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.
History During the Euro area crisis, there was a drive to reform the functioning of the eurozone in the event of a crisis. This led to the creation, amongst other things, of loan (pejoratively called "bailout" in the media) mechanisms: the European Financial Stability Facility (EFSF) for eurozone member states and the European Financial Stability Mechanism (EFSM) for all EU member states. These, together with the International Monetary Fund, would lend money to EU states in trouble, in the same way that the European Central Bank can lend money to European banks. However, the EFSF was only intended to be a temporary measure, in part due to the lack of a legal basis in the EU treaties.
In particular, EFSM funding was granted under Article 122 of the TFEU, which stipulates that only states facing "severe difficulties caused by natural disasters or exceptional occurrences beyond its control" were eligible. Since the recipient governments had played a role in causing their financial distress, it was unclear whether this clause was met. As well, there was an argument that the EFSF, which was established as an intergovernmental organization outside the framework of EU law, was incompatible with the "no bailout" provisions of Article 125.
Treaty basis
In order to resolve these issue, the German government felt a treaty amendment was necessary. After the difficulties ratifying the Treaty of Lisbon, many states opposed reopening the treaties and the British government opposed changes affecting the United Kingdom.Van Rompuy wants clearer 'hierarchy' to deal with future crises, by Honor Mahony, EUobserver, 25.05.2010Don't expect Britain to back a new EU treaty, Cameron tells Merkel, by Tony Paterson, The Independent, 22.05.2010 However, after winning the support of French President Nicolas Sarkozy,Battle over treaty change divides Europe ahead of summit, by Leigh Phillips, EUobserver, 28.10.2010 the European Council agreed to draft a new treaty in October 2010 that would be a minimal amendment to give the proposed permanent lending mechanism, which would subsequently be negotiated as an intergovernmental treaty outside of the EU framework, legitimacy under EU law.Phillips, Leigh (17 December 2010) EU leaders agree to tweak treaty, keep bail-out fund unchanged, EU ObserverEUROPEAN COUNCIL 16-17 DECEMBER 2010 CONCLUSIONS, European Council 17 December 2010 The two line amendment to Article 136 of the Treaty on the Functioning of the European Union (TFEU),EUROPEAN COUNCIL 16–17 DECEMBER 2010 CONCLUSIONS, European Council 17 December 2010 which was approved by the European Council on 16 December 2010, reads:
Due to the intergovernmental nature of the permanent lending mechanism, which was named the European Stability Mechanism (ESM), the simplified treaty revision procedure could be used for the TFEU amendment as the EU's powers were not being increased. However, the amendment would not fulfill the German demand that the removal of voting rights be a possible sanction, as that would require a deeper treaty amendment. The revision of the treaty was designed so there would be no need for referendums, allowing for a speedy ratification process, with the aim to have it come into force in July 2012.
In March 2011, the European Parliament approved the treaty amendment after receiving assurances that the European Commission, rather than EU states, would play 'a central role' in running the ESM, despite wishing it had been more involved earlier,Parliament approves Treaty change to allow stability mechanism, European ParliamentRetrieved 22 March 2011 Published 22 March 2011 and it was signed by all 27 EU member states on 25 March 2011.
A separate treaty among eurozone states, named the Treaty Establishing the European Stability Mechanism, was also agreed to establish the ESM and set out the details of how it would operate.EUROPEAN COUNCIL 24/25 MARCH 2011 CONCLUSIONS Formally, two treaties with this name were signed: one on 11 July 2011 and one on 2 February 2012. After the first turned out to be not substantial enough, the second version was produced to "make it more effective". The ESM was designed to be fully compatible with existing EU law, and the European Court of Justice ruled that "the right of a Member State to conclude and ratify the ESM Treaty is not subject to the entry into force" of the TFEU amendment. The 2012 version was signed by all 17 eurozone members on 2 February 2012, and was planned to enter into force by mid-2012, when the EFSF and EFSM were set to expire. The treaty was concluded exclusively by eurozone states, in part because the UK refused to participate in any fiscal integration.Van Rompuy wants clearer 'hierarchy' to deal with future crises, by Honor Mahony, EUobserver, 25 May 2010Don't expect Britain to back a new EU treaty, Cameron tells Merkel, by Tony Paterson, The Independent, 22 May 2010
Another amendment to the ESM Treaty was signed on 27 January 2021. As of February 2024 it had been ratified by all ESM member states except Italy, whose parliament rejected ratification in December 2023 and imposed a moratorium on reconsidering the decision for 6 months, preventing the amendment's entry into force.
Membership
The treaty stipulated that it would enter into force once member states representing 90% of its original capital requirements ratified the founding treaty according to their respective constitutional requirements. This threshold was surpassed with Germany's ratification on 27 September 2012, bringing the treaty into force on that date for the 16 states which had ratified the agreement by that point on 27 September 2012. Estonia, the only remaining eurozone state at that date, which had committed only 0.19% of the capital, completed its ratification on 3 October 2012. The ESM commenced its operations at a meeting on 8 October 2012. The TFEU amendment came into force on 1 May 2013, after the Czech Republic became the last member state to ratify the agreement.
