Monday, June 7, 2010

Update on Eurozone

Via Bloomberg:

European finance ministers put the finishing touches on a rescue fund being backed by 440 billion euros ($524 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 agreed yesterday in Luxembourg. The new entity would sell debt 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 fund 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.

Also Via Bloomberg:

European finance ministers endorsed Estonia’s bid to adopt the euro, setting aside the European Central Bank’s warning that the Baltic state may struggle to keep inflation under control.

“Estonia will become the 17th member of the euro area on Jan. 1, 2011,”


The fund is a somewhat positive sign for the euro, but it does not prevent the possibility that debt problems will spread beyond Greece. With Hungry and the UK recently making statements about their debt struggles, it may be only a matter of time before Portugal, Spain, or another country follows the path of Greece.

Daniel A.
Summer Analyst
Analyze Capital LLC

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