The European Stability Mechanism (ESM) is an important component of the comprehensive EU strategy designed to safeguard financial stability within the euro area. Like its predecessor - the temporary European Financial Stability Facility (EFSF) set up in 2010 - the ESM provides financial assistance to euro area Member States experiencing or threatened by financing difficulties. The two institutions functioned concurrently from October 2012 (when the ESM was inaugurated) until June 2013. As of 1 July 2013 the EFSF cannot enter into any new financial assistance programmes but will continue the management and repayment of any outstanding debt. The ESM is now the sole and permanent mechanism for responding to new requests for financial assistance by euro area Member States. The EFSF will cease to exist once all loans outstanding under EFSF assistance programmes have been reimbursed and all funding instruments issued by the EFSF and any reimbursement amounts due to Guarantors have been repaid in full.

To fulfill its purpose, the ESM raises funds by issuing 3 and 6 month bills as well as medium and long-term debt issued with maturities limited to the lowest of 45 years or the maximum maturity of financial assistance granted by the ESM. ESM issuance is backed by a paid-in capital of €80 billion, in accordance with the contribution key annexed to the ESM Treaty. The ESM cooperates very closely with the International Monetary Fund (IMF). A euro area Member State requesting financial assistance from the ESM is expected to address, wherever possible, a similar request to the IMF.

The establishment of the ESM should not be regarded as a stand-alone response to the sovereign debt crisis, but rather as complementary to a series of measures undertaken at national and EU level. The efforts taken by EU Member States with respect to fiscal consolidation and structural reforms, along with EU initiatives such as the strengthened Stability and Growth Pact, the Treaty on Stability, Coordination and Governance in the EMU (fiscal compact), European Semester, the Euro Plus Pact and the new European system of financial supervision are all crucial for addressing the roots of the crisis and creating conditions that are conducive to economic growth, job creation and improved competitiveness. If, however, a euro area Member State does require financial assistance, the European Stability Mechanism has the capacity and resources to act as a financial backstop and apply a lending instrument that will stabilise the financing needs of that country.

For further information go the ESM web site by clicking here