ESM
Annual
Report
2013
22
Box 2. Potential savings on EFSF/ESM interest payments
EFSF and ESM financial assistance is granted to Member
States that cannot access capital markets at affordable
rates and pose a threat to the financial stability for the
euro area as a whole or its Member States. The EFSF/
ESM disbursed financial support to beneficiary Member
States at much lower interest rates than those that
would theoretically have been offered by the market. This
initially generates substantial resource savings, helping
to provide the assistance needed to implement fiscal and
structural reforms to foster growth in the medium term,
and thereby ultimately supporting market access and
debt sustainability.
The EFSF/ESM provided loans to Cyprus, Greece, Ireland,
Portugal and Spain. The simplest way to estimate the savings achieved in 2013 is to compare the effective interest rate payments on EFSF/ESM loans with the interest
rate that these countries would have paid had they been
able to cover their financing needs in the market in the
absence of disruption. In the calculation, we use the average theoretical market spread of the 5- and 7-year bond
of each country matching the EFSF/ESM maturity profile
on the three months before and after each country
requested support, and compare this with the equivalent
EFSF/ESM funding cost.
The results have nonetheless to be read with some caution, since market rates for these countries were not
available throughout 2013 in the amounts being considered and so do not reflect the true financing costs.
Moreover, countries requested support in different contexts of the euro area sovereign debt crisis, when different EU support mechanisms were available, which may
also account for the cross-country differences observed
in our estimates.
In addition, these rates neither take into account the conditionality that applies to EFSF/ESM loans and the related reduction in spreads in the course of the programme,
nor provide a quantification of the current situation, with
some countries such as Spain reporting record low market rates. Future funding costs, as well as potential savings for beneficiary ESM Members, will depend on their
precise funding structure and general sentiment in the
markets. Therefore, these future funding costs cannot
be extrapolated from this finding.
Looking at past performance, the table below shows the
results in terms of amounts saved and as percentages of
GDP in 2013. The savings are significant, ranging from
0.2% of GDP in Spain to 4.7% of GDP in Greece in 2013.
At the peak of the crisis, these were even larger: towards
the end of 2013, countries such as Ireland and Spain (and
to a lesser extent Portugal) were already approaching
the conclusion of their programmes and were benefiting
from lower spreads due to the effective crisis response
and good programme implementation.
For illustrative purposes, the savings are also represented as a percentage share of total primary expenditures.
This captures more closely the idea of fiscal space attributable to these savings. The budgetary space is again
particularly notable for Greece amounting to almost 9%
of total primary expenditures, which in this case effectively accounts for more than the total amount of public
resources spent on education.
Table 1. Potential savings of EFSF/ESM financing vs theoretical market cost in 2013
Level in € billion
As share of GDP
As share of total primary
expenditures
Cyprus
0.24
1.5
3.4
Greece
8.58
4.7
8.6
Ireland
0.68
0.4
1.1
Spain
2.43
0.2
0.6
Portugal
1.27
0.8
1.7
Source: Bloomberg, European Commission. Figures are based on ESM staff calculations