How Massive Rescue Fund Could Fall Short - WSJ.com: "€750 billion (about $1 trillion) European emergency fund, promoted as having the firepower to douse a financial crisis in the euro zone, may not even have enough to cover a bailout of Spain, according to the International Monetary Fund and outside economists.
The reasons are two-fold: There is a lot less money than the headline number suggests—and there are restrictions on the use of a lot of it.
The European Union, for instance, can provide just €310 billion for rescue loans, not the €500 billion the EU advertises.
Here is how the math works: About one-third of the €750 billion is supposed to come from the IMF. But the IMF can't commit anything in advance. Its members must approve each loan country-by-country. While it is unlikely, IMF members could balk at bailing out Europe. Their support isn't guaranteed.
The remaining €500 billion includes €440 billion committed by EU members under the European Financial Stability Facility—the fund that will be used for an Irish bailout.
That fund provides loans—not cash—and those bailout bonds are required to have triple-A ratings. To get such a rating lending countries have to hold onto about 40% of their loans as cash collateral. That reduces the actual amount available to lend to just €250 billion.
Another €60 billion comes from yet another pool—the amount already budgeted by the EU for such contingencies.
So, bottom line, only about €310 billion is actually accessible to countries in need, a figure confirmed by an IMF economist."
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