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Financial assistance in EU Member States

European financial assistance mechanisms are capable of supporting EU Member States in difficulty and thereby preserving the financial stability of the EU and the euro area. Financial assistance is linked to macroeconomic conditionality.

In May 2010, the European Union and euro area Member States set up a stabilisation mechanism that consists of

  • the European Financial Stabilisation Mechanism (EFSM); and
  • the European Financial Stability Facility (EFSF).

to safeguard EU financial stability amid severe tensions in euro-area sovereign debt markets.

In addition, in October 2012

  • the European Stability Mechanism (ESM) was inaugurated.

Its main features build on the EFSF. The ESM will be the primary support mechanism to euro area Member States and 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.

Alongside the EFSM, EFSF and ESM,

  • funding from the International Monetary Fund (IMF); and
  • possible ECB (European Central Bank) purchases of sovereign debt on secondary markets.

are available forming a viable safety-net, providing financial stability support.

Further, for Member States that have not yet adopted the euro, the

  • Balance-of-Payments (BoP) assistance is available.

Under BoP, the EU can provide mutual assistance to non-euro area Member States when a Member State is in difficulties or is seriously threatened with difficulties as regards its balance of payments. BoP assistance is designed to ease a country's external financing constraints. This can take the form of medium-term financial assistance.

Although the framework of medium-term financial assistance allows providing loans solely by the EU, in recent practice the assistance has usually been extended in co-operation with IMF and other international institutions or countries.

Fiscal and economic measures – reinforced economic governance

The financial support is accompanied by fiscal and economic measures. For this purpose, the EU and its Member States have taken a series of important decisions that will strengthen economic and budgetary coordination in the EU as a whole and in the euro area in particular. As a result, the EU’s interdependent economies will be better placed to chart a path to growth and job creation.

>> see: EU economic governance

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