European Financial Stability Facility

The European Financial Stability Facility (EFSF) was created by the 27 member European Union as a special purpose vehicle. Its purpose is to preserve financial stability through financial assistance to eurozone states during times of economic difficulty.

In order to raise funds to provide loans for financially troubled euro zone nations or banks, the EFSF can issue bonds or other debt instruments to the markets. These would be backed by guarantees from euro member states.

To secure these funds, the euro zone country in need must first make a request to the European Commission and the IMF. A country support program would also have to be drafted and unanimously approved by the Eurogroup.

By mid-2013, the EFSF will be replaced by the European Stability Mechanism (ESM), which is a permanent rescue funding program.

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