European Stability Mechanism

The European Stability Mechanism (ESM) is part of the EU’s strategy to ensure financial stability within the euro area. It provides financial assistance to euro-area countries experiencing or threatened by financing difficulties.

The euro-area countries signed an intergovernmental treaty establishing the ESM on 2 February 2012. Inaugurated in late 2012, the ESM is an intergovernmental organisation under public international law based in Luxembourg. Its shareholders are the euro-area countries. The ESM issues debt instruments in order to finance loans and other forms of financial assistance to euro-area countries.

The ESM took over from its predecessor, the European Financial Stability Facility, which was set up in 2010. The ESM and the European Commission collaborate closely and regularly, in line with their respective roles and mandates, on the basis of a memorandum of understanding signed in 2018 by both institutions.

The ESM is authorised to:

make loans in the context of a macroeconomic adjustment programme;
purchase debt in the primary and secondary debt markets;
provide precautionary financial assistance in the form of credit lines;
finance recapitalisations of financial institutions through loans to the governments of its member countries.

In 2020, the ESM created the Pandemic Crisis Support Instrument, based on a precautionary financial assistance credit line and available to euro-area countries to support domestic financing of healthcare-, cure- and prevention-related costs due to the COVID-19 crisis.