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) [Decision 94/375, last amended by Decision 562/2014]. 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, 2011/289 and 2013/532].
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. In fact, at the meeting of the European Council of 28 and 29 October 2010, the Heads of State or Government agreed on the need for Member States to establish a permanent crisis mechanism to safeguard the financial stability of the euro area as a whole. Consequently, on 25 March 2011, the European Council agreed a two line amendment to Article 136 of the Treaty on the Functioning of the European Union (TFEU), which reads '' The member states whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality'' [Decision 2011/199].
Following the adoption of the "TFEU amendment treaty'', the ''Treaty establishing the European stability mechanism'', signed on 2 February 2012, by the Eurozone countries created the ESM, an international organisation located in Luxembourg. The European Stability Mechanism (ESM) replaced, in June 2013, the European Financial Stabilisation Mechanism (EFSM) and the European Financial Stability Facility (EFSF) [see section 7.3]. The ESM has an authorised capital of 700 billion euros of which 80 billion is paid-in capital from the eurozone countries, and the remaining 620 billion -if needed- will be loaned through the issuance of some special ESM obligations at the capital markets. Τhe ESM will be authorized to approve bailout deals for a maximum amount of €500 billion, with the remaining €200 billion of the fund being earmarked as safely invested capital reserve, in order to guarantee that the issuance of ESM bonds will always get the highest AAA credit rating, with the lowest interest rate possible at that time.
ESM member states can apply for a loan (bailout) if they are in financial difficulty or their financial sector is in need of recapitalization. ESM loans are conditional on member states first signing a Memorandum of Understanding (MoU), outlining a programme for the needed reforms or fiscal consolidation to be implemented in order to restore the financial stability. When applying for ESM support, the country in concern is analyzed and evaluated on all relevant financial stability matters by the so-called Troika (European Commission, ECB and IMF) in order to decide which kind of support programme should be offered.[
Another precondition for receiving an ESM bailout is that the member state must have ratified the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (known as the ''European Fiscal Compact'', signed on March 2, 2012; under German pressure. Member states bound by the fiscal provisions of this treaty are required to have enacted, within one year of its entering into force for them, a domestic "implementation law" establishing a self-correcting mechanism, guided by the monthly surveillance of a governmentally independent fiscal advisory council, which shall guarantee their national budget be in balance or surplus under the Compact's definition. This defines a balanced budget as a general budget deficit less than 3.0% of the gross domestic product (GDP), and a structural deficit of less than 1.0% of GDP if the debt-to-GDP ratio is significantly below 60%; else the deficit should be below 0.5% of GDP.
Despite being an International treaty outside the EU legal framework, all the provisions of the Fiscal Compact function as an extension to existing EU regulations, utilising the same reporting instruments and organisational structures already created within EU in the three areas: Budget discipline enforced by Stability and Growth Pact (Title III of Fiscal Compact), Coordination of economic policies (Title IV of the Compact), and Governance within the EMU (Title V of the Compact). Although the Fiscal Compact has been ratified by all Eurozone Member States, some of its provisions are not respected strictly by certain States, including France and Italy.
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].
In order to further help increase the financial stability of the eurozone, the European Central Bank (ECB) decided on 6 September 2012 to purchase - when necessary - eurozone countries’ short-term bonds in the secondary market, to bring down the market interest rates faced by countries subject to speculation that they might leave the euro (Outright Monetary Transactions - OMT support programme). Νecessary condition for OMTs is strict and effective conditionality attached to a memorandum of understanding (MoU) with the ESM in order to preserve the principal price stability mandate of the ECB and to ensure that governments retain the right incentive to implement required fiscal adjustments and structural reforms.
Since January 2015, the ECB expanded its purchases to bonds issued by euro area central governments, agencies and European institutions. The ECB will buy bonds issued by euro area central governments, agencies and European institutions in the secondary market against central bank money, which the institutions that sold the securities can use to buy other assets and extend credit to the real economy. The combined monthly asset purchases may amount to €60 billion. Purchases are intended to be carried out until at least September 2016. The Programme is designed to fulfil the mandate of the ECB for price stability in the Eurozone.
Moreover, Euro area credit institutions can receive central bank credit not only through monetary policy operations but exceptionally also through emergency liquidity assistance (ELA). ELA means the provision by a Eurosystem national central bank (NCB) of central bank money and/or any other assistance that may lead to an increase in central bank money to a solvent financial institution, or group of solvent financial institutions, that is facing temporary liquidity problems, without such operation being part of the single monetary policy. Responsibility for the provision of ELA lies with the NCB(s) concerned. This means that any costs of, and the risks arising from, the provision of ELA are incurred by the relevant NCB. However, ELA liquidity is a costly emergency solution, because it carries an interest rate of 1.55 percent, versus 0.05 percent for regular ECB financing.