Europe’s ESM Activated, Expect ECB to Rev Up on the Printing Press

Europe’s permanent bailout fund has been activated. This means that ECB’s “unlimited” bond purchasing program which the ESM serves as part of the conditionality for bailouts of crisis stricken member states will go into full throttle.

From the Bloomberg,

European governments set up a full- time 500 billion-euro ($648 billion) fund to aid debt-swamped countries and, not for the first time in the three-year crisis, expressed confidence that the extra financial muscle won’t be needed anytime soon.

Finance ministers from the 17 euro countries declared the European Stability Mechanism operational, while saying that Spain, its biggest potential near-term customer, isn’t on the verge of tapping it. Decisions were also put off on Greece’s next aid payment and on an assistance program for Cyprus.

Creation of the ESM “makes the strategy of member states credible and equips the euro area with much better tools to appropriately respond to future crises,” Luxembourg Prime Minister Jean-Claude Juncker told reporters in Luxembourg today before a meeting of euro finance chiefs that began at 5 p.m.

The fund’s birth was eased by the European Central Bank’s offer in August to buy bonds of fiscally struggling countries, which has driven down interest rates in Spain and Italy and bought European governments time to address the root causes of the crisis.

The ESM will replace the temporary European Financial Stability Facility, which has spent 192 billion euros of its 440 billion euros on loans to Ireland, Portugal and Greece. The two funds will run in parallel until the EFSF is phased out in mid- 2013.

Oh you may ignore the propaganda about "financial muscles won't be needed anytime soon".

This marks the path towards further centralization of the EU. Again from the same article.

Controlled by euro finance ministers, the ESM can lend directly to governments, intervene on bond markets, offer credit lines and provide loans that can be used to recapitalize banks. It would be authorized to pump capital into banks directly only once the euro zone sets up a central supervisor, possibly in 2013.

The ESM inherited those powers from the temporary fund. For now, it will go without two other EFSF tools that have yet to be used: debt-insurance certificates and co-investment vehicles that were designed to use leverage to multiply their impact.

With the ESM in place, expect the ECB to rev up on the presses.