Monday, 20 February 2012

What is an escrow account?

An escrow account is an account managed by a bank and dedicated to a special purpose - for example, the 'bail-out fund' created by the European Union to refinance member states. If Portugal did not have the funds to repay it debts, it could (temporarily) avoid credit default by drawing funds from the escrow account.

That might work for the smaller economies. But for Italy? Or France? Who will finance this safety net? And if they money was needed, would this mean a severe haircut for those funding the escrow account?

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