The ESM
Dr. Nellie Munin


Timetable
•2008 - The financial crisis hit.
•Summer 2010 - Temporary assistance mechanisms established:
–May 2010: EFSM (European Financial Stability Mechanism).
–June 2010 - : EFSF (European Financial Stability Facility)
•25 March 2011 - Amendment of Art. 136 TFEU.
•13 December 2011 – the ‘Six Pack’ came into force.
•2 February 2012 – Conclusion of ESM Treaty.
•27 September 2012 – Ratification crosses threshold.
•8 October 2012 – Start of ESM operation.
•30 May 2013 – the ‘Two Pack’ came into force.

Eligibility to Financial Assistance
•EMU Members:
•Austria, Belgium, Cyprus, Estonia, Finland,
•France, Germany, Greece, Ireland, Italy,
•Latvia, Lithuania, Luxemburg, Malta,
•the Netherlands, Portugal, Slovakia, Slovenia,
•Spain.
•Eligible to EFSF+EFSM , replaced by ESM
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•Non-EMU Members
•Bulgaria, Czech Republic, Croatia
•Hungary, Poland, Romania, Sweden,
•Denmark, the UK.
•Eligible to assistance by EU
•Member States, international organizations
•(IMF, World Bank) and EU’s Balance of
•Payments (BoP) Program.
•(Hungary, Romania & Latvia before joining the EMU received this assistance).

The Temporary Instruments:
EFSF and EFSM (2010-11)
•Financially assisted EMU Members in financial crisis.
•Issue bonds or other debt instruments on the market.
•EFSF
•Guaranteed by EMU Member States in proportion to their share in the paid-up capital of the ECB.
•Originally authorized to borrow 440 bn Euro. This amount was enlarged in 2011 to 780 bn Euro.
•EFSM
•Guaranteed by EU Commission, Using EU budget as collateral.
•Authorized to raise up to 60 bn Euro.
•It was possible to combine the two resources + IMF Assistance.
•Assisted Ireland, Portugal and Greece.
•Current status: does not lend, continues to manage given loans.
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תוצאת תמונה עבור ‪euro‬‏

The ESM (European Stability Mechanism)
•Legal framework: international organization.
•Establishment means: an intergovernmental treaty, governed by public Intl. law.
•Entry into force date: 27 September 2012.
•Ratification CzR: 23 April 2013, entry into force: 1 May 2013.
•Maximum lending capacity: 500 billion Euro.
•Total subscribed capital of €704.8 billion, with paid-in capital (€80.5 billion) and committed
callable capital (€624.3 billion)
•Resources: Member States’ contribution.
•Shareholders: 19 Member States.
•Management: headquarters in Luxembourg city:
•http://esm.europa.eu/
•ESM assistance can be combined with IMF and bilateral assistance.
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תוצאת תמונה עבור ‪euro‬‏

The ESM: three Circles of Decision Making
•Board of Governors (finance ministers) – political circle. ‘May invite’ ad hoc observers to its
meetings.
•Board of Directors – professional directors appointed by the Governors. ‘May invite’ ad hoc
observers to its meetings.
•Managing director – professional appointed by the Board of Governors.
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Voting
•Board of Governors:
–Mutual agreement Art. 5(6) ESMT
–qualified majority (80% of the votes cast) Art. 5(7) ESMT
–Simple majority – all other cases.
–“[i]n respect of all decisions, a quorum of 2/3 of the members with voting rights representing at
least 2/3 of the voting rights must be present.” (Article 4(2) ESMT)
–file:///C:/Documents%20and%20Settings/Nellie%20Munin/My%20Documents/Downloads/20150203%20-%20ESM%2
0Treaty%20-%20EN.pdf
•Board of Directors
–qualified majority, unless the Treaty states otherwise

ESM Assistance Instruments
•Provide loans in the framework of a macroeconomic adjustment program.
•Purchase debt in the primary and secondary debt markets.
•Provide precautionary financial assistance in the form of credit lines.
•Finance recapitalizations of financial institutions through loans to the governments of ESM
Members.
•Directly recapitalize financial institutions (as an instrument of last resort - when bail-in and
contribution from resolution fund are insufficient to return an institution to viability).
•

Preconditions for Assistance
•Full ratification of the ‘Fiscal Compact’ (stricter version of the Stability and Growth Pact).
•Analysis of the requesting country’s economy by the EU Commission, ECB and IMF to determine the
due manner of assistance.

‘Fiscal Compact’:
Part of The Treaty on Stability, Coordination and Governance (TSCG)
•A general budget deficit less than 3.0% of the gross domestic product (GDP).
•A structural deficit of less than 1.0% of GDP if the debt level is below 60%. Otherwise, it must
fall below 0.5% of GDP.
•Defining thresholds:
–The ‘debt break’ criteria.
–The ‘balanced budget rule’.

Assisted Countries
•Greece
•Spain
•Portugal

 Conclusion
•The ESM is established by a public international law treaty.
•Therefore, theoretically, it is not considered part of EU law.
•Nevertheless, it is subject to CJEU judgment.
•It is accompanied by the ‘Fiscal Compact’ Treaty that tightens fiscal stability criteria.
•It consists of three circles of decision making. The highest instance is political.
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Thank You
E-mail: Nelliemunin@gmail.com
תוצאת תמונה עבור ‪farewell‬‏