September 22, 2014
Suddeutsche Zeitung reported on Saturday that Jean-Claude Juncker was actively considering turning the unused capacity of the ESM into a credit facility to help boost EU investments. The idea was to channel the money into an investment fund under the aegis of the EIB, which would then lend-money backed by the fund to certain investment projects. Werner Hoyer, president of the EIB, has set up a task force to study the details, the article said. It also said that work was under way to set up a list of investment projects.
The German reaction to this story was boarding on the hysterical. Frankfurter Allgemeine expresses predictable outrage. Wolfgang Schauble immediately dismissed it on the grounds that the use of these funds was not backed by the ESM treaty. He said the fund had been created to help countries in an acute financial crisis and to deter speculators in return for strict conditionality. The fund was not there to be used. It has nothing to do with investment, Schauble said.
The paper quotes a source close to Juncker as saying that the main discussion now was about the legal basis. The paper quoted diplomats as saying that this scheme would require a change in the ESM treaty, which would have to be unanimous. Germany would oppose this.
At the G20 in Cairns, Schauble said the main problem in the eurozone is not lack of finance but demand, on which he is in agreement with Hoyer, who pointed out that only 16% of EU companies complained about shortage in the availability of finance.
FAZ also writes that Juncker had difficulties getting his €300bn together. The biggest part of this sum would come from a reshuffle of existing spending,
In a comment in the paper Werner Mussler writes that it would be potentially dangerous to turn the ESM into an investment vehicle because it would damage its reputation in financial markets, and reduce its capacity to act.
The ECB’s preferred way for governments to support investment is guaranteeing asset-backed securities. Reuters has an interview with Peter Praet. He said the ECB was not suggesting that governments insure the entire mezzanine level but to target SME lending. “The amounts are not that important, considering also that existing facilities, which in some cases are not even used, can be tapped.”
We also have stories on Antonis Samaras’ plan for an early exit of the programme; about the Catalan reaction to the Scottish vote; on the Irish fiscal council’s call for fiscal restraint; on Sarkozy’s return to front-line politics, and why this is going to be fraught; on a spike in LTRO repayments, compounding the low TLTRO take up rate; on a further decline in the 5y-5y forward rate; on Munchau’s FT column on Italy’s debt, and why it matters; and finally, on Tabellini’s and Givavazzi’s argument that fiscal/monetary co-ordination can be highly effective.