The ESM Programmes

Nowadays, the European Stability Mechanism (ESM) can lend up to 410 billion[1] to the Eurozone countries in financial difficulty via different case-specific ESM programmes. These resources are borrowed, issuing debt on the market, using as a guarantee of the ESM solidity its own capital (704 billion). The ESM can support the countries in different manners:

  • ESM programmes with loans in support of macroeconomic adjustment:

The Euro Area countries that need support to finance their public spending , because they are in financial distress or they can’t finance themselves directly on the market, can request financial assistance to the ESM. As a condition for the intervention, the ESM requires the state to implement certain reforms, established considering its specific situation. For example, these may concern reducing the public spending, strengthening the banking sector, adopting measures that improve the competitiveness of the country, increase its economic solidity and allow the state to return to economic growth in the following years. The reforms are established jointly with the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF), if the latter is also involved in the support programme. All the measures are reported in the so-called Memorandum of Understanding (MoU). The main objective is to restore the financial situation of the state to allow it to repay the previous debts and to be able to finance autonomously on the markets again.

The contribution of external and supranational institutions to the economic planning of the country in difficulty is often perceived negatively  by the public opinion. It is seen as a commissioner or, even worse, as an expropriation by foreign countries. Moreover, these reforms have been frequently criticized, because austerity and reduction of public spending in phases of economic contraction could exacerbate the recession, instead of solving it. However, past interventions of ESM programmes had always a positive impact on the country that has requested assistance. Even though they required numerous sacrifices, the reforms established with the European institutions contributed to a reduction of the inefficiencies in the public spending, relaunching the competitiveness of the national economy and its growth and impacted positively also on the labour market.

graph of GDP per capita trend

Figure 1: GDP per capita time series of countries whose  economies have suffered more during the sovereign debt crisis. Spain, Cyprus and Portugal requested the ESM assistance and realized a programme of reforms agreed with the European institutions. After some years of recession, their economy has returned to sustained growth. Italy did not join ESM programmes, but its recovery from the recession was slow and weak. Greece suffered a dramatic economic crisis. The country joined several support programmes of the IMF and the EU. Greek GDP diminished by around 30 percent between 2008 and 2016. However, recently, positive signs have emerged. The economy has started to recover and the country has been able to finance autonomously on the market again after a long time.[2]

unemployment rate trend europe

Figure 2: Unemployment rate of Greece, Spain, Italy, Cyprus and  Portugal from 2010 and 2019.[3]

Participating in the reform planning, the ESM and the other European institutions assure the other Euro Area countries that the resources lent are actually used to solve the vulnerabilities. Furthermore, the presence of conditionalities guarantees also to the ESM creditors that the institution employs the capital safely and will not have problems, in the future, to pay back its debts. Thanks to this mechanism, the ESM can finance itself at very low rates and lend to the countries in difficulty for lower rates than any other investor would offer them in the markets.     


savings ESM

Figure 3: Savings generated accessing the ESM programmes instead of financing directly on the markets. Source:

In addition, the repayment period for the capital of the loans starts only after many years. For example, Cyprus will start to pay back the capital of the ESM loans received in 2012 only in 2025. So far the country paid only a yearly amount of interest.[4]

The ESM can intervene providing loans to the States in crisis to finance their reforms and improve their economic situation, providing resources to recapitalize banks and other financial institutions or, even, purchasing government debt securities on the markets. Generally, the ESM loans have a higher seniority than the normal issuances of public debt. This means that the borrowing state will be responsible for repaying the ESM first and then the other creditors. This can contribute to increasing the cost for the state in difficulty to finance itself in the market. Indeed, the other investors will be more exposed to the risk of not receiving back the money lent, especially if the ESM loans are very large. However, countries that require substantial resources from ESM programmes have probably already lost the possibility to finance themselves on the market, because they are no longer able to find investors willing to purchase such risky debt or because the state is unable to pay the price these investors require to bear that risk. The negative impact of seniority may be softened by the fact that ESM loans have very long maturities.

For countries that can still finance themselves on the market, it is important to remember that the European Central Bank (ECB) can purchase debt securities of a Eurozone country, but only up to a maximum amount.[5] ECB purchases contribute to reduce the cost of debt for the recipient country. Moreover, in situation of extreme financial instability, a state that has requested assistance from the ESM through a macroeconomic adjustment program or a precautionary credit line with reinforced conditionality (see below), and has already signed the Memorandum of Understanding, can benefit from the Outright monetary transactions of the ECB (better known as OMT). [6]OMT allows the ECB to buy short term government bonds (1-3 years) of the state in the secondary market to prevent an excessive rise in yield rates, due to market tensions. By intervening with the OMT, the ECB has no constraints on the amount of securities that can be purchased. The ECB will also waive its right to a higher seniority than other creditors in order to avoid the negative consequences explained above.

