EU stability fund says it saved Irish taxpayers €87m last year

The EU body that gives loans to economically troubled member states says it saved the Irish taxpayer €87 million in debt repayments last year, the equivalent of 0.3 per cent of GDP.

The ability of the European Stability Mechanism (ESM), to borrow at particularly low interest rates saved Greek taxpayers as much as 6.7 per cent of GDP in potential repayments last year, or €12 billion, compared to the rates it would have had to pay on its own back in the market.

The ESM’s officials have been at pains to emphasise that its services come at no cost to EU taxpayers.

Greece is expected to see its departure from its third bailout programme approved by Eurogroup finance ministers in Luxembourg on Thursday.

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The ESM, which has published its annual report, met finance ministers, its board of directors, ahead of the Eurogroup, which was set also to approve proposals to strengthen the mechanism's role in economic crisis management.

It is expected that they will ask next week's summit to agree to expand its role in monitoring economic developments in the member states and to act as a "backstop" for the banking Single Resolution Fund (SRF). The fund, which draws its capital from levies on the banks, can step in to recapitalise stricken banks that are systemic risks - if it runs out of money the ESM will be allowed to step in.

The mechanism remains an intergovernmental body outside the EU's legal framework, and although the European Commission would like to see it brought inside that framework, there is strong resistance to that from a number of member states, including the Republic.

The ESM, which has a total lending capacity of €700 billion, has disbursed some €280 billion in rescue loans since 2011 to five programme countries - Ireland, Spain, Cyprus, Portugal and Greece.

"Four of those five in assistance programmes .... are clear success stories," the ESM's managing director Klaus Regling said today. "Greece has a chance to join this group if it continues to implement reforms also after the end of its programme in August."

Irish risks

The annual report notes the “sustained remarkable economic recovery in 2017” of the Republic, which left its programme in December 2013 but continues to repay loans. But “the economic cycle is now approaching its peak ... Brexit and changes to the international tax and trade environment represent sizeable external risks.”

The report appears to give the nod to Minister for Finance Pascal Donohoe’s rainy day fund plans: “These risks warrant the accumulation of fiscal buffers and the close monitoring of Ireland’s macroeconomic and financial market dynamics.”

The report says that “favourable market access enabled Ireland to repay its loans to the IMF, Denmark and Sweden. Irish banks retained sufficient capital and liquidity buffers and exhibited profitability ratios above the euro average.”

In the debate on completing monetary union, the ESM takes a relatively conservative position close to the Germans on the development of a euro fiscal capacity to assist in risk-sharing. Such funding should not involve politically controversial financial transfers between the member states, Mr Regling argues.

The ESM’s own bailout philosophy relies entirely on loans rather than grants of “EU taxpayer cash” – its debt relief assistance to Greece will be in the form of extensions of loans, but the Greeks will end up paying for such extensions with “interest on interest”.

But Mr Regling endorses the idea of a limited roles for a euro-area “rainy day fund” or unemployment insurance facility. Very much in line with what this week’s Franco-German paper is urging of EU leaders at next week’s summit.