Euro zone ESM bailout fund to charge symbolic margin for help
BERLIN (Reuters) - The euro zone's permanent bailout fund will charge only a symbolic fee on top of its costs for loans to troubled sovereigns and only slightly more for loans to recapitalize banks, ESM pricing policy guidelines showed.
The guidelines, obtained by Reuters on Thursday, said that while the price of help from the European Stability Mechanism (ESM) would be the same for every euro zone government, it would differ depending on the instrument chosen, because of different risks the instruments entailed.
The ESM is to become operational in October and will replace the temporary European Financial Stability Facility (EFSF) as the euro zone's main bailout vehicle. It will reach its full lending capacity of 500 billion euros in 2014.
The EFSF will co-exist to administer the existing three bailout programs of Greece, Ireland and Portugal, but not engage in new bailouts after mid-2013.
In case of loans under a full ESM program, the fund would charge a 10 basis point margin, which the document said would not impact the sustainability of public finances of a beneficiary ESM member.
While there are no candidates for a full bailout in the euro zone now, Spain has applied for a loan to recapitalize its banks and may also need a precautionary credit line or help in selling its bonds at primary auctions.
The ESM would charge a higher margin of 30 basis points for money borrowed to recapitalize financial institutions, to reflect the punitive rates charged under EU state aid rules.
If Spain, or another euro zone country applied for a precautionary credit line from the ESM, the fund can use money from the credit line to buy bonds of the sovereign at primary auctions. The fund would then charge a margin of 35 basis.
If the ESM were to make the same purchases on the primary market for a sovereign that is under a full adjustment program, which means it has no access to the market at reasonable rates, the margin would be 10 basis points.
If the ESM were to buy bonds of a country in the secondary market, it would charge a margin of 5 basis points because it may participate in capital gains and receives market rates.
The guidelines also said that if the ESM makes a bigger profit than needed to cover its costs and the fee under the primary market support facility, it would return three quarters of the excess to the beneficiary country at the end of the plan.
"In case of the SMSF (Secondary Market Support Facility), the ESM will maintain any interest surplus," the guidelines said.
(Writing by Jan Strupczewski; editing by Robin Emmott)
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