EFSM European Financial Stabilization Mechanism

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Definition: EFSM European Financial Stabilization Mechanism

EFSM or European Financial Stabilization Mechanism is a funding mechanism of the European Union used for providing financial assistance to member states experiencing or facing the threat of a severe financial crisis. Along with the European Financial Stability Facility (EFSF), i.e. funds guaranteed by the Eurozone Member States, and funding from the International Monetary Fund (IMF), it is a part of a wide safety net aimed at maintaining financial stability across Europe.

Under the mechanism, the European commission has been entrusted with the authority to borrow upto €60 billion on behalf of the union using the budget of the EU as a guarantee. The proceeds are then passed on to the beneficiary state which ensures that there is no debt-servicing cost for the Union. In order to avail funding from the EFSM, a Member State has to submit a request comprising of an assessment of its financial needs and propose an economic and financial adjustment program describing the various measures it will be taking to restore financial stability.

Example: As per the agreement between the Eurozone and the government of Portugal, the EFSM would provide loans of €26 billion between 2011 and 2014 out of which €15.6 billion had been provided as of January 2012 (along with other funds have provided through the EFSF).

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