European Stability Mechanism – Ireland’s quids in.

Ireland’s contribution to the ESM:

There has been some speculation regarding Ireland’s contribution to
the ESM, in particular that we will have to pay significantly in
excess of  €1.27 billion in the event of a bailout of a large European
country such as Spain.

Q. If the ESM bails out a large EU country will Ireland have to
increase the amount of paid in capital – Answer: No

Q. When could the paid in capital increase? – Answer: Only if a
country defaults on its ESM loans.

Background info

1.  The ESM has a total capital base of €700 billion – €80 billion of
paid in capital and €620 billion of callable capital. This is to
support a lending capacity of €500 million.

2. The ESM is being established to provide financial assistance for
ESM member states that are in financial difficulty.  If an ESM funded
programme of assistance is required, the ESM will borrow money on the
financial markets and provide it to the relevant ESM Member countries
in need of assistance.

3. The ESM will come into establishment when countries represent 90%
of the capital and as pointed out by the Referendum Commission only
countries that ratify the Stability Treaty can access the ESM

4.  The paid in and callable capital is not loaned out directly.  It
is the capital base for the ESM to support the lending and borrowing
activities of the ESM. This means that if the ESM is required to
provide assistance to a Country (bailout) this will not impact on the
paid in or callable capital.

5.  The issue of when the callable capital would be called upon is
hypothetical.  However, for this to occur, the paid in capital would
first need to be exhausted. The paid in capital would be exhausted if
the ESM borrows money to lend to a programme county (as per 2 above)
and this country subsequently defaults on its ESM loan.

6. Until July 2013, the EFSF will remain available in certain
circumstances. The Eurogroup’s statement of 30 March 2012, provides
that the ESM will be the main instrument to finance new programmes as
from July 2012. Its lending capacity will be €500 billion. The EFSF
will, as a rule, only remain active in financing programmes that have
started before that date. For a transitional period until mid-2013, it
may engage in new programmes in order to ensure a full fresh lending
capacity of EUR 500 billion for the ESM during the initial set up
period.