European governments set up a full-time 500 billion-euro ($648 billion) fund to aid debt-swamped countries and, not for the first time in the three-year crisis, expressed confidence that the financial muscle won’t be needed anytime soon.
Finance ministers from the 17 euro countries declared the European Stability Mechanism operational, while saying that Spain, its biggest potential near-term customer, isn’t on the verge of tapping it. Decisions were also put off on Greece’s next aid payment and on an aid program for Cyprus.
Creation of the permanent fund “makes the strategy of member states credible and equips the euro area with much better tools to appropriately respond to future crises,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after presiding over the ESM’s inaugural meeting in Luxembourg today.
The fund’s birth was eased by the European Central Bank’s offer in August to buy bonds of fiscally struggling countries, which has driven down interest rates in Spain and Italy and bought European governments time to address the root causes of the crisis.
The ESM will replace the temporary European Financial Stability Facility, which has spent 192 billion euros of its 440 billion euros on loans to Ireland, Portugal and Greece. The two funds will run in parallel until the EFSF is phased out in mid- 2013.
‘Problem of Contagion’
Finance ministers touted Spain’s economic overhaul, said its bank-aid program will cost far less than the 100 billion euros allocated for it and declined to press Spanish Economy Minister Luis de Guindos to take additional budget-cutting steps.
“Spain is also suffering under the problem of contagion, like other countries, from speculation that’s the result of the uncertainty surrounding the euro area as a whole,” German Finance Minister Wolfgang Schaeuble said. “But Spain doesn’t need an assistance program.”
Ministers said the next move on Greece is in the hands of the so-called troika of officials from the European Commission, European Central Bank and International Monetary Fund, now in talks with the Greek government over budget cuts, asset sales and economic reforms.
The holding pattern on Greece comes a day before German Chancellor Angela Merkel, the dominant figure in European bailout politics, makes her first trip to Athens since the Greek government uncovered hidden holes in its budget in October 2009.
Greece is undertaking “a lot of efforts, it’s very difficult down there,” Luxembourg Finance Minister Luc Frieden said. “If we need to give them additional time, if that does not require a lot of additional money, we should support Greece. However, it’s not a one-way street.”