According to the text of the treaty, the ESM is open to accession by any EU member state once their derogation from using the euro has been lifted by the Council of the European Union. New members must be approved by the ESM's Board of Governors, after which they would need to ratify the Treaty Establishing the ESM. After Latvia's adoption of the euro on 1 January 2014 was given final approval by the Economic and Financial Affairs Council on 9 July, the ESM Board of Governors approved its membership application in October 2013. It became the first state to accede to the ESM on 21 February 2014, joining on 13 March 2014. Lithuania adopted the euro on 1 January 2015, and acceded to the ESM on 14 January 2015, becoming a member on 3 February 2015. Croatia adopted the euro on 1 January 2023, acceded to the ESM on 2 March 2023 and became a member on 22 March 2023 when the Treaty entered into force for it. Bulgaria adopted the euro on 1 January 2026, acceded to the ESM on 9 June 2026 and became a member on 29 June 2026.
Ratification Treaty establishing the ESM State Percent of ESMcontributions Signed Conclusion date Institution Majority needed AB DepositedESM Treaty details Ref. Yes 4 Jul 2012 National Council 50% 126 53 0 30 Jul 2012 6 Jul 2012 Federal Council 50% 45 10 0 17 Jul 2012 Presidential Assent - Granted Yes 7 Jun 2012 Senate 50% 46 4 14 26 Jun 2012 14 Jun 2012 Chamber of Representatives 50% 90 14 24 20 Jun 2012 Royal Assent - Granted No 20 May 2026 National Assembly 50% 189 10 0 9 June 2026 26 May 2026 Presidential Assent - Granted No 8 Feb 2023 Parliament 50% 124 0 5 2 Mar 2023 10 Feb 2023 Presidential Assent - Granted Yes 31 May 2012 House of Representatives 50% 48 0 0 28 Jun 2012 (Document "31-05-2012" must be downloaded.) 15 Jun 2012 Presidential Assent - Granted Yes 30 Aug 2012 Riigikogu 50% 59 34 6 3 Oct 2012 11 Sep 2012 Presidential Assent - Granted Yes 21 Jun 2012 Parliament 50% 104 71 24 29 Jun 2012 29 Jun 2012 Presidential Assent - Granted Yes 21 Feb 2012 National Assembly 50% 256 44 131 2 Apr 2012 28 Feb 2012 Senate 50% 169 35 138 7 Mar 2012 Presidential Assent - Granted Yes 29 Jun 2012 Bundestag 66.7% 493 106 5 27 Sep 2012 29 Jun 2012 Bundesrat 66.7% 65 0 4 13 Sep 2012 Presidential Assent - Granted Yes 28 Mar 2012 Parliament 50% 194 59 0 10 May 2012 Yes 20 Jun 2012 Dáil Éireann 50% 114 22 0 1 Aug 2012 27 Jun 2012 Seanad Éireann 50% 37 3 0 3 Jul 2012 Presidential Assent - Granted Yes 12 Jul 2012 Senate 50% 191 21 15 14 Sep 2012 19 Jul 2012 Chamber of Deputies 50% 380 59 36 23 Jul 2012 Presidential Assent - Granted No 30 Jan 2014 Parliament 50% 56 0 25 21 Feb 2014 10 Feb 2014 Presidential Assent - Granted No 18 Dec 2014 Seimas 50% 82 1 1 14 Jan 2015 18 Dec 2014 Presidential Assent - Granted Yes 26 Jun 2012 Chamber of Deputies 66.7% 49 5 0 31 Jul 2012 3 Jul 2012Royal Assent - Granted Yes 6 Jul 2012 House of Representatives 50% 25 0 0 19 Jul 2012 Yes 24 May 2012 House of Representatives 50% 100 47 0 13 Jul 2012 3 Jul 2012 Senate 50% 50 23 0 5 Jul 2012 Royal Assent - Granted Yes 13 Apr 2012 Assembly of the Republic 50% 204 24 2 4 Jul 2012 19 Jun 2012 Presidential Assent - Granted Yes 22 Jun 2012 National Council 60% (absolute) min 90 votes 118 20 5 29 Jun 2012 9 Jul 2012 Presidential Assent - Granted Yes 19 Apr 2012 National Assembly 50% 74 0 1 30 May 2012 30 Apr 2012 Presidential Assent - Granted Yes 17 May 2012 Congress of Deputies 50% (absolute) min 176 votes 292 17 7 2 Jul 2012 6 Jun 2012 Senate 50% (absolute) min 134 votes 237 1 0 21 Jun 2012 Royal Assent - Granted = States which acceded to the ESM
TFEU Article 136 amendment