The long-established EU instrument of financial solidarity is the European Investment Bank (EIB). According to Article 309 of the TFEU (ex Article 267 TEC) the task of the EIB is to contribute, by having recourse to the capital market and utilising its own resources, to the balanced and steady development of the European Union and the implementation of its policies. Thanks to its high credit rating, the Bank borrows on the best terms on the capital markets world-wide and on-lends to the Member States and their financial institutions - which distribute these global loans to SMEs. Since the EIB is a bank, it does not grant interest-rate reductions, but the financial institutions in the Member States and notably those whose vocation is regional development can borrow from the Bank and on-lend at more favourable terms. Some of the loans do have interest-rate subsidies attached, funded by the Union budget [see section 3.4].
The EIB is a major source of finance for new industrial activities and advanced technology in sectors such as the motor vehicle industry, chemicals, pharmaceuticals, aeronautical engineering and information technologies. It also contributes to the establishment of trans-European telecommunications, transport and energy networks, reinforcement of industrial competitiveness [see sections 17.1 and 17.2.3], environmental protection and cooperation in the development of third countries [see section 24.1]. However, the main priority of the EIB is to contribute to the development of the least favoured regions of the European Union [see sections 12.1.1 and 12.3]. These contributions account for around 70% of its financings in the EU.
Established in 1994, the European Investment Fund (EIF) is the specialist venture capital arm of the EIB Group. The EIF's tripartite share ownership structure - European Investment Bank (60%), European Commission (30%) and members of the banking sector (28 financial institutions) - facilitates the development of synergies between European organs and the financial community, enhancing the catalytic effects of the EIB Group's action in support of small and medium enterprises (SMEs). The EIF's main objective is the financing of innovative and jobs creating SMEs through venture capital, in the Union and in the12 applicant countries [see section 17.2.3]. Acting as a "fund of funds", it acquires stakes in public or private sector venture capital funds with a view of strengthening the ability of European financial institutions to inject equity capital into SMEs, especially those in the growth phase.
Article 143 of the TFEU (ex Article 119 TEC) provides that, acting on a recommendation from the Commission, the Council will grant mutual assistance where a Member State with a derogation (i.e. outside the euro area) is in difficulties or is seriously threatened with difficulties as regards its balance of payments. In fact, a Regulation establishes a medium-term financial assistance facility for Member States' balances of payments. This facility, whose ceiling was raised, in 2008, from EUR 12 billion to EUR 25 billion, may enable loans to be granted to one or more Member States which have not adopted the euro, when it is established that they are experiencing, or are seriously threatened with, difficulties in their balance of current payments or capital movements [Regulation 332/2002]. European support under the Facility was granted to Hungary [Decision 2009/102], Latvia [Decision 2009/289] and Romania [Decisions 2009/458 and 2011/289].
According to a German school of thought, the treaty on the functioning of the EU (following the treaty on the European Community) prohibits a financial assistance to a euro area Member State in difficulties. In fact, the treaty excludes the possibility for the governments of these Member States to have recourse to overdraft facilities or any other type of credit facility with the European Central Bank or with national central banks (Article 123 TFEU, ex Article 101 TEC) or to have privileged access to financial institutions (Article 124 TFEU, ex Article 102 TEC). This strict interpretation of the TFEU brought Greece to the brink of bankruptcy, since the fiscal errors of its own governments, added to the economic and financial problems brought about by the global financial crisis, raised substantially the cost of its borrowing from the world markets [see also section 7.3.2]. It was only after the realisation that the fall of a euro country would bring a domino effect on other countries of the euro area, that Eurogroup Ministers, on 2 May 2010, concurred with the Commission and the European Central Bank that providing a loan to Greece was warranted to safeguard financial stability in the euro area as a whole. In the context of a three year joint programme with the IMF, supported by strong conditionality, the financial package makes available € 110 billion to help Greece meet its financing needs, with euro area Member States ready to contribute for their part € 80 billion, of which up to € 30 billion in the first year.
Under the pressure of the American credit rating agencies (Moody's, Standard & Poor's and Fitch Ratings) and the speculators on the global credit and money markets, who were battering Greece, Spain, Portugal and other euro countries, EU economic and financial ministers (ECOFIN) set aside German objections, remembering that Article 122.2 of the Treaty on the functioning of the EU (ex Article 100 TEC) foresees financial support for Member States in difficulties caused by exceptional circumstances beyond their control. They thus conceived, on 10 May 2010, a European Financial Stabilisation mechanism of 750 billion EUR [Regulation 407/2010]. A volume of up to € 60 billion is foreseen and activation is subject to strong conditionality, in the context of a joint EU/IMF support, and will be on terms and conditions similar to the IMF. In addition, euro area Member States stand ready to complement such resources through a Special Purpose Vehicle up to a volume of € 440 billion. The IMF will participate in financing arrangements and is expected to provide at least half as much as the EU contribution through its usual facilities in line with the recent European programmes.
On 25 March 2011, the European Council decided to amend Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro [Decision 2011/199]. The European Council agreed that, as this mechanism is designed to safeguard the financial stability of the euro area as whole, Article 122(2) of the TFEU will no longer be needed for such purposes. The Treaty establishing the European Stability Mechanism (ESM) was signed, on 11 July 2011, by the Eurogroup ministers. The European Stability Mechanism (ESM) will replace, in June 2013, the European Financial Stabilisation Mechanism (EFSM) and the European Financial Stability Facility (EFSF) [see section 7.3]. The stability mechanism will provide the necessary tool for dealing with such cases of risk to the financial stability of the euro area as a whole as have been experienced in 2010, and hence help preserve the economic and financial stability of the Union itself. It may grant loans to its members (all eurozone member states), provide precautionary financial assistance, purchase bonds of beneficiary member states on primary and secondary markets and provide loans for recapitalisation of financial institutions
The European Central Bank manages the EFSF loans to Member States whose currency is the euro [Decisions ECB/2010/15 and ECB/2010/31, last amended by Decision ECB/2011/16]. In December 2010, the Union made available to Ireland, through the EFSM and the EFSF, a loan amounting to a maximum of EUR 22.5 billion, with a maximum average maturity of 7½ years [Decision 2011/77]. In May 2011, the Union made available to Portugal through the EFSM and the EFSF a loan of up to EUR 78 billion with a maximum average maturity of 7½ years [Decision 2011/344]. Further support will be made available to the two countries through the International Monetary Fund (IMF)
Under the securities markets programme set up by the European Central Bank, Eurosystem central banks may purchase: on the secondary market, eligible marketable debt instruments issued by the central governments or public entities of the Member States whose currency is the euro; and on the primary and secondary markets, eligible marketable debt instruments issued by private entities incorporated in the euro area [Decision ECB/2010/5].
On 26 October 2011, the Euro area heads of State or government agreed to support a new programme for Greece, together with the IMF and with Private Sector Involvement (PSI), meaning a nominal discount of 50% on notional Greek debt held by private investors. Euro area Member States will contribute to the PSI package up to 30 billion euro. A new EU-IMF multiannual programme financing up to 100 billion euro is accompanied by a strengthening of the mechanisms for the monitoring of implementation of the reforms. For euro area Member States in excessive deficit procedure, the Commission and the Council will be enabled to examine national draft budgets and adopt an opinion on them before their adoption by the relevant national parliaments. The European Financial Stability Facility (EFSF) resources could be leveraged yielding around 1 trillion euro by providing credit enhancement to new debt issued by Member States, thus reducing the funding cost and/or by maximising its funding arrangements with a combination of resources from private and public financial institutions and investors [see also section 7.3].