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European stability mechanism European Stability Mechanism (ESM): The European Stability Mechanism (ESM) is an intergovernmental organization located in Luxembourg, which was established in 2012 to provide financial assistance to European Union (EU) member states in financial difficulty. The ESM is the permanent replacement for the temporary European Financial Stability Facility (EFSF) and European Financial Stabilisation Mechanism (EFSM). The ESM provides financial assistance to EU member states in difficulty, in the form of loans, and is intended to be a “last resort” for countries in financial crisis. It is funded by contributions from EU member states and is managed by the European Commission. The ESM is designed to act as a backstop in case of a financial crisis, and is part of the European Union’s response to the economic and financial crisis that began in 2008. It can provide assistance to countries experiencing severe financial difficulties, or those at risk of defaulting on their debt. The ESM is also intended to provide a mechanism for the orderly resolution of a crisis, by providing a “safe harbour” for countries in financial distress. The ESM is the only institution that can provide assistance to EU member states in financial difficulty, and is