Designing the ESM—Who Profits, Who Pays?

Bernhard Herz, Christian Bauer and Alexandra Hild

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: The European Stability Mechanism (ESM) is the permanent crisis prevention mechanism of the euro area. It was established in 2012 under considerable time pressure in an environment dominated by the financial crisis in the euro area. We analyze the costs of the current (suboptimal) design of the EMS and evaluate an alternative asset-backed securities (ABS) structure under different scenarios. Our simulation results indicate that switching to an ABS structure could lower EMS refunding costs by up to 2% with respect to our benchmark scenario. Moreover, the advantages of an ABS structure are found to be strongest in the mostly likely type of future crisis, namely, medium-sized requests for financial support from EMS members under economic stress accompanied by the unwillingness or inability of other EMS countries to provide new capital to the EMS.

JEL-codes: F34 F55 G15 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-eec
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145709

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