What is the EFSF?

The European Financial Stability Facility is on its way to getting approval for expansion. It is the euro zone’s rescue fund set up to combat the region’s sovereign debt crisis.

Based in Luxembourg, the fund was created in May of 2010 and has been growing ever since as it lends money to euro zone countries in trouble.

In July, it was decided to increase the amount in the fund from 440 billion to 780 billion euros.

Even with that expansion, the percentages of contributions remain the same, with Germany the biggest at 27.1 percent followed by the other large euro zone nations France, Italy and Spain.

Jan Randolph, Head of Sovereign Risk at IHS Global Insight said it makes sense to beef up the fund: “The larger that fund is the better because it will give assurances that there is enough money there ultimately for recapitalisation, shoring up the European banking system, and that will provide confidence.”

The fund is financed by euro zone members through the sale of bonds and other financial instruments.

After Germany’s OK for the expansion, six more countries must approve it by mid October. The most reluctant — Slovakia — is reportedly working on a compromise to get its parliament to vote that through.

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