Financing part of the needs with ESM programmes can really help a State in difficulty, because it can issue a smaller quantity of debt on the market, benefiting from the low rates and long maturities of the ESM and also from the effect on the cost of debt given by the intervention of the ECB, for the portion issued on the markets.[7]

Polandball comic on the news that the German Constitutional Court will rule on whether the European Stability Mechanism breaches the German constitution (2012)
  • Precautionary credit lines:[8]

Among other ESM programmes, there is the precautionary financial assistance.

A Eurozone state which has an overall sound economic situation, but finds itself temporarily in financial difficulty, or feels it must intervene preventively in order to be able to continue to finance itself on the markets, can apply for access to the precautionary credit lines of the ESM. Precautionary credit lines are shorter duration programmes which last at most two years. Their objective is to protect the States during a period of higher market tension, allowing them to finance their spending for low rates, without the need for deeper interventions. If the State that requested the ESM financing has a sustainable public debt – that is a deficit-GDP ratio below 3% in the last two years and a debt-GDP ratio below 60% (or it is already following a plan agreed with the EU institutions to restore its public finances)[9]– and its banking system does not have problems of solidity that could affect the Euro Area banking system stability then the country is entitled to access the Precautionary Conditional Credit Line (PCCL). The ESM will provide financial support and the state will undertake to plan the necessary measures together with the European institutions, signing a Memorandum of Understanding, to overcome the phase of difficulty.

On the other hand, if the global macroeconomic framework of the state is substantially good, but there are significant imbalances in at least one of the aspects being assessed (public debt, stability of the banking and credit system, etc.), then the country can only access the precautionary credit line with enhanced conditionalities (ECCL). In this scenario, the European Council, the Commission and the ECB, together with the country, establish a detailed corrective plan to overcome the critical points. In addition, the EU institutions initiate periodic surveillance to monitor the risks related to the country’s public debt and financial sector, considering also the possible impacts on other eurozone countries.

The ESM has often been criticised. Many people consider it as a symbol of poor European solidarity. Mainly because its aid programmes to countries in difficulty are loans subject to numerous conditionalities and not subsidies. Unfortunately, conditionalities are difficult to avoid in the absence of greater European integration and major steps forward in the unitary project. The intervention of EU institutions for national economic planning and reforms is seen as a loss of sovereignty, but in the past it has had a positive impact on the economies of the assisted countries. It should not be forgotten that the situations in which the ESM was activated were often particularly critical and could not be overcome by ordinary interventions. In order to have a stronger and more lasting union, it is essential to avoid mechanisms that incentivise some countries to get into debt and use resources that they could not afford in fruitless expenditure, only because they are convinced that, in the end, other European countries will settle the bill for them. Solidarity between EU member States is essential, especially in times of difficulty, but it must be remembered that other States also finance themselves on the markets or through taxes. It is not easy to determine to what extent it is fair to ask a citizen of another country to go into debt or pay more taxes to support another indebted country.

On 15 May 2020, after intense negotiations in the various European institutions, the ESM board of governors established a special temporary credit line to support the healthcare spending of Euro Area States during the covid-19 crisis.

  • ESM Pandemic crisis support:[10]

The pandemic crisis support is a credit line available for all the countries participating in the ESM. Each state can borrow up to 2% of its 2019 GDP for a cost lower than the ordinary precautionary credit lines.

resources for pandemic crisis ESM

Figure 4: Amount of resources that each country could borrow activating the ESM Pandemic crisis support.

These resources will be available until 2022, with the unique conditionality that the credit line must be used to finance the spending related to the sanitary crisis. The ESM disburses the health financing within 12 months of the request and the loan will have a maximum duration of 10 years. Moreover, this assistance is not only available in the form of a loan, the resources of the pandemic credit line can also simply be used as collateral to raise finance on the market at lower costs[11]. Once the ESM intervention has been requested, the state and the European Commission will have to draw up a pandemic response plan, setting out the measures and expenditure that will be financed with the allocated resources. The commission will also monitor the state’s intervention and its economic situation during the life of the loan. Due to the specific conditions of access, the pandemic credit line will only be beneficial for an applicant state if it has a strategic plan to address the weaknesses of its health system or to better address the health emergency. [12] This is especially true since the use and management of the funds is supervised by the European Commission. Convenience will also depend, as usual, on the cost for the state to finance itself on the market. If the market offers similar or lower rates, there will be little point in asking the help of ESM programmes to get resources.

ESM lending rate comparison

Figure 5: 10 years Euro Area government bond yields compared with the ESM lending rate.

