The current crisis calls for concerted action at both the European and the international level. The EU has taken a series of bold measures to restore confidence, stability and sustainability in the financial markets.
There are now four instruments in place, with different financial volumes and institutional set-ups.
In addition, after the Ecofin Council on 10 May 20101, two new instruments have now been made available.
The EFSM allows the Commission to borrow on financial markets on behalf of the EU under an EU budget guarantee. The Commission then lends the proceeds on to the beneficiary Member State.
This particular lending arrangement means that the EU pays no debt-servicing costs. The beneficiary Member State repays the loan principal as well as all interest.
The EU budget guarantees the repayment of these bonds in case of default by the borrower. In practice, the EFSM extends the mechanics of the current non-euro-area BoP regulation to all EU 27 Member States.
Yes it is. However, it is widely assumed that non-euro-area countries will continue to turn to the existing Balance-of-Payment Regulation in case of need, and that the ESFM will primarily be used by euro-area Member States.
The EFSF4 was set up in June 2010. It can (as needed) issue bonds that are guaranteed by the euro-area Member States; it can then lend the proceeds on to beneficiary Member States. The financial conditions attached to such loans would be comparable to those already made to Greece.
Are the European Financial Stabilisation Mechanism (EFSM) and European Financial Stability Facility (EFSF) and euro-area assistance to Greece and Ireland not just bail-outs, which are ruled out by the Lisbon Treaty?
No. Article 125 of the Treaty only prohibits Member States from assuming the commitments of another Member State towards its creditors. The support to Greece and Ireland is not a bail-out – it is a loan, which must be repaid fully, with interest. The same would apply to any Member State drawing assistance under the EFSM or EFSF framework.
1. Press release: extraordinary Council meeting - Economic and Financial Affairs, Brussels, 9/10 May 2010
2. Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism
3. Council Regulation (EC) 332/2002 of 18 February 2002 establishing a facility providing medium-term financial assistance for Member States balances of payments
4. Terms of reference of the Eurogroup on European Financial Stability Facility, Luxembourg, 7 June 2010