After harrowing negotiations, the leaders of the 17-country eurozone thrashed out a strategy on how to deal with the debt crisis that has crippled the currency union over the past year and already pushed two of its members into multibillion euro bailouts.
The region’s bailout fund, the European Financial Stability Facility, will be able to lend the full C440 billion that it was initially promised, European Council President Herman Van Rompuy said on Saturday. Up to now, the EFSF was only able to lend out about C250 billion because of several buffers required to get a good credit rating — fanning fears that it would not be big enough to save a large country like Spain.
The fund will also be allowed to buy the bonds of governments in financial difficulties on the open market, but only if the respective country is locked into a national bailout program based on strict conditions, Van Rompuy said.
That step marks an important expansion in the fund’s powers, since buying bonds can help stabilize their prices and a country’s funding costs.
The leaders also agreed to give Greece more time to repay its C110 billion bailout, extending the maturity of its loans to seven years from just 3 1/2 years.
The country, which was the first victim of the crisis, will also have to pay less interest. Eurozone leaders decided to lower the rate by 1 percentage point, which should take it down to about an average 4.2 per cent.
Ireland, the crisis’s second victim, did not get the same leniency from the heads of state and government. It will have to wait until another summit on March 24-25 for a decision on the interest rate for its C67.5 billion bailout, currently at about 5.8 per cent.
The reason for the holdout on Ireland was the country’s refusal to make concessions on its rock-bottom corporate tax rate — long a sore point for France and Germany.
“Ireland was asked to make a gesture, but we didn’t get satisfaction. So the renegotiation of loans that Greece has was not done for Ireland,” French President Nicolas Sarkozy told journalists. “It’s difficult to ask others to help finance a plan but not concern themselves with the tax side,” Sarkozy said.
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Greg Keller and Don Melvin contributed to this report.