Although there are no definite details of how and when the EFSF would be leveraged there are some hints that allow us to make some initial points (EFSF website, EU statement). In a strange quirk of fate, the EU is now seriously contemplating using almost exactly identical financial gimmicks and structures that it accused of bringing the world economy to the brink of extinction. i.e. SPV’s, CDS’s, CDO’s, leveraging toxic mortgages and credit slicing. Instead of mortgages, we now have peripheral debt and instead of CDS we have EFSF certificates, and EFSF controlled SPV’s.
EFSF Pool of money
The initial pool of money allocated to the EFSF was 440bln. However, as more countries are raised to the pig status this has come down. Current estimates are around 250-290bln. The uncertainty comes from the fact that the EFSF would be called to recapitalise Banks if the respective Bank and country fails to raise it.
According to the not so clear EU communiqué the EFSF would be allowed to leverage the remaining amount of cash 4 to 5 times and this is how the 1trl figure is achieved. This leverage is going to be achieved using two different options: