European Financial Stability Facility

European Financial Stability Facility (EFSF) is a SPV (special purpose vehicle) financed by members of the Eurozone to combat the European sovereign debt crisis. It was agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing financial assistance to Eurozone states in economic difficulty. The Facility is headquartered in Luxembourg City, and the European Investment Bank provides treasury management services and administrative support to it through a service level contract.

Some Features:

  1. Can issue bonds or other debt instruments on the market to raise the funds needed to provide loans to Eurozone countries in financial troubles
  2. Can use the funds to recapitalize banks or buy sovereign debt.
  3. The Bonds will be guaranteed by Eurozone member in proportion to their share in the paid-up capital of the European Central Bank (ECB).
  4. fund size is €440 billion, which can be combined with loans up to €60 billion from the European Financial Stabilisation Mechanism and up to €250 billion from the International Monetary Fund (IMF) to obtain a financial safety net up to €750 billion.
  5. If there were no transaction, the fund would close in 2013, but now since it has lended money to Ireland and Portugal, the Facility will exist until its last obligation has been fully repaid.
  6. To obtain support, the coutry has to make request, which is followed by development of a country plan to be negotiated with European Commission and the IMF and after such a programme has been unanimously accepted by the Eurogroup (euro area finance ministers) and a memorandum of understanding is signed.

Only a Eurozone member can borrow only when it is unable to borrow on markets at acceptable rates.



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