Eurozone rescue fund launch due

http://www.bbc.co.uk/news/business-19868868

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.

Some critics believe that the 500bn-euro firepower of the ESM will still not be large enough to save the eurozone.

"The good news is that by using the funding in a wise way to support bond purchases you can probably stretch that money quite a long way," Sarah Hewin, head of global research at Standard Chartered, told the BBC.

"The real concern is if Italy becomes involved, if there's a big shock to the system and a full bailout is required. Even 500bn euros isn't enough to cover Spain and Italy for a full three-year programme."