The European Stability Mechanism is not ready for the next crisis

Eurozone finance ministers just appointed a new head of the European Stability Mechanism (ESM). They should seize the opportunity to turn the ESM into a more useful institution.

As a rapid succession of crises has engulfed the European economy, silence reigns on the Circuit de La Foire Internationale in Luxembourg, home to the European Stability Mechanism (ESM). The eurozone’s permanent rescue fund was set up in 2012 to provide loans to financially distressed countries, and today has about €410 billion in lending capacity. It played an important role during the euro crisis a decade ago. But the ESM was left on the sidelines as the eurozone was hit by the pandemic and Vladimir Putin’s invasion of Ukraine, with member-states no longer being willing to resort to its bail-out programmes. As the eurozone economy heads for a recession, having a non-functional ESM is risky, because eurozone governments need an emergency lender in the event of a financial crisis, and if they resort to the ESM too late millions of Europeans might be condemned to unemployment. Last week, EU leaders appointed Luxembourg finance minister Pierre Gramegna as the institution’s new managing director: he should press them to rethink the ESM’s status and purpose. New EU fiscal support instruments developed during the pandemic provide a blueprint for meaningful reform.

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