NEW YORK (Xetra: A0DKRK - news) , Jan 25 (Reuters) - The euro zone might lend more cheaply to crisis hit members via emergency loans if they incorporate fiscal conditions into national constitutions, German Deputy Finance Minister Joerg Asmussen on Tuesday.
Germany does not believe there is a crisis in the euro currency and Berlin would do whatever is necessary to defend the stability of the euro zone, Asmussen stressed.
Asked if there was any condition under which Germany would accept a lower interest rate on the emergency loans under the European Financial Stability Facility (EFSF), Asmussen said yes.
"Yes, there is now a certain margin on, let's say EFSF loans or the loan to Greece. We can look at this if countries at the same time would be willing to accept a kind of national fiscal framework to be enshrined in their constitution, yes," the influential deputy said.
"It has to be clear that interest rates as part of an EU/IMF (Berlin: MXG1.BE - news) programs are set in a way that there are clear incentives for the countries concerned to return to markets," he said.
The EFSF is a 440 billion euro lending facility that currently charges a penalty margin of 300 basis points on top of the interest rate at which it lends money to governments frozen out of debt markets, plus a one-off 50 basis point fee.
The margin also serves as a deterrent to fiscal indiscipline, making borrowing from the EFSF so painful that it is a last resort.
Germany is the euro zone's largest economy and has a strong influence on shaping policy in the 17-member bloc.
Asmussen said the key was to ensure countries participating in the EFSF stick to their programs over the entire three year time frame in order to reach debt sustainability.
"This is an important condition. One has to honor the program for the whole time, not only for the first year, because that means you can grasp some of the low hanging fruit," he said, noting conditions get more difficult in the later years.
However the actual lending capacity of the EFSF is limited effectively to 250 billion euros due to a complex guarantee system that secures a triple A credit rating.
Debut bonds that were issued to fund the EFSF met strong demand, bolstering investor confidence that the EU is getting a handle on the debt crisis that has already resulted in bailouts for Greece and Ireland (Berlin: IIK.BE - news) .
BENCHMARKING
Asmussen, speaking at a conference on the European debt crisis sponsored by Bloomberg, stressed there was a need for greater financial coordination between member states going forward in order to avoid the crises that have hit member states such as Portugal, Ireland, Italy, Greece and Spain.
Germany's benchmark Bund has functioned as a safe-haven for investors in Europe, Asmussen said, stressing that the German government will do anything necessary "to keep this safe haven function" as credits quality becomes more pronounced between European nations.
"That is why for example we are against issuing Euro bonds in this situation because it takes away the differentiation in prices, interest rates that investors can do right now," said.
Asmussen suggested a different kind of benchmarking exercise for Europe to rally around to help better coordinate economic and social policy.
"We would suggest a kind of benchmarking, which means you kind of learn from the best," he said.
This would include sharing ideas on tax policy, transparency and pension policy to adapt to an aging society. (Additional reporting by Alina Selyukh and Jan Strupczewski; Editing by Andrew Hay)
No comments:
Post a Comment