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European financial stabilisation mechanism

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European financial stabilisation mechanism

This Regulation establishes a European financial stabilisation mechanism. The mechanism provides financial assistance to Member States in financial difficulties.

ACT

Regulation (EU) No 407/2010 of the Council of 11 May 2010 establishing a European financial stabilisation mechanism.

SUMMARY

The financial crisis that hit the global economy at the end of 2008 has had several harmful consequences for Member States’ economies:

  • the downturn in economic growth;
  • the deterioration in the budget deficits and debt positions of the Member States;
  • the destabilisation of financial markets.

The financial difficulties experienced by a Member State may present a serious threat to the financial stability of the European Union (EU) as a whole. It is therefore necessary to establish a European facility providing financial assistance which is capable of supporting Member States in difficulty and thereby preserving the financial stability of the EU.

Scope

The European financial stabilisation mechanism provides assistance to Member States where:

  • a Member State is experiencing, or is seriously threatened with, a severe financial disturbance;
  • the financial disturbance or threat of financial disturbance is due to events beyond the control of the Member State concerned.

Financial assistance

The European financial stabilisation mechanism may take the form of a loan or credit line granted to Member States. A credit line is an authorisation given to a Member State to draw funds up to a specified ceiling for a given period of time.

Procedure

Before it can benefit from the European financial stabilisation mechanism, a Member State shall submit a request comprising:

  • an assessment of its financial needs;
  • an economic and financial adjustment programme describing the various measures to be taken to restore financial stability.

Thereafter, the Council shall decide whether to grant financial assistance to the Member State. It shall act by a qualified majority on a proposal from the Commission. If the Council decides to grant financial assistance to the Member State, its decision contains:

  • the procedures for the financial assistance, such as the amount, the number of payments, the availability period of the financial assistance, etc.;
  • the general economic policy conditions: these conditions are established by the Commission. They are attached to the EU financial assistance with a view to re-establishing a sound economic situation in the Member State concerned and to restoring its capacity to finance itself on the financial markets;
  • the economic and financial adjustment programme of the Member State.

Moreover, the general economic policy conditions shall be the subject of a Memorandum of Understanding between the Member State and the Commission. The Commission shall then re-examine compliance with these conditions regularly in collaboration with the European Central Bank. Any changes to these conditions may result in an adjustment of the economic and financial adjustment programme of the Member State.

Granting of financial assistance

The disbursement of loans or the opening of credit lines granted to Member States shall be managed by the Commission. The latter shall verify at regular intervals whether the economic policy of the beneficiary Member State accords with its adjustment programme.

The Commission shall also be authorised to borrow on the capital markets or from financial institutions in order to finance the loans granted to Member States.

Moreover, the Court of Auditors shall have the right to carry out financial controls and audits in order to verify the legality of financial assistance granted by the EU.

Compatibility with other mechanisms providing financial assistance

The European financial stabilisation mechanism is compatible with the facility providing medium-term financial assistance for balances of payments. This financial assistance is for Member States which have not adopted the euro and are experiencing difficulties in their balance of payments.

The European financial stabilisation mechanism also does not exclude recourse to financing outside the EU, in particular by the International Monetary Fund. In that case the Commission shall examine whether the European financial stabilisation mechanism is compatible with the outside financing.

Review of the European financial stabilisation mechanism

Six months after the entry into force of this Regulation, the Commission shall review whether the exceptional circumstances which justified the establishment of the European financial stabilisation mechanism remain. If the European mechanism is maintained, the Commission shall conduct the same review every six months.

References

Act

Entry into force

Deadline for transposition in the Member States

Official Journal

Regulation (EC) No 407/2010

12.5.2010

-

OJ L 118 of 12.5.2010

Last updated: 30.07.2010

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