European Union Negotiates More Cash

Talks in advance of Thursday’s EU summit meeting may yield another large bail-out fund for troubled Eurozone countries. In addition to the existing European Financial Stability Fund (EFSF) of €440 billion, negotiators are also discussing a €500 billion European Stability Mechanism (ESM) that would be available by July 2012, about the time the ESM is formally created.

The third leg of the stool that will hold up the Eurozone is increased participation by the IMF, which has agreed to intervene provided the Europeans put up enough money to build a credible financial firewall around financially struggling countries like Greece, Italy, and perhaps Spain.

The Financial Times reports

Supporters of the proposals acknowledge they are controversial and the subject of intense debate by officials negotiating new ESM treaty language. Some northern creditor countries, where bail-out backlash has threatened to topple national governments, have shown reluctance.

But the proposals’ backers argue that allowing the ESM to run alongside the current bail-out fund could strengthen Europe’s financial firewall when combined with new eurozone funds for the IMF to increase its capacity to aid struggling countries.

Some negotiators are also floating the idea of giving the ESM access to European Central Bank funding.