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40-738: The European Financial Stability Facility ( EFSF ) is a special purpose vehicle financed by members of the eurozone to address the European sovereign-debt crisis . It was agreed by the Council of the European Union on 9 May 2010, with the objective of preserving financial stability in Europe by providing financial assistance to eurozone states in economic difficulty. The Facility's headquarters are in Luxembourg City , as are those of

80-668: A failed first approval vote. In exchange, the Slovakian government was forced to resign and call new elections . On 19 October 2011, Helsingin Sanomat reported that the Finnish parliament passed the EFSF guarantee expansion without quantifying the total potential liability to Finland. It turned out that several members of the parliament did not understand that in addition to increasing the capital guarantee from €7.9 billion to €14.0 billion,

120-597: A leading European rating agency – assigned the European Financial Stability Facility a first-time long-term rating of AA+ with a Stable Outlook. The EFSF enlargement process of 2011 proved to be challenging to several Eurozone member states, who objected against assuming sovereign liabilities in potential violation of the Maastricht Treaty of no bailout provisions. On 13 October 2011, Slovakia approved EFSF expansion 2.0 after

160-558: A memorandum of understanding is signed. This would only occur when the country is unable to borrow on markets at acceptable rates. If there was a request from a eurozone member state for financial assistance, it will take three to four weeks to draw up a support programme including sending experts from the commission, the IMF and the ECB to the country in difficulty. Once the Euro Group approved

200-419: A sponsoring corporation hives off assets or activities from the rest of the company into an SPE. This isolation of assets is important for providing comfort to investors. The assets or activities are distanced from the parent company, hence the performance of the new entity will not be affected by the ups and downs of the originating entity. The SPE will be subject to fewer risks and thus provide greater comfort to

240-759: Is a stepping out guarantor with respect to liabilities before it joined the eurozone. The chief executive officer of the EFSF is Klaus Regling , a former Director General of the European Commission's Directorate General for Economic and Financial Affairs , having previously worked at the IMF , the German Ministry of Finance and in the private sector as managing director of the Moore Capital Strategy Group in London. The Board of

280-451: Is important that the SPE is not owned by the entity on whose behalf the SPE is being set up (the sponsor). For example, in the context of a loan securitization , if the SPE securitization vehicle were owned or controlled by the bank whose loans were to be secured, the SPE would be consolidated with the rest of the bank's group for regulatory, accounting, and bankruptcy purposes, which would defeat

320-719: Is no specific statutory requirement for accountability to the European Parliament , the Facility is expected to operate a close relationship with relevant committees within the EU. On 7 June 2010, the eurozone member states entrusted the European Commission, where appropriate in liaison with the European Central Bank, with the task of: On the same day the European Financial Stability Facility

360-627: The European Stability Mechanism . Treasury management services and administrative support are provided to the Facility by the European Investment Bank through a service level contract. Since the establishment of the European Stability Mechanism , the activities of the EFSF are carried out by the ESM. The EFSF is authorised to borrow up to €440 billion, of which €250 billion remained available after

400-717: The second bailout for Greece , under a retroactive Collective action clause , 100% of the Greek-jurisdiction bonds were shifted to the EFSF, amounting to €164 billion (130bn new package plus 34.4bn remaining from Greek Loan Facility) throughout 2014. The Facility aimed for ratings agencies to assign a AAA rating to its bonds, which would be eligible for European Central Bank refinancing operations. It achieved this in September 2010 when Fitch , and Standard & Poor's awarded it AAA and Moody's awarded it Aaa, making it easier for it to raise money. The rating outlook

440-481: The supply . Investor demand came from around the world and from all types of institutions. The Facility chose three banks ( Citibank , HSBC and Société Générale ) to organise the inaugural bonds issue. The second Eurozone country to request and receive aid from EFSF is Portugal . Following the formal request for financial assistance made on 7 April 2011 by the Portuguese authorities, the terms and conditions of

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480-424: The EFSF to enlarge its capital guarantee from €440 billion to €780 billion. The increase expanded the effective lending capacity of the EFSF to €440 billion. This required ratifications by all eurozone parliaments, which were completed on 13 October 2011. The EFSF enlargement agreement also modified the EFSF structure, removing the cash buffer held by EFSF for any new issues and replacing it with +65% overguarantee by

520-484: The EFSF was activated in 2011 to lend money to Ireland and Portugal, the Facility will exist until its last obligation has been fully repaid. The Facility could only act after a support request is made by a eurozone member state and a country programme has been negotiated with the European Commission and the IMF and after such a programme has been unanimously accepted by the Euro Group (eurozone finance ministers) and

560-866: The EFSM will be replaced by the European Stability Mechanism (once it is ratified, see Treaties of the European Union#Eurozone reform ). However, the outstanding guarantees given to EFSF bondholders to fund bailouts will survive ESM. On 27 October 2011 the European Council announced that the member states had reached agreement to further increase the effective capacity of the EFSF to €1 trillion by offering insurance to purchasers of eurozone members' debt. European leaders have also agreed to create one or several funds, possibly placed under IMF supervision. The funds would be seeded with EFSF money and contributions from outside investors. As part of

