20 September 2012

ESM: The permanent crisis mechanism for the euro area - Draft document

The European Stability Mechanism's mission will be to safeguard financial stability in Europe by providing financial assistance to euro area Member States. It will enter into force subject to the conclusion of the ratification procedure of the ESM treaty by the 17 euro area Member States.

Determined and coordinated action to safeguard financial stability - timeline

• 7 June 2010: European Financial Stability Facility (EFSF) was created
• 28 November 2010: Agreement of financial assistance programme for Ireland (€85 billion)
• 17 May 2011: Agreement of financial assistance programme for Portugal (€78 billion)
• 20 June 2011: Agreement by eurozone and EU finance ministers to increase EFSF effective lending capacity, widen scope of mandate and finalise terms of permanent stability mechanism, European Stability Mechanism
• 21 July 2011: Eurozone summit, second support package for Greece and increased scope for EFSF/ESM
• 9 December 2011: EU summit – ESM brought forward, EFSF will continue as scheduled until end June 2013
• 2 February 2012: ESM treaty signed
• 14 March 2012: Second Greek programme formally approved by Euro Working Group
• 30 March 2012: Eurogroup decides on EFSF/ESM to run in parallel
• 20 July 2012: Eurogroup grants financial assistance to Spain’s banking sector
• October 2012: ESM to be inaugurated

ESM : the permanent crisis mechanism for the euro area

• an intergovernmental organisation under public international law
• effective lending capacity of €500 billion
• total subscribed capital of €700 billion, with paid-in capital (€80 billion) and committed callable capital (€620 billion)
• Following established IMF policies regarding private sector involvement
  • ESM will claim preferred creditor status (except for existing facilities at the signing of the ESM treaty and the financial assistance for the recapitalisation of Spanish financial institutions)

Scope of activity, linked to appropriate conditionality

• Provide loans to euro area Member States in financial difficulties
• Intervene in the debt primary market
• Intervene in the secondary bond markets
• Act on the basis of a precautionary programme
• Finance recapitalisation of financial institutions through loans to governments including in non-programme countries. 

To fulfil its mission, ESM issues bonds or other debt instruments on the capital markets.

Full document

© EFSF - European Financial Stability Facility