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How does the European Stability Mechanism safeguard financial stability?

On Wednesday 5 June, Kalin Anev Janse, Secretary-General and Management Board Member of the European Stability Mechanism (ESM), was invited to give a lecture on 'Bridging decision-making: a new direction for Europe? Prioritising financial stability: the European Stability Mechanism and the Banking Union'.

The ESM and Financial Stability

The recent years, starting with the financial crisis, have not been easy for Europe. Yet, within every challenge there is a possibility. The crisis has made Europe stronger and today it is better equipped to face financial turmoil and to safeguard its stability.

One of the institutions to be birthed during the financial crisis was the European Stability Mechanism (ESM). It is established through an intergovernmental treaty, outside of the Union’s legal framework. Yet, deeply intertwined with it. The ESM is set up by the euro area Member States and provides loans to eurozone members in financial distress. It follows a 'cash for reform' approach. In return, lending countries are obliged to undertake reform programmes.

Loans are financed by issuing bonds. The ESM is now one of the largest international financial institutions in the world. Combined with its predecessor, the European Financial Stability Facility (EFSF), the ESM issued more than €300 billion in bonds and provided €295 billion in loans.

Kalin Anev Janse, Secretary-General and Management Board Member of ESM, addressed the role of the ESM in securing financial stability as well as the importance of the recent European Parliamentary elections for the ESM. He provided the audience with an insight into the turbulent times during the financial crisis and he described how the ESM went from a small startup with twelve employees to one of the largest international financial institutions in the world. The ESM’s mission is to enable the countries of the euro area to avoid and overcome financial crises, and to maintain long-term financial stability and prosperity. Janse provided examples of countries that were in need of help during the financial crises, but now are front-runners in financial stability policy.

What about the future? On the short term, the role of the ESM will be expanded as part of the initiatives aimed at strengthening the Economic and Monetary Union. For instance, the ESM will act at the latest in 2024 as a backstop for the Single Resolution Fund and it will together with the European Commission be involved in preparing and monitoring country programmes. And on the long run? A deeper integration of capital markets and the Capital Market Union should remain a top priority.

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