EU stabilisation mechanisms


There were 2 temporary mechanisms set up for providing funding to member states which were experiencing economic difficulties – the European Financial Stabilisation Mechanism and the European Financial Stability Facility. Both were established in 2010 and both provided loans to Ireland under the IMF/EU Memorandum of Understanding with Ireland. (Under this arrangement, Ireland also received loans from the IMF and bilateral loans from some non-euro member states – in particular, the UK).

A permanent mechanism – the European Stability Mechanism - was established in October 2012. These 3 funding mechanisms are usually described as “bail-out” mechanisms.

European Financial Stabilisation Mechanism

The European Financial Stabilisation Mechanism (EFSM) was created by the European Council in 2010. It was established under Regulation (EU) No 407/2010 of 11 May 2010. The regulation gave the European Commission the power to contract borrowings on behalf of the EU in order to fund loans to the euro countries that need them. It was designed as a temporary mechanism which might be available to provide loans to member states that were having severe financial or economic problems.

Further information on the EFSM is available on the European Commission’s website.

European Financial Stability Facility

The European Financial Stability Facility (EFSF) is a company which was established by the countries that share the euro. It was incorporated in Luxembourg in June 2010. The shareholders are the member states who use the euro. The EFSF’s aim was to provide temporary financial assistance to any euro area member state that needed it.

Since 1 July 2013, the EFSF can no longer engage in new financing programmes or enter into new loan facility agreements. It continues to finance programmes that were started before the establishment of the European Stability Mechanism.

Further information is available on the EFSF website.

European Stability Mechanism

The European Stability Mechanism (ESM) is the permanent crisis mechanism to safeguard financial stability in the euro area (the permanent bail-out mechanism). It was established in October 2012 following ratification of the Treaty Establishing the ESM by all 17 euro area member states. The ESM treaty refers to the Fiscal Stability Treaty and provides that assistance from the ESM is dependent on the country concerned having ratified the Fiscal Stability Treaty. Ireland ratified the ESM treaty by means of legislation.

The ESM’s Board of Governors is made up of the finance ministers of euro area member states and is chaired by the President of the Eurogroup. It has its headquarters in Luxembourg.

The ESM provides help to euro area member states who are having financial difficulties. The help is subject to various conditions in respect of economic and fiscal management.

Further information is available on the ESM website.

Page edited: 5 November 2013