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ESM launch

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The eurozone's new permanent fund to bail out struggling economies and banks will be launched later at a meeting of finance ministers.

The European Stability Mechanism (ESM) will have a full lending capacity of 500bn euros (£400bn; $650bn) by 2014.

It will initially run alongside, and then eventually replace, the European Financial Stability Facility (EFSF).

Europe's largest economy Germany will make the biggest contribution to the fund, about 27% of its total.

Finance ministers from the eurozone will meet later in Luxembourg to officially launch it, with countries making their first payments into the fund this week.

Its inauguration comes amid growing uncertainty over Greece's bailout and anticipation that Spain will also seek financial aid, although Madrid has so far denied that a bailout request is imminent.

Spain has already been granted help for its banks, and will receive up to 100bn euros to be targeted at its financial sector.

The temporary EFSF has already lent 190bn euros to Greece, the Republic of Ireland and Portugal.


ESM Fund Launch Puts Spain Back in Focus

A 500-billion euro ($650 billion) bailout fund, one of the key tools of policymakers trying to find a solution to the euro zone debt crisis, will be launched later on Monday with Spain expected to be the first country to seek help from the fund.

But despite unsustainable borrowings costs and an economy in recession, Spain may not seek help from the European Stability Mechanism (ESM), which has been created to provide financial aid to troubled euro zone countries in return for fiscal reforms.


A Big Step Forward

But whether Spain does or does not seek immediate help from the ESM, its creation, was a big step forward in limiting the risks of the debt crisis, analysts said.

"The broader point is that the firewalls in place in the euro zone have become more robust with the ESM and the OMT (Outright Monetary Transactions)," said Richard Jerram, chief economist at Bank of Singapore, referring to a bond-buying program unveiled last month by the ECB to be used to help troubled euro zone members once they ask for help from the bailout fund.

"The risks of a severe disruption from any fallout from Spain have fallen as a result," Jerram said.

According to Geoff Lewis, global market strategist, at JP Morgan Asset Management, "The delays are not helpful and Spain is not coming to the table, but the tail risks have been contained and the ECB is there as a backstop."


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