Just a few hours ago, Chancellor Merkel, agreed on an initiative to help banks and indebted countries. The initiative was mostly supported by Spain and Italy. The agreement states that governments will be able to borrow money from ESM and EFSF to buy their own bonds, so they will be protected from financial speculation. Countries which will borrow money will have to sign a Memorandum of understanding in which they will clearly state how they will cut their deficits. Additionally, government will be able to lend money to banks for recapitalization without that amount being registered to national budgets. Also, Monti said that governments which will borrow money will not be subjected to the authority of troika, such as Greece, Portugal or Ireland. Monti also stated that Italy does not intend to borrow at the moment, although the interest rate of its bonds are nearly 7%.
Loans to banks though will come with certain restrictions however. Only governments whose deficits comply with European rules will be able to apply for loans for their banks. “We are opening the possibility to countries that are well behaving to make use of financial stability instruments in order to reassure markets and to get again some stability around some of the sovereign bonds of our member states,” said European Council President Herman Van Rompuy at a 4:30 a.m. news conference. This is also a great change for Ireland, whose banks need recapitalization. “When the details are worked out between July and the end of the year, it will have a real impact on our debt level and will greatly improve our ability to get back into the market and not need a second bailout,” Eamonn Gilmore told national broadcaster RTE. European leaders also supported the idea of a single banking union where the European Central Bank will have more powers and responsibilities.
(Source: EurActiv, European Council)