European Financial Stabilisation Mechanism

European Union
Flag of the European Union

This article is part of a series on the
politics and government
of the European Union

The European Financial Stabilisation Mechanism (EFSM) is an emergency funding programme reliant upon funds raised on the financial markets and guaranteed by the European Commission using the budget of the European Union as collateral.[1] It runs under the supervision of the Commission[2] and aims at preserving financial stability in Europe by providing financial assistance to member states of the European Union in economic difficulty.[3]

The Commission fund, backed by all 28 European Union members, has the authority to raise up to €60 billion. The EFSM is rated AAA by Fitch, Moody's and Standard & Poor's.[4][5] The EFSM has been operational since 10 May 2010.[6]

ProgrammesEdit

Irish programmeEdit

Under the programme agreed between the Eurozone and the government of Ireland, the EFSM wil provide loans of 22.4 billion euros between 2010 and 2013. As of January 2012 the EFSM had provided 15.4 bn. Further funds have also been provided through the EFSF[7]

Portuguese programmeEdit

Under the programme agreed between the Eurozone and the government of Portugal, the EFSM will provide loans of 26 billion euros between 2011 and 2014. As of January 2012 the EFSM had provided 15.6 bn. Further funds have also been provided through the EFSF[8]

OperationsEdit

2011 inaugural emissionEdit

On 5 January 2011, the European Union, under the European Financial Stabilization Mechanism, successfully placed in the capital markets a €5 billion issue of bonds as part of the financial support package agreed for Ireland. The issuance spread was fixed at mid swap plus 12 basis points.[9] This implies borrowing costs for EFSM of 2.59%.[10]

Subsequent emissionsEdit

  • € 4.75 bn 10 yr bond issued on 24 May 2011
  • € 4.75 bn 5 yr bond issued on 25 May 2011
  • € 5.0 bn 10yr bond issued on 14 Sept. 2011
  • € 4.0 bn 15yr bond issued on 22 Sept. 2011
  • € 1.1 bn 7yr bond issued on 29 Sept. 2011
  • € 3.0 bn 30 yr bond issued on 9 Jan. 2012

Bailout programs for EU members (since 2008)Edit

The table below provides an overview of the financial composition of all bailout programs being initiated for EU member states, since the Global Financial Crisis erupted in September 2008. EU member states outside the eurozone (marked with yellow in the table) have no access to the funds provided by EFSF/ESM, but can be covered with rescue loans from EU's Balance of Payments programme (BoP), IMF and bilateral loans (with an extra possible assistance from the Worldbank/EIB/EBRD if classified as a development country). Since October 2012, the ESM as a permanent new financial stability fund to cover any future potential bailout packages within the eurozone, has effectively replaced the now defunct GLF + EFSM + EFSF funds. Whenever pledged funds in a scheduled bailout program were not transferred in full, the table has noted this by writing "Y out of X".

