Financial stability in the monetary union
Since 2010, some euro area countries have been facing financing difficulties. Therefore, a number of measures to maintain financial stability in the monetary union have been taken.
The euro area created several instruments providing financial support. These have evolved over time. It has also ensured that financial support is accompanied by economic reform.
Mechanisms for stability
Initially, temporary mechanisms were put in place.
The Eurogroup first agreed to provide bilateral loans to Greece through the Greek Loan Facility (GLF). Later, they established the European Financial Stability Facility (EFSF), which eventually took over the support to Greece. Ireland and Portugal also receive assistance from the EFSF, as well as from the EU instrument European Financial Stabilisation Mechanism (EFSM).
The permanent European Stability Mechanism (ESM), inaugurated on the sidelines of the Eurogroup meeting on 8 October 2012, has since replaced these temporary crisis management mechanisms. It currently covers assistance to Spain for the recapitalisation of its banking sector and support to Cyprus.
The International Monetary Fund always participates at the technical level and in most cases provides a part of the financial assistance.
Financial support is subject to strict conditions. These are agreed between the country requesting the assistance and those who provide it.
The conditions include policy requirements to help the member states concerned to reform their economies, return to sustainable growth, and bring their public finances onto a sustainable path. They are set out in a Memorandum of Understanding.
Monitoring by the Troika
The Troika, which is composed of the European Commission, the European Central Bank and the International Monetary Fund, carries out regular reviews of compliance with the conditions laid down in the Memorandum of Understanding.
A positive review is a precondition for disbursement of each instalment of financial assistance.