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Summaries of EU Legislation

European financial stabilisation mechanism

 

SUMMARY OF:

Regulation (EU) No 407/2010 establishing a European financial stabilisation mechanism

WHAT IS THE AIM OF THE REGULATION?

It lays down the conditions and procedures for granting European Union (EU) financial assistance to an EU Member State that, due to events beyond its control, is experiencing or threatened with severe economic or financial disturbance.

KEY POINTS

Financial assistance

Assistance is granted in the form of a loan or a credit line* to the Member State concerned. To this end, the European Commission may contract, on behalf of the EU, loans on capital markets or from financial institutions, in line with a decision adopted by the Council of the European Union acting by qualified majority.

Procedure

With the Commission, and in liaison with the European Central Bank, the Member State seeking aid proceeds with an assessment of its financial needs. It then submits to the Commission a draft programme for economic and financial recovery.

The decision to grant a credit line contains the following information:

  • the terms of the financial assistance;
  • general economic policy conditions attached to the EU’s financial assistance (for example, fiscal consolidation measures to reduce public debt);
  • the approval of the adjustment programme prepared by the recipient Member State.

The Commission verifies at regular intervals whether the beneficiary Member State’s economic policy is consistent with its adjustment programme and with the conditions established by the Council to continue to receive financial aid, which is granted in instalments.

Compatibility with other financial support mechanisms

The European Financial Stabilisation Mechanism (EFSM) is compatible with the medium-term facility providing financial assistance for balances of payments. Moreover, it does not preclude the use of funds from outside the EU, such as from the International Monetary Fund.

EFSM budget

The EFSM is funded by the EU budget. The Commission is allowed to borrow up to a total of €60 billion in financial markets on behalf of the EU. The loans are guaranteed by the EU budget.

The EFSM was activated for Ireland and Portugal, for a total amount of €46.8 billion (€22.5 billion for Ireland and €24.3 billion for Portugal), disbursed over 3 years (2011–2014).

In July 2015, the EFSM was used to provide short-term assistance (a bridge loan) of €7.16 billion to Greece.

Specific arrangements concerning exposure of non-euro-area countries are in place.

FROM WHEN DOES THE REGULATION APPLY?

It has applied since 13 May 2010.

BACKGROUND

The European Stability Mechanism (ESM) builds upon the work done under the EFSM and the European Financial Stability Facility, the 2 instruments set in place temporarily in the wake of the sovereign debt crisis, with which it coexists today.

The ESM is the main support mechanism for euro-area countries experiencing temporary difficulties in borrowing money on financial markets because of their debt levels. Its initial maximum lending capacity was €500 billion on the basis of a capital of €704.8 billion. The ESM is financed by the Member States according to the European Central Bank contribution key*.

The loans are financed by ESM borrowing on financial markets, and are guaranteed by its shareholders (euro-area countries). Loans are on the basis of strict conditions, including the return of public finances to sustainable levels.

For further information, see:

KEY TERMS

Credit line. An authorisation given by the Council, on the proposal of the Commission, to a Member State to draw funds from the EFSM up to a specified ceiling for a given period of time.
The European Central Bank contribution key. This key is calculated to reflect the respective Member State’s share in the total population and gross domestic product of the EU. These 2 determinants have equal weighting.

MAIN DOCUMENT

Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism (OJ L 118, 12.5.2010, pp. 1–4).

Successive amendments to Council Regulation (EU) 407/2010 have been incorporated in the original text. This consolidated version is of documentary value only.

last update 02.06.2022

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