Malta supports ESM bailout for Spain

Finance Minister Tonio Fenech this evening told the House that Malta had insisted that the aid for the Spanish bailout come from the European Stability Mechanism.

The 17-nation euro zone has agreed to lend Spain up to €100 billion for its bank rescue fund in an attempt to reassure investors.

While it remains unclear exactly how much help Spain will seek and whether the loans will come from the temporary European Financial Stability Facility (EFSF), Fenech said Malta was in favour and supported Spain's tapping into the ESM.

The ESM is the euro zone's new permanent bailout facility and will be replacing the temporary EFSF, due to come into effect on 1 July.

The Maltese parliament is in fact expected to discuss the ratification of the ESM treaty in the coming days.

"The ratification of the ESM is in our national interest as the mechanism would halt speculation and by providing the bail-out to the Spanish banks, we would stop the problem from spreading to the detriment of the economy and the EU's financial situation," he said.

Fenech said that through the ESM, Spain, unlike Greece, would not be indebted to Malta. This is because the ESM works on a different mechanism to the EFSF, which was used to fund the Greek bailout.

The EFSF sells bonds, backed by guarantees from the member countries to the market while the ESM works on a paid-in capital.

According to Fenech, Malta will be issuing €50 million in upfront capital to the ESM.

"This also means that if the ESM is used, we will not be hit by further debt. In the case of EFSF, we would be hit because we would have to provide guarantees," the finance minister said.

But reacting to this statement, former Labour Prime Minister Alfred Sant insisted that Malta would still have to enter debt if it has to fork out the €50 million.

While Spain has so far made no official calls for financial help, the Euro group has already committed itself that it would be helping the country for its wobbling banks.

"Spain would become the fourth euro zone country to request an EU bailout, if its call is officialised," Fenech said. "Reality is that if the Spanish banking system collapses it would only result in serious repercussions on the euro zone."

Fenech also denied a report published by financial analyst Nomura found that Malta had 4.3% of its GDP - amounting to roughly €250 million - tied up in Greek assets, more than any other eurozone country and twice as much as previously reported.

"Malta's exposure is of some €160 million, which is considered low," he said, explaining that it consisted mostly of international banks' liabilities and lending.