The 19 euro area countries have signed a new convention on the ESM, the permanent emergency fund for Euro Area countries in financial difficulties. The treaty amendment is needed so that the fund can be used as a safety net for problem banks in the euro area from 2022 onwards.
So far, the ESM can only help countries in need with loans, as it did to keep Greece financially viable. However, the fund may soon also be used as a credit line in the restructuring of problem banks and in the settlement of bank bankruptcies. European banks have a pot for this, the so-called Joint Resolution Fund (SRF). From 2022 onwards, the ESM may, if necessary, assist SRF with loans.
Eurogroup president Paschal Donohoe speaks of ‘a milestone’ because the ESM can in future help prevent ‘financial crises in the euro area’. The Eurogroup, the finance ministers of the euro area, agreed at the end of November on the new role of the ESM from 2022 onwards. The national parliaments of the euro area, including the Second Chamber, still have to approve the adjustments.