FAQ of EFSM and ESM

Some important points to be considered and understand about the actors  that will take part soon if some agreement is reached or not between Greece and IIF.

FAQ of EFSM and ESM link

What triggers an EFSF lending programme?
The Facility can only act after a support request is made by a euro area Member State and a country programme has been negotiated with the European Commission and the IMF and after such a programme has been accepted by the euro area finance ministers and a Memorandum of Understanding (MoU) is signed. This would only occur when the country is unable to borrow on markets at acceptable rates.

What happens if a country in difficulty fails to meet the conditions?

The loan disbursements and the country programme would be interrupted until the review of the country programme and the MoU is renegotiated. In such cases the conditionality still exists.

What is EFSF’s lending capacity?

Following the increase of guarantee commitments to €780 billion, EFSF’s effective lending capacity is intended to be €440 billion. This is explained by the credit enhancement structure which includes an overguarantee of up to 165%

Will there be a second programme for Greece?
At the euro zone summit held on 26 October 2011, euro zone Heads of State or Government agreed to a second financial assistance programme for Greece.

How much is the new Greek programme?
The official sector stands ready to provide additional programme financing of up to €100 billion until 2014. The contribution from private sector involvement will be added to this amount.

What are the details of the Private Sector Involvement (PSI)?
Euro area Member States are willing to contribute to the PSI package up to €30 billion. For the private sector, the nominal discount is expected to be around 50% on notional Greek debt although discussions are ongoing. The bond exchange is voluntary and the exchange of bonds should be implemented at the beginning on 2012.

What is the objective of PSI?
The objective is to secure the decline of the Greek debt to GDP ratio with an objective of reaching 120% by 2020.

How will the ESM’s capital be structured?

The ESM will have a total subscribed capital of € 700 billion. Of this amount, € 80 billion will be in the form of paid-in capital provided by the euro area Member States being phased in from July 2013 in five equal instalments. In addition, the ESM will also dispose of a combination of committed callable capital from euro area Member States to a total amount of € 620 billion. During the transitory phase from 2013 to 2017, Member States commit to accelerate, in the unlikely event that this is needed, the provision of appropriate instruments in order to maintain a minimum 15 percent ratio between paid-in capital and the outstanding amount of ESM issuances.

What will be the ESM’s lending capacity?

The ESM’s effective lending capacity will be €500 billion. However at the EU summit held on 9 December 2011, EU Heads of Government and State agreed to reassess the adequacy of the overall ceiling of the EFSF/ESM of €500 billion in March 2012

Will the IMF be involved in the ESM?

The ESM will cooperate very closely with the IMF in providing financial assistance. In all circumstances, active participation of the IMF will be sought on a technical and financial level. The debt sustainability analysis will be jointly conducted by the Commission and the IMF, in liaison with the ECB. The policy conditions attached to a joint ESM/IMF assistance will be negotiated jointly by the Commission and the IMF, in liaison with the ECB.