Meeting in their capacity as administrators of the European Stability Mechanism (ESM), the finance ministers of the eurozone countries took note on Thursday 20 June in Luxembourg of the internal work in progress on revising the remit of the Eurozone’s permanent rescue fund.
“The goal of this review is to assess if the financial instruments of the ESM are fit for purpose in a challenging time”, explained ESM Director Pierre Gramegna.
“The Board of Governors discussed the comprehensive review of the maximum lending volume, adequacy of the authorised capital stock, and financial assistance instruments”, said the Chairman of the Board of Governors, Paschal Donohoe. According to him, “it is customary for international organisations to review their toolkits to ensure instruments remain appropriate with regard to potential risks to financial stability”.
In their report, the ESM experts note that some of the fund’s precautionary instruments, such as the credit lines set up in response to the Covid-19 pandemic, were frowned upon in 2020 by the Member States because of the “political stigma” attached to a possible request for assistance, but also because of the low borrowing costs guaranteed by the ECB’s massive intervention in the sovereign debt markets. To remedy this stigma, they recommend authorising grouped applications.
The rescue fund also believes that the eligibility criteria for the ESM’s precautionary instruments should be aligned with the revised rules of the Stability and Growth Pact, which will apply from 2025.
In the context of the banking union, the ESM is also of the opinion that the indirect instrument of bank recapitalisation could be mobilised at an early stage of financial turbulence to recapitalise banking groups in difficulty as a precautionary measure. This development will depend on the final outcome of the legislative work on the ‘CMDI’ package designed to strengthen the management of a banking crisis, on which the Council of the EU has just adopted its negotiating position with the European Parliament (see EUROPE 13435/2).
At the meeting of the Board of Governors, the Italian Minister, Giancarlo Giorgetti, welcomed the openness expressed by his French and Spanish counterparts on the possibility of using the ESM for interventions in the defence and security sectors.
In 2023, the ESM made a profit of €320.5 million, mainly due to the rise in interest rates on the investments it has made, after losses of €60.2 million in 2022.
To see the report on the eurozone rescue fund, go to https://aeur.eu/f/crh Original version in French by Mathieu Bion)