Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations that may act as a lender of last resort.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit rating’s performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope announces the result of each monitoring review on its website and/or on its subscription platform ScopeOne.

Scope completed the monitoring review for the European Stability Mechanism (long-term foreign-currency issuer and senior unsecured debt ratings: AAA/Stable; short-term foreign-currency issuer ratings: S-1+/Stable) on 12 January 2026.

This monitoring note does not constitute a credit-rating action, nor does it indicate the likelihood that Scope will conduct a credit-rating action in the short term. Information about the latest credit-rating action connected with this monitoring note along with the associated ratings history can be found on scoperatings.com.

Key rating factors

For the updated rating annex accompanying this review, please see here.

Scope’s AAA rating on the European Stability Mechanism (ESM) reflects the supranational’s substantial capital position, very high liquidity buffers, excellent capital markets access and highly rated key shareholders. The ESM’s mandate to lend to crisis-hit countries results in a highly concentrated borrower base. Its shareholder base, the euro area members, is also concentrated compared to its peers.

The ESM’s mandate and its high importance to shareholders underpin its credit profile. However, the timing of the completion of the ratification process of the revised ESM treaty, which would enhance and expand the ESM’s mandate, remains uncertain. Alongside other reforms, the ESM would provide a backstop of up to EUR 68bn in loans to the Single Resolution Fund (SRF).

The ESM treaty reform was agreed upon in principle in 2018 and signed by ESM member countries in early 2021, launching the ratification process by national parliaments. All member states but Italy (BBB+/Positive) have ratified the treaty reform. Italy’s lower house of parliament voted against ratification in December 2023 and political progress towards ratification has since been limited. Absent reform to the ESM treaty, Scope continues to view the ESM’s mandate to safeguard financial stability in the euro area as highly relevant for its members.

The ESM benefits from very high capitalisation with paid-in capital of EUR 81bn, the highest among its peers, resulting in an exceptionally high capacity to absorb losses. Bulgaria (A-/Stable) will become the ESM’s 21st member, following the ESM’s Board of Governors approval of its application on 11 December 2025 and the ratification of the ESM Treaty in Bulgaria, expected in coming months. In the first twelve years of membership, Bulgaria will contribute paid-in capital of around EUR 600m.

In addition, the ESM’s intrinsic profile is further driven by very high and well-diversified liquidity buffers, and very strong capital market access. The ESM is a European benchmark issuer, and its issuances enjoy preferential regulatory treatment. The broadly diversified investor base provides a stable source of funding, resulting in favourable funding rates and hence lending rates. The ESM’s funding needs are EUR 7bn in 2026. Should the need for more funding arise, Scope expects the ESM to have no difficulty raising higher volumes at favourable rates, given its established capital markets presence.

The ESM’s mandate to lend to crisis-hit countries results in a highly concentrated borrower base and low profitability. As a lender of last resort, the ESM’s loans benefit from preferred creditor status, junior only to the International Monetary Fund. Loans were granted under strict conditionality and are subject to monitoring of the sovereign’s capacity to repay, in the context of the ESM’s Early Warning System. The loan exposures in December 2025 are to Greece (BBB/Positive) of EUR 59.4bn, Spain (A/Positive) of EUR 7.3bn, and Cyprus (A-/Positive) of EUR 6.0bn. This distribution results in a weighted average borrower quality of BBB, up from B+ in 2016, particularly reflecting the improvement of Greece’s sovereign debt rating. The ESM’s three borrowers have so far repaid in full and on time, with Spain making early repayments over 2014-18. Spain is expected to make its final payment in 2027, Cyprus in 2031 and Greece in 2060.

The Stable Outlook reflects Scope’s opinion that risks to the credit ratings over the next 12 to 18 months are balanced.

Downside scenarios for the ratings and Outlooks are (individually or collectively):

1. liquidity buffers were significantly reduced;
    
2. the capital base weakened significantly due to sustained losses caused by missed borrower payments and/or a material increase in the maximum lending capacity;
    
3. the asset quality of the loan portfolio deteriorated significantly.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Supranational Rating Methodology, 23 May 2025) is available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Julian Zimmermann, Director

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