Friday, September 28, 2012

ESM will be increased by 1.5 trillion euro

Eurozone countries agreed to extend European Stability Mechanism (ESM) to 2 trillion from 500 billion euros, German newsmagazine Der Spiegel said. However, the proposal was opposed by some count
ries including Finland. But Germany, the prime sponsor of the bailouts, considers it to be a necessary measure. It is assumed that increased ESM can provide Spain and Italy with bailout recourses, if necessary. ESM will use the same financial tools as European Financial Stability Facility (EFSF). The funds received from eurozone will be used to support indebted countries by purchasing their government bonds, for example. Funds from private investors are to be spent for less risky measures to overcome recession. Apart from crisis resources, European Central Bank also supports the economy of euro area. So in early September the regulator announced its "unlimited bond-buying plan" to reduce borrowing yields. The ESM/EFSF was criticized many times by different European politicians, particularly, by opposition. They said countries with conservative fiscal policies should not support troubled economies of the eurozone countries. The Bundestag and Bundesrat opposition parties filed six lawsuits in the German Constitutional Court objecting to the country's participation in the European rescue packages for the euro area. More than 37,000 plaintiffs had argued that the ESM was an illegal transfer from Berlin. However, the court rejected the complaints in September.

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