EU member Time span IMF[11][12]
(billion €)
World Bank[12]
(billion €)
EIB / EBRD
(billion €)
Bilateral[11]
(billion €)
BoP[12]
(billion €)
GLF[13]
(billion €)
EFSM[11]
(billion €)
EFSF[11]
(billion €)
ESM[11]
(billion €)
Bailout in total
(billion €)
Cyprus I1 2011-12-15Dec.2011-Dec.2012 - - - 2.5 - - - - - 002.51
Cyprus II2 2013-05-13 until 2016-03-31May 2013-Mar.2016 001.0 - - - - - - - 009.0 010.02
Greece3 2010-05-01May 2010-Mar.2016 048.1 (20.1+19.8+8.2) - - - - 52.9 - 144.6 - 245.63
Hungary4 2008-11-01Nov.2008-Oct.2010 009.1 out of 12.5 1.0 - - 5.5 out of 6.5 - - - - 015.6 out of 20.04
Ireland5 2010-11-01Nov.2010-Dec.2013 022.5 - - 4.8 - - 022.5 017.7 - 067.55
Latvia6 2008-12-01Dec.2008-Dec.2011 001.1 out of 1.7 0.4 0.1 0.0 out of 2.2 2.9 out of 3.1 - - - - 004.5 out of 7.56
Portugal 2011-05-01May 2011-May 2014 026 - - - - - 026 026 - 078
Romania I7 2009-05-01May 2009-June 2011 012.6 out of 13.6 1.0 1.0 - 5.0 - - - - 019.6 out of 20.67
Romania II8 2011-03-01Mar 2011-Jun 2013 000.0 out of 3.6 - - - 0.0 out of 1.4 - - - - 000.0 out of 5.08
Spain I9 2012-07-23July 2012-Dec.2013 - - - - - - - - 41.4 out of 100 041.4 out of 1009
Total payment Nov.2008-Mar.2016 120.3 2.4 1.1 7.3 13.4 52.9 48.5 188.3 50.4 484.6
1 Cyprus received in late December 2011 a €2.5bn bilateral emergency bailout loan from Russia, to cover its governmental budget deficits and a refinancing of maturing governmental debts until 31 December 2012.[14][15][16]
2 When it became evident Cyprus needed an additional bailout loan to cover the government's fiscal operations throughout 2013-2015, on top of additional funding needs for recapitalization of the Cypriot financial sector, negotiations for such an extra bailout package started with the Troika in June 2012.[17][18][19] In December 2012 a preliminary estimate indicated, that the needed overall bailout package should have a size of €17.5bn, comprising €10bn for bank recapitalisation and €6.0bn for refinancing maturing debt plus €1.5bn to cover budget deficits in 2013+2014+2015, which in total would have increased the Cypriot debt-to-GDP ratio to around 140%.[20] The final agreed package however only entailed a €10bn support package, financed partly by IMF (€1bn) and ESM (€9bn),[21] because it was possible to reach a fund saving agreement with the Cypriot authorities, featuring a direct closure of the most troubled Laiki Bank and a forced bail-in recapitalisation plan for Bank of Cyprus.[22][23]
The final conditions for activation of the bailout package was outlined by the Troika's MoU agreement in April 2013, and include: 1) Recapitalisation of the entire financial sector while accepting a closure of the Laiki bank, 2) Implementation of the anti-money laundering framework in Cypriot financial institutions, 3) Fiscal consolidation to help bring down the Cypriot governmental budget deficit, 4) Structural reforms to restore competitiveness and macroeconomic imbalances, 5) Privatization programme. The Cypriot debt-to-GDP ratio is on this background now forecasted only to peak at 126% in 2015 and subsequently decline to 105% in 2020, and thus considered to remain within sustainable territory. The €10bn bailout comprise €4.1bn spend on debt liabilities (refinancing and amortization), 3.4bn to cover fiscal deficits, and €2.5bn for the bank recapitalization. These amounts will be paid to Cyprus through regular tranches from 13 May 2013 until 31 March 2016. According to the programme this will be sufficient, as Cyprus during the programme period in addition will: Receive €1.0bn extra-ordinary revenue from privatization of government assets, ensure an automatic roll-over of €1.0bn maturing Treasury Bills and €1.0bn of maturing bonds held by domestic creditors, bring down the funding need for bank recapitalization with €8.7bn - of which 0.4bn is reinjection of future profit earned by the Cyprus Central Bank (injected in advance at the short term by selling its gold reserve) and €8.3bn origin from the bail-in of creditors in Laiki bank and Bank of Cyprus.[24]
