2. How assistance to Member States works

 What instruments are available to provide financial assistance to EU Member States?

There are now four instruments in place, with different financial volumes and institutional set-ups.

1. The euro-area Member States have provided financial support of €80 billion to Greece in the form of pooled bilateral loans. This support was organised in an intergovernmental framework.

In addition, after the Ecofin Council on 10 May 2010¹, two new instruments have now been made available.

2. The European Financial Stabilisation Mechanism (EFSM)² is a Treaty-based mechanism covering all EU Member States. It allows maximum financing of around €60 billion.
3. The European Financial Stability Facility (EFSF), in the form of a Special Purpose Vehicle (SPV) allowing funding of up to €440 billion. This was set up using an intergovernmental approach rather than creating a permanent instrument under the Treaty.
4. Finally, non-euro-area Member States may receive assistance through the Balances of Payments (BoP) Regulation3. This allows the granting of financial support up to a total of €50 billion. €15 billion has already been used to provide support to Romania, Latvia and Hungary, leaving an available balance of €35 billion. In total, this means that the EU and its Member States can provide financial support of up to €630 billion.

 How does the European Financial Stabilisation Mechanism (EFSM) work?

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.

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 Is the ESFM open to all EU countries?

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.

 What is the European Financial Stabilisation Facility (EFSF) and what will it do?

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.

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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