Michele Corio

[1] The overall amount that the ESM can lend is equal to 500 billion considering also the resources already deployed. These resources are borrowed by the ESM on the markets to finance its programmes. As explained in the article “ESM for dummies” (link), the 410 billion (or 500) are not part of the capital contributed by the States (700 billion).




[5]  ECB can purchase government bonds of the Eurozone countries in proportion to each national central bank’s share of the ECB’s capital (Capital key). However, the Pandemic Emergency Purchase Programme (PEPP) allows the ECB to have more flexibility in the purchases concerning the capital key.

[6] The OMT is an extraordinary instrument that gives the ECB the right to intervene to preserve the financial and economic stability of a country – and the whole Euro Area –  purchasing its debt securities on the secondary market without any limitation on the amount. This tool was introduced after the famous speech of Mario Draghi (“whatever it takes”) in London in July 2012. Luckily, so far it has never been necessary to use the OMT.



[9] These rules have been suspended during the pandemic and they might be modified after the sanitary crisis.




Monetary Union, the Italian case

In Italy, the monetary union is often taken as a scapegoat for all the ills of the last twenty years. To verify the factuality of this criticism we must weigh the disadvantages of the single currency with the advantages. Furthermore, a critical effort to verify the counterfactual (i.e. what would have happened if we had not adopted the euro) is paramount.

euro One euro Italian coin, picture by Alberto Moglioni

The disadvantages reiterated by the discontented is in having lost the monetary sovereignty and in the unfavourable exchange rate. Let’s start with the first topic. What was once the role of the Bank of Italy has now passed to the European Central Bank (ECB). The advantage of being able to print money lies in the possibility of using expansive monetary policies and devaluation. With the former, the central bank aims to lower interest rates, favouring consumption and investment. While with devaluation export is favoured and the cost of labour is lowered.


All roads lead to Rome

A travel to Europe from 1957 to 2017: 60th anniversary bring back us to Rome again…

“All roads lead to Rome”

Since the monarchic period until the Imperial age, the Roman Forum has been the hearth of the city. The whole Europe looked at it as a reference point.

Magnificent temples, basilicas, Roman Senate, Emperors’ palaces were gathered in few meters.

A lot people used to come to Rome, many roads were spreading to all quarters, they arrived from the green lands of Sannio to Constantine’s Arch, from Spain to Jupiter’s temple, from Palestine to Massenzio’s basilica.

The sun rose behind the hills of Palatino lighting up the “Urbe”, in the landscape the Coliseum appeared.


Unione Bancaria, per una maggiore solidità

Giovanni Sgaravatti

Giovanni Sgaravatti

L’Unione bancaria è un insieme di regole europee istituite per rafforzare il sistema bancario e finanziario europeo. Essa è composta da 2 elementi fondamentali: meccanismo di vigilanza unico e meccanismo di risoluzione unico. Entrambe le componenti riguardano prevenzione e gestione di crisi bancarie. Il meccanismo di vigilanza si occupa di monitorare l’attività delle banche al fine di aumentare la solidità del sistema finanziario e prevenire possibili crisi bancarie che possono mettere in pericolo l’economia dei singoli Stati e dell’intera Unione Europea.

Sede della Banca Centrale Europea

Principalmente, il meccanismo di vigilanza controlla e assicura che le banche abbiano capitale sufficiente ad assorbire le perdite derivanti da decisioni strategiche aziendali sbagliate o da crisi.  Il meccanismo di risoluzione unico invece è un insieme di regole che agisce quando la crisi del singolo istituto è già avvenuta o è molto probabile, cercando di gestire la crisi bancaria nel modo meno dannoso possibile per il sistema finanziario. Esso  è stato fondato con l’intenzione di responsabilizzare le banche nella gestione delle proprie risorse finanziarie, incentivandole a mantenere un’esposizione al rischio adeguata. Inoltre, si cerca di impedire il cosiddetto effetto contagio, ovvero che il fallimento di una singola banca possa mettere a rischio la stabilità di altre banche. Un elemento molto criticato del meccanismo di risoluzione è il cosiddetto “bail-in”, sistema per il quale non è concesso allo Stato, se non in casi eccezionali, di acquistare le banche in difficoltà. Con il meccanismo del “bail-in”, qualora una banca fosse in procinto di fallire, sarebbero i suoi azionisti a doversi far carico di pagare i debiti della banca, e se non ciò non bastasse, sarebbero gli obbligazionisti.

