Financial Stability Facility, European (EFSF [so officially

not “Fund,” as is often read]: In the course of the Greek crisis in spring 2010, the EU ministers decided to grant Community assistance to members of the eurozone with high current account deficits, which are thus regularly cut off from the international capital market because the repayment of borrowings is in question. Article 122 TFEU served as the legal basis. This article exceptionally allows the EU to provide financial assistance in the event of natural disasters or exceptional occurrences. There is no doubt that Article 122 TFEU was alarmingly overexpanded in this decision. – In a first step, the EU Commission can borrow on the market and on-lend to the affected country; the EU budget secures these loans. Once these funds have been exhausted, further financial grants can be raised by the member states in a second step, for which the individual countries assume guarantees according to a certain distribution key (basis of apportionment). – The corresponding legal basis for these grants was approved by the German parliament at the end of May 2010. In organizational terms, the EFSF is assigned to the European Investment Bank (EBI) in Luxembourg. No special consent of the EU member states is required for the EFSF to operate in detail. The guarantees for the EFSF assumed by the member states on a pro rata basis are initially limited until mid-2013. Many assumed from the outset that this facility would become permanent and that the EMU would thus move closer and closer to a transfer union. In fact, it was decided in March 2011 to follow the ESFS with a European Stabilization Mechanism. – The ESFS was widely viewed as very dubious because it sets the wrong incentives (moral hazard) and could hardly help to put public finances back in order. After all, how could a country that is unable to keep its debt in check suddenly change its behavior when accessing other countries’ money? – Another moral hazard problem also arises. If there is a crisis mechanism that helps a country in an emergency, this creates false incentives for private creditors as well, especially for the buyers of the government bonds of such countries. Involving them in the crisis resolution could prevent them from buying the profitable securities – because their price is low. In this way, a bankrupt state would not receive any more funds and would be forced to bring its expenditures into balance with its revenues. – See automatic adjustment, investor strike, bail-out, blame game, credit default swap linkages, European Debt Agency, European Stabilization Mechanism, European Monetary Union, fundamental error, European Treasury, ECB balance sheet, financial stability, Greek crisis, peer pressure, Ireland crisis, policy clamp, policy default, bailout, solidarity, financial, blocked account, sovereign debt pressure, Stability and Growth Pact, fundamental error, transfer union, debt-productivity linkage, growth-debt fact, historical, two-way option. – Cf. Monthly Report of the Deutsche Bundesbank of May 2010, pp. 12 f. (criticism of the guarantees in the course of the European Stabilization Mechanism), Monthly Report of the Deutsche Bundesbank of November 2010, pp. 11 f. (corresponding aid must be preceded by credible consolidation measures by the problem countries), Monthly Report of the ECB of December 2010, pp. 89 ff. (the EFSM in the web of other aid), Deutsche Bundesbank Monthly Report of February 2012, pp. 68 f. and p. 72 f. (steps toward a European stability mechanism), ECB Monthly Report of July 2011, p. 91 ff. (EU framework for crisis management in the financial sector).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/