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

The 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 currently 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.

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 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).

>> see: European Stabilisation Actions – EU´s response to the crisis

Legal base

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

Scope

The European financial stabilisation mechanism 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

The European financial stabilisation mechanism 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.

Procedure

Before it can benefit from the European financial stabilisation mechanism, 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 European financial stabilisation mechanism 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 European financial stabilisation mechanism 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 European financial stabilisation mechanism is compatible with the outside financing.

Review of the European financial stabilisation mechanism

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 European financial stabilisation mechanism remain. This report has been published on 30.11.2010 (>> see link). It concluded that the exceptional events and circumstances still exist and the EFSM should therefore be maintained.

The Commission shall conduct the same review every six months.

Activation of EFSM: Programmes for Ireland and PortugalThe 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 package for Ireland which is 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: the European Union as a borrower

Activation of EFSM: Programmes for Ireland and Portugal

Overview on EFSM funding and loan disbursements
(Status: 30 April 2012) 

Amount	Maturity	Raised on	Loan beneficiary	Disbursement on
€ 5.0 bn	5 yr	5 Jan. 2011	Ireland	12 Jan. 2011
€ 3.4 bn	7 yr	17 March 2011	Ireland	24 March 2011
€ 4.75 bn	10 yr	24 May 2011	€ 3 bn for Ireland, € 1.75 bn for Portugal	31 May 2011
€ 4.75 bn	5 yr	25 May 2011	Portugal	1 June 2011
€ 5.0 bn	10yr	14 Sept. 2011	Portugal	21 Sept. 2011
€ 4.0 bn	15yr	22 Sept. 2011	€ 2 bn for Ireland; € 2 bn for Portugal	29 Sept. 2011
€ 1.1 bn	7yr	29 Sept. 2011	€ 0.5 bn for Ireland; € 0.6 bn for Portugal	6 Oct. 2011
€ 3.0 bn	30 yr	9 Jan. 2012	€ 1.5 bn for Ireland; € 1.5 bn for Portugal	16 Jan. 2012
€ 3.0 bn	20 yr	27 Feb. 2012	Ireland	5 March 2012
€ 1.8 bn	26 yr	17 April 2012	Portugal	24 April 2012
€ 2.7 bn	10 yr	26 April 2012	Portugal	4 May 2012

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

Complementary loans have been provided by the European Financial Stability Facility (EFSF) and the International Monetary Fund (IMF)

>> see: Questions and Answers
>> see also: Programme for Ireland
>> see also: Programme for Portugal

Documents

Commission press release of 26 April 2012: EU € 2.7 billion 10-year bond for Portugal strongly oversubscribed Commission press release of 17 April 2012: EU places €1.8 billion 26-year bond for Portugal Commission Press Release of 27 February 2012: EU issues €3 billion 20 year bond for Ireland Commission Press Release of 9 January 2012 MEMO/12/4: EU successfully issued long-term bond with 30y maturity, funding loans of €3 bn for Ireland and Portugal Commission Press Release MEMO/11/656 of 29 September 2011:  EU concludes funding programme in September with €1.1 billion 7 year bond Commission Press Release MEMO/11/629 of 22 September 2011: Strong demand for EU € 4 billion 15y bond in support of Ireland and Portugal Commission Press Release MEMO/11/604 of 14 September 2011: EU issues € 5 billion bond to finance loan for Portugal Commission Press Release MEMO/11/602 of 14 September 2011: Commission proposes better financial terms for EU loans to Ireland and Portugal Commission Press Release MEMO/11/593 of 12 September 2011: EU to issue new 10 year bond for Portugal this week Commission Press Release MEMO/11/344 25 May 2011: Second €4.75 billion bond issued this week to support EU´s assistance packages Commission Press Release MEMO/11/336 of 24 May 2011: €4.75 billion bond issued for EU´s assistance packages to Ireland and Portugal Commission Press Release MEMO/11/180 of 17 March 2011: €4.6 billion bond issued to assist Ireland and Romania Commission Press Release MEMO/11/4 of 5 January 2011: "€ 5 million bond issue for Ireland" Communication from the Commission to the Council and the Economic and Financial Committee on the European Financial Stabilisation Mechanism, COM(2010) 713 final, 30.11.2010. Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism (OJ L 118, 12.5.2010, p.1).