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).

Hence, this concludes the definition of EFSM European Financial Stabilization Mechanism along with its overview.

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