More on the EU’s no-bailout rule (European financial stabilisation mechanism)

My series on the steps of the treaty reform process concerning the EU’s no-bailout clause proved to be inconclusive with regard to the scope and substance of the provision and its relationship with exceptional financial assistance (the European financial stabilisation mechanism).



No-bailout clause

Before we go any further, a reminder of the so called no-bailout rule, Article 125 TFEU (as in the latest consolidated version of the Treaty on the Functioning of the European Union, Lisbon Treaty, OJEU 30.3.2010 C 83/99):

Article 125 TFEU
(ex Article 103 TEC)

1. The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.

2. The Council, on a proposal from the Commission and after consulting the European Parliament, may, as required, specify definitions for the application of the prohibitions referred to in Articles 123 and 124 and in this Article.

First conclusion

Neither the European Union nor a member state is liable, as a matter of course, for the commitments of a member state or its public sector.

The problematic part comes with the prohibition: shall not … assume the commitments of central governments etc. of any member state.



Bruno Waterfield has rejected the eurozone rescue package in no uncertain terms, in his EUobserver blog post: EU bailout is built on a lie (9 May 2010).



In X-Files fashion we may believe that “The Truth Is Out There”, but we have not found it yet. Your Mulder and Scully have to continue their undaunted research into normal and paranormal phenomena of EU law, specifically economic and monetary union (EMU).

Grahnlaw has seldom been more like a web log, recording progress (or lack of it) as it occurs. Watch out for the next episode of this running diary.




Ralf Grahn