THE STATE OF THE EUROPEAN UNION

THE STATE OF THE EUROPEAN UNION

European deposit guarantee so that an amount

up to a certain threshold was covered in the

event of the liquidation (failure) of financial insti-

tutions. The SRF could have served that purpose

with bigger funding and a specific contribution

from the banks to that end, with no time limit.

However, the decision was made to maintain

the setup of national deposit guarantee funds,

reinforcing the directive currently in force (ini-

tially approved in 1994) and which already es-

tablishes protection of deposits up to 100,000

euros. The changes introduced require all the

states to have this type of fund, as well as to

finance them in accordance with certain re-

quirements.

The role of the ESM

The ESM is an international organisation formed

by the 19 member states that have adopted the

euro. It has been provided with capital of 750

billion euros and is authorised to grant official

funding to states facing difficulties in their bal-

ance of payments or which find it impossible to

raise capital in the public debt markets. Since its

inception, it has granted loans to Ireland,

Portugal, Cyprus and Spain (in the case of

Greece, the financial assistance programme was

implemented by a joint loan from the euro-area

countries and by the ESM’s predecessor, the

European Financial Stability Facility, actually a

company registered in Luxembourg and whose

owners are the states).

The ESM has played an important role in of-

fering financing to states that were locked out

of the financial markets because of the crisis of

confidence that arose in the euro zone starting

in the spring of 2010. The ESM, then, is an es-

sential piece in the European financial system in

that it counteracts a major failure of the market.

However, the loans have been tied to strong po-

litical conditionality not without ideological bias

(such as the inclusion of privatisation programmes

in the case of Greece), as well as the participation

of the International Monetary Fund.

As well as granting loans to the states, the

ESM is authorized to buy public debt both in the

primary market (which the ECB is not allowed to

do) and the secondary market. Therefore, the

ESM can act as a stabilizer of the public debt

markets if necessary, for instance automatically

buying up the sovereign debt of any participat-

ing state that is experiencing an abnormal de-

gree of volatility.

Lastly, the ESM will also be able to directly

recapitalize financial institutions within the

framework of the Banking Union.

Unfortunately, the ESM has a highly inter-

governmental structure (in fact, strictly speaking

its founding treaty does not form part of com-

munity law), also because the Commission does

not have the budgetary means to start a fund of

this kind, which means that contributions have

come from the member states. Therefore, talks

on financial assistance programmes end up be-

ing a political negotiation among states (ESM

stakeholders) where individual interests prevail

over the general European interest, and even

over common sense, as highlighted at the

Eurogroup meeting that agreed the loan to

Cyprus and which included a ludicrous clause

that imposed losses on depositors, which only

increased financial instability and had to be rec-

tified as quickly as possible.

The role of the ECB

The ECB took the lead role in the anti-crisis pol-

icies in the EU, at least until Jean-Claude

Juncker’s election as president of the European