Exclusive: New euro bailout fund may not have sufficient staff

Exclusive: New euro bailout fund may not have sufficient staff


By Matthias Sobolewski
BERLIN | Wed May 23, 2012 8:07am EDT
(Reuters) - An external consulting firm charged with evaluating the structure of Europe's new permanent rescue facility has raised questions about whether it will have enough staff to function effectively, according to documents seen by Reuters.

In a May 12 letter addressed to Klaus Regling, the head of the bloc's temporary rescue fund, partners at A.T. Kearney warn that the approved staff of 75 for the European Stability Mechanism (ESM) may prove "too small" if the debt crisis rumbles on for several years.

The opinion comes less than six weeks before the ESM is due to come into force and as worries mount that Greece could be forced out of the currency bloc, a step that could fuel contagion to other member states, forcing the new facility into immediate action.

"With 75 people, the team will manage a balance sheet which is potentially 50 percent larger than the largest Sovereign Wealth Funds (Norway and Abu Dhabi), but with a fraction of the people employed," the letter from A.T. Kearney reads.

"Equally, the size is roughly twice the one of the APG Group, the largest European pension fund, which has roughly 700 people in financial operations alone."

A.T. Kearney notes that unlike such funds, the ESM will have little or no freedom to choose the majority of its assets, as these will depend on which euro zone countries require financial assistance. Because of this, it says an argument can be made for having a small team that is of very high quality.

But the consultants add: "Finally, as a market practitioner, we also observe that the current team size, as approved may be too small in size to operate effectively should the current crisis mode continue over a number of years."

The consulting firm says in its letter to Regling that it has been helping his team develop the ESM framework since December 2011.

"UNIQUE RATIOS"

European leaders agreed late last year to move forward the introduction of the ESM by a full year to July 1, 2012. It will raise funding and provide loans to euro zone states threatened by severe financing problems, and also have the power to buy the bonds of stricken members of the currency bloc.

The mechanism is to have an effective lending capacity of 500 billion euros that will be built up over a period of several years.

In a separate official document on the staff structure of the ESM prepared by Regling's team and dated May 11, it is acknowledged that each staff member of the new facility will have "significant responsibility" for the equivalent of 6.6 billion euros if the full lending capacity is exhausted.

"These are unique ratios in financial services and a highly responsible working environment is needed to ensure errorless operations," the document reads.

The existing European Financial Stability Facility (EFSF), which will run alongside the ESM for a year before being phased out, employs around 25 people, but it also uses to the help of the staff of the European Central Bank for market operations and the German Debt Office for some other tasks.

The EFSF runs three financing programs -- for Greece, Ireland and Portugal -- and officials say it is understaffed. The ECB has not yet been asked to act as an agent for market operations for the ESM, although some officials said it was likely that it would.

According to the ESM framework document, euro zone government officials have given the new permanent fund a mandate to grow to 75-100 staff. The budget foresees a staff of 50 when it goes into operation in July, with staff rising to 75 by the end of the year.

One EU official familiar with the planning described the proposed size of the ESM staff as "fair", and said it was based on the experience of the EFSF and an opinion of an external consultant.

(Writing by Noah Barkin)