From Saviour to Guarantor

Fabio Bassan is Professor of International Economic Law and European Law at the Department of Business Studies, 'Roma Tre' University, Italy. He is Founding Director of the Sovereign Wealth Funds Law Centre, and his areas of interest include international law, European law, sovereign wealth funds, regulation of financial markets, corporate governance, corporate finance, law & economics, and the political economy of regulation.Carlo Mottura is Professor of Financial Mathematics, Financial Valuation and Risk Management at the Department of Business Studies at 'Roma Tre' University, Italy. His research interests include the control of risks, financial valuation under uncertainty, financial restructuring, and enterprise evaluation. He has also lead research projects funded by the Consiglio Nazionale delle Ricerche (CNR).

• Introduction PART I: THE EU'S INSTITUTIONAL ACTION 1. The EU Action To Face The Crisis 1.1 EU Action In Support Of The Member States' Public Debt 1.2 EU Action In Support Of The Banking System 1.3 Eurostat Public Contingent Liabilities 1.4 Differences Between EU And US Actions 2. State Guarantees And State Aid PART II: THE FINANCIAL VALUATION OF A GUARANTEE CONTRACT 3. The Defaultable Guarantee Contract. 3.1 The Guarantee Contract And Credit Derivatives Market 3.2 The Relevant Issues. 4. Valuation Under A Standard Model. PART III: THE STATE GUARANTEES IN THE EU A) State Guarantees For The Safeguard Of The Euro 5. Guarantees In Favour Of The European Stability Mechanism (ESM) 5.1 The Financial Scheme 5.2 Main Features Of The Guarantees 6. Effects Of The Guarantees 6.1 Valuation And 'Model Risk' 6.2 The Lack Of Effective Sanctioning Instruments 6.3 Different Sovereignties For Eurozone Member States 6.4 The ECB And The Lever Of Archimedes B) State Guarantees For The Stability Of The Banking System 7. The State Guarantees To Cover Bank Debt 7.1 The Financial Scheme 7.2 Main Features Of The Guarantees 8. Effects Of The Guarantees 8.1 Legal Guarantee Fee And Market Price 8.2 Moral Hazard Effects 8.3 Distortions In Banking Competition 8.4 Member State Guarantees And EU Coordination PART IV: INNOVATION AND CRISIS-FIGHTING MEASURES IN THE EU 9. The Instruments That Triggered The Crisis In 2007-2008 9.1 The 'Path' Of Risk: From Private Individuals To Banks 9.2 (Continued): From Banks To Markets 9.3 (Continued): From Markets To States 9.4 Cultural Sustainability Of Innovation In Anti-Crisis Public Finance 10. The ECB's Unconventional Measures Facing The Challenge Of Markets And National Courts 10.1 Characteristics Of The Main Unconventional Measures 10.2 The Scope Of The Measures As Outlined By The ECB And By The Case Law 10.3 Application Of The Constraints Set By The Bverfg For Omts To Other Unconventional Measures Conclusions