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Glossary

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Paid-in capital

The portion of the ESM’s authorised capital stock paid in by ESM Members. It is set at €80 billion and the founding ESM members have made their capital contribution, while new joiners, Latvia and Lithuania will continue to make their capital contributions in yearly instalments. The paid-in capital is invested in high quality liquid assets and serves as a guarantee for the bonds and bills issued by the ESM.

Post-programme surveillance

A procedure applying to countries which have exited a financial assistance programme. Post-programme surveillance is carried out by the European Commission, in liaison with the European Central Bank, and serves two main purposes: (i) conducting regular review missions in the programme country  to assess its economic, fiscal and financial situation; and (ii) preparing semi-annual assessments of its economic, fiscal and financial situation and determine whether corrective measures are needed. ESM representatives participate in post-programme surveillance missions to fulfil the requirements of the ESM’s Early Warning System.

Precautionary Conditioned Credit Line (PCCL)

A type of precautionary financial assistance credit line available to a euro area countries whose economic and financial situation is fundamentally sound. In order to receive such a credit line, countries must meet criteria regarding the sustainability of their public debt, and commit to the Stability and Growth Pact (SGP) and the excessive deficit procedure (EIP). They must have a track record of access to capital markets on reasonable terms, sustainable external position, and the absence of bank solvency problems that would pose systemic threats to the stability of the euro area banking system.

Precautionary financial assistance

A credit line granted to a country whose general economic and financial situation remains sound. Its aim is to prevent crisis situations by allowing such a country to access ESM assistance before it experiences difficulties raising funds in capital markets.  There are two types of available credit lines: a Precautionary Conditioned Credit Line (PCCL) and an Enhanced Conditions Credit Line (ECCL). Both can be drawn via a loan or primary market purchase and have an initial availability period of one year. They are renewable twice, each time for six months. When precautionary financial assistance is granted, a Memorandum of Understanding (MoU) is concluded with the country.

Preferred Creditor Status

The euro area governments have stated that ESM loans will enjoy Preferred Creditor Status (PCS), in a similar fashion to those of the IMF, being junior only to IMF loans. This statement is also set out in recital 13 of the ESM Treaty.

Primary market support facility

The purchase of bonds or other debt instruments issued by euro area countries by the ESM via auctions or syndication. The main objective of primary market support is to allow countries to maintain or restore their access to financial markets.

Primary surplus (or primary deficit)

A national government’s budget surplus (or deficit) excluding interest payments on its outstanding debt.

Principal (loan)

The amount borrowed from a lender, separate from interest.

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