Eurozone ministers fail to create €1 trillion bail-out fund
Eurozone finance ministers have failed to sanction measures to create the bloc’s crucial €1 trillion bail-out fund – despite warnings that Europe is dangerously ill-equipped to cope with the financial and economic crisis enveloping Italy.
By Louise Armitstead
07 Nov 2011
Despite publishing a more detailed mandate following a summit in Brussels, the Eurogroup delayed agreeing specifics on how to leverage the €440bn European Financial Stability Facility (EFSF), risking further market turmoil ahead of votes on Tuesday that could topple Silvio Berlusconi’s government.
The EFSF also pushed ahead with a 10-year bond auction which it had put off from last week because of lack of demand. The fund, which is supposed to be the eurozone’s key weapon against the debt crisis, managed to raise €3bn but only after having to pay record returns to entice investors.
Joachim Fels of Morgan Stanley said: “The leveraged EFSF may still turn into a bazooka but so far it looks more like a water pistol.”
The fund is hampered by uncertainty over Greece’s bail-out and eurozone membership. The country is expected to announce the new head of its interim Government on Tuesday.
Italian government bond yields hit 14-year highs, crossing the threshold economists say is unsustainable for the country’s €1.9 trillion debt pile. The yield on 10-year bonds soared to 6.68pc at one point, leading to frantic speculation that Italy will require an international bail-out.