LONDON (MNI) – Funding from the European Financial Stability Fund
would be sufficiently expensive to make it a highly unattractive
option to euro zone member states, says Standard & Poor’s Head of
Sovereign Ratings Moritz Kraemer.
“This Fund will be sufficiently powerful as a comfort to the market
place that the markets will never shut down to an extent that a borrower
would feel tempted to go to the EFSF and ask for funding that would be
pretty expensive and which will be tied to strict conditionality…”
“It (EFSF funding) will come with all the political costs of an
IMF programme,” he added – another strong disincentive to a country
approaching the Fund.
Speaking on a teleconference following the decision of S&P and
other leading ratings agencies to award the EFSF a triple A rating,
Kraemer said that a euro zone country would only turn to the EFSF in the
event that financial markets had already closed the country out.
The ‘over-collateralisation’ as well as the ‘reserve’ built in as
safeguards of the Fund are key to the decision to award the EFSF a
triple A rating, Kraemer said.
Kraemer said that he regarded an unfavourable decision by the
German constitutional court on the EFSF as “not a very likely outcome at
all” but admitted that the amount of state-guaranteed funds available to
the Fund would be vastly reduced if that happened.
Based on past decisions of the German legal system, Kraemer said
that he was “pretty comfortable” that the EFSF would be approved, noting
that its funding would not amount to a ‘bailout’ of any state requesting
its funds – so satisfying a key concern of the German legal authorities.
The financial markets, Kraemer said, could be expected to be
sufficiently comforted by the establishment of the EFSF to remain open
to any financially troubled euro zone states.
–London newsroom: 00 44 20 7862 7492; email: ukeditorial@marketnews.com
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