European Stability Mechanism (ESM)

European Stability Mechanism (ESM)

The ESM is the permanent rescue fund set up in 2012 to provide loans to financially distressed euro area countries. The assistance is granted, under strict conditionality, if needed to safeguard the financial stability of the entire euro area and of each euro area country.

Overview

The ESM carries out this mission by providing loans and other types of financial assistance to member states that are experiencing or are threatened by severe financial distress. In other words, the ESM acts as a “lender of last resort” for euro area countries when they are unable to refinance their government debt in financial markets at sustainable rates.

The ESM raises funds for its financial assistance through the sale of bonds and bills to investors. Taxpayers’ money is never used for lending to beneficiary countries.

The ESM’s scope of tasks will expand with the expected ratification of the revised ESM Treaty. The ESM will provide a backstop to the Single Resolution Fund, and will play a stronger role in crisis prevention and future economic adjustment programmes.

In this role, the ESM is the successor to the European Financial Stability Facility (EFSF), a temporary institution created in 2010. Both institutions played a crucial role in preserving the integrity of the euro area during the euro debt crisis, by providing a total of €295 billion in loans to five countries (Ireland, Portugal, Greece, Spain, and Cyprus). As part of their ESM/EFSF programmes, these countries implemented reforms to address the weaknesses that led to economic and financial problems.

For this, the ESM counts on several instruments. The ESM can grant a loan as part of a macroeconomic adjustment programme, such as the one that was already used by Cyprus and Greece. Ireland, Greece, and Portugal have used similar programmes delivered by the EFSF. The only other instrument used was an ESM loan to recapitalise banks which was provided to Spain. 

Between 2011 and 2018, the ESM and EFSF provided nearly €300 billion in loans to five countries: Ireland, Portugal, Greece, Cyprus, and Spain. The ESM does this by selling bonds and bills to investors all over the world. Even after the conclusion of all the financial assistance programmes, the ESM and EFSF continue their issuance activities. This is because bonds need to be refinanced, as their maturity is generally shorter than the maturity of ESM/EFSF loans. From our trading room, the funding team keeps a close eye on the market to decide on the next issuance. 

Apart from these instruments, the ESM has created Pandemic Crisis Support, a credit line available to ESM Members to support domestic financing of healthcare, cure and prevention related costs due to the COVID-19 crisis. This credit line was available until the end of 2022.

The ESM is based in Luxembourg.

• Contact

info@esm.europa.eu

6a Circuit de la Foire Internationale

L-1347 Luxembourg

Tel: (+352) 260 962 0