22 Jul 2011

The EFSF as a European Monetary Fund: Does it have enough resources?

Daniel Gros / Alessandro Giovannini

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In the immediate aftermath of yesterday’s European Council’s decision to effectively transform the European Financial Stability Facility (EFSF) into a European Monetary Fund, this CEPS Commentary explores whether the EFSF has enough resources to become a credible deterrent against a recurrence of the recent turbulences in the euro area sovereign debt markets. The authors argue that an increase in lending capacity of the EFSF, which has been agreed politically but has not yet been fully ratified, is urgently needed. Moreover, they warn that even the ‘full’ EFSF of €440 billion would quickly reach its limits should Portugal and Ireland not be able to regain market access soon.

Daniel Gros is Director of CEPS and Alessandro Giovannini is Leonardo Fellow at CEPS.