The economic crisis has prompted intense and sustained action by the EU's national governments, the European Central Bank and the Commission. All have been working closely together to support growth and employment, ensure financial stability, and put in place a better governance system for the future.
The European Council endorsed the creation of the permanent mechanism to safeguard the financial stability of the euro area, the European Stability Mechanism (ESM), to become operational as of mid-2013. Heads of State or Government agreed on the general features of the mechanism and on a draft decision to introduce the limited Treaty amendment required to establish it. The envisaged amendment will have formally to be approved by all EU Member States in accordance with their respective constitutional requirements. The ESM would be activated by mutual agreement of the euro area countries in cases where the stability of the euro area as a whole was at risk, with any financial assistance subject to strict conditions.
>> EUCO 30/10. 17/12/2010. Council conclusions
>> European Commission President Barroso. SPEECH/10/764. 17/12/2010. Statement by President Barroso
>> European Council. The President. PCE314/10. 16/12/2010. Remarks following the first session of the European Council
>> European Council. The President. PCE315/10. 17/12/2010. Remarks following the meeting of Heads of State or Government
As the first general increase in capital since in its 12 years of existence, the ECB decided to increase its subscribed capital by €5 billion, from €5.76 billion to €10.76 billion, with effect from 29 December 2010. The Governing Council of the ECB deemed this decision appropriate due to increased volatility in foreign exchange rates, interest rates and gold prices as well as credit risk.
For smooth the transfer of capital to the ECB, the euro area national central banks will pay their additional capital contributions of €3,489,575,000 in three equal annual instalments of €1,163,191,667 each. The first instalment is foreseen for 29 December 2010, the remaining two will be paid at the end of 2011 and 2012, respectively.
Moreover, the minimal percentage of the subscribed capital, which the non-euro area national central banks are required to pay as a contribution to the operating costs of the ECB, will be reduced from 7.00% to 3.75%. The non-euro area NCBs consequently will make only minor adjustments to their capital shares, which will result in payments totalling €84,220 on 29 December 2010.
>> ECB increases its capital
The legislation establishing the ESRB came into force today. The Chair of the ESRB is the President of the European Central Bank (ECB), and its seat is Frankfurt/Main. The ESRB is an independent EU body responsible for the macro-prudential oversight of the financial system within the EU. It will contribute to the prevention or mitigation of systemic risks to financial stability in the EU that arise from developments within the financial system. It will also contribute to the smooth functioning of the internal market and thereby ensure a sustainable contribution of the financial sector to economic growth. The General Board of the ESRB will have its inaugural meeting on 20 January 2011.
>> ECB. 16 December 2010 - European Systemic Risk Board established
>> European Commission President Barroso. Speech 10/753. The European Council: sending a signal of unity, solidarity and support for the European project
Olli Rehn, European Commissioner for Economic and Monetary Affairs, addressed the Greek parliament on the theme "Greece makes major achievements in response to the crisis?"
>> SPEECH/10/738. Speech of Commissioner Olli Rehn to the Greek Parliament
Euro area and EU financial support will be provided on the basis of a programme which has been negotiated with the Irish authorities by the Commission and the IMF, in liaison with the ECB.
>> Ecfin article. Council agrees on joint EU-IMF financial assistance package for Ireland.
The future ESM, agreed on 28 November by euro-area finance ministers, will replace the current European Financial Stability Facility (EFSF) as of mid-2013. The agreement will be reflected in the proposal for an amendment to the Treaty that Council President Herman Van Rompuy will submit to the European Council in December 2010.
The ESM will safeguard financial stability in the euro area and will build on the existing European Financial Stability Facility (EFSF) and complement the new framework for reinforced economic surveillance in the EU. This new framework, which includes in particular a stronger focus on debt sustainability and more effective enforcement measures, focuses on prevention and will substantially reduce the probability of a crisis emerging in the future.
An overall evaluation of the new mechanism will be performed by the Commission, in liaison with the ECB, in 2016.
The ESM will assist euro area Member States in financial distress in combination with a strict economic and fiscal adjustment programme.
Private sector involvement will be decided on a case-by-case basis, fully in line with IMF usual practices. There will be no automatic solutions and no prior requirement. The exact form of the participation by private creditors will depend on the specific nature of the problem to be addressed and will be fully consistent with IMF practices.
>> Memo 10/636. Question and answers. European Stability Mechanism (ESM)