Euro ‘hanging by thread’ as £605bn bailout fund risks collapse over French
credit rating

Bob Lyddon said there was a risk of the European Stability Mechanism's
spending power "falling off a cliff" - severely curtailing its ability to
lend money to members of the EU27.

By CIARAN MCGRATH
12:50, Wed, Aug 2, 2023 | UPDATED: 13:40, Wed, Aug 2, 2023

The possible downgrading of France’s credit rating would have a
catastrophic impact on the “firewall” relied upon by the Eurozone to
safeguard the single European currency, a UK-based economist has claimed.

The European Stability Mechanism (ESM), an intergovernmental organisation
based in Luxembourg, was established in 2012 with the intention of
providing instant access to financial assistance programmes for member
states of the eurozone in the event of emergencies.

However, in an article uploaded to the website of the Institute for
Research in Economic and Fiscal Issues, tax specialist Bob Lyddon warned
the system was no longer fit for purpose.

He wrote: “The European Stability Mechanism (ESM) backstops the euro.”

Its nominal size was £605billion (€705billion) but its lending capacity is
lower at £430billion (€500billion), with the main condition being that the
EU27’s guarantees of the ESM’s solvency need to be good enough to convince
credit rating agencies to assign the ESM a AAA rating, Mr Lyddon explained.

The difference between the ESM’s nominal size and its lending capacity
acknowledged that the guarantees of some member states were not good
enough, he added.

Mr Lyddon continued: “This structure is hanging by a thread. Standard &
Poor’s Global Ratings attached a ‘Negative Outlook’ to France’s AA rating
on June 2, 2023. If at any point France’s rating drops to AA-, the ESM’s
roof falls in.”

[Full report at the link below]

<https://www.express.co.uk/news/politics/1797868/eurozone-euro-eu-france-credit-rating>

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