It was supposed to bring some relief for the headaches of the euro club, but now it’s becoming one itself. The European Financial Stability Facility, or EFSF, set up to help the single currency, has itself ended up in the sick bed. Meant to revive European states brought low by financial distress, in the few months of its existence the bulwark has needed several facelifts already.

In fact, the fund itself had to be resuscitated and indeed saved from being cleaned out and exhausted prematurely. It has been expanded and leveraged – and yet in Cannes, the bottom line was rather sobering once more. The fund is still not the picture of health it ought to be.

For its task of building a firewall around the currency union 2 trillion euros high, the Facility lacks the necessary money. It’s still only good for beating back a few small fires. If Spain or Italy catch the flames, the fund is finished. And so once again this Monday in Brussels the ministers of finance of the euro club had to think long and hard over just where the saving billions could come from.

Triple-A is looking wobbly

They had actually hoped the money would flow out of Asia and Russia. In China and Japan there are plenty of richly endowed public and private money pots, whose owners used to snap up euro securities and EFSF bonds as well. With this money in mind the euro countries recently started remodelling their rescue fund to attract even more of these wealthy investors, whose billions they meant to use to top up the firewall.

But their calculation isn’t adding up. The Asians are reluctant, and so are the Russians. No one, really, is ready to put more money into EFSF securities. In the past week the European Financial Stability Facility even dropped the plan to bring out a new bond issue. Nothing to worry about it, said the founders of the fund, who played down the retreat by claiming it was just a trial run.

Financial managers, though, saw it as bad news, revealing as it did that there was no demand for the bonds. And they were proved right when the EFSF put out a new bond issue this Monday. Buyer interest was low – and risk premiums higher than ever.

In the back rooms of the credit-rating watchmen the word is going round that the highest rating, the triple-A, is looking wobbly. And it’s those three ‘A’s that generally ensure investors will buy up euro securities despite the crisis.

For many investors the fund has clearly become too complicated. The great rescue tool of the euro countries resembles those complex financial products that investors barely understand and wisely keep their fingers away from. When the euro club set up the Facility, it was announced that it would have 440 billion euros. In the actual pot, however, there were only 280 billion euros in credit.

Fund structure is too complex

The financial world felt duped, and worries grew that the money might not be enough and more countries would have to be bailed out. And so the club boosted the fund to 440 billion euros of credit, which required a total of 780 billion euros, since the remainder was to be held in reserve as a guarantee for that triple-A rating.

That this sum is also not enough has become clear as Italy's debt has swung into the focus of the financial markets. The sum being talked about now is almost 2,000 billion euros. But once again, the fund structure is too complex to entice the big investors, and it hasn’t worked out.

Certainly, the euro club can still tour through Asia and spread the word about its complicated “European Financial Stability Facility”. Behind the scenes, though, the road has long since been paved for tapping into the spring that so far has been the only place to go for a few headache-free days: the European Central Bank.

Translated from the German by Anton Baer