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Europe’s policy-makers are engaged in protracted discussion on whether and how to increase the size of the euro rescue funds (the EFSF and the ESM).  In this Policy Brief, Daniel Gros and Thomas Mayer argue that this attention on the headline size of the EMS and EFSF is misplaced.  They propose that a simpler solution would be to register the ESM as a bank, with access to the ECB under the same conditions as apply to any normal bank.  This would provide a liquidity backstop for the EMS which could refinance any secondary market interventions at the ECB.  The size of the guarantees given to the ESM would then become secondary.

Daniel Gros is Director of CEPS. Thomas Mayer is Chief Economist of Deutsche Bank.