3 Many sources list the first bailout was €110bn followed by the second on €130bn. When you deduct €2.7bn due to Ireland+Portugal+Slovakia opting out as creditors for the first bailout, and add the extra €8.2bn IMF has promised to pay Greece for the years in 2015-16, the total amount of bailout funds sums up to €245.6bn.[13][25] The first bailout resulted in a payout of €20.1bn from IMF and €52.9bn from GLF, during the course of May 2010 until December 2011,[13] and then it was technically replaced by a second bailout package for 2012-2016, which had a size of €172.6bn (€28bn from IMF and €144.6bn from EFSF), as it included the remaining committed amounts from the first bailout package.[26] All IMF amounts are used to finance budget deficits and the ongoing refinancing of maturing public debt. The payment from EFSF has been earmarked to finance €34.6bn for the Greek debt PSI, €48.2bn for bank recapitalization,[25] €11.3bn for a second PSI debt buy-back,[27] while the remaining €50.5bn is used for budget deficits and the ongoing refinancing of maturing public debt.[28]
4 Hungary recovered faster than expected, and thus did not receive the remaining €4.4bn bailout support scheduled for October 2009-October 2010.[12][29] IMF paid in total 7.6 out of 10.5 billion SDR,[30] equal to €9.1bn out of €12.5bn at current exchange rates.[31]
5 In Ireland the National Treasury Management Agency also paid €17.5bn for the program on behalf of the Irish government, of which €10bn were injected by the National Pensions Reserve Fund and the remaining €7.5bn paid by "domestic cash resources",[32] which helped increase the program total to €85bn.[11] As this extra amount by technical terms is an internal bail-in, it has not been added to the bailout total. As of 31 March 2013, €58.0bn out of the promised €67.5bn had been transferred, with the remaining amount expected to be transferred during the next three quarters.[33]
6 Latvia recovered faster than expected, and thus did not receive the remaining €3.0bn bailout support originally scheduled for 2011.[34][35]
7 Romania recovered faster than expected, and thus did not receive the remaining €1.0bn bailout support originally scheduled for 2011.[36][37]
8 Romania had a precautionary credit line with €5.0bn available to draw money from if needed, during the period March 2011-June 2013; but entirely avoided to draw on it.[38][39][12][40]
9 Spain's €100bn support package has been earmarked only for recapitalisation of the financial sector.[41] Initially an EFSF emergency account with €30bn was available, but nothing was drawed, and it was cancelled again in November 2012 after being superseded by the regular ESM recapitalisation programme.[42] The first ESM recapitalisation tranch of €39.5bn was approved 28 November,[43][44] and transferred to the bank recapitalisation fund of the Spanish government (FROB) on 11 December 2012.[42] A second tranch for "category 2" banks on €1.9bn was approved by the Commission on 20 December,[45] and finally transferred by ESM on 5 February 2013.[46] "Category 3" banks were also subject for a possible third tranch in June 2013, in case they failed before then to acquire sufficient additional capital funding from private markets.[47] During January 2013, all "category 3" banks however managed to fully recapitalise through private markets and thus will not be in need for any State aid. The remaining €58.6bn of the initial support package is thus not expected to be activated, but will stay available as a fund with precautionary capital reserves to possibly draw upon if unexpected things happen - until 31 December 2013.[41][48]

