Decisions on the European emergency funds

Decisions on the European emergency funds were taken by the Eurogroup (the nineteen member states of the euro area) and by the EU (all EU-member states together).

The Finance Ministers of the euro area (the Eurogroup) took decisions on:

  • the Greek Loan Facility (GLF)
  • the European Financial Stability Facility (EFSF)
  • the European Stability Mechanism (ESM)

The EU took decisions on:

  • the European Financial Stabilisation Mechanism (EFSM)

Below is an overview of the decision-making process for the emergency funds. It only includes the emergency funds that are still being upheld, and which may be reactivated if necessary, i.e. the ESM and the EFSM.

European Financial Stabilisation Mechanism (EFSM)

The Finance Ministers of the EU member states decide in the Ecofin Council by qualified majority on the disbursement of emergency assistance from the EFSM. The Balance of Payment programme largely follows the same procedure; we will not discuss this programme separately here.

Before Ecofin takes a decision, the European Commission discusses the financing requirements with the country requesting assistance and makes proposals to the Economic and Financial Committee (EFC) of the Ecofin Council. After the Ecofin Council has taken a decision on the assistance to be provided, the European Commission negotiates a Memorandum of Understanding (MoU) with the country concerned. The MoU lays down the conditions that the country receiving assistance from the EFSM must satisfy. These agreements relate to budget policy and labour market policy among other issues.

Every six months, the European Commission and the European Central Bank (ECB) together determine whether the economic recovery programme of the relevant country needs adapting. If so, the European Commission puts a proposal to adapt the programme to the Ecofin Council, through the EFC. The Ecofin Council then takes a decision by qualified majority.

The European Commission periodically reviews the progress of the recovery programme and decides on the possible disbursement of further tranches.

European Stability Mechanism (ESM)

The Board of Governors (BoG) of the ESM, consisting of the Finance Ministers of the 19 euro-area countries, decides on the provision of financial assistance. The European Commission, the European Central Bank (ECB) and, where possible, the International Monetary Fund (IMF) then negotiate a Memorandum of Understanding (MoU). The MoU lays down the conditions that the country receiving emergency assistance from the ESM must satisfy. These agreements relate to budget policy and labour market policy, among other issues.

The BoG approves the MoU. The managing director of the ESM then makes a proposal to the BoG for the Financial Assistance Facility Agreement (FAFA). The BoG adopts the FAFA, after which the first payment can be made.

The European Commission, the ECB and, where possible, the IMF periodically review the implementation of the recovery programme and report their findings to the Board of Directors (BoD) of the ESM. The BoD evaluates compliance with the agreements and conditions. By proposal of the managing director of the ESM, the BoD then decides on the disbursement of possible further tranches.