Eurozone financial stability materials

Eurozone financial stability continues to be of interest to readers. Here is a part recap of sources regarding Euro area defence measures.



Official materials

There are some official EU (Eurozone) level materials on the European financial stabilisation mechanism (EFSM) and the European Financial Stability Facility (EFSF):



COUNCIL REGULATION (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism; published OJEU 12.5.2010 L 118/1



Terms of reference of the Eurogroup European Financial Stability Facility (7 June 2010)



Grahnlaw blog posts

Without going back to the beginnings of the series on tracking eurozone crisis measures, or related posts, here are some of the Grahnlaw entries presenting sources related to Greece and the EFSM and the EFSF:



Tracking eurozone crisis measures: Activating financial support for Greece (29 May 2010)



Tracking eurozone crisis measures: Barbarians at the gate (30 May 2010)



Tracking eurozone crisis measures: Stabilisation mechanism and transparency (30 May 2010)



European financial stabilisation mechanism – a ray of transparency (3 June 2010)



European Financial Stability Facility Agreement EFSF (8 June 2010)


Where democracy and transparency in eurozone rescue? (8 June 2010)



Commission tasks: European Financial Stability Facility Agreement (EFSF) (8 June 2010)



European Financial Stability Facility in Finland (21 June 2010)



European Financial Stability Facility Framework Agreement (EFSF) (21 June 2010)


These superficial presentations may be of some help to financial service providers, researchers and EU policy bloggers who want to dig deeper.




Ralf Grahn



P.S. It is easier to understand a language than to use it correctly, and as Eurobloggers we should promote interaction among Europeans. Grahnlaw has adopted a multilingual comment policy:

I do my best to read comments in Danish, Dutch, English, Finnish, French, German, Italian, Norwegian, Portuguese, Spanish or Swedish, even if the Grahnlaw blog and my possible replies are in English.

European Financial Stability Facility in Finland

I have wondered why, day after day, the greatest number of visitors on Grahnlaw comes from people looking for information about the European Financial Stability Facility (EFSF).

The reason, as I see it, is the lack of credible and detailed official information available about this potentially huge defence arrangement for the common currency.





Three blog posts on 8 June 2010 summed up the available information: European Financial Stability Facility EFSF, Where democracy and transparency in eurozone rescue? and Commission tasks: European Financial Stability Facility (EFSF).

As in the case of the Greek rescue package, little improvement has been seen since then.

Factually, we have witnessed momentous pan-eurozone operations of collective defence, in the framework of the European Union.

Despite this, with the exception of a few press releases, the matters have been dealt with as bilateral and intergovernmental financial agreements, subject to unconnected national procedures.



Finland

European Financial Stability Facility


Let us turn to the national level to find some transparency.



According to a press release dated 3 June 2010, the Finnish government proposed the approval of the EFSF commitments.

The government bill, sent to parliament the following day, is available in Finnish and Swedish:



Hallituksen esitys Eduskunnalle laiksi Euroopan rahoitusvakausvälineelle annettavista valtiontakauksista HE 71/2010 vp (10 pages)



Regeringens proposition till Riksdagen med förslag till lag om statsborgen för ett europeiskt finansiellt stabiliseringsinstrument RP 71/2010 rd (10 pages)




The proposal has passed the committee stage, where its scope was widened (after the Euro Group meeting), and its contents have been approved by the plenary. It is waiting for the final vote.


[Deleted]



According to a press release of 17 June 2010, available in Finnish and Swedish, the government of Finland has proposed the approval of the framework agreement between the eurozone countries and the European financial [stabilisation mechanism, based on: Correction] stability facility




[Deleted]


The government bill is available in Finnish and Swedish:


Hallituksen esitys Eduskunnalle Belgian, Saksan, Irlannin, Ranskan, Italian, Kyproksen, Luxemburgin, Maltan, Alankomaiden, Itävallan, Portugalin, Slovenian, Slovakian, Suomen, Kreikan ja Euroopan rahoitusvakausvälineen välisen ERVV-puitesopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten hyväksymisestä HE 95/2010 vp (49 pages)



Regeringens proposition till Riksdagen om godkännande av ett ramavtal mellan Belgien, Tyskland, Irland, Frankrike, Italien, Cypern, Luxemburg, Malta, Nederländerna, Österrike, Portugal, Slovenien, Slovakien, Finland, Grekland och det europeiska finansiella stabiliseringsinstrumentet samt med förslag till lag om sättande i kraft av de bestämmelser i ramavtalet som hör till området för lagstiftningen RP 95/2010 (53 pages)


Readers may know how these matters have been dealt with in other countries.




Ralf Grahn

Where democracy and transparency in eurozone rescue?

