Posts Tagged ‘Gillian Tett’

Notes From Underground: European Financial Stability Facility is born in an effort to relieve European labor pains

June 8, 2010

The new Special Purpose Vehicle (EFSF) was explained in greater detail today but is still not totally clear as to its operation. What we do know is that the EFSF will be able to lend to troubled nations at a much better rate then the stressed debtor would be able to borrow on its own. The facility will be backed by the pro-rata guarantees in reference to its capital base and weighting in the ECB. By clubbing together, the Europeans will be able to issue joint bonds backed by lots of collateral, thus giving credibility to the EFSF. It is believed that the EFSF will be AAA-rated because of the underlying soundness of the non-profligate. Also, the fund can only be tapped by  the nation in stress after it has agreed to substantial changes in their economy in order to correct the imbalances.