ESM at a glance
The European Stability Mechanism (ESM) is a crisis resolution mechanism established by the euro area countries. Since its inauguration in October 2012, the Luxembourg-based ESM has provided financial assistance to ESM Members experiencing or threatened by severe financing problems to safeguard the financial stability of the euro area as a whole and of its member states. Euro area leaders decided to give the ESM, an intergovernmental institution, a stronger role in financial assistance programmes and agreed to changes in its toolkit.
The leaders’ agreement foresees that:
- The ESM will provide a backstop for the Single Resolution Fund (SRF), a key element of banking union that is designed to resolve financial problems at systemic banks in an orderly fashion; ESM’s backstop loans will be granted as a last resort and be fiscally neutral over the medium term;
- The ESM will take a stronger role in designing, negotiating, and monitoring future programmes, in full respect of the European Commission and European Central Bank (ECB) competences;
- The ESM’s precautionary instruments will be reviewed to make them more effective.
For more information on the new mandates, see ‘December 2018 Euro Summit marks new chapter for the ESM’.
The ESM raises funds by issuing debt instruments, which are purchased by institutional investors. The proceeds enable the ESM to provide its Members with the following types of financial assistance:
loans to cover their financing needs;
loans and direct equity injections to recapitalise financial institutions;
primary and secondary debt market purchases of Members’ national bonds;
credit lines to be used as precautionary financial assistance.
Note: The ESM 2018 Annual Report contains the audited financial statements as at 31 December 2018, together with the report of the external auditor in respect of their audit concerning these financial statements, and the report of the Board of Auditors in respect of these financial statements. The description of ESM policies and activities covers the 2018 financial year, except when stated otherwise. The information related to the composition of the Board of Governors and Board of Directors reflects their composition as of 7 May 2019. The economic development report (Chapter 1) includes certain information available up to 1 May 2019, but all historic financial data there set out is limited to the period to 31 December 2018.