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European Stability Mechanism (ESM)

The European Stability Mechanism (ESM) is part of the EU's strategy designed to ensure financial stability within the euro area. It provides assistance to euro area countries experiencing or threatened by financial difficulties.

Euro area countries signed an intergovernmental treaty establishing the ESM on 2 February 2012. Inaugurated in late 2012, the ESM is an intergovernmental organisation under public international law based in Luxembourg. Its shareholders are the euro area countries. The ESM issues debt instruments in order to finance loans and other forms of financial assistance to euro area countries.

The ESM took over from its predecessor, the European Financial Stability Facility (EFSF) set up in 2010.

The ESM is authorised to:

  • make loans in the context of a macroeconomic adjustment programme;
  • purchase debt in the primary and secondary debt markets;
  • provide precautionary financial assistance in the form of credit lines;
  • finance recapitalisations of financial institutions through loans to the governments of its member countries.