Germany confirmed Monday that it will not consider boosting its contributions to the European Union's rescue fund, the European Financial Stability Facility (EFSF), despite the recent downgrading of nine euro-zone counties by Standard & Poor's Ratings Services.
German Chancellor Angela Merkel's spokesman, Steffen Seibert told reporters at a regular press briefing on Monday that the German government does not believe that the volume of guarantees that the EFSF has at present "would not be sufficient to fulfill its current obligations."
Seibert also noted that European leaders have already agreed to move forward to establish the European Stability Mechanism by mid-2012, one year earlier than planned earlier.
The ESM is planned to have a cash component of 80 billion euros, which will be provided gradually by eurozone nations. Because of the cash component in its structure, the ESM will be less affected by such credit downgrading of the member states.
Three days ago, S&P downgraded the credit ratings of nine EU member nations, including Austria, France, Malta, Slovakia, Slovenia, Cyprus, Italy, Portugal, and Spain. It, however, affirmed the long-term ratings on Belgium, Estonia, Finland, Germany, Ireland, Luxembourg and the Netherlands.
S&P lowered France's and Austria's long-term sovereign credit ratings on to 'AA+' from 'AAA', Spain's to 'A' from 'AA-, Slovenia's to 'A+' from 'AA-', Italy's to 'BBB+' from 'A', Portugal's to 'BB' from 'BBB-', Malta's to 'A-' from 'A', Cyprus' to 'BB+' from 'BBB' and Slovakia's long-term sovereign credit ratings to 'A' from 'A+'.
At the same time, S&P affirmed the coveted 'AAA' ratings of Germany, Finland, Luxembourg, Finland and the Netherlands as well as the 'BBB+' rating of Ireland and 'AA-' rating of Estonia. But it added that of the 16 countries reviewed, all except Germany and Slovakia have negative outlooks.
The widespread downgrade, particularly that of France, could have far-reaching implications, potentially complicating the ability of Europe's bailout fund, the ESSF, to provide support to struggling countries. The 440-euro ESFS is supported by credit guarantees worth about 180 billion euros. Without additional support, the ESFS will now be forced to pay higher interest rates while raising funds from financial markets or have the cash at its disposal slashed.
S&P's actions are also expected to have a strong impact on the global financial markets. Further, the move is expected to adversely affect Greece, as talks with its private creditors on a possible 50 percent voluntary write-off of its debts were stalled on Friday. The failed talks have raised concerns whether Athens would be able to avail a second bailout it requires to avoid defaulting on its borrowings and retain its EU membership.
The European Union and the International Monetary Fund have kept the debt write-off as a precondition for providing a second bailout loan to debt-stricken Greece. Without the new bailout loan and further installments of the earlier agreed loan package, Greece would soon run out of cash, which would force it to leave the eurozone. Greece has already availed a joint EU-IMF 110-billion-euro rescue loan in May 2010, of which about 73 billion euros have been given to Athens in a series of tranches.
In wake of fears that Greece would default n its debts even with 110-billion-euro bailout , EU leaders agreed to provide Greece with a new EUR 130 billion rescue package. They also agreed to enhance the EFSF amidst concerns that large eurozone economies like Italy might require bailout to tackle their debt problems. Apart from Greece, Ireland and Portugal have been committed a total of 43.7 billion euros from the 440-euro ESFS to tackle their financial problems.
For comments and feedback: editorial@rttnews.com