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Keuschnigg: „Raising ESM for Italy and Spain“

Published: June 4, 2012; 16:47 · (Vindobona)

Christian Keuschnigg, director of the Austrian Institute of Advanced Studies (IHS) argues for raising ESM funds to € 1,000bn.

Keuschnigg: „Raising ESM for Italy and Spain“ / Picture: © Institut für Höhere Studien - Institute for Advanced Studies

Keuschnigg thinks that the European Stability Mechanism would be too small to manage the funding of countries like Spain and Italy. Instead of issuing Eurobonds, the ESM should provide capital for financially stricken countries. Loans will be only granted to those countries which initate reforms. The increase would be necessary to prevent other solutions like the intervention by the ECB. The economist suggests to raise the volume up to € 1,000bn.

In 2012, Italy´s and Spain´s capital requirement totals about € 332m. Especially for Spain, the situation became increasingly difficult in the last weeks. As the interest level rose up to 6.5%, refunding becomes more expensive. Italy´s interest rate on sovereign bonds come at 5.8% currently. This is significantly above the German rate of 1.1%

The Austrian economist believes that the Fiscal Treaty would secure the long-term budgetary discipline of the Eurozone members. However, Keuschnigg did not mention that the convergence criteria of the Maastrict treaty were violated many times. Moreover, countries oft he Southern Eurozone do not seem to achieve these targets at all. Even France´s President Holland wants to weaken the Fiscal Treaty and Greece wants to negotiate the bail-out criteria again.

Keuschnigg did not explain how his idea may work. The financial situation of the relatively stable countries like Germany, the Netherlands and Austria is already tensioned since 2008. Germany´s official public debt level amounts to 83.2%, which is substantially above the Maastricht criterion of 60%. The explicit debt level of the Netherlands (65.2%) and Austria (72.2%) exceed the 60% threshold too.