EFSF Final Document To Be Presented Tuesday Night
The technical details on how the transitional European rescue fund will operate were expected to be presented Tuesday evening at a meeting between the 17 euro area finance ministers in Brussels, according to a euro-zone official.
"We hope to have copies of the final term sheet tonight," the official told Dow Jones Newswires.
The fund, known as the EFSF, which is currently endowed with EUR440 billion in guarantees by euro area member states but only has about EUR250 billion to invest in countries plighted by the ongoing debt crisis, will be leveraged two to three times, according to the official.
"The goal to leverage the fund four to five times is off the table. In the current market, we believe two to three times is more realistic," the official said.
The plan to reach a fivefold increase of the EFSF fell short because of Italy's higher borrowing costs and minimal interest from investors in emerging economies to put money in the co-investment fund, a second euro-zone official directly involved in the talks said.
"It's pretty disappointing and the money has to come from elsewhere," he added.
The fund, which will be used to offer precautionary credit lines to distressed member states, intervene in the primary and secondary bond markets and disburse funds to recapitalize euro-area banks, will guarantee 20% to 30% of first losses in newly issued bonds in a bid to attract private-sector investors to buy Euro area debt.
"We will take first losses of up to 30%, none of the private investors we spoke to demanded more than that," the official said. In order to tailor the EFSF role to the demands of private investors, the fund will set up more than one co-investment fund in different euro-area countries, the official added. "There will definitely be more than one fund." "We have spoken to every perceivable investor, from hedge funds to central banks, and the response has been positive," he added.