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Vienna, 13 September 2012 The European Stability Mechanism (ESM) Figures – data – facts

The decision of Germany’s Federal Constitutional Court in Karlsruhe on 12 September 2012 removed the last remaining obstacle to a definitive launch of the European Stability Mechanism (ESM). When sufficient Eurozone countries have ratified the EMS treaty that their aggregate units in the ESM total at least 90 percent of the fund’s planned capital, the EMS treaty will enter into force. In order for the ESM to begin operating, the Board of Governors and the Board of Directors must meet for the first time to adopt a number of provisions and associated rules. That meeting is tentatively scheduled for 8 October.

The European Stability Mechanism is an international financial institution with headquarters in Luxembourg. The role of the ESM is to provide financial assistance to members in financial crisis, whose access to the capital markets has thus either become difficult or who can only access private sector funding on terms which are unacceptably onerous. The ESM will only act where absolutely necessary, for example where a country is at risk of a liquidity bottleneck that would entail enormous and completely incalculable risks to the rest of the Eurozone. 

For smaller, open economies such as Austria, whose dependence on foreign trade is greater than the average, a stable monetary system is of huge importance. A stable monetary system significantly increases budgetary and planning certainty for business (particularly export-sector businesses), generates opportunities in the realm of foreign trade and thus creates a positive impetus for employment growth and improves the country’s standing as a business location. The ESM is intended to help in future in preventing systemic crises that might negatively impact on employment levels and Austria’s position as a business location. 

The ESM has total authorised capital stock of EUR 700 billion, 80 billion of which is paid in directly by the members and the remainder of which can be called in through capital calls (similar to guarantee liability). The ESM members contribute to the ESM pro rata in proportion to their shares in the ESM.

In the case of Austria, this corresponds to roughly 2.78%, or approx. EUR 2.2 billion. Austria’s total share in the ESM comes to approx. EUR 19.5 billion, of which roughly EUR 2.2 billion is paid-in capital and the remainder of which may be called in by way of a capital call. 

The ESM treaty clearly stipulates that the liability of member states is limited to this amount. As soon as the ESM treaty enters into force, all of the Eurozone countries will be required within 15 days to pay in the first of a total of five tranches. In addition, it was agreed in March of this year that the second tranche would likewise be paid in October. 

What this means for Austria is that the state will be required to pay in two tranches of approx. EUR 445.3 million each (i.e. roughly EUR 890.6 million in total) to the ESM this year. Austria’s 2012 budget has already appropriated the funds for this. The remaining three tranches are to be paid in by 2014 at the latest. The financing of the ESM capital thus has an impact on levels of indebtedness, but not on Austria’s budget deficit. By contrast with the the situation under the European Financial Stability Facility (EFSF), aid funding granted by the ESM is not passed through to Austria’s public debt.