EU Finance Ministers lay out Details of Future Bailout Fund

Finance ministers of the European Union (EU) Monday described the details of the bailout funds that have a permanent capital base of 700 million Euros (987 billion) to tackle the debt crisis in future sovereign.

“I can tell you that we agree on all elements of the ESM (European Stability Mechanism), and I am delighted that so,” President of the Eurogroup Jean-Claude Juncker at a press conference after an additional meeting before the spring summit of EU leaders on Thursday and Friday.

To have an effective lending capacity of 500 billion Euros (705 billion U.S. dollars), the ESM will have a capital base of 700 billion Euros (987 billion dollars), of which 80 billion Euros (112 billion dollars) will be paid-in capital provided by euro area member states and the remaining 620 billion Euros (874 billion dollars) will be in the form committed callable capital and of guarantees, according to Juncker.

The finance ministers also agreed that ESM will be able to grant short-term or medium term loans to euro area member states with severe financing problems and it can also buy bonds of them on the primary market. But the assistance will be subject to strict conditionality under a macro-economic adjustment program.

A board of governors consisting of finance ministers of euro area member states will make major decisions concerning granting of the loans, and the terms and conditions of the loans.

The ministers said that the ESM will involve the International Monetary Fund (IMF) in providing financial assistance on both the technical and financial level.

At the summit on March 11, euro area leaders decided that the finance ministers will finish their work on the ESM and the European Financial Stability Facility (EFSF), the 440-billion-euro (620-billion-dollar) bailout fund which will be replaced by the ESM after June 2013.

Juncker said the ministers are yet to decide how to increase the effective lending capacity of EFSF, adding the most possible way is by guarantees.

EU leaders will adopt a comprehensive package to deal with the debt crisis at the summit meeting held on Thursday and Friday.

“Following validation by the European Council at the end of this week work will continue, there will be the drafting of the treaty on the ESM, provisions for increasing the EFSF capacity and adjustments of the lending arrangements for Greece,” Juncker said.

“The necessary measures will be taken to ensure that the package can be put to national parliaments of the countries of the euro area. And they will be able to pass the package before the summer,” he added.