It was a decade ago. The 2008 financial crisis gradually turned into a sovereign crisis in the euro area. The European Union (EU) found itself at the mercy of financial markets, divided and unable to respond. “Europe believed that this type of crisis would not happen, and it was not ready”, explains to World Nicola Giammarioli. Today, the Italian is secretary general of the European Stability Mechanism (ESM).
This little-known institution in France, located in Luxembourg, is the equivalent of a fire station in the euro zone, created in several stages. First in a rush, from June 2010, then more systematically since October 2012. Today, in the event of a financial crisis in one of the member countries of the single currency, it is ready to mobilize quickly up to 410 billion euros to put out the fire (it has 80 billion euros in equity, and the rest can be borrowed on the markets).
Thursday, October 28, the MES will take an additional step. The French Senate must debate at first reading the addition of a new prerogative to this institution, this time concerning the consequences of a possible bank panic. In the event of bank failure, the euro zone has set up, since 2016, the Single Resolution Fund (SRF), financed by the banks themselves, which currently has 52 billion euros. If necessary, it can come to the rescue of an establishment. “But there may be a situation, during a serious crisis, where the rescue of several banks would be necessary, and where this fund would be insufficient”, explains Mr. Giammarioli. To avoid this scenario, the MES could potentially come to the aid of the FRU if the money were to run out.
Five states supported
The decision in principle of this additional power was taken at the end of 2020 by the ministers of the economy of the euro zone, but it requires ratification by all member countries. The process, in France, should be completed in November: after the passage of the text in the Senate, it will be the turn of the National Assembly. The technical decision should be passed there without obstacle. “Seven countries have already ratified, and we do not foresee any major problem in the other member states, estimates Mr. Giammarioli. Full ratification is expected to be completed by the end of the year. “
In pain, by taking its time, the single currency will therefore have succeeded in putting in place very important safety nets, in order to avoid a new existential crisis. With a paradox: “The stronger Europe is, the less the MES will need to be activated, explains the secretary general. But we do not eliminate a fire station because there is no fire. “
You have 42.26% of this article to read. The rest is for subscribers only.