Some private capital inflows would almost surely have been withheld, and policymakers would have been forced to make hard choices more promptly if evidence of difficulty had emerged earlier. Better information and greater transparency, however, are not enough. The right incentive structure has to be in place as well.
In July 2011 the EFSF was flanked by the European Stability Mechanism (ESM), a permanent crisis management tool instituted by international treaty and endowed with capital of its own; ESM loans to Spain were used to bolster the country’s banking system. The total lending capacity of these two instruments, initially set at € billion, has been raised progressively to € billion.