Monday, June 7, 2010


A new term to learn: EFSF - European Financial Stability Fund
Here's a sketch how it is supposed to work:
June 7 (Bloomberg) -- European finance ministers put the finishing touches on a rescue fund being backed by 440 billion euros ($526 billion) in national guarantees, seeking to halt the spread of Greece’s debt crisis.
The European Financial Stability Facility would sell bonds backed by the guarantees and use the money it raises to make loans to euro-area nations in need, the finance ministers decided today in Luxembourg. The new mechanism would sell debt for lending only after an aid request is made by a country.
The ministers aim for ratings companies to assign a AAA rating to the facility, whose bonds would be eligible for European Central Bank refinancing operations. The entity will be based in Luxembourg...
The fund, being created for three years, is the main part of a 750 billion-euro aid package that European Union finance ministers hammered out a month ago to combat a sovereign debt crisis. Another 60 billion euros will come from the European Commission -- the EU’s executive arm -- and 250 billion euros from the International Monetary Fund....
All euro-area countries plan to be shareholders of the European Financial Stability Facility, or EFSF. The holding of each country will correspond to its share of the ECB’s capital...
To ensure the highest credit rating for debt sold by the facility, the finance ministers approved a 120 percent guarantee of each country’s pro rata share for each bond issue, according to the statement...
 In addition, the ministers authorized the creation, when any loans are made, of a “cash reserve to provide an additional cushion or cash buffer for the operation of the EFSF,” according to the statement...
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1 comment:

  1. The fund is hierarchical in nature and its announcement by the EU Finance Leaders and Leaders of State has established economic governance over Europe as "mechanisms would be adopted if needed to further enhance the creditworthiness of the bonds or debt securities issued by the EFSF"

    The fact the fund "is simpler because it avoids the need for domestic action on disbursement" documents that EU Finance leaders have committed a coup de etat simply by announcement of the EFSF agency; thus national sovereignty has been superseded and a region of global government declared to resolve a European Sovereign Debt Crisis. One is no longer a citizen of a sovereign nation state, rather one is a resident in a region of global governance.

    The statement “No euro has been yet consumed and I hope that no euro will have to be consumed" is simply not true as the proposed EU Treasury and new layer of debt sent the Euro lower today in the currency markets.

    The issuance of Eurobonds under the EFSF authority monetizes sovereign nation debt thereby reducing its value and raising its interest rate and is price inflationary to the peoples and businesses of Europe. One cannot solve a debt crisis by adding more debt. This is like throwing gasoline on a fire to put it out. Frankly the amount of sovereign debt has gone beyond the tipping point to where the final cycle of the business process has commenced, that being debt deflation, with falling GDP, rising interest rates and rising social misery.