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Greece was ordered to provide written acceptance of bailout terms in order to win a €8 billion ($11 billion) loan instalment by the end of November, while Italy was pressed to turn budget-cut promises into reality. “It’s a two-way street; we do our part, Greece is expected to do its part”, European Union Economic and Monetary Commissioner Olli Rehn told reporters late yesterday after finance ministers met in Brussels. “It is essential that the entire political class now restores the confidence that had been lost.”
“This isn’t a crisis you can solve quickly, it is a monster with many heads”, Dutch Finance Minister Jan Kees de Jager said. European officials are consulting investors and credit rating companies over two options for translating the rescue fund’s €440 billion in guarantees into as much as €1 trillion of spending power.
The first idea is to bring down troubled countries’ borrowing costs by issuing “partial protection certificates”, a form of insurance for bond sales. One undecided point is whether the certificates would remain attached to the bonds or trade freely.
The second option is to create one or more special investment vehicles that would court outside investment in weaker European states’ bonds, potentially from sovereign wealth funds, private investors or cash-rich emerging markets such as China and Russia. Known as co-investment funds, the special vehicles would consist of two or three layers: a first-loss guarantee from the EFSF, a freely tradable equity tranche and, potentially, a freely-traded senior debt tranche. The funds may be channelled through an International Monetary Fund trust fund or administrative account.