2012年-CEPS欧洲政策研究中心_Refinancing_the_EFSF_via_the_ECB_8页_110kb

Summary of "August 2011: What to do when the euro crisis reaches the core"

Core Content

This document, authored by Daniel Gros and Thomas Mayer, discusses the deepening eurozone debt crisis and proposes a solution to stabilize financial markets while maintaining fiscal responsibility. It outlines the limitations of the existing European Financial Stability Fund (EFSF) and suggests a restructured approach to address the growing concerns over liquidity and confidence in the eurozone.

Main Points

• Greece as the Canary in the Coal Mine: Greece's financial difficulties were the first signs of a broader crisis in the eurozone. Despite being rescued, the crisis spread to other countries, leading to increased borrowing costs for Spain and Italy.

• EFSF's Limitations: The EFSF was not designed to handle large-scale bond purchases and is structurally vulnerable to a domino effect. If a country faces high borrowing costs, it may "step out" of the EFSF, leaving the burden on core countries like Germany and France.

• ECB's Role in Stabilization: The ECB is the only institution capable of providing rapid and substantial liquidity support. However, its current approach to managing liquidity through the SMP has been criticized for not addressing the core issue of public debt sustainability.

• Proposal: Create an EMF (European Monetary Fund): The authors suggest registering the EFSF as a credit institution, thereby granting it access to ECB refinancing in emergencies. This would allow the ECB to act as a lender of last resort without directly financing governments.

• Legal Considerations: The proposal is legally feasible under Article 123 of the Treaty on the Functioning of the European Union (TFEU). Article 123(2) allows public sector banks to access ECB funding, and the EFSF could be structured similarly to the European Investment Bank (EIB), which is already recognized as an eligible counterparty.

• Financial Stability Department: This new department would manage secondary market interventions to prevent liquidity crises, backed by member states and under the supervision of finance ministers.

• Eurobonds as a Risky Alternative: Introducing Eurobonds would require significant political and legal changes and could lead to political resistance, especially in stronger economies. It may also create expectations of future debt financing without addressing current sustainability issues.

• Need for Debt Reduction: While crisis management mechanisms are essential, they are not a substitute for long-term debt reduction. A stable eurozone requires both fiscal discipline and financial stability tools.

Key Information

• EFSF's Purpose: Originally intended for small peripheral countries, it lacks the capacity to handle large-scale financial interventions.

• Domino Effect: Countries with high borrowing costs may withdraw from supporting the EFSF, placing an unsustainable burden on core members.

• EMF Structure: The proposed EMF would have two departments:

  • Adjustment Programme Department: Funds and manages debt restructuring and fiscal adjustment.
  • Financial Stability Department: Intervenes in secondary bond markets to prevent liquidity crises.

• ECB's Legal Status: The ECB can provide refinancing to public sector entities under Article 123(2), provided they are treated like private institutions.

• Legal Exemptions: The EFSF could be exempt from Article 123(1) if it is registered as a credit institution, similar to the EIB and KfW.

• Political and Legal Risks: Eurobonds and joint guarantees pose significant political and legal challenges, including potential constitutional conflicts in Germany and loss of democratic legitimacy.

Conclusion

The authors argue that the EFSF must be restructured to function as a credit institution with access to ECB refinancing, which would allow it to act as a lender of last resort. This approach avoids direct monetary financing of governments and provides a more stable and legally sound mechanism for managing the eurozone's debt crisis. While not a perfect solution, it is seen as a necessary step to prevent a systemic collapse of the eurozone financial system.