European Stability Mechanism (ESM) / European Financial Stability Facility (EFSF)

The European Stability Mechanism (ESM) is an international financial institution established by the euro area countries.

Its purpose is to provide financial assistance to euro area member states experiencing, or threatened by, severe financial difficulties.

All euro area member states are members of the ESM.

Role and responsibilities

The ESM provides stability support through a number of financial assistance instruments, subject to strict conditions.

To fulfil its task, the ESM raises funds either by issuing financial instruments or by entering into financial or other agreements with ESM members, financial institutions or other third parties.

The ESM was launched on 8 October 2012 as the main instrument providing new financial assistance to countries experiencing financial difficulties. 

Board of Governors

The ESM Board of Governors is made up of finance ministers of euro area member states. 

The Board of Governors is chaired by the President of the Eurogroup. The Managing Director of the ESM is Klaus Regling.

The ESM has its headquarters in Luxembourg.

European Financial Stability Facility (EFSF)

The ESM’s predecessor, the European Financial Stability Facility (EFSF) continues to finance programmes that were started before the establishment of the ESM.

The EFSF is a Luxembourg-based private company that was established by the euro area member states on 7 June 2010.

Like the ESM, it provides financial assistance to euro area member states, subject to strict conditions.

To fulfil its mission, the EFSF issues bonds or other debt instruments on the capital markets. The proceeds of these issues are then lent to beneficiary countries.

The EFSF may also intervene in the primary and secondary bond markets, act on the basis of a precautionary programme, and grant loans to governments for the recapitalisation of financial institutions.