European Central Bank Governing Council member Ewald Nowotny said he sees skepticism about how quickly funds from the European Stability Mechanism can be deployed when needed because of cumbersome decision-making.
Borrowing costs for euro-area governments have dropped in recent weeks based on the assumption that the ESM, the euro- area’s bailout fund, will function as advertised, Nowotny said in an interview with Austrian state television broadcaster ORF today. 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 roiling the region. The ESM, which takes over from the temporary European Financial Stability Facility, was declared operational on Oct. 8 and will rely on paid-in capital by European governments to underpin its full firepower of 500 billion euros ($647 billion). 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 skepticism.”
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