EU agrees to set up permanent rescue fund

In a landmark decision at the meeting held during 16-17 December in Brussels, the European Council has agreed to establish a permanent mechanism to safeguard the financial stability of the euro area as a whole from future crises in member states.

The new European Stability Mechanism (ESM) will replace the existing European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM), which will remain in force until June 2013, a European Council release said.

The European Council, an institution of the European Union, defines the general political direction and priorities of the European Union, functioning under its president Herman Van Rompuy.

Necessary amendments will be made in the Lisbon Treaty which is in force from 1 December 2009, as agreed by members of the European Union during the meeting.

The agreed text of the draft decision says, "The member states whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole."

Through the amendments, the 17 euro zone nations including Estonia, which is due to join the group on 1 January 2011, will become part of the mechanism to rescue one another in case of any risk to their financial stability, based on mutual consent.