Question 88 from UPSC CSE 2016 - Current
Affairs

Question

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

IASCODEX · Accepted Answer

Correct Option: B. agency of EU that provides financial assistance to eurozone countries

Strategy: The question asks for the primary function of the 'European Stability Mechanism'. Focus on the term 'Stability Mechanism' which strongly implies an economic or financial role, particularly in the context of the European Union. Recall the major economic challenges faced by the Eurozone, such as the sovereign debt crisis. Option B, describing 'financial assistance to eurozone countries,' directly aligns with the known purpose of such a mechanism. Options dealing with refugees, trade agreements, or internal conflicts are functionally distinct from a 'stability mechanism' and can be eliminated.

Key Info: **European Stability Mechanism (ESM)**

**Establishment and Purpose:** The ESM is an intergovernmental organization established by the Eurozone member states, coming into force in October 2012.

Its primary purpose is to provide financial assistance, in the form of loans, to Eurozone member states that are experiencing or are threatened by severe financing problems.

It can also provide capital to financial institutions (banks) in difficulty within these countries, under strict conditionality.

**Context:** The ESM was created as a permanent firewall for the euro area to safeguard financial stability. It succeeded the temporary European Financial Stability Facility (EFSF) and European Financial Stabilisation Mechanism (EFSM), which were established during the Eurozone sovereign debt crisis (2010-2012).

**Legal Basis:** The ESM is established by an intergovernmental treaty (the ESM Treaty), which means it is legally separate from the European Union's direct legal framework. However, it operates in close coordination with EU institutions like the European Commission and the European Central Bank.

**Role:** The ESM is a crucial component of the Eurozone's architecture for crisis management, aimed at ensuring the stability of the common currency and the broader financial system within the Eurozone.

IASCODEX · Answer

Option A: agency created by EU to deal with the impact of millions of refugees arriving from Middle East

IASCODEX · Answer

Option C: agency of EU to deal with all the bilateral and multilateral agreements on trade

IASCODEX · Answer

Option D: agency of EU to deal with the conflicts arising among the member countries