Asymptotix presents European Stabilisation Bank Proposal Booklet
Friday, 11 June 2010 | 
European Affairs
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European Stabilization Machanism : The Treaty
Important progress has also been made on EU financial backstops to improve the flexibility and pricing of financial assistance instruments of the existing instruments. An agreement has been reached to establish a permanent stability mechanism that will serve to safeguard the financial stability of the euro area. The European Stability Mechanism (ESM) will replace the role of the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM) in providing external financial assistance to euro-area Member States after June 2013. Access to ESM financial assistance will depend on adherence to strict policy conditionality. The agreed lending capacity of EUR 440 billion of the EFSF will be made fully effective.
Statement by Olli Rehn
International Monetary and Financial Committee
Twenty-Third Meeting
April 16, 2011
http://www.imf.org/external/spring/2011/imfc/statement/eng/ec.pdf
Term Sheet on the ESM From The Dutch Government (at some level but very good)
ECB view: http://www.ecb.int/pub/pdf/other/art1_mb201104en_pp61-77en.pdf
Brief Quote
Like the IMF, the ESM will provide financial assistance to an ESM Member when its regular access to market financing is impaired. Reflecting this, Heads of State or Government have stated that the ESM will enjoy preferred creditor status in a similar fashion to IMF, while accepting preferred creditor status of the IMF over the ESM. This status shall be effective as of 1 July 2013. In the unlikely event of ESM financial assistance following a European financial assistance programme existing at the time of the signature of this Treaty, ESM will enjoy the same seniority as all other loans and obligations of the beneficiary ESM Member, with the exception of the IMF loans.
Strengthening the stability mechanisms of the euro area
16. Recalling the importance of ensuring financial stability in the euro area, the European Council adopted the decision amending the TFEU with regard to the setting up of the European Stability Mechanism. It calls for the rapid launch of national approval procedures with a view to its entry into force on 1 January 2013.
17. The European Council welcomes the decisions taken by the euro area Heads of State or government on 11 March and endorses the features of the ESM (see Annex II). The preparation of the ESM treaty and the amendments to the EFSF agreement, to ensure its EUR 440 billion effective lending capacity, will be finalised so as to allow signature of both agreements at the same time before the end of June 2011.
TFEU = the Rome Treaty was renamed to the Treaty on the Functioning of the European Union (TFEU).
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/1185...
How the new super-SPV will function (aka the ESF or ESM)
The European Stabilization Mechanism (ESM) or Framework (ESF) is basically a Special Purpose Vehicle (SPV) or Entity (SPE).
(Don't give up reading, this is IMPORTANT!)
The SPV is legally constituted as far as I can understand in a manner analogous to those which caused the credit crisis, does no-one else see the irony in this? Except that an SPV at arms length from the European Commission hardly requires legal constraints to ensure that it is bankruptcy-remote (it is only the citizens who may go bankrupt and the commission executives are the only people who are bankruptcy-remote, right?). Anyway, Anyway Anyway ...
The drip feed of how the super-SPV is going to work has commenced particularly since the governments of the member states have to approve that mechanism. So here are some interesting, practical references on that operating model. As you will see the super-SPV is just as opaque, if not abstruse, as ABACUS was or the famous Granite or WhistleJacket, which I think was actually the first domino to fall (I know I'll be corrected). Here are the references;-
European Financial Stability Facility Bill 2010, Second Stage Speech, Minister for Finance Mr. Brian Lenihan T.D. 24 June 2010; here
German debt agency asked to issue bonds, the Financial Times here
and this interesting analysis from Ignis Asset Management in Glasgow
"Debt, disunity, default, double dip, deflation and depression?" here
surely, by now; with this weight of evidence on this page and the related "thinking out loud page" here I have made my point QED no?
European Commission plans shake up of financial supervision
Jun 22 2010
Niamh Grogan and Gordon Christian
SJ Berwin's EU & Competition Department in London
LINK
An excellent concise and lucid summary of the current position
European Commission DG ECFIN
Coordination with the EIB Group and the EBRD
The EIB Group consists of the European Investment Bank (EIB) and the European Investment Fund (EIF).
The EIB's task is to contribute, through the financing of investments, to the integration, balanced development and economic and social cohesion of the EU. DG ECFIN is responsible for the formulating the Commission's position on the strategic orientation of the EIB. DG ECFIN also coordinates the preparation of the Commission's opinion on the EIB's compliance with EU rules and policies in its loan proposals.
