European Financial Stablisation Mechanism - EFSM

DEFINITION of 'European Financial Stablisation Mechanism - EFSM'

A permanent fund created by the European Union (EU) to provide emergency assistance to member states within the union. The European Financial Stablisation Mechanism (EFSM) raises money through the financial markets, and is guaranteed by the European Commission. Funds raised through the markets use the budget of the European Union as collateral. The EFSM is rated AAA by Fitch, Moody's and Standard & Poor's.

BREAKING DOWN 'European Financial Stablisation Mechanism - EFSM'

European countries have several options outside of the open market to seek financial help. Other than the European Financial Stablisation Mechanism starting in 2013, The EFSM has been supported in the past by other organizations such as the European Financial Stability Facility (EFSF) and the International Monetary Fund (IMF).


Member states of the European Union may support the various funding mechanisms because - while they may potentially give rise to domestic political fallout - they may prevent a domino effect in which other stronger countries are dragged down as well.