See alsoEdit

ReferencesEdit

  1. ^ "EU bonds for Ireland bailout well-received on market". Xinhua. 6 January 2011. Retrieved 26 April 2011. 
  2. ^ "AFP: First EU bond for Ireland attracts strong demand: HSBC". Google. AFP. 5 January 2011. Retrieved 26 April 2011. 
  3. ^ Bartha, Emese (5 January 2011). "A Mixed Day for European Debt". The Wall Street Journal. Retrieved 26 April 2011. 
  4. ^ http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201101050332dowjonesdjonline000213&title=eu-sets-price-guidance-on-five-year-euro-bond-at-swaps-+012-015
  5. ^ Robinson, Frances (21 December 2010). "EU's Bailout Bond Three Times Oversubscribed". The Wall Street Journal. Retrieved 26 April 2011. 
  6. ^ The Monetary Policy of the ecb 2011, page 17, ISBN 978-92-899-0777-4 (print) ISBN 978-92-899-0778-1 (online) http://www.ecb.int/pub/html/index.en.html
  7. ^ (English) http://ec.europa.eu/economy_finance/eu_borrower/ireland/index_en.htm
  8. ^ (English) http://ec.europa.eu/economy_finance/eu_borrower/portugal/index_en.htm
  9. ^ "EFSF places inaugural benchmark issue". Europa (web portal). Retrieved 26 April 2011. 
  10. ^ "il bond è stato piazzato al tasso del 2,59%". Movisol.org. Retrieved 26 April 2011. 
  11. ^ a b c d e f "FAQ about European Financial Stability Facility (EFSF) and the new ESM" (PDF). EFSF. 3 August 2012. Retrieved 19 August 2012. 
  12. ^ a b c d e "Balance of Payments - European Commission". Ec.europa.eu. 2013-01-31. Retrieved 2013-09-27. 
  13. ^ a b c http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/index_en.htm
  14. ^ "Cyprus Gets Second 1.32 Bln Euro Russian Loan Tranche". RiaNovosti. 26 January 2012. Retrieved 24 April 2013. 
  15. ^ "Russia loans Cyprus 2.5 billion". The Guardian. 10 October 2011. Archived from the original on 21 July 2012. Retrieved 13 March 2012. 
  16. ^ Hadjipapas, Andreas; Hope, Kerin (14 September 2011). "Cyprus nears €2.5bn Russian loan deal". Financial Times. Retrieved 13 March 2012. 
  17. ^ "Eurogroup statement on a a possible macro-financial assistance programme for Cyprus" (PDF). Eurogroup. 13 December 2012. Retrieved 14 December 2012. 
  18. ^ "European Commission statement on Cyprus". European Commission. 20 March 2013. Retrieved 24 March 2013. 
  19. ^ "Speech: Statement on Cyprus in the European Parliament (SPEECH/13/325 by Olli Rehn)". European Commission. 17 April 2013. Retrieved 23 April 2013. 
  20. ^ "Cyprus could lower debt post-bailout with ESM". Kathimerini (English edition). 12 December 2012. Retrieved 13 December 2012. 
  21. ^ "Eurogroup Statement on Cyprus" (PDF). Eurogroup. 12 April 2013. Retrieved 20 April 2013. 
  22. ^ "Eurogroup Statement on Cyprus". Eurozone Portal. 16 March 2013. Retrieved 24 March 2013. 
  23. ^ "Eurogroup Statement on Cyprus" (PDF). Eurogroup. 25 March 2013. Retrieved 25 March 2013. 
  24. ^ "The Economic Adjustment Programme for Cyprus" (PDF). Occasional Papers 149 (yield spreads displayed by graph 19). European Commission. 17 May 2013. Retrieved 19 May 2013. 
  25. ^ a b "The Second Economic Adjustment Programme for Greece" (PDF). European Commission. March 2012. Retrieved 3 August 2012. 
  26. ^ "EFSF Head: Fund to contribute 109.1b euros to Greece's second bailout". Marketall. 16 March 2012. 
  27. ^ "FAQ – New disbursement of financial assistance to Greece" (PDF). EFSF. 22 January 2013. 
  28. ^ "The Second Economic Adjustment Programme for Greece (Third review July 2013)" (PDF). European Commission. 29 July 2013. Retrieved 22 January 2014. 
  29. ^ "Third supplemental memorandum of understanding" (PDF). Retrieved 2013-09-27. 
  30. ^ "IMF Financial Activities - Update September 30, 2010". Imf.org. Retrieved 2013-09-27. 
  31. ^ "Convert Euros (EUR) and Special Drawing Rights (SDR): Currency Exchange Rate Conversion Calculator". Coinmill.com. Retrieved 2013-09-27. 
  32. ^ "Dáil Éireann Debate (Vol.733 No.1): Written Answers - National Cash Reserves". Houses of the Oireachtas. 24 May 2011. Retrieved 26 April 2013. 
  33. ^ "Ireland's EU/IMF Programme: Programme Summary". National Treasury Management Agency. 31 March 2013. Retrieved 26 April 2013. 
  34. ^ "Balance-of-payments assistance to Latvia". European Commission. 17 May 2013. 
  35. ^ "International Loan Programme: Questions and Answers". Latvian Finance Ministry. 
  36. ^ "IMF Financial Activities - Update March 24, 2011". Imf.org. Retrieved 2013-09-27. 
  37. ^ "Convert Euros (EUR) and Special Drawing Rights (SDR): Currency Exchange Rate Conversion Calculator". Coinmill.com. Retrieved 2013-09-27. 
  38. ^ "IMF Financial Activities - Update September 27, 2012". Imf.org. Retrieved 2013-09-27. 
  39. ^ "Convert Euros (EUR) and Special Drawing Rights (SDR): Currency Exchange Rate Conversion Calculator". Coinmill.com. Retrieved 2013-09-27. 
  40. ^ "Press release: IMF Approves Three-Month Extension of SBA for Romania". IMF. 20 March 2013. Retrieved 26 April 2013. 
  41. ^ a b "Financial Assistance Facility Agreement between ESM, Spain, Bank of Spain and FROB" (PDF). European Commission. 29 November 2012. Retrieved 8 December 2012. 
  42. ^ a b "FAQ - Financial Assistance for Spain" (PDF). ESM. 7 December 2012. Retrieved 8 December 2012. 
  43. ^ "State aid: Commission approves restructuring plans of Spanish banks BFA/Bankia, NCG Banco, Catalunya Banc and Banco de Valencia". Europa (European Commission). 28 November 2012. Retrieved 3 December 2012. 
  44. ^ "Spain requests €39.5bn bank bail-out, but no state rescue". The Telegraph. 3 December 2012. Retrieved 3 December 2012. 
  45. ^ "State aid: Commission approves restructuring plans of Spanish banks Liberbank, Caja3, Banco Mare Nostrum and Banco CEISS". Europa (European Commission). 20 December 2012. Retrieved 29 December 2012. 
  46. ^ "ESM financial assistance to Spain". ESM. 5 February 2013. Retrieved 5 February 2013. 
  47. ^ "European Economy Occasional Papers 118: The Financial Sector Adjustment Programme for Spain" (PDF). European Commission. 16 October 2012. Retrieved 28 October 2012. 
  48. ^ "European Economy Occasional Papers 130: Financial Assistance Programme for the Recapitalisation of Financial Institutions in Spain - Second Review of the Programme Spring 2013". European Commission. 19 March 2013. Retrieved 24 March 2013. 
Last modified on 7 November 2013, at 22:44