Euro countries' Heads of State or Government agreed on crisis management

In the difficult negotiations, Finland managed to push through its key objectives, relating to private sector involvement and securities.

Developing crisis management systems

The meeting of Heads of State or Government made significant decisions on ways to increase the flexibility and effectiveness of the temporary European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) which is to enter into force in July 2013. The main reason for the changes is the need to reduce the risk of debt crises spreading from one country to another.

To that end, it was agreed that, in future, the crisis mechanisms linked to appropriate conditionality will allow to:
- act on the basis of a precautionary programme, in line with the corresponding IMF instruments (Flexible Credit Line and Precautionary Credit Line);
- finance recapitalisation of banks and other financial institutions also in countries outside the EU/IMF adjustment programmes;
- intervene in the secondary markets on the basis of an ECB analysis recognising the existence of risks to financial stability.

Decisions will be taken unanimously among the euro countries.

On Finland’s requirement, it was agreed that where appropriate a collateral arrangement will be put in place so as to cover the risk rising to euro area Member States from their guarantees to the EFSF. On Finland’s initiative, the meeting concluded that with regard to Greece such arrangements are necessary. The Eurogroup is charged with related preparatory work.

New loan programme for Greece

The Heads of State or Government agreed that a new loan programme will be prepared for Greece, extending until summer 2014. The euro countries will cover the new loan programme with the IMF and the private sector. The share of public financing (euro countries and IMF) is estimated at EUR 109 billion for the period 2011-2014.

The maturity of future EFSF loans to Greece will be 15 years at the minimum and 30 years at the maximum. The lending rates of the EFSF loans will be brought down to a level equivalent to those of the Balance of Payments facility available to non-euro countries. Currently the lending rate is approximately 3.5%. The maturities of the existing Greek facility will also be extended substantially. These changes will significantly improve Greece’s ability to repay its loans in the long-term.

The voluntary net contribution of the private sector to the new facility will amount to EUR 37 billion for the period 2011-2014. In addition, a debt buy back programme will, over the same period of time, contribute to EUR 12.6 billion, bringing the total to EUR 50 billion. For the period 2011-2019, the total net contribution of the private sector involvement is estimated at 106 billion euro. This includes EUR 13 billion from the debt buy back programme.

The euro countries considered it justified that the EFSF lending rates and maturities agreed upon for Greece will be applied also for Portugal and Ireland. In this connection, the Heads of State or Government noted Ireland's willingness to participate constructively in the discussions on EU tax coordination.

Safeguarding growth

All euro area Heads of State or Government agreed to adhere strictly to the agreed fiscal targets, improve competitiveness and address macro-economic imbalances. The EU Heads also committed to bringing public deficits in all countries except those under a loan programme below 3% by 2013 at the latest.

Developing economic coordination

The Heads of State or Government called for a rapid agreement between the Council and the European Parliament on the legislative package on the strengthening of the Stability and Growth Pact.

According to the Heads of State or Government, the EU’s reliance on external credit ratings should be reduced, and they are looking forward to the Commission proposals on credit ratings agencies.

The Heads of State or Government invited the President of the European Council, in close consultation with the President of the Commission and the President of the Eurogroup, to make concrete proposals by October on how to improve working methods and enhance crisis management in the euro area.

Inquiries: Pasi Rajala, Special Adviser, EU Affairs, Prime Minister’s Office, tel. +358 9 1602 2055 and Martti Hetemäki, State Under-Secretary, Ministry of Finance, tel. +358 9 1603 3091