European Financial Stability Facility EFSF

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Definition: European Financial Stability Facility EFSF

The European Financial Stability Facility (EFSF) was formed by the euro area Member States (countries) after the decisions taken on 9 May 2010 within the framework of the Ecofin Council (Economical Financial Council). The EFSF’s mandate is to safeguard financial stability and control in Europe by providing financial aid to euro zone countries area where Member States are within the structure of a macro-economic tuning programme.

From that date onwards, the EFSF is the main mechanism to finance new programmes. The financial aid for the recapitalization of the Spanish banking segment will be transferred from EFSF to ESM.

The functions that EFSF can do are as follows: -

  1. They can float or issue bonds or other debt instruments in the market with the aid and support of the German Finance Agency to raise the funds desired to give loans to euro zone countries in financial quandary so they can recapitalize banks or buy sovereign debt.
  2. Emissions of bonds would be backed by surety or a guarantee given by the euro area member states in ratio to their share in the paid-up capital of the European Central Bank (ECB).

As of today EFSF has issued 188.3€ Billion of bonds to recapitalize countries such as PIG countries namely Greece, Ireland and Portugal.

Hence, this concludes the definition of European Financial Stability Facility EFSF along with its overview.

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