Eurozone’s EFSF: short-term bills by year-end

The eurozone’s rescue fund, the European Financial Stability Fund (EFSF), yesterday announced the launch of a short-term funding programme before year’s end.
The programme will focus on 3, 6 and 12-month bills, it said in a statement. “The first auction is expected to take place before year end.”
The announcement came a day after Standard & Poor’s warned it could downgrade the EFSF’s triple-A rating. The agency on Monday issued the same notice to almost all governments in the monetary union.
“Depending on the outcome of our review of the ratings on EFSF member governments, we could lower the long-term rating on the EFSF by one or two notches, if any,” S&P in it’s Tuesday statement.
The 440-billion-euro EFSF was created in May last year to protect vulnerable eurozone nations after Greece was bailed out by the European Union and the IMF. It has since been used to provide rescue loans to Ireland and Portugal.
With a triple-A rating, the EFSF is able to raise funds in the bond market with much lower interest rates than bailed out nations would get on their own.
Klaus Regling, who heads the fund, said: “The launch of a short-term funding programme is in line with the enlarged scope of activity of EFSF to use its new instruments efficiently.”
“The bill programme will not substitute the long-term bond programme, but it will add flexibility to it.”
The agency move piled further pressure on European leaders ahead of a summit crucial to the future of the eurozone kicking off late today that aims to deliver a convincing response to the two-year-old debt crisis.
France and Germany want to change the EU treaty in order to enforce tough budget discipline across the 17-nation bloc.
A convincing commitment to fiscal rigour at the summit could prompt the European Central Bank to drop its objections to intervening massively to help nations in financial straits.
The eurozone wanted to boost the firepower of the EFSF to one trillion euros in case bigger economies such as Italy and Spain need bailouts, but officials have acknowledged that due to the worsening of the crisis they will fall well short of the target.