France has argued the most effective way of leveraging the firepower of the European Financial Stability Facility is to turn it into a bank which could then access funding from the ECB, both the central bank and the German government have opposed this.
An alternative bailout model is where the EFSF can underwrite a portion of newly issued euro zone debt. By guaranteeing the first 20-30 percent of any losses, the EFSF could stretch three to five times further. With about 300 billion euros of its 440-billion-euro capacity still available, the fund could be expanded to more than 1 trillion euros, and give markets pause for thought.
Analysts are unconvinced that a leverage plan involving a guarantee on first losses would succeed, warning that it could create a two-tier structure in some bond markets and would be meaningless without an explicit commitment from the European Central Bank to go on buying at-risk debt.
“On paper this solution has some merits because it is expedient … but is in fact fraught with complications that are very likely to make it fail,” Shahin Vallee, an analyst with Bruegel, a leading think-tank, said in a research paper.
There are doubts about whether euro zone leaders will be able to agree a clear and convincing plan when they meet on Sunday.
Aris Messinis | AFP | Getty Images Protesters throw petrol bombs to riot police as they demonstrate in front of the Greek parliament in Athens.
The protest, which has grounded flights, disrupted public transport and shut down shops to schools in Greece, comes ahead of a parliamentary vote on a fresh package of tax increases and spending cuts required by international creditors in return for crucial bailout cash.
Most of the 70,000 or so protesters that have converged in central Athens have marched peacefully, but chaos unfolded outside the parliamentary building as crowds clashed with police who tried to disperse them with tear gas. At least 15,000 demonstrators also gathered in Thessaloniki, Greece’s second-largest city.
Metropolitan Athens has a population of about 3,074,160 So about 1 out of every 45 people (including children) are out demonstrating in Greece. Greece has 10.8 million people and has a debt of about $457 billion.
Greece remains mired in recession and its overall debt is forecast to climb to 357 billion euros ($489 billion) this year, or 162 percent of annual economic output — which few economists believe can be paid back.
Moody’s cut Spain’s bond rating to A1, from Aa2, the third of the major agencies to act in recent weeks and taking it a notch below the ratings of Standard & Poor’s and Fitch.