European Union finance ministers have reached consensus over the size of a permanent bail-out fund of €500 billion for the region (£420 billion, $673.2 billion).
The new facility, to be known as the European Stability Mechanism (ESM), will replace the so-called current €440 billion European Financial Stability Facility (EFSF) fund. EFSF was set up last year after crisis in Greece and Ireland had broken out.
The latest agreement is one of the many such deals to be finalised in the coming days and comes a month ahead of expectations.
The EU leaders are scheduled to meet in late March to discuss steps to take the eurozone out of the present debt crisis and the new ESM is the first of a series of ‘comprehensive measures’ the leaders hope to agree upon.
“We’ve already agreed on the volume of the lending capacity of the ESM. We’ve agreed on the amount of €500 billion, and this will be subject to regular revision”, said the chairman of eurozone finance ministers, Jean-Claude Juncker.
The current EFSF has an effective lending capacity of €250 billion, although it has a notional €440 billion at its discretion. It was expected to last till 2013 and was set up in 2010.
The newly agreed ESM facility will get additional funding from the IMF and possibly voluntary contributions from non-EU members, although the finer details are yet to be finalised.
“The unwritten understanding with the IMF is that there can be 50 cents to one euro that the Europeans have themselves contributed to such operations as we have for instance in the cases of Greece and Ireland”, said Olli Rehn – Economic and Monetary Affairs Commissioner of eurozone.
IMF’s effective contribution, in that case, will amount to €250 billion, equal to the total lending facility currently available.
“What I’d like to say is that both the EFSF and ESM are not the subject of overall agreement until everything is agreed. Nothing is agreed until everything is agreed”, cautioned Mr. Juncker about the final outcome of ESM.