L’alternativa principale al “bail-in” è l’intervento dello Stato nella crisi bancaria. Lo Stato sarebbe costretto ad utilizzare risorse dei contribuenti per risolvere le inefficienze e gli errori della banca, spesso andando a gravare ancora di più sul debito pubblico nel caso italiano. Inoltre, se non ci fosse il meccanismo del “bail-in” le banche potrebbero essere motivate ad agire in maniera irresponsabile, prendendo rischi eccessivi. A rischi elevati spesso corrispondono rendimenti più elevati, ma ovviamente anche maggiori probabilità di perdite finanziarie e rischi di fallimento. Una banca sicura dell’intervento dello Stato potrebbe decidere di correre il rischio di fallire, sapendo che la conseguenza  non sarebbe poi così dannosa. Il “bail-in” dunque punta a evitare queste situazioni. Altrimenti, un’ulteriore possibilità per la risoluzione di una crisi di un istituto bancario è l’intervento del fondo interbancario per la tutela dei depositi (FITD), un fondo costituito con risorse delle varie banche di un Paese o di un sistema economico. Anche in questo caso però c’è il rischio che la singola banca si comporti in maniera imprudente, forte della copertura garantita dal FITD.

Uno dei rischi maggiori in caso di crisi di una banca è che questa non abbia più risorse sufficienti per restituire i depositi ai cittadini che le avevano affidato i propri soldi. La direttiva europea 94/19/CE, poi aggiornata dopo la recente crisi finanziaria, ha sollecitato i singoli Stati a costituire i fondi di garanzia dei depositi. In caso di crisi e fallimento di una banca, i cittadini che hanno depositato i loro soldi sono comunque tutelati da questo fondo finanziato dall’intero sistema bancario del Paese. I depositi sono garantiti per importi fino a 100.000 euro.

Unione Bancaria (in blu tutti i paesi che già applicano il Meccanismo Unico di Risoluzione)

L’Unione bancaria viene spesso criticata da piccoli e piccolissimi imprenditori, perché le imputano la responsabilità di un minor accesso al credito. In parte gli imprenditori hanno ragione, dopo gli accordi di Basilea, e ancora di più dopo l’istituzione nel 2014 del sistema di monitoraggio unico europeo, le banche sono molto più caute nell’erogazione del credito. Più che dell’UE, la responsabilità è però da imputare alle stesse banche italiane, che nel passato hanno concesso prestiti in maniera poco mirata, o completamente arbitraria. Basti pensare che nel 2015 il 16% dei prestiti bancari in italia erano di difficile recupero (l’attuale media UE è del 3,4%). Per altro, ben il 70% del valore totale di tali prestiti era stato concesso a pochi (circa il 4,7% degli affidati) con un valore medio di 2,2 milioni di euro. I piccoli e piccolissimi imprenditori quindi fanno bene a lamentarsi, la fragilità del sistema bancario italiano non è colpa loro.  Bisogna però sottolineare come le misure drastiche imposte alle banche italiane per aumentare le riserve e per alzare gli standard di valutazione del merito creditizio siano state fondamentali per rendere l’intera economia italiana più solida (quando le banche falliscono ci rimettono sempre gli investitori, i correntisti o, in caso di bail-out, i contribuenti). 

Infine, vale la pena menzionare anche l’area unica di pagamenti in euro (Sepa), di cui fanno parte 36 paesi e che ci permette di effettuare bonifici solamente con il nostro IBAN.

In conclusione, possiamo affermare che l’unione bancaria sia una fonte di vantaggi per l’economia italiana più che di inconvenienti. Le restrizioni sono un requisito per la stabilità e la storia recente dovrebbe averci insegnato che un sistema bancario e finanziario stabile deve essere preferito a uno poco regolamentato.

Michele Corio , Giovanni Sgaravatti

Un ringraziamento particolare a Beatrice Armanini

L’euro per l’Italia

In Italia l’unione monetaria è spesso presa come capro espiatorio di tutti i mali degli ultimi vent’anni. Per verificare la fattualità di tale critica bisogna ponderare gli svantaggi della moneta unica con i vantaggi, ma soprattutto è necessario uno sforzo critico atto a verificare il controfattuale (ovvero cosa sarebbe successo se non avessimo adottato l’euro).

Moneta da un euro, foto di Alberto Moglioni


Tutte le strade portano a Roma

Un viaggio nell’Europa dal 1957 al 2017: i 60 anni dell’Unione ci riportano ancora una volta a Roma.
“Tutte le strade portano a Roma”

Dal periodo monarchico alla Roma Imperiale il Foro Romano è stato il cuore della città, un punto di riferimento per tutta Europa.

In pochi metri si ergevano maestosi templi, basiliche, il Senato, le residenze degli imperatori.

Strade si diramavano in ogni dove, arrivavano genti da paesi limitrofi e remoti, dalle verdi terre del Sannio fin sotto l’Arco di Costantino, dalla Spagna fino al tempio di Giove, dalla Palestina all’imponente basilica di Massenzio.
Dietro alle dolci alture del Palatino sorge il sole, illumina l’Urbe e sullo sfondo si scorge il Colosseo.



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