What if not every country votes to increase the EFSF's funds? Market chaos. Photograph: Boris Roessler/EPA
What is the new rescue plan?
There isn't one. This is a wish list dreamt up by Tim Geithner, US Treasury secretary, along with possibly the UK and more than likely some emerging nations. In Brussels they say it's "wildly premature" to talk of a multitrillion-euro bailout fund and an "orderly" halving of Greece's ?315bn debt within the six-week deadline set by Geithner and George Osborne.
OK, but what's all this about ?2tn?
EU officials know the current plans to stabilise the eurozone and resolve the sovereign debt crisis don't cut the mustard with the markets. So there's feverish talk of raising the bailout facility's financial firepower to ?1tn, ?2tn ? or even ?4.5tn (roughly ten times what's now available). One idea is to leverage this firepower by effectively turning it into a bank, which, armed with a triple-A rating and access to virtually unlimited European Central Bank capital, could lend money to countries in trouble. By distancing the ECB from these loans this would overcome political hurdles ? notably in Germany. Another idea mooted is to bring forward by a year ? to July 2012 ? the date for turning the EFSF into a permanent European Stabilisation Mechanism and, ultimately, European Monetary Fund. French president Nicolas Sarkozy and several thinktanks like the EMF idea. Another idea is for an orderly default on Greek debt of 50%. But that will be resisted by bondholders (largely banks) who in July agreed a 21% "haircut".
Aren't they still trying to sort out the old rescue plan though?
Yes. The first Greek debt crisis forced EU leaders to adopt a rescue plan in May 2010 and its failure prompted a bigger one in July. The core element is a bailout mechanism known as the European Financial Stability Facility, which provides "temporary" financial assistance to eurozone members in difficulties. It has ?440bn (�380bn) available and has used about ?142bn of this to prop up Greece, Ireland and Portugal. There are fears that unstoppable crises in Spain and/or Italy would swiftly exhaust this firepower.
So, what's the (relatively paltry) ?8bn they're arguing about in Greece then?
This is the sixth payment from the first ?110bn emergency package agreed in May 2010. It must be signed off by the EU, ECB and IMF but the price is further spending cuts, tax rises, privatizations, wage-cuts etc. The economic and social cost is now said to be too high.
So, what's happening with that plan ? and why is there a big vote in Germany this week?
Leaders agreed in July to modify the EFSF as part of a second bailout of Greece and those reforms have to be ratified by every government in the eurozone. The German parliament (Bundestag) votes on Thursday on increasing the EFSF's funds ? and raising Germany's contribution from ?123bn to ?211bn or almost half the total. A positive vote is likely but MPs are talking of being "blackmailed" into approving even bigger contributions in future; they vote early next month on the second Greek rescue package as a whole. Austria, Cyprus, Estonia, the Netherlands, Slovenia and Slovakia are yet to approve the July package.
What if one country doesn't ratify?
Market chaos ? and back to the drawing board. "The way things are going the Bundestag will be asked to vote every second week on a different, new rescue package," one insider said. So, if it's Germany, the whole euro project will be doomed. Simply developing new means for pan-European institutions to borrow more money or parcelling up the debts into packages that are ultimately passed round to other countries or to the ECB is not a solution."
Source: http://www.guardian.co.uk/business/2011/sep/27/european-rescue-plan-q-and-a
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