Member state guarantees behind the EFSF and the resulting percentage of the EFSF’s bonds that are covered by guarantees of member states with different levels of credit rating

The EFSF’s credit rating was recently lowered to AA-. This is due to the interplay between the credit ratings of the EFSF and of the EFSF’s guarantors, who are thirteen of the twenty Eurozone member states.[7]

The EFSF was downgraded because France was downgraded from AA to AA-.[8] This reduced to below the threshold of 100% the proportion of the EFSF’s bonds which were covered by guarantees from member states with ratings of AA or better.

The EFSF was set up with a guaranteed amount of €780 billion and a lending ceiling of €440 billion.[1] Its size is now capped, and it is closed to new programmes. It has a single debt programme of €241 billion:[2]

  • Thirteen of the twenty Eurozone member states act as guarantors for the EFSF’s debts;
  • Ireland, Portugal, Cyprus and Greece are recipients of EU financial assistance programmes and cannot therefore act as guarantors;[3]
  • Latvia, Lithuania and Croatia were not yet Eurozone members at the EFSF’s inception;
  • The amount of a member state’s guarantee is calculated in line with the Capital Key of that member state’s central bank in the European Central Bank, re-based to 100%;[4]
  • The Capital Key is then raised to 165%, and applied to €241 billion to determine the guarantee amount;[5]
  • The guarantees are several but not joint, so no member state can be called upon for the whole €241 billion, but each is liable up to the maximum amount of its guarantee, irrespective of whether other member states meet calls on their guarantees;[6]
  • In other words, if there is a call and a member state cannot meet it, the calls on the other member states are raised, but not so that the calls will cause the maximum guaranteed amounts to be exceeded.

[1] accessed on 4 July 2024

[2] Prospectus of 27 June 2024 for EFSF €241 billion Guaranteed Debt Issuance Programme

[3] Once a member state has received an EU financial assistance programme from any of the Eurozone mechanisms, it is ineligible to act as surety behind the debts of the mechanisms

[4] Prospectus p. 33

[5] Prospectus p. 20 clause 1.1

[6] Prospectus p. 19 F ‘all the Notes’

[7] accessed on 4 July 2024

[8] accessed on 2 July 2024