The rescue fund proposes to be able to provide liquidity in the face of unforeseen crises | Economy

From left: the European Commissioner for the Economy, Paolo Gentiloni, the President of the Eurogroup, Pascal Donohoe, the President of the ECB, Christine Lagarde, and the head of the ESM, Klaus Regling.
From left: the European Commissioner for the Economy, Paolo Gentiloni, the President of the Eurogroup, Pascal Donohoe, the President of the ECB, Christine Lagarde, and the head of the ESM, Klaus Regling.HANNIBAL HANSCHKE (Reuters)

The European rescue fund, the so-called European Stability Mechanism (ESM), wants to play a role in the monetary union that emerges from the review of fiscal rules, a debate now underway in the EU. This Thursday he launches a proposal in which he offers the creation of a fund that provides cheap liquidity to the countries that make up the euro zone when they are hit by an exogenous crisis in which they have little or nothing to do with their previous management of economic policy. To put it with recent examples, it is a tool that could face the economic consequences caused by situations such as the current one, the war in Ukraine, or the one that occurred two years ago with the pandemic, as can be deduced from the document prepared by economists of this organization to which EL PAÍS has had access.

It is not the first time that MEDE tries to play this role. As soon as the pandemic exploded in 2020, everything indicated that it was going to become the liquidity instrument that Member States with little fiscal space were going to use. It came to lower the conditions under which it granted loans to countries. But no State, with the memory of the financial crisis still fresh, wanted to carry the stigma that could be associated with identifying that loan with a rescue. In addition, in the end, extraordinary mechanisms were created that are still in progress: SURE, which financed national unemployment insurance and employment protection measures (ERTE), and the Recovery and Resilience Fund.

The economists of the body chaired by the German Klaus Reggling present this fund as “a tool for the fiscal stabilization of the euro zone”, which is necessary because there are “factors pressing urgently”. The first would be “the record debt levels and the large monetary stimuli of the last decade that constrain the margin of fiscal action in the Eurozone as a whole and have reduced the fiscal possibilities of many Member States”. Another factor would be that “the possibilities are growing that in the future there will be more external shocks with asymmetric consequences” in the different countries, something caused by the war in Ukraine and climate change.

Given this situation, the ESM proposes the creation of this fund that would have resources equivalent to 2% of the GDP of the euro zone in 2019, about 250,000 million euros, which could lend money up to an amount similar to 4% of the GDP of the requesting state. These credits should be repaid in 10 years, they would have a grace period of three years and their price is just a 0.1% margin for the agency on the types of the line, an opening commission of 0.25% and an annual fee of 0.005%.

When could these credits be accessed and which countries could do so? The criteria that the document points out to request this liquidity begin with “a significant increase in the unemployment rate in the short term” and the qualitative evaluation of experts who analyze other indicators to ensure that it is not a “false alarm”. But this would not be enough to have the right to go to the ESM window, it would also be required that the applicant countries were not under an excessive deficit procedure or with a warning signal due to macroeconomic imbalances. According to sources from the organization, it is intended that this stabilization mechanism respond only to sudden and unforeseen economic crises and not when they arrive as a result of the economic and fiscal policies applied by governments.

However, this condition greatly restricts the options that can be used with this tool. It is true that at the moment there is no country with an open excessive deficit procedure, but at the same time the fiscal rules have been suspended since 2020 due to the pandemic. If the escape clause -official name of that suspension- were not active, only Luxembourg, Estonia and Ireland would be in a position to request liquidity, since they have a deficit of 3% of GDP or less and their public debt is below.

He knows in depth all the sides of the coin.


In defense of its proposal, the ESM points out that its option could be developed quickly, unlike other approaches that have been emerging. And it also highlights that they already have those 250,000 million that they claim as the maximum size of the liquidity fund. This would avoid any kind of cost “for taxpayers” and would make it “particularly attractive for countries in the euro zone that are unlikely to draw on funds of any kind from the fiscal stabilization tool.”

This document released by the ESM this Thursday is the second it has published since the European Commission opened the debate to review the EU’s fiscal rules. Before the end of the year, a group of economists linked to the entity published an article in which they proposed raising the public debt limit from the equivalent of 60% of GDP to 100%. However, that document was not as clearly sponsored by the institution’s leaders as this one, which has a prologue signed by the entity’s secretary general, Nicola Giammarioli, and presents it as “a realistic and timely proposal.”

The race to succeed Regling

The publication of this article coincides with the launch of the race to succeed the German Klaus Regling as head of the ESM. This Monday the name of the four candidates who have presented themselves to take the witness next October has been known. Possibly, the candidacy that stands out the most is that of the Italian Marco Buti, who is a European civil servant with a long career in the Brussels institutions, especially in the General Directorate of Economy and Finance of the European Commission, of which he became General Director. . Buti is now the chief of staff of the Economy Commissioner, Paolo Gentiloni. If all this reinforces his candidacy, against him is that his country, Italy, has not yet ratified the latest ESM reform.

The former Minister of Finance of Portugal, Joao Leao, who left the Government with the formation of the new Portuguese Executive formed after the elections at the beginning of the year, also appears. Another of his competitors is another former Finance Minister, in this case the Luxembourger Pierre Gramegna, who left the Executive in January and already tried to be president of the Eurogroup when Pascal Donohoe was elected. The latest candidate is the former Dutch Secretary of State for Finance, Menno Snel.

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