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Euro-area leaders reach comprehensive agreement designed to support Greece
Leaders of the euro-area countries announced on 21 July a raft of measures designed to alleviate the Greek debt crisis and ensure the financial stability of the euro area as a whole. The summit of Heads of State or Government of the euro area in Brussels saw agreement on a new financial support programme for Greece worth some €109 billion, a voluntary contribution from the private sector estimated at a net effect of €37 billion, the extension of maturities, and lowering of lending rates. Revised EFSF lending rates and maturities will also be applied to Portugal and Ireland. The summit statement also covered improving the effectiveness of the current European Financial Stability Mechanism (EFSF) and of the future European Stability Mechanism (ESM) , adhering to fiscal consolidation and growth in the euro area, and strengthening EU economic governance. Leaders notably called for the rapid finalisation of the legislative package on the strengthening of the Stability and Growth Pact and the EU’s new macroeconomic surveillance. Meanwhile, the fifth tranche (€12 billion, of which €3.3 billion paid out by the IMF) of the current Greek Loan Facility was fully disbursed on 15 July.
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When European leaders say that we will do "everything what is required" to save the eurozone, it is very simple: We mean it.
Herman Van Rompuy, President of the European Council |
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Treaty on the European Stability Mechanism signed
The treaty establishing the permanent mechanism to safeguard the financial stability of the euro area – the European Stability Mechanism (ESM) – was signed on 11 July by euro-area finance ministers, paving the way for the ESM to become operational in 2013 once ratified by the signatory countries. The ESM is designed to replace the existing temporary support funds for countries in financial difficulty, the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM). Subject to defined conditions of use, the ESM will have an effective lending capacity of €500bn and a total subscribed capital of €700bn, including paid-in capital stock of €80bn.
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G20 Finance Deputies make further progress for the Cannes Summit on 3-4 November
G20 Finance Ministers’ Deputies met in Paris on 9-10 July to prepare the Cannes summit of 3-4 November. They agreed that the economic outlook had deteriorated. As next steps, they will prepare specific measures for an Action Plan to increase global growth and address macroeconomic imbalances for Cannes. The Deputies also moved forward the work on the reform of the international monetary system. For this purpose, they will prepare a code of conduct for the management of global capital flows, establish principles for the cooperation between regional financial arrangements and the IMF, and set out criteria for the extension of the system of Special Drawing Rights of the Fund to support emerging markets to internationalise their currencies.
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Review mission gives thumbs-up to Ireland’s economic adjustment efforts
The Irish government’s economic programme remains on track, is well financed, and is being implemented steadfastly. That was the conclusion of staff teams from the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF) who visited Dublin during 6-14 July for the second quarterly programme review. The programme is supported by loans from the EU and EU member states amounting to €45 billion and by a €22.5 billion Extended Fund Facility with the IMF. The Commission said that approval of the conclusion of the review would allow the disbursement of €4 billion in this quarter (€2.5 billion by the EU, and €1.5 billion by the IMF). The next programme review mission is scheduled for October 2011.
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European Banking Authority announces latest stress-test results
The European Banking Authority (EBA) published on 15 July the results of its 2011 EU-wide stress test of 90 banks in 21 countries, designed both to assess the resilience of the banks involved in the exercise and to provide a health-check on the EU banking sector as a whole. The EBA found that eight banks were below the capital threshold of 5% Core Tier 1 Ratio (CT1R) over the two-year time horizon of the test, with 16 banks displaying a CT1R of between 5% and 6%. The EBA recommended that steps be taken to remedy any capital shortfalls and to strengthen the capital position of banks that might be vulnerable. It was anticipated that EU Member States would announce remedial ‘backstop’ measures to address any weaknesses revealed by the stress test.
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Euro coin competition winners receive their awards
The winners of the recent coin design competition “10 Years of the euro” received their awards at a prize-giving ceremony held on 12 July in Brussels. Austrian Helmut Andexlinger – creator of the winning design and a coin designer at the Austrian Mint – and Raphael Cretinon of France – the winning voter who was selected at random from those who voted for the winning design – were both presented with a special presentation box containing a high-value set of euro collector coins by European Commissioner for Economic and Monetary Affairs Olli Rehn. For Mr Andexlinger, the ultimate prize will be to see his winning design appear on the millions of commemorative 2-euro coins that will be issued in common in January 2012 by all 17 euro-area Member States to mark a decade of euro cash.
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Commission issues proposals to enhance prudential requirements and corporate governance of banks and investment firms
More stringent requirements for banks and investment firms should be introduced in order to strengthen Europe's financial system and make it more robust in times of difficulty, the European Commission proposed on 20 July. Under the proposals, banks and investment firms would need to hold more and better minimum capital than in the past; would need to build up 'capital buffers' over time so they would have money on hand in an economic downturn; would need to monitor closely their liquidity positions and leverage; and improve corporate governance practices in order to increase risk awareness. Should banks or investment firms not comply with the new rules, they would face supervisory intervention and sanctions. The proposals now need to be agreed by the European Parliament and the EU Council of Ministers.
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Directorate-General for Economic and Financial Affairs |
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