM to run alongside the current bail out fund could strengthen Europe’s financial firewall when combined with new eurozone funds for the IMF to increase its capacity to aid struggling countries. The current bail out fund, known as the European Financial Stability Facility (EFSF), was originally supposed to wind down when the ESM came into place.
Under the plans being considered, the ESM is unlikely to have its headline €500 billion from the start, now envisioned for July. But leveraging up the existing EFSF, which could raise its disposable resources to about €600 billion, and adding new IMF and ESM resources could create the so-called “bazooka” effect leaders have been searching for.
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