The European Financial Stability Facility (EFSF) is a temporary crisis resolution mechanism established in 2010 by the Eurozone countries in response to the European sovereign debt crisis.
Its primary aim was to provide financial assistance to Eurozone member states experiencing severe economic difficulties or facing financial instability.
The EFSF was designed to preserve financial stability within the Eurozone by issuing bonds and other debt instruments on the capital markets, raising funds that could be used to extend loans to countries in need, recapitalize banks, or purchase sovereign debt.
The EFSF operated under the guidance of the European Financial Stability Facility Framework Agreement, which outlined its operational procedures, governance structure, and decision-making processes.
The facility was backed by guarantees from the participating Eurozone member states, which determined its overall lending capacity.
In 2012, the EFSF was replaced by the European Stability Mechanism (ESM), a permanent financial assistance institution with an expanded lending capacity and a broader range of tools to address financial crises.
The ESM was designed to improve the Eurozone’s resilience to financial shocks and to ensure the long-term stability of the European financial system.
Although the EFSF no longer provides new financial assistance programs, it continues to manage the existing financial assistance packages extended to Ireland, Portugal, and Greece before the establishment of the ESM.