A Complete Guide To Europe's New €700 Billion Permanent Bailout Fund

esm bailout fund

Photo: EFSF

The European Stability Mechanism (ESM) has finally been ratified by the requisite number of euro area member states needed for the fund to commence operations.The ESM is Europe’s permanent bailout fund.

The German Constitutional Court’s September 12 decision to approve the ESM was seen as clearing the final hurdle.

There were reports earlier in the week that the ESM would try to leverage up its existing lending capacity, which currently stands at 700 billion euros, up to 2 trillion euros by seeking funds from private investors.

Now, the ESM’s predecessor, the EFSF (i.e. the temporary bailout fund), has posted a preliminary investor presentation for the ESM on its website.

Here's a history of the path from EFSF to ESM

The ESM is intended to be the euro area's permanent bailout fund

There are a few differences between the old EFSF and the new ESM

And there are a few similarities as well

The ESM will take a number of actions

Here's a breakdown of how much each eurozone member state pays in to the bailout fund

This is the ESM's capital structure

Payments into the fund from member states are frontloaded in 2012 and 2013

Meet management

Here are the responsibilities of the eurozone finance ministers who will make up the Board of Governors

The Board of Directors runs day-to-day operations at the fund

Klaus Regling, current CEO of the EFSF, will continue to run the show at the ESM

The ESM says it will only invest in liquid assets with high creditworthiness

Here's how the ESM decides to give someone a bailout

This is how the ESM plans to bail out Spanish banks

The ESM will try to mitigate the liquidity risk its borrowers face while offering highly liquid investment opportunities to its investors

Here are the details of the ESM's general strategy

The ESM will charge everyone the same interest rate

This is the plan for how the ESM will expand in size over the next two years

The ESM will handle the Spanish bank bailout instead of the EFSF

ESM will employ 100 people in Luxembourg

This is the bailout plan where the ESM buys bonds issued directly from government treasuries on the primary market

This is the bailout plan where the ESM intervenes and buys government bonds in the secondary market to influence interest rates

And then this is the bailout lite option

Finally, this is the ESM's bailout plan for banks

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