UBI Banca Group

• the European semester was introduced for the first time in the Ecofin meeting held in
September 2010 4 ;
• temporary funds (European Financial Stability Facility, EFSF) and permanent funds
(European Stability Mechanism, ESM) were created in March to support countries in
financial difficulty. They replaced the bilateral loans used previously;
• the European Parliament approved a reform of the stability and growth pact in June
designed to increase the weighting attributed to the debt indicator with respect to net debt,
with the introduction of a severe repayment programme and matching penalty mechanisms;
• in summit meetings held on 26 th October, 9 th December and 30 th January 2012, the heads
of state and government of the area gradually made further decisions designed:
to improve European Governance
The commitment, already agreed in March 2011, to implement budget rules at constitutional or
equivalent level in national legislations, consistent with those set at European level with the Stability
Pact, was reaffirmed. It was also decided in the summit held in December that those rules should
include an automatic mechanism to correct any deviations and that the European Union Court of
Justice would be responsible for judging the compliance of national legislation with European rules 5.
On that same occasion European institutions were requested to examine regulatory proposals
submitted by the European Commission at the end of November. These provide for greater coordination
for euro area countries when preparing budgets by defining a common calendar for the
presentation of budgets to the Commission before they are approved by the respective national
parliaments and by granting the Commission greater supervisory powers over countries in receipt of
financial assistance or which are in any case in serious financial difficulty.
to clarify the role of private sector investors in the solution of the Greek crisis
The Greek government and private sector investors (banks and insurance companies) have been
urged to reach a voluntary agreement in order to facilitate the return of public debt to 120% of GDP
by 2020, by reducing the nominal value of Greek government securities held by the private sector by
50% 6. It was also decided that any future involvement of private sector investors in the solution of
sovereign debt crises will be based on IMF principles and practices, that the decisions concerning
Greece are to be considered as one-off and exceptional and that uniform collective action clauses
would be introduced for all new issues of government securities in the euro area.
to strengthen financial stabilisation instruments
It was decided to increase the capacity of the EFSF to intervene, by increasing its financial impact
using two options which could be used simultaneously if necessary. These involve in the one case
the granting of partial guarantees on new issues of government securities by countries in the area
and in the other the establishment of one or more special purpose vehicles (co-investment funds, CIF)
which would purchase government securities on the primary and secondary market, using funds
supplied by private sector investors and by the EFSF. In both cases the intervention would be
dependent on the acceptance by beneficiaries of stringent conditions on the policies to be pursued to
re-establish financial stability. The process to approve the treaty to set up the ESM was then
accelerated with the objective of bringing forward the date on which it comes into force to July 2012.
The EFSF will remain active to finance programmes started before the middle of 2013, working
alongside the ESM for one year, while the total lending capacity of the two bodies was confirmed at
€500 billion. The adequacy of those funds will be reviewed in March 2012.
to increase the capital of banks to facilitate access to longer term funding
With a view to increasing confidence in the banking system, the European Banking Authority (EBA)
approved a recommendation which involves the creation of a temporary capital buffer for the larger
banks. This will allow them to achieve a capital ratio of 9% (in terms of the highest quality capital),
on the basis of the market value of government securities held in portfolio at the end of September
2011. In order to ease medium to long-term funding difficulties, the European Commission
established uniform rules for all EU countries concerning access by banks to national government
guarantees (in terms of conditions and costs).
to increase the funds available to the International Monetary Fund (IMF) to support
countries in difficulty
EU countries are committed to assessing the possibility of providing the IMF with additional funds of
up to €200 billion, to bring the funds available into line with the requirements caused by the crisis.
4 The new procedure led to the harmonisation of time schedules for the enactment of budget laws in member countries and its aim is
to lead to greater co-ordination of tax policies through improved policy co-ordination.
5 The reduction of public debt above a threshold of 60% of GDP is assessed using a numerical parameter and must be equal to one
twentieth of the difference with respect to that threshold. This measure is in addition to that by which the structural deficit must not
exceed 0.50% of GDP during each economic cycle. If it does, then automatic penalties apply if the deficit exceeds 3% of GDP.
6 It was only agreement on a larger cut (53.5%) to the nominal amount of securities held by the private sector that made it possible to
unlock the second package of aid on 21 st February 2012, amounting to €130 billion, as a result of which the default of the Greek
Republic was avoided, ensuring that a public debt to GDP ratio of 120.5% could be reached in 2020.
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