The EIF specialises in providing venture capital and guarantee instruments for the development of small and medium-sized enterprises (SMEs). DG ECFIN ensures the appropriate coordination between the EIF and other Commission departments on specific questions arising in relation to EU policies and legislation.
The European Bank for Reconstruction and Development (EBRD) is an international financial institution designed to foster the transition towards open market-oriented economies and to promote private and entrepreneurial initiative in countries from Central Europe to Central Asia. It is owned by 61 countries (including all EU Member States), the European Community and the EIB. The total EU shareholding is 63%. The EBRD provides project financing mainly for private enterprises, usually together with other commercial lending partners. It also works with public partners to support privatisation, restructuring and improvement of municipal services.
http://ec.europa.eu/economy_finance/financial_operations/coordination/index_en.htm
Commission paper on Reinforcing economic policy coordination
"The euro area's governance and coordination of economic policies
must be improved. This will involve both deepening and broadening economic surveillance arrangements to guide fiscal policy over the cycle and in the long term and, at the same time, address divergences in growth, inflation and competitiveness."
The exceptional combination in Greece of lax fiscal policy, inadequate reaction to mounting imbalances, structural weaknesses and statistical misreporting led to an unprecedented sovereign debt crisis.
On 9 May, based on a proposal of the Commission, the ECOFIN decided on the establishment of a temporary European stabilisation mechanism to deal with the immediate needs of the crisis. This was part of a wider package, including strong commitments to fiscal consolidation where warranted and involvement of the IMF through itsusual facilities in line with the recent European programmes.This mechanism was created to respond to the current exceptional circumstances and entails an overall financial support of up to EUR 500 billion. Financial assistance will be subject to strong conditionality, in the context of a joint EU/IMF support, and will be on termsand conditions similar to the IMF. This mechanism will be financed through two complementary sources. The first, building-on a Council Regulation based on Article 122(2), can mobilize up to EUR 60 billion. In addition, the euro-area Member States stand ready through an intergovernmental agreement to complement such resources through a Special Purpose Vehicle. This SPV would borrow using financial guarantees of the participating Member Sates up to EUR 440bn.
This mechanism largely respects the basic principles for a permanent robust crisis resolution mechanism. Therefore, the Commission considers that the first priority must now be to make this mechanism fully operational. Based on this experience, the Commissionintends in the medium-to-long term to make a proposal for a permanent crisis resolution mechanism.
The Commission will develop the reform proposals presented in this Communication, in line with its responsibilities under the Treaty. It considers it important to make swift progress on the reform agenda laid out in this Communication: the present economic situationrequires urgent action to implement the measures proposed to improve the economic governance of the EU and the euro area. The first European Semester should start with the beginning of 2011.
The Commission stands ready to follow-up swiftly with legislative proposals, including amending the regulations underpinning the Stability and Growth Pact, to enhance the prevention and correction of macroeconomic imbalances within the euro area, and to establisha more permanent framework for crisis management.
Read the full paper presented by the Commission to the European Parliament Economic and Monetary Affairs Committee yesterday here
European Parliament Debate: Trichet and Governance
from the European Parliament website
The European Parliament is the only locus to resolve any European institutional inadequacies and the Economic and Monetary Affairs committee is the correct place to kick off such a debate, particularly when its chaired by Sharon Bowles (who we like, see here). But who provides support to that committee? Yes DG ECFIN, the DG which kept telling us last year everything was all right with the Stability and Growth Pact and that Europe was heading for a "soft landing". That DG which is now in radical overhaul, lets face it, adding is it two new Directorates General? Whilst leaving the old ones plodding on, in place.
The Economics and Monetary Affairs Committee needs to realise that in discussing Economic Governance in Europe, the biggest problem it has, the mammoth in the room, is the Commission, Ms Bowles should take the committee out of Brussels for a meeting where some proper thinking can be done.
VoxEU What more do European governments need to do ..
.... to save the Eurozone
Two key building principles of the Eurozone were that the ECB should be insulated from political interference and prevented from the funding of government deficits. This essay explains how the Eurozone crisis has threatened these principles and suggest ways to restore them.
Thomas Mayer
Chief Economist of Deutsche Bank Group
and Head of Deutsche Bank Research
HERE