Key Facts About the ESM

by Matina Stevis

Wall Street Journal
September 12, 2012

Following this morning’s largely positive decision by the German Constitutional Court to allow the treaty establishing the European Stability Mechanism to move to the country’s parliament for ratification, we take a look at what the ESM is, what it will do and what it won’t, and how it fits into the overall euro-zone crisis response.

WHAT IS THE ESM?

The European Stability Mechanism (the full treaty establishing it is here) is the permanent bailout fund that the euro-zone countries are putting together to finance rescue packages for ailing member states. It is the “permanent” institution that will take over from the temporary fund, the European Financial Stability Facility.

The ESM’s managing director will be Klaus Regling. He is German, and is also the boss at the EFSF. Its headquarters will be in Luxembourg.

HOW MUCH MONEY CAN IT LEND?

The 17 euro-zone countries will pay €80 billion in cash into the ESM. That cash–to be paid in installments—will act as a capital cushion, allowing the fund to lend on to members in need several times the amount. Specifically, the ESM will be able to lend €500 billion in total. That’s on top of what the EFSF lends to Greece, Portugal, and Ireland. (*For correction see below.)

The capital installments are planned like this:

In the second half of 2012, €32 billion of capital will allow it to lend €210 billion

In July 2013, another €32 billion will allow it to lend €420 billion

And the remaining €16 billion, due to be paid in in early 2014, will raise the lending capacity to €500 billion.

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