Thursday, 20 September 2012

European Financial Stability Facility

The European Financial Stability Facility (EFSF) was created in May 2010 by the European Union as a special purpose vehicle to help preserve financial stability in Europe by providing financial assistance to euro
zone states in difficulty.
The EFSF was empowered to sell bonds and use the money to make loans up to a maximum of € 440 billion to euro zone nations. The bonds were to be backed by guarantees given by the European Commission representing the whole EU, the euro zone member states, and the IMF. The EFSF combined the € 60 billion loan coming from the European financial stabilization mechanism (reliant on guarantees given by the European Commission using the EU budget as collateral) and a € 250 billion loan backed by the IMF in order to obtain a financial safety net up to € 750 billion. The agreement allowed the ECB to start buying government debt which  was expected to reduce bond yields.

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