Explaining the EFSF Bailout Fund (European Financial Stability Fund)

What is the EFSF Bailout Fund? The European Financial Stability Fund (EFSF) comprises the 16 countries that share the Euro and was established on the 9th May 2010. The objective of the EFSF is to preserve financial stability of Europe’s monetary union by providing temporary financial assistance to euro area member states in difficulty. The following table shows all EU members, highlighting those EFSF members in grey.

 

Country

*EFSF member

Currency

Voted to pass rise of bailout fund?

Country Credit Rating

(Moody’s) & Outlook

Economic size (GDP – $US)

Debt to GDP

Global Ranking per GDP ($US)

Current EFSF commitment

Amended EFSF commitment

1

Austria*

Euro

Due 30th Sept

Aaa – Stable

$376 billion

72.3

27th

€12.2B

€21.6B

2

Belgium*

Euro

Yes – 14th Sept

Aa1 – Stable

$467 billion

96.8

21st

€15.2B

€27.0B

3

Bulgaria

Lev

Baa2 – Stable

$48 billion

16.2

64th

4

Cyprus*

Euro

Yes – 29th Sept

Baa1 – Negative

$23.29 billion

63.4

€0.8B

€1.5B

5

Czech Republic

Koruna

A1 – Stable

$192 billion

38.5

46th

6

Denmark

Krone

Aaa – Stable

$310 billion

43.6

31st

7

Estonia*

Euro

Due 30th Sept

A1 – Stable

$19 billion

6.6

72nd

€-

€1.9B

8

Finland*

Euro

Yes

Aaa – Stable

$239 billion

48.4

34th

€7.9B

€13.9B

9

France*

Euro

Yes – 8th Sept

Aaa – Stable

$2560 billion

81.7

5th

€89.6B

€158.4B

10

Germany*

Euro

Yes – 29th Sept

Aaa – Stable

$3310 billion

83.2

4th

€119.3B

€211.0B

11

Greece*

Euro

Yes – 27th Sept

Ca – Developing

$305 billion

142.8

32nd

€12.3B

€21.8B

12

Hungary

Forint

Baa3 – Negative

$130 billion

80.2

53rd

13

Ireland*

Euro

Yes – 22nd Sept

Ba1 – Negative

$204 billion

96.2

42nd

€7.0B

€12.3B

14

Italy*

Euro

Yes – 15th Sept

Aa2 – Under review

$2051 billion

119

8th

€78.7B

€139.2B

15

Latvia

Lats

Baa3 – Positive

$24 billion

44.7

69th

16

Lithuania

Litas

Baa1 – Stable

$36 billion

38.2

66th

17

Luxembourg*

Euro

Yes – 15th Sept

Aaa – Stable

$55 billion

18.4

61st

€1.1B

€1.9B

18

Malta*

Euro

Vote next week

A2 – Negative

$7.97 billion

66.7

€0.3B

€0.7B

19

Netherlands*

Euro

Vote next week

Aaa – Negative

$783 billion

63.7

16th

€25.1B

€44.4B

20

Poland

Zloty

A2 – Stable

$469 billion

55

20th

21

Portugal*

Euro

Yes – 28th Sept

Ba2 – Negative

$229 billion

93

37th

€11.0B

€19.5B

22

Romania

Leu

Baa3 – Stable

$162 billion

30.8

48th

23

Slovakia*

Euro

Due 17th Oct

A1 – Stable

$89 billion

41

59th

€4.3B

€7.7B

24

Slovenia*

Euro

Yes – 27th Sept

Aa3 – Stable

$48 billion

38

63rd

€2.0B

€3.6B

25

Spain*

Euro

Yes – 28th Sept

Aa2 – Under Review

$1407 billion

60.1

12th

€52.3B

€92.5B

26

Sweden

Krona

Aaa – Stable

$458 billion

39.8

22nd

27

United Kingdom

Pound

Aaa – Stable

$2246 billion

80

6th

Total:

€440B

€780B

Sources: www.efsf.europa.eu;

As 10 out of the 17 members have voted (and passed), through their respective parliaments, to raise bailout funds for the EFSF, global investors are beginning to find some courage in investing back in the markets on expectations that all countries will comply. But we still have nearly 3 weeks until the final country (Slovakia) will push the raising of the EFSF funding through their parliament.

Austria and Estonia will vote on Friday (tonight) while Malta and the Netherlands vote next week.

There are some analysts that suggest the increase won’t cover the impact on French and German banks if Greece defaults. Which in turn would trigger higher costs to loans for Italy (ranked 8th largest economy in the world), Spain and Portugal. Hence, there has been rumour that the EFSF will need to be raised to €2 trillion.

There’s no doubt that global investment confidence is hinging on action taken by the European Union. It doesn’t matter whether Greece defaults or not, as it is evident we could have a ‘lost decade’ of economic growth as these struggling economies attempt to pay off debt. The end result is that the markets will continue to show strong volatility for some time to come.

Having a major impact on stock market volatility is the fact that these individual governments are slow to act, whereas investors want to see clear and concise decision making to instil confidence. For example, the country to ratify the increase of funding was France on the 8th September, while Slovakia won’t be making their parliamentary decision until the 17th October – more than a month later.

Since 1998, Matthew has been involved in the Financial Services industry providing stock, option and CFD advisory services, trading advice, funds management and education services. Matt is an Authorised Representative of Halifax Investment Services, providing analysis and recommendations for trading Covered Calls in the US markets and using Exchange Traded Funds (ETFs) ...
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