ECB prepares eurozone bailout downgrades
Baku, December 20 (AZERTAC). The president of the European Central Bank said Monday his institution is seeking ways to keep the eurozone`s bailout fund effective even if France and other countries lose their AAA-rating.
Mario Draghi was speaking to lawmakers at the European Parliament just as European Union finance ministers were trying to figure out how to come up with up to euro200 billion ($261 billion) in new loans for the International Monetary Fund.
But even as the ministers struggled to boost their crisis firewall via the IMF, the eurozone`s own bailout fund, the European Financial Stability Facility, risks losing its ability to cheaply raise the money it needs to help struggling countries.
The euro440 billion EFSF`s own rating is dependent on the top ratings of its main contributors France and Germany, as well as those of the other four, smaller AAA-countries. But rating agency Standard & Poor`s earlier this month put 15 eurozone countries, as well as the EFSF, on watch for a downgrade, citing the escalating debt crisis.
France, with its relatively high deficit and the large exposure of its banks to weak countries on Europe`s periphery, is considered to be at particularly high risk of seeing its creditworthiness cut.
Draghi warned that "it`s likely that if France loses its rating, then other countries` ratings would be changed" as well.
The ECB, which is supposed to help the EFSF in future bond market interventions, is "working actively on all possible scenarios" involving a downgrade of eurozone countries, Draghi said.
He added that the decision by EU leaders at their summit 10 days ago to let the EFSF`s successor, the euro500 billion European Stability Mechanism, come into force already in July _ one year ahead of schedule _ was the best response to the downgrade threat.
In contrast to the EFSF, the ESM has paid-in capital, similar to a bank, which makes it less vulnerable to downgrades of its contributing states.
But even the euro500 billion lending ceiling of the ESM _ which will likely have to include money already committed to Ireland, Portugal and soon Greece _ is widely seen as insufficient to help out large economies such as Italy and Spain.
That`s why the eurozone is seeking other investors _ such as the IMF or large private funds _ to invest alongside it. The euro200 billion in extra loans promised at the summit were meant to encourage other non-European countries to also channel rescue money to Europe via the Washington-based fund.
But even that effort has been under threat after the U.K., the largest EU economy that doesn`t use the euro, ruled out sending any extra funding to the IMF. Finance ministers Monday evening were still stuck on a conference call meant to figure out which country would be contributing how much 3 1/2 hours after it started.
Earlier Monday, Poland`s finance minister, Jacek Rostowski, said his country plans to lend around euro6 billion ($7.8 billion) to the IMF by committing reserves of the National Bank of Poland.
Denmark, which will take over the EU presidency from Poland in January, has said it will contribute euro5.4 billion, while Sweden, another non-euro state, has promised to contribute an as yet unspecified amount. Hungary, Romania and Bulgaria meanwhile, have said they won`t provide any additional money to the IMF.
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