European Financial Stability Facility in the context of European Financial Stabilisation Mechanism

The European Stability Mechanism (ESM) is an intergovernmental organization located in Luxembourg City, which operates under public international law for all eurozone member states having ratified a special ESM intergovernmental treaty. It was established on 27 September 2012 as a permanent firewall for the eurozone, to safeguard and provide instant access to financial assistance programmes for member states of the eurozone in financial difficulty, with a maximum lending capacity of €500 billion. It has replaced two earlier temporary EU funding programmes: the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM).

The Treaty Establishing the European Stability Mechanism was signed by the member states of the eurozone to found the European Stability Mechanism (ESM), an international organisation located in Luxembourg, to act as a permanent source of financial assistance for member states in financial difficulty, with a maximum lending capacity of €500 billion. It replaced two earlier temporary EU funding programmes: the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM). All new bailouts of eurozone member states will be covered by ESM, while the EFSF and EFSM will continue to handle money transfers and program monitoring for bailouts previously approved for Ireland, Portugal and Greece.

The treaty stipulated that the organization would be established if member states representing 90% of its original capital requirements ratified the founding treaty. This threshold was surpassed with Germany's ratification on 27 September 2012, bringing the treaty into force on that date for the sixteen states which had ratified the agreement. The ESM commenced its operations at a meeting on 8 October 2012. A separate treaty, amending Article 136 of the Treaty on the Functioning of the European Union (TFEU) to authorize the establishment of the ESM under EU law, was planned to enter into force on 1 January 2013. However, the last of the 27 European Union member states to ratify the amendment, the Czech Republic, did not do so until 23 April 2013, resulting in its entry into force on 1 May 2013. In June 2015, an updated EMU reform plan was released which envisaged that in the medium-term (between July 2017 and 2025) the ESM should be transposed from being an intergovernmental agreement to become fully integrated into the EU law framework applying to all eurozone member states, so that the ESM can be governed more smoothly by the EU institutions - under the competence provided for by the amended article 136 of the TFEU.

The 2010–2014 Portuguese financial crisis was part of the wider downturn of the Portuguese economy that started in 2001 and possibly ended between 2016 and 2017. The period from 2010 to 2014 was probably the hardest and more challenging part of the entire economic crisis; this period includes the 2011–14 international bailout to Portugal and was marked by intense austerity policies, more intense than the wider 2001-2017 crisis. Economic growth stalled in Portugal between 2001 and 2002, and following years of internal economic crisis, the worldwide Great Recession started to hit Portugal in 2008 and eventually led to the country being unable to repay or refinance its government debt without the assistance of third parties. To prevent an insolvency situation in the debt crisis, Portugal applied in April 2011 for bail-out programs and drew a cumulated €78 billion from the IMF, the EFSM, and the EFSF. Portugal exited the bailout in May 2014, the same year that positive economic growth re-appeared following three years of recession. The government achieved a 2.1% budget deficit in 2016 (the lowest since the restoration of democracy in 1974) and in 2017 the economy grew 2.7% (the highest growth rate since 2000).