Insurance Policy

The European Stability Mechanism has not disbursed funds to a member state since 2018. It holds €81 billion in capital, recorded a record profit of around €2 billion in 2025, and has a lending capacity of up to €500 billion. And yet, according to its Managing Director Pierre Gramegna, it remains as essential as ever.[1]

His analogy is straightforward: people do not cancel their home insurance simply because their house has not caught fire in years. The ESM, founded in 2012 during the eurozone debt crisis, was the fire insurance for the single currency. It provided long-term, low-interest loans to Greece, Portugal, Spain, Ireland, and Cyprus, each time conditional on reforms aimed at cutting spending or boosting revenue.[1]

Now the fires are different. Climate change, mounting social pressure, and the war in Ukraine have shifted the landscape. NATO members have pledged substantial increases in defence spending, and the ESM says it can help. It offers credit lines that, unlike its crisis loans, are not tied to reform requirements. So far, no country has requested one.[1]

The reluctance is political. Drawing on an ESM credit line can be read as a sign of national weakness. To address this, the ESM now allows countries to apply jointly. Gramegna's reasoning: if several countries apply together, it is easier to digest and easier to sell to domestic audiences.[1]

The ESM also has a preventive function. It assesses risks and issues early warnings to member states. And it can intervene directly to stabilise banks whose failure might drag a country into crisis. But Gramegna is clear about the limits: the ESM is not a general-purpose crisis response tool. It is there primarily to help countries' state finances.[1]

An insurance policy that has not paid out in eight years, holding €500 billion in capacity, run by a former Luxembourg finance minister, based in Luxembourg City. The ESM is one of those institutions that exists quietly until the moment it is needed. Whether that moment comes again, nobody knows. But the premium is still being paid.