When Greece lost access to the financial markets in early spring 2010, there was a risk of contagion to other fragile economies. In the light of this possibility, the Council and the Member States agreed on a series of measures to preserve financial stability in Europe, including a European Financial Stabilisation Mechanism with a total volume of up to EUR 500 billion. This mechanism provided for the establishment of an ad hoc entity (the European Financial Stability Facility) to raise capital on the markets, with a lending capacity of up to EUR 440 billion. The additional EUR 60 billion is covered by the EU budget for the years 2011 to 2013.

On 7 June 2010, the Eurogroup approves the establishment of the European Financial Stability Facility as a public limited liability company (société anonyme) in Luxembourg, governed by the laws of that country. The statutes are published in the Official Journal of the Grand Duchy of Luxembourg (the Memorial) on 8 June 2010.

On 18 October 2010, French President Nicolas Sarkozy and German Chancellor Angela Merkel hold a briefing on the agreement they have secured on reforming economic governance in the euro area. The European Financial Stability Facility and the European Stability Mechanism were established in May 2010 and intended to last until 2013. The two leaders take the view that in future the strengthening of the euro area should involve the establishment of a sustainable support mechanism.

Meeting in Brussels on 16 and 17 December 2010, the Heads of State or Government agree that the Treaty on the Functioning of the European Union should be amended in order for a European Stability Mechanism to be established by the Member States of the euro area.

On 14 February 2011, the Committee on Economic and Monetary Affairs delivers its opinion to the Committee on Constitutional Affairs concerning the draft European Council Decision amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro.

On 15 February 2011, following a request from the President of the European Council, the European Commission delivers a favourable opinion on the draft European Council Decision amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro.

In its report of 7 March 2011, the European Parliament’s Committee on Constitutional Affairs supports the establishment of a permanent bailout fund for the euro zone. However, the MEPs express concern at the fact that the mechanism is based entirely on intergovernmental procedures and does not involve participation by the European Union (EU), and calls on the Member States to integrate the system into the EU.

Meeting on 11 March 2011, the Heads of State or Government of the euro zone adopt the ‘Euro Pact’, which provides for stronger economic policy coordination for competitiveness and convergence. This pact will be submitted to the European Council on 24 and 25 March 2011 so that Member States outside the euro zone can state whether or not they intend to participate.

On 17 March 2011, following a request from the European Council, the European Central Bank delivers an opinion on the draft European Council Decision amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro.

On 21 March 2011, Jean-Claude Juncker, President of the Eurogroup, outlines the substance of the agreement secured between the euro zone finance ministers on the funding of the European Stability Mechanism and the actions that it could lead to in terms of financial assistance.

At the European Council on 24 and 25 March 2011, the Heads of State or Government welcome the decisions taken on 11 March by the Heads of State or Government of the euro area and approve the structural features of the European Stability Mechanism.

On 24 and 25 March 2011, the European Council formally adopts Decision 2011/199/EU amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro. This decision is adopted in accordance with the simplified revision procedure set out in Article 48(6) of the Treaty on European Union.

On 21 July 2011, the Heads of State or Government of the Member States whose currency is the euro agree to increase the flexibility of the European Stability Mechanism with a view to improving the efficiency of financial assistance and preventing the risk of financial contagion.

On 7 September 2011, the Council of State delivers its opinion on the bill raising the guarantee commitment of the Luxembourg state to the European Financial Stability Facility from EUR 1.15 billion to EUR 2 billion. The Council of State rules that the granting of financial assistance by means of this instrument should be conditional on compliance by the beneficiary Member State with fiscal and macroeconomic adjustments to enable the country to finance itself in the long term on the financial markets. Should the Member State fail to do so, this would imply non-compliance with the ‘no bail out’ clause in Article 125 of the Treaty on the Functioning of the European Union.