A treaty establishing the European Stability Mechanism (ESM) was signed on Thursday by representatives of the 17 euro area member states.
The ESM will be an international financial institution based in Luxembourg. Its purpose is to provide financial assistance to eurozone member states facing severe financing problems, if indispensable for safeguarding financial stability in the euro area as a whole.
The objective is that it enters into force in July 2012, one year earlier than initially planned.
This permanent crisis mechanism will contribute to raising confidence and ensuring solidarity and financial stability in the euro area, European Council President Herman Van Rompuy said in a statement welcoming the signing of the Treaty.
It creates a permanent firewall with a broad range of tools and a strong financial basis, to safeguard financial stability, he added.
As agreed in December by the leaders of the European Union, we will reassess the adequacy of resources under the European Financial Stability Facility (EFSF) and the European Financial Stabilization Mechanism (EFSM) on March 1, Rompuy said.
The original version of the treaty was signed on 2011 July 11, but it has been modified to incorporate decisions taken by the heads of state and government of the euro area later that year, aimed at improving the effectiveness of the mechanism.
The treaty will enter into force once it is ratified by the 17 euro area member states. The target date is July 2012, a year earlier than originally planned.
As a permanent mechanism, the ESM will take over the tasks currently fulfilled by EFSF and EFSM.
With the accelerated entry into force, the ESM will operate alongside the EFSF for 12 months. Their joint lending capacity is currently set at EUR 500 billion, subject to reassessment in March.
With the subscribed capital of EUR 700 billion (EUR 80 billion as paid in capital, the rest as callable), the initial maximum lending capacity of the ESM is set at EUR 500 billion.
Following agreement reached at the informal European Council meeting on January 30 on the fiscal compact, the ESM treaty stipulates that the granting of financial assistance will be conditional, as of 2013 March 1, on the ratification of the fiscal compact by the ESM member states concerned.
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