600-570: The EU's Council of Economics and Finance Ministers decided on 28 November 2010 to grant financial assistance in response to the Irish authorities' request. The financial package was designed to cover financing needs up to €85 billion and would result in the EU providing up to €23 billion through the European Financial Stabilisation Mechanism and the EFSF up to €18 billion over 2011 and 2012. The first bonds of

640-612: The Enron SPE was that it became a vehicle for furthering the ends of the parent company in violation of the prudential norms of corporate financing and accounting. Special-purpose entities were one of the main tools used by executives at Enron , in order to hide losses and fabricate earnings, resulting in the Enron scandal of 2001 . They were also used to hide losses and overstate earnings by executives at Towers Financial Corporation , which declared bankruptcy in 1994. Several executives of

680-533: The European Financial Stability Facility comprise high level representatives of the 17 eurozone member states, including Deputy Ministers or Secretaries of State or Director Generals of the Treasury . The European Commission and the European Central Bank can each appoint an observer to the EFSF Board. Its chairman is Thomas Wieser, who is also chairman of the EU's Economic and Financial Committee. Although there

720-507: The European Financial Stability Facility were issued on 25 January 2011. The EFSF placed its inaugural five-year bonds for an amount of €5 billion as part of the EU/IMF financial support package agreed for Ireland. The issuance spread was fixed at mid-swap plus 6 basis points. This implies borrowing costs for EFSF of 2.89%. Investor interest was exceptionally strong, with a record breaking order book of €44.5 billion, i.e. about nine times

760-503: The Eurozone countries (excluding Slovakia, who opted out, and Estonia, which was not in Eurozone in 2010) and IMF. In addition to the capital guarantees shown in the table, the enlarged EFSF agreement holds the guarantor countries responsible for all interest costs of the issued EFSF bonds, in contrast to the original EFSF structure, significantly expanding the potential taxpayer liabilities. These additional guarantee amounts increase if

800-552: The Facility may be combined with loans up to €60 billion from the European Financial Stabilisation Mechanism (reliant on funds raised by the European Commission using the EU budget as collateral) and up to €250 billion from the International Monetary Fund (IMF) to obtain a financial safety net up to €750 billion. Had there been no financial operations undertaken, the EFSF would have closed down after three years, on 30 June 2013. However, since

840-478: The Government of Finland would be guaranteeing all of the interest and capital raising costs of EFSF in addition to the issued capital, assuming theoretically uncapped liability. Helsingin Sanomat estimated that in an adverse situation this liability could reach €28.7 billion, adding interest rate of 3.5% for 30-year loans to capital guarantee. For this reason the parliamentary approval process on 28 September 2011

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880-509: The Irish and Portuguese bailout. A separate entity, the European Financial Stabilisation Mechanism (EFSM), a programme reliant upon funds raised on the financial markets and guaranteed by the European Commission using the budget of the European Union as collateral, has the authority to raise up to €60 billion. The mandate of the EFSF is to "safeguard financial stability in Europe by providing financial assistance" to eurozone states. The EFSF can issue bonds or other debt instruments on

920-465: The company were found guilty of securities fraud, served prison sentences, and paid fines. Evergrande has also been accused of using off book SPE to hide debt. Under US GAAP , a number of accounting standards apply to SPEs, most notably FIN 46R that sets out the consolidation treatment of these entities. There are a number of other standards that apply to different transactions with SPEs. Under International Financial Reporting Standards (IFRS),

960-512: The country programme, the EFSF would need several working days to raise the necessary funds and disburse the loan. The table below shows the current maximum level of joint and several guarantees for capital given by the Eurozone countries. The amounts are based on the European Central Bank capital key weightings. The EU requested the eurozone countries to approve an increase of the guarantee amounts to €780 billion. The majority of

1000-456: The coupon payments of the issued EFSF bonds are high. On 29 November 2011, European finance ministers decided that EFSF can guarantee 20 to 30% of the bonds of struggling peripheral economies. (° Estonia entered the eurozone on 1 January 2011, i.e. after the creation of the European Financial Stability Facility in 2010). Greece, Ireland and Portugal are "stepping out guarantors", except where they have liabilities before getting that status. Estonia

1040-566: The financial assistance package were agreed by the Euro Group and the EU's Council of Economics and Finance Ministers on 17 May 2011. The financial package was designed to cover Portugal's financial needs of up to €78 billion, with the European Union—through the European Financial Stabilisation Mechanism—, and the EFSF each providing up to €26 billion to be disbursed over 3 years. Further support

1080-464: The guaranteeing countries. The increase of 165% to the capital guarantee corresponds to the need to have €440 billion of AAA-rated guarantor countries behind the maximum EFSF issued debt capital (Greece, Ireland, and Portugal do not guarantee new EFSF issues as they are recipients of Euroland support, reducing the total maximum guarantees to €726 billion). Once the capacity of EFSF to extend new loans to distressed Euroland countries expires in 2013, it and

