By Jan Strupczewski, Reuters
BRUSSELS — Political resistance is clashing with financial imperatives as the eurozone tries to strengthen its capacity to rescue debt-stricken member states after Europe’s temporary bailout fund lost its top-notch credit rating. Standard & Poor’s downgrading of the European Financial Stability Facility (EFSF) to AA+ on Monday raised pressure on the 17-member currency area to end disputes holding up the launch of a permanent rescue fund, and to let both run alongside each other with full lending power from July. The move cast doubt on whether the permanent 500 billion euro European Stability Mechanism (ESM) will win a top S&P rating. The ESM will have a stronger structure than the EFSF, but both funds have the same shareholders — eurozone governments — nine of which were downgraded last week. France and Austria both lost their triple-A ratings. EU paymaster Germany has rejected raising its contribution to either fund, which would require parliamentary approval. The Netherlands, Finland and Luxembourg, which along with Berlin kept their triple-A status, also ruled out putting up more money. EU officials insisted the S&P action would have little or no impact on the fund’s capacity, since the two other major credit watchdogs, Moody’s and Fitch, still rate the EFSF as triple-A. “As long as it is only one rating agency there is no need to do anything really,” EFSF chief Klaus Regling told reporters during a trip to Singapore to meet investors.
“You had the same situation when S&P downgraded the U.S. The others did not follow. There was no market impact.” To boost their firepower in case Spain or Italy need financing programs like Greece, Ireland and Portugal, eurozone leaders pushed forward the launch of the ESM by one year to July 2012. They agreed to let it run in parallel with the EFSF for one year rather than immediately replacing it. They also said they would review in March the limit on lending by both the EFSF and ESM, which had been set at 500 billion euros, signaling they may raise this combined ceiling. ESM Voting Dispute But there are political obstacles to finishing work on the ESM, including strong Finnish opposition to efforts by eurozone leaders Germany and France to take ESM decisions by qualified majority vote rather than unanimity to prevent small states blocking urgent action. Since the idea was announced in December there has been no progress in resolving the dispute with Finland, where the government would need the backing of two-thirds of parliament to accept the change — a majority it does not have. “There is hope, but others have to understand Finland’s problems and give in a little,” one eurozone official involved in talks between Helsinki and eurozone capitals said.