The European Financial Stability Facility (EFSF)
Aka "the European Economic Stability Fund"
Why was the EFSF created?
The EFSF was established in May 2010 as a temporary crisis resolution mechanism by the Eurozone countries. This action was directly resulting from the European sovereign debt crisis that was rapidly spreading out of the core countries where it originated (Portugal, Italy, Ireland, Greece, and Spain aka "the piigs").
The main goal was to safeguard financial stability in Europe. Financial assistance to Eurozone countries in economic distress by way of raising funds through bonds and other debt instruments on the financial markets, guaranteed by the Eurozone member states. These funds were then used to provide loans to the economic desperate countries, recapitalize banks, and even purchase sovereign debt.
The EFSF had a lending capacity of up to €440 billion, supported by guarantees from Eurozone countries.
Transition to the ESM:
The EFSF was designed as a temporary mechanism and was succeeded by the European Stability Mechanism (ESM) in October 2012. The ESM is a permanent bailout fund with a larger financial capacity.
The EFSF continues to exist to manage the outstanding loans granted during the initial "PIIGS" crisis before the ESM took over.
The "PIIGS"
The 2008-2009 European sovereign debt crisis primarily affected countries like Greece, Portugal, and Spain, but it also had significant repercussions for other Eurozone countries, particularly Ireland and Italy.
Greece
Greece was at the epicenter of the crisis with high levels of debt, fiscal mismanagement, and underreporting of deficits triggered a fear of a complete financial collapse in the Hellenic Republic. Greece required multiple international bailouts from the European Union (EU) and the International Monetary Fund (IMF) and had to implement harsh austerity measures which were politically difficult and created intense strain throughout the economy.
Portugal
Portugal faced significant financial troubles from a combination of slow economic growth, high public debt, and a lack of competitiveness. In 2011, Portugal requested a bailout from the EU and IMF, which came with strict austerity conditions.
Spain
Spain’s crisis was largely triggered by the collapse of its housing bubble which fed an intense banking crisis. While Spain's public debt was not as high as Greece's, the banking sector's problems required a significant bailout in 2012 that was to help Spanish banks get bank on their feat through recapitalization .
MEDIA REPORT
Permanent bailout fund on the way for Europe - ESM
March 25, 2011 Article by Anthony Faiol at the Washington Post about the efforts of European leaders to set up a permanent bailout program to deal with the economic roulette of European countries over-extended with international debt:
"European leaders agreed early Friday to create a permanent fund to rescue financially troubled nations even as the debt crisis in Portugal sharply worsened, with the Iberian nation appearing almost sure to follow Greece and Ireland in seeking an international bailout.
The escalating problems in Portugal — which tipped into a red zone on Wednesday after its prime minister resigned after parliament rejected deficit-busting austerity measures — underscored the still unsettling financial problems gripping the 17-nation union that shares the euro.
Meeting in Brussels, European leaders agreed to replace an emergency — and temporary — rescue fund set up last May with a larger, permanent one armed with $700 billion. At the insistence of Germany, national contributions into the fund will happen more gradually than anticipated, with less cash required by each nation at inception in 2013. Leaders also delayed until June a decision on whether to increase the size of the temporary $620 billion bailout fund."
"European Union finance ministers agreed on Monday that member states will pay €80 billion ($114 billion) of capital into the permanent bailout fund, the European Stability Mechanism (ESM), to back its effective lending capacity of €500 billion.
The fund will also be backed by €620 billion of so-called callable capital, which will be made available should it become necessary, said Luxembourg Prime Minister Jean-Claude Juncker, who is also chairman of the Euro Group made up of the 17 euro-zone finance ministers. That will bring the total volume of the fund, which will start operating in mid-2013 and will replace the temporary European Financial Stability Facility (EFSF) currently in effect, to €700 billion.
The aim is to ensure the ESM gets a triple-A credit rating, which will minimize the interest it pays on bonds it issues. "
Related:
2011 – Creating the European Financial Stability Facility (EFSF) & the "PIIGS"
2017 – Another Greek Economic Crisis?
The Drachma almost returned to Greece 2013–2017
Greek economic Survival in the 1990s
Greece's Golden Visa program
