European Central Bank (ECB) governing council member Ewald Nowotny has admitted markets are sceptical about the new European rescue fund, because of cumbersome decision-making.
Austria’s Nowotny said he sees scepticism about how quickly funds from the European Stability Mechanism (ESM) can be deployed when they are needed.
Borrowing costs for euro-area governments have dropped in recent weeks. This is in part based on the assumption that the ESM, the eurozone’s bailout fund, will function as advertised, Nowotny said in an interview with Austrian state television. It may be useful to test the ESM’s ability to act quickly in practice, he said.
“The money is now available, but it’s never been used,” Nowotny said in the interview.
“The international capital markets are watching very closely if the funds can actually be deployed in a quick and efficient fashion.”
Euro-area countries established the bailout fund as a backstop to the debt crisis that is affecting the region. The ESM, which takes over from the temporary European Financial Stability Facility, was declared operational on October 8.
The new fund will rely on paid-in capital from European governments to underpin its full firepower of €500bn ($647bn). By 2014, governments will have paid in 80 billion euros in capital.
“The tranches will be paid in, the cannon is going to be loaded in time,” Nowotny said.
“The question is, can it fire when it’s needed? There are so many and such difficult decision mechanisms involved that there is a certain amount of scepticism.” (Bloomberg)