Euro zone bailout fund evaluation results. Did it bring financial stability?
The euro zone bailout fund has served its main purpose of safeguarding financial stability in the euro zone, but its operations could be improved, a report by an independent evaluator showed on Thursday.
The report, the first assessment of the functioning of the European Financial Stability Facility (EFSF) and its successor, the European Stability Mechanism (ESM), was commissioned last year by the chairman of euro zone finance ministers, Jeroen Dijsselbloem.
“The EFSF/ESM fulfilled their mandate of safeguarding financial stability in the euro area and its members, with support from other crisis measures,” said the report.
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Evaluating the bailouts granted by the euro zone to Greece, Ireland, Portugal, Spain and Cyprus since the sovereign debt crisis in 2010, the report said governments asked for help too late. That made the rescue more costly and led to one country’s problems spilling over to another.
“Programmes could have been requested earlier,” the report said. “The ESM should pre-empt delays in programme requests when problems cannot be effectively solved at national level.” The report did not say how the ESM was to accelerate a rescue request in practice.
The report, discussed by euro zone finance ministers at the annual meeting of the ESM, also said bailout programmes should better differentiate between short- and long-term goals. The focus ought to be on restoring market access, rather than prescribing a more comprehensive set of reforms for the economy.
“Programmes included measures that were not always crucial for addressing the causes of lost market access,” it said, noting some reforms could not be completed within a three-year bailout plan. Once the bailout ended, often so did the will to continue with reforms.
“Short- and long-term objectives were not always commonly understood and communicated, sometimes leading to optimistic expectations and subsequently to weakening ownership,” it said.
“The Board should consider strategies to help maintain reform implementation in the post-programme period,” it said.
The evaluation, lead by former European Central Bank board member Gertrude Tumpel-Gugerell, said that when dealing with the financial sector, bailouts should address problems upfront, but disburse money in a phased way, depending on the sectors’ progress with restructuring and tackling non-performing loans.
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