UPSC Prelims 2016 Question:

'European Stability Mechanism', sometimes seen in the news, is an:

Explanation:

• The 'European Stability Mechanism' (ESM), is a rescue fund which was set up by the European Union in 2012 to provide loans to financially distressed eurozone countries. ESM acts as a “lender of last resort” for euro-area countries when they are unable to refinance their government debt in financial markets at sustainable rates. The assistance is granted, under strict conditionality, if needed to safeguard the financial stability of the entire euro area and of each euro area country.
  
  
• ESM provides loans only to ESM Members, all of which are by definition in the euro area. EU countries that do not use the euro as their currency may request assistance from the EU’s Balance of Payments facility.
  
  
• ESM raises funds for its financial assistance through the sale of bonds and bills to investors. Taxpayers’ money is never used for lending to beneficiary countries.
  
  
• The ESM will provide a backstop to the Single Resolution Fund, and will play a stronger role in crisis prevention and future economic adjustment programmes.
  
  

Therefore, option (2) is the correct answer.

Subject: Economics | Economic Organizations and Conventions