1120-554: The home district. Round-tripping is one such strategy. In addition, they are commonly used to own a single asset and associated permits and contract rights (such as an apartment building or a power plant), to allow for easier transfer of that asset. They are an integral part of public private partnerships common throughout Europe which rely on a project finance type structure. A special-purpose entity may be owned by one or more other entities and certain jurisdictions may require ownership by certain parties in specific percentages. Often it

1160-480: The last country to give approval, though not before parliament speaker Richard Sulík registered strong questions as to how "a poor but rule-abiding euro-zone state must bail out a serial violator with twice the per capita income, and triple the level of the pensions – a country which is in any case irretrievably bankrupt? How can it be that the no-bail clause of the Lisbon treaty has been ripped up?" The Euro Group and

1200-403: The lenders. What is important here is the distance between the sponsoring company and the SPE. In the absence of adequate distance between the sponsor and the new entity, the latter will not be an SPE but only a subsidiary company . A good SPE should be able to stand on its feet, independent of the sponsoring company. This does not always happen in practice. One of the reasons for the collapse of

1240-475: The market with the support of the German Finance Agency to raise the funds needed to provide loans to eurozone countries in financial troubles, recapitalise banks or buy sovereign debt. Emissions of bonds would be backed by guarantees given by the euro area member states in proportion to their share in the paid-up capital of the European Central Bank (ECB). The €440 billion lending capacity of

European Financial Stability Facility - Misplaced Pages Continue

1280-602: The now defunct GLF + EFSM + EFSF funds. Whenever pledged funds in a scheduled bailout program were not transferred in full, the table has noted this by writing "Y out of X" . Special purpose vehicle Normally a company will transfer assets to the SPE for management or use the SPE to finance a large project thereby achieving a narrow set of goals without putting the entire firm at risk. SPEs are also commonly used in complex financings to separate different layers of equity infusion. Commonly created and registered in tax havens , SPEs allow tax avoidance strategies unavailable in

1320-400: The point of the securitization. Therefore, many SPEs are set up as 'orphan' companies with their shares settled on charitable trust and with professional directors provided by an administration company to ensure that there is no connection with the sponsor. Some of the reasons for creating special-purpose entities are: Like a company, an SPE must have promoter(s) or sponsor(s). Usually,

1360-609: The relevant standard is IAS 27 in connection with the interpretation of SIC12 (Consolidation—Special-Purpose Entities). For periods beginning on or after 1 January 2013, IFRS 10 Consolidated Financial Statements supersedes IAS 27 and SIC 12. ^   a:  For example, it is quite common for tanker fleets to have each tanker owned by a separate special-purpose entity to try to avoid group liability in relation to widely drawn anti-pollution laws. Capital guarantee A capital guarantee product means that when an investor buys, or "enters", this specific structured product he

1400-456: The risk of the increase from original €440 billion falls on the AAA rated countries and ultimately their taxpayers, in a possible event of default of the investments of EFSF. The guarantee increases were approved by all Eurozone countries by 13 October 2011. The €110 billion bailout to Greece of 2010 was not part of the EFSF guarantees and is not managed by EFSF, but a separate bilateral commitment by

1440-506: The table) have no access to the funds provided by EFSF/ESM, but can be covered with rescue loans from EU's Balance of Payments programme (BoP), IMF and bilateral loans (with an extra possible assistance from the Worldbank/EIB/EBRD if classified as a development country). Since October 2012, the ESM as a permanent new financial stability fund to cover any future potential bailout packages within the eurozone, has effectively replaced

1480-516: Was established as a limited liability company under Luxembourg law (Société Anonyme), while Klaus Regling was appointed as chief executive officer of the EFSF on 9 June 2010 and took office on 1 July 2010. The Facility became fully operational on 4 August 2010. On 29 September 2011, the German Bundestag voted 523 to 85 to approve the increase in the EFSF's available funds to €440 billion (Germany's share €211bn). Mid-October Slovakia became

1520-522: Was made available through the IMF for up to €26 billion, as approved by the IMF Executive Board on 20 May 2011. EFSF was activated for Portuguese lending in June 2011, and issued €5 billion of 10-year bonds on 15 June 2011, and €3 billion on 22 June 2011 through BNP Paribas , Goldman Sachs International and The Royal Bank of Scotland . On 21 July 2011, the eurozone leaders agreed to amend

1560-413: Was misleading, and may require a new Government proposal. As of January 2012 the EFSF had issued 19bn euro in long-term debt and 3.5bn in short-term debt. The table below provides an overview of the financial composition of all bailout programs being initiated for EU member states, since the global financial crisis erupted in September 2008. EU member states outside the eurozone (marked with yellow in

1600-462: Was qualified as stable. On 16 January 2012 the Standard and Poors (S&P) lowered its rating on the European Financial Stability Facility to AA+ from AAA; the downgrade followed the 13 January 2012 downgrade of France and eight other euro-zone nations which has sparked worries that EFSF will have further difficulties raising funds. In November 2012, Moody's downgraded it. In May 2020, Scope Ratings –

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