EU rescue fund likely to start on July 9

The European Union is targeting July 9 as the start date for its permanent Euro-area rescue fund, the euro 500 billion ($620 billion) European Stability Mechanism, an EU official said.

Parliaments across the 17-nation currency union must ratify the fund before it becomes available to counter the financial crisis spawned in Greece. Until it receives 90 per cent of its expected capital allotment, officials must turn to the temporary European Financial Stability Facility, a euro 440 billion fund with euro 240 billion available.

The start date depends mainly on the outcome in Germany, where lawmakers may vote as late as the first week of July. Considering the national approvals required, euro officials hope the July 9 target date will hold, said the official, who declined to be named because the planning isn’t public.

 

The ESM is the centerpiece of Europe’s $1 trillion firewall to stave off financial contagion from the debt crisis that has wreaked havoc on markets and pushed Greece, Portugal and Ireland to seek bailouts. The ESM represents the Euro area’s capacity for further aid programs, since the rest of the firewall is made up of euro 300 already committed to the rescue effort.

The euro has dropped 6.8 per cent against the dollar over the past two months, nearing a two-year low yesterday as investors grow concerned the currency area may splinter. The euro closed at $1.24 in Brussels yesterday, up from an earlier low of $1.22.

Germany will contribute 27 percent of the ESM’s capital, so if lawmakers there vote this month, the fund could be operational by July 1. The ESM will share staff with the existing EFSF in Luxembourg, where hiring and other preparations are under way. Participating countries must hand over the first instalments of paid-in capital within 15 days of ESM ratification.

Getting the ESM in place will be an important signal to markets that the euro area continues to support the crisis- fighting plan, said Michala Marcussen, global head of economics at Paris-based Societe Generale SA. So far Portugal and France have ratified the ESM, with parliaments across the euro area slated to address the issue in coming weeks.

“It seems to be taking longer, but they are pushing,” Marcussen said May 29. “There does seem to be a possibility it’s delayed. It’s not a problem practically but it adds to uncertainty revolving around the whole situation and that’s the issue.”