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Ten years of ESM: Helpful and yet often despised


The ESM rescue package, which is intended to prevent the euro from breaking up, has been in existence for ten years now. Now there is a reform in the room – but what has it brought so far?

Today is Klaus Regling’s last day at the helm of the permanent euro bailout fund ESM. He ran it for ten years and is now retiring. The deputy chairman Christophe Frankel is to take over the office temporarily. A permanent successor has not yet been determined. So far, it is also unclear how the ESM itself will continue – even if economists have said that it has done a good job so far.

Klaus Regling in Luxembourg on his way to his last participation as head of the ESM at the meeting of euro finance ministers (Ecofin).

Image: EPA

Response to a deep crisis

Colloquially it is called the euro rescue package, in technical jargon it is called the European Stability Mechanism (ESM). It is a kind of financial fire brigade and was set up ten years ago by the then 17 member states of the euro zone, to which two more have now been added, as ESM chief economist Rolf Strauch recalls.

“The founding of the ESM was the answer to a deep economic crisis,” he says. Europe was first hit by the financial crisis, then by the euro debt crisis. Today, 220 employees work for the ESM in Luxembourg. In an emergency, they can grant loans of up to 500 billion euros.

“The euro area faced a crucial test”

The rescue package was intended to protect heavily indebted euro countries from bankruptcy. These included Ireland, Portugal, Greece, Spain and Cyprus. International donors hardly lend these countries any money anymore – this is exactly where the ESM should step in. However, cheap loans were only available under strict austerity and reform conditions.

For Greece, for example, this meant: upward taxes. In addition, the government fought tax evasion, streamlined the state, cut salaries and pensions. ESM chief economist Strauch admits that some of the austerity measures were drastic – but important. “The euro area was facing a crucial test, and it would not have been passed without the ESM,” concludes the ESM chief economist.

Is German tax money seeping away in southern Europe?

Jürgen Matthes, Europe expert at the German Economic Institute (IW) in Cologne, takes a similar view. The rescue package helped the struggling euro countries and made them fit again: “One reason for the euro debt crisis was that these countries had previously made economic policy mistakes and they sometimes had to be painfully corrected with reforms.” As a result, however, the countries have returned to the financial market in a healthy state and new economic growth can be observed there, says Matthes.

Nevertheless, there was a lot of resistance to the rescue package – not only in the countries affected, but also in Germany. In this country, there was great concern that German taxpayers would have to step into the breach for the heavily indebted south of Europe. So far, however, they have not lost any money because there have been no defaults, ESM economist Strauch counters. “I am confident that all countries will repay their debts. Some have even repaid money earlier than planned,” said Strauch.

Some loans run until 2070

However, Friedrich Heinemann from the Leibniz Center for European Economic Research ZEW points out that Greece, for example, will not have to repay some of its loans until 2070: “The EU has thus helped an over-indebted country out of trouble and canceled its debts.” Because if you give a country loans at preferential interest rates for a generation, you are essentially giving that country money.

Despite everything, the help provided by the rescue parachute is not very popular. Of the 500 billion euros, more than 400 billion remained unused, as ESM chief economist Strauch reports. Even the highly indebted Italy, which was badly hit by the Corona crisis, has not claimed anything so far. Strauch’s interpretation: The states would not forgo the aid because of the associated conditions, but because they could currently finance themselves on the market. “A fire brigade also makes sense when there is no fire,” emphasizes the ESM representative.

In the future, possibly help without drastic cure?

Nevertheless, a reform of the ESM is at least being considered. In this way, the rescue package should be able to help countries in the future before they get into an existential emergency. And if a state pursues a good economic policy and does not violate important EU rules, it should also receive aid without strict conditions. So far, however, two euro countries, Germany and Italy, have not agreed.

IW economist Matthes considers this to be the “right approach” if it is ensured that the states do not slip into bad economic policies. ZEW economist Heinemann, on the other hand, is skeptical because, in his opinion, the financial aid will only have a lasting effect in combination with austerity and reform requirements. However, the euro rescue package has now faced powerful competition from the European Central Bank, which has generously supported the euro countries for years without any ifs or buts.

10 years ESM

Ursula Mayer, HR, 10/6/2022 5:29 p.m