• 11/5/2014
    European Financial Stabilisation Mechanism

    European Financial Stabilisation Mechanism


    European Financial Stabilisation Mechanism (EFSM)

    This mechanism provides financial assistance to EU Member States in financial difficulties.

    The European Financial Stabilisation Mechanism (EFSM) essentially reproduces for the EU 27 the basic mechanics of the existing Balance of Payments Regulation for non-euro area Member States. Under EFSM, the Commission is allowed to borrow up to a total of €60 billion in financial markets on behalf of the Union under an implicit EU budget guarantee. The Commission then on-lends the proceeds to the beneficiary Member State. This particular lending arrangement implies that there is no debt-servicing cost for the Union. All interest and loan principal is repaid by the beneficiary Member State via the Commission. The EU budget guarantees the repayment of the bonds through a p.m. line in case of default by the borrower.

    The EFSM has been activated for Ireland and Portugal, for a total amount up to €48.5 billion (up to €22.5 billion for Ireland and up to €26 billion for Portugal), to be disbursed over 3 years (2011 – 2013).

    The EFSM is a part of the wider safety net. Alongside the EFSM, the European Financial Stability Facility (EFSF), i.e. funds guaranteed by the euro area Member States, and funding from the International Monetary Fund (IMF) are available for euro area Member States. Non-euro area Member States are also eligible for assistance under the Balance of Payments Regulation. The EFSM and the EFSF can only be activated after a request for financial assistance has been made by the concerned Member State and a macroeconomic adjustment programme, incorporating strict conditionality, has been agreed with the Commission, in liaison with the European Central Bank (ECB).

    On 8 October 2012, a new permanent crisis mechanism, the European Stability Mechanism (ESM), was inaugurated. Its main features build on the existing EFSF. The ESM complements the new framework for reinforced economic surveillance in the EU. This new framework, which includes in particular a stronger focus on debt sustainability and more effective enforcement measures, focuses on prevention and will substantially reduce the probability of a crisis emerging in the future.

    See also:

    • European Stability Mechanism (ESM)
    • European Financial Stability Facility (EFSF)

    Activation of EFSM: Programmes for Ireland and Portugal

    The European Commission is empowered to contract borrowings on behalf of the European Union for the purpose of funding loans made under the EFSM (Article 2 of Council Regulation 407/2010) contributing the overall loan packages for Ireland and Portugal, which are co-funded by the EU, the EFSF, and the IMF, each acting independently but in a coordinated way.

    Under the EFSM, the borrower is the European Union. The EU enjoys an AAA credit rating from the major rating agencies. The Commission is the institution that manages the borrowing on behalf of the EU. The Commission's role in this respect is comparable to a government finance agency contracting borrowing on behalf of the country.

    See also:

    Overview on EFSM funding and loan disbursements



    Raised on

    Loan beneficiary

    Disbursement on

    € 5.0 bn5 yr5 Jan. 2011Ireland12 Jan. 2011
    € 3.4 bn7 yr17 March 2011Ireland24 March 2011
    € 4.75 bn10 yr24 May 2011€ 3 bn for Ireland, € 1.75 bn for Portugal31 May 2011
    € 4.75 bn5 yr25 May 2011Portugal1 June 2011
    € 5.0 bn10yr14 Sept. 2011Portugal21 Sept. 2011
    € 4.0 bn15yr22 Sept. 2011€ 2 bn for Ireland; € 2 bn for Portugal29 Sept. 2011
    € 1.1 bn7yr29 Sept. 2011€ 0.5 bn for Ireland; € 0.6 bn for Portugal6 Oct. 2011
    € 3.0 bn30 yr9 Jan. 2012€ 1.5 bn for Ireland; € 1.5 bn for Portugal16 Jan. 2012
    € 3.0 bn20 yr27 Feb. 2012Ireland5 March 2012
    € 1.8 bn26 yr17 April 2012Portugal24 April 2012
    € 2.7 bn10 yr26 April 2012Portugal4 May 2012
    € 2.3 bn15 yr26 June 2012Ireland3 July 2012
    € 3.0 bn15 yr23 Oct. 2012€ 1 bn Ireland, € 2 bn Portugal30 Oct. 2012
    € 2.6 bn10 yr18 March 2014€ 0.8 bn Ireland, € 1.8 bn Portugal25 March 2014

    >>see: Details on transactions, including charts on investor distribution 

    Legal base

    Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism.pdf


    The EFSM provides assistance to Member States where:

    • a Member State is experiencing, or is seriously threatened with, a severe financial disturbance;
    • the financial disturbance or threat of financial disturbance is due to events beyond the control of the Member State concerned.

    Financial assistance

    Financial assistance by the EFSM may take the form of a loan or credit line granted to Member States. A credit line is an authorisation given to a Member State to draw funds up to a specified ceiling for a given period of time.


    Before it can benefit from the EFSM, a Member State shall submit a request comprising:

    • an assessment of its financial needs;
    • an economic and financial adjustment programme describing the various measures to be taken to restore financial stability.

    The Council then decides whether to grant financial assistance to the Member State. It shall act by a qualified majority on a proposal from the Commission. If the Council decides to grant financial assistance to the Member State, its decision contains:

    • the procedures for the financial assistance, such as the amount, the number of payments, the availability period of the financial assistance, etc.;
    • the general economic policy conditions: these conditions are established by the Commission. They are attached to the EU financial assistance with a view to re-establishing a sound economic situation in the Member State concerned and to restoring its capacity to finance itself on the financial markets;
    • the economic and financial adjustment programme of the Member State.

    Moreover, the general economic policy conditions are the subject of a Memorandum of Understanding between the Member State and the Commission. The Commission then re-examines compliance with these conditions regularly in collaboration with the European Central Bank. Any changes to these conditions may result in an adjustment of the economic and financial adjustment programme of the Member State.

    Granting of financial assistance

    The disbursement of loans or the opening of credit lines granted to Member States is managed by the Commission. The latter then verifies at regular intervals whether the economic policy of the beneficiary Member State accords with its adjustment programme.

    The Commission is also authorised to borrow on the capital markets or from financial institutions in order to finance the loans granted to Member States.

    Moreover, the Court of Auditors has the right to carry out financial controls and audits in order to verify the legality of financial assistance granted by the EU.

    Compatibility with other mechanisms providing financial assistance

    The EFSM is compatible with the facility providing medium-term financial assistance for balances of payments. This financial assistance is for Member States which have not adopted the euro and are experiencing difficulties in their balance of payments.

    The EFSM also does not exclude recourse to financing outside the EU, in particular by the International Monetary Fund. In that case the Commission examines whether the EFSM is compatible with the outside financing.

    Review of the EFSM

    Six months after the entry into force of this Regulation, the Commission had to review whether the exceptional circumstances which justified the establishment of the EFSM remain. This report (COM(2010) 713 finalpdf) has been published on 30.11.2010. It concluded that the exceptional events and circumstances still exist and the EFSM should therefore be maintained.