Have the European emergency funds achieved their objectives, and when will the loans be repaid?
Emergency funds
Since 2008, the budget situation in many EU member states has sharply deteriorated as a consequence of the financial crisis. In 2010, an untenable situation emerged in Greece, presenting potentially serious consequences for the entire euro area. In May 2010, the European Commission and the European Central Bank (ECB) agreed to launch a financial assistance programme (‘bail-out’) for Greece.
From June 2010 onward, a number of emergency funds were established on the initiative of the EU member states that have the euro as their currency. The funds are intended specifically for euro-area countries at risk of finding themselves in the same financial situation as Greece.
- Greek loan facility (GLF, 2010): a package of bilateral loans from euro-area countries, coordinated by the European Commission, combined with support from the IMF;
- European Financial Stabilisation Mechanism (EFSM, 2011): a temporary fund on a community basis (supported by all EU member states together);
- European Financial Stability Facility (EFSF, 2011): a temporary fund for and by euro-area countries on an intergovernmental basis (supported by the countries of the euro area);
- European Stability Mechanism (ESM, 2012): a permanent fund on an intergovernmental basis between the euro-area countries, replacing the temporary EFSF.
We published a report on the use of EU emergency funds in 2015.The emergency funds were used as part of the financial assistance programmes for Greece, Ireland, Portugal, Spain and Cyprus.
| Country/programme | Duration |
Emergency fund used |
Parallel IMF support |
|---|---|---|---|
| Greece 1 | 2010-2012 | GLF | Yes |
| Greece 2 | 2012-2015 | EFSF | Yes |
|
Greece bridge financing |
2015 | EFSM | No |
| Greece 3 | 2015-2018 | ESM | No |
| Ireland | 2010-2014 | EFSF, EFSM | Yes |
| Portugal | 2011-2014 | EFSF, EFSM | Yes |
| Spain | 2011-2014 | ESM | No |
| Cyprus | 2013-2016 | ESM | Yes |
Financial interest and decision making about emergency assistance
The countries contributing to the emergency funds have a considerable financial interest. As a member of the euro area, the Netherlands acts as guarantor for many billions of euros in the emergency funds set up by the euro-area countries, and it also has billions of euros in loans outstanding.
| Emergency Fund | Form of financing | Total financial interest (bn) | Maximum lending capacity (bn) | Financial interest of the Netherlands (bn) |
|---|---|---|---|---|
| EFSM | Guarantee based on EU-budget | €60 | €60 | €2,8 (4,7%) |
| EFSF | Guarantees from euro-area countries | €780 | Initially €440, later €240 |
€49,6 (6,1%) |
| ESM | Capital contributed by euro-area countries | €80,5 | €500 | €4,6 (5,7%) |
| Callable capital from and to euro-area countries | €624 | €35,4 (5,7%) |
||
| GLF | Direct loans from euro-area countries | €52,9 | €52,9 | €3,2 (6%) |
The total maximum lending capacity of all four emergency funds together was approximately €850 billion. To give a complete picture of the Netherlands’ financial stake, the following amounts should be added:
- €2.4 billion guarantee for a 4.7% share of the Balance of Payments Programme (comparable to the EFSM, but only for non-euro area EU countries);
- €1.8 billion for 2.2% (Dutch share) of IMF emergency assistance for euro-area countries. The IMF support was granted in addition to the EU emergency assistance.
The Netherlands has guaranteed a total of approximately €90 billion of the emergency assistance funds (including support through the IMF). In addition it has contributed almost €8 billion in the form of direct loans to Greece and capital paid into the ESM.
For more information on the (now completed) financial assistance programmes, see completed support programmes
Depending on the fund, decisions about the launch of a loan programme and the allotment of funds are made by the EU institutions, or by the Eurogroup. See decisions on the European emergency funds for a breakdown by fund.
COVID-19
The ESM emergency fund is also used to counter the financial and economic consequences of the COVID-19 crisis. On 23 April 2020, the EU member states’ heads of state and government endorsed a package under which €240 billion can be lent from the ESM. The ESM’s credit line came into operation on 15 May 2020. More information is available here.
The package is available to member states that request assistance. To date no requests have been made.
More information on the EU-measures.
Effectiveness of emergency funds
The EFSF and the ESM were established with the objective of providing financial assistance to euro-area countries in financial difficulties. The EFSF temporary emergency fund was followed by the permanent ESM emergency fund in 2012. On 15 June 2017, an independent evaluator – brought in by the chair of the Board of Governors of the ESM – presented an evaluation report on the emergency assistance programmes implemented between 2010 and mid-2016, totalling around €300 billion. The report covered all five programme countries, i.e. Ireland, Portugal, Spain, Cyprus and Greece (up to and including the second programme). The evaluation examined the relevance, effectiveness and efficiency of the financial assistance provided by the EFSF and the ESM. The report concludes that:
- the establishment of the two emergency funds was indispensable to sustain financial stability in the euro area;
- the funds fulfilled their mandate effectively;
- all five programme countries that received financial assistance improved their debt sustainability and economic fundamentals thanks to the assistance programmes.
Look here for more information.
On 11 June 2020 the ESM published its evaluation, lead by Joaquín Almunia, of the financial assistance provided to Greece. The evaluation focused on the 2015-2018 ESM programme. The main conclusions were (Source: Letter to the President of the House of Representatives of the States General of 25 June 2020 concerning the ESM annual meeting of 11 June 2020):
- the programmes restored stability to the Greek economy, laid the foundations for reform and strengthened Greek institutions. The programmes were vital to keep Greece in the euro area. The programmes had higher social costs than those in other programme countries, however, in part because of austerity measures;
- priority was given to achieving the fiscal targets of the ESM programmes. In consequence, the public investment budget was underspent and insufficient attention was paid to growth-enhancing reforms;
- the Greek crisis strengthened the banking union, which helped restore trust and stability in the Greek banking sector.
Repayment of emergency assistance
The emergency assistance received by euro-area countries since 2010 consists of loans that the recipient countries are required to repay. Click here for a list of the final deadlines for repayment of the loans from the EFSF and the ESM.
The earliest repayments to the ESM will be made by Spain in 2027 The latest repayments to the EFSF will be made by Greece in 2070.
Reform of the ESM
In spring 2021, the ESM members signed an agreement to amend the ESM Treaty. Under the amended ESM Treaty, the ESM will play a stronger role in future support programmes, have more instruments to manage member states’ debts and act as the backstop for the Single Resolution Fund (SRF) for failing banks in the eurozone. More information on the reform of the ESM is available here.