The eurozone rescue operations between the Euro Group governments have left EU citizens with little more than a number of communiqés.



Only the € 60 billion European financial stabilisation mechanism (Council Regulation 407/2010; misnamed in Euro Group press release yesterday) was published in the Official Journal of the European Union (OJEU).



Weeks later a proposal was formally and belatedly published as a preparatory document on Eur-Lex: COM(2010) 2010 final (the number is odd, when the latest document, published 7 June, is numbered 293). Sadly it only contained the Regulation text, so it did not add to our knowledge. Naturally, this proposal did not serve the purpose of public debate before decisions are taken.

On the other hand, in this saga Council Regulation 407/2010 is the shining star from the viewpoint of transparency. It was, after all, agreed between all the EU member states in the Council and published in the OJEU.



Intergovernmental deals

There were no preceding (Commission) proposals on Eur-Lex under preparatory documents of the € 80 billion Greek rescue package and no publication of the decisions in the Official Journal of the European Union (OJEU).

No proposals open to public debate were published on the EU’s legal portal Eur-Lex with regard to the new € 440 billion European Financial Stability Facility. Will this press release after the fact be what the public is deemed worthy of at EU level with regard to the EFSF?



Terms of reference of the Eurogroup: European Financial Stability Facility (Luxembourg, 7 June 2010)

To recapitulate...

Three decisions have now put € 580 billion of EU citizens’ money on the line (almost the size of the GDP of the Netherlands), plus half as much promised by the IMF.

Monumental decisions are taken between governments of the Euro Group, without opportunity for open and public debate in advance on known proposals. Intergovernmental deals seem to fall outside the publishing criteria of Eur-Lex.

Using the same logic, perhaps we should wonder why the treaties are published officially. They, too, are agreed intergovernmentally, not by the EU institutions.

The euro rescue discussions have taken place in the Euro Group, an unofficial group of finance ministers.

There is now talk about economic governance or government. Some of the ideas floated suggest that a new unofficial group of eurozone heads of state or government would replace the already unofficial Euro Group or be superimposed on it.

Openness, transparency and democratic accountability would suffer even more.

Public debate, publicity, opportunities for public debate, responsibility and parliamentary scrutiny at European (eurozone) level would be short-circuited more than ever. Scrutiny by dispersed national parliaments, each with regard to their own government’s role, is no substitute when the decisions de facto concern the whole eurozone and every inhabitant.

Government by press release is not the way forward in a Europe all too willing to teach the world the virtues of democracy, the rule of law, human rights and fundamental freedoms.




Ralf Grahn

European financial stabilisation mechanism ─ a ray of transparency

This blog has complained often enough about the dismal state of transparency with regard to the giant actions to shore up the euro currency: the economic rescue package for Greece, the European financial stabilisation mechanism and the Special Purpose Vehicle (some one trillion dollars in all, counting stand-by promises by the IMF).

Only the European financial stabilisation mechanism and supportive decisions by the European Central Bank (ECB) have been published in the Official Journal of the European Union (OJEU).

I have called this “government by communiqés”.



Here is a link to:



COUNCIL REGULATION (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism; published OJEU 12.5.2010 L 118/1.

Without Commission proposals published as preparatory documents on Eur-Lex, no paper trail has been established.

Because of our frequent complaints, we have a moral obligation to announce that (some three and a half weeks after the fact) the Commission’s proposal for the European financial stabilisation mechanism has now appeared among the most recent preparatory documents on Eur-Lex:



Proposal for a COUNCIL REGULATION establishing a European financial stabilization mechanism; Brussels, 9.5.2010 COM(2010) 2010 final (8 pages)


In retrospect and formally, we have a paper trail leading back from the published Council Regulation 407/2010 to the (preceding) Commission proposal.

At a first glance, the proposal seems to contain only the bare bones text of the adopted Regulation, so in practical terms it does not seem to add to our substantive knowledge.

I refrained from more detailed analysis.


Cultural imperialism?

At a trivial level, we note the difference in spelling between the proposals “stabilization” and the OJEU’s “stabilisation”, which reminded me of the dogged insistence of my own Microsoft Word programme to change my UK English settings into US English regardless of how often I reset. (In this case we can only guess if the correction was made by the Publications Office.)

US “cultural imperialism” risking the “special relationship”? Maybe the French and the British are going to find some common ground after all.

Something to think about, while we wait for the standards of openness to catch up with the magnitude of events.




Ralf Grahn



Update: The latest COM document published on Eur-Lex is: Brussels, 1.6.2010 COM(2010)242 final. Not only the timing, but the numbering of the Commission proposal mentioned in the blog post is interesting.

Tracking eurozone crisis measures: Stabilisation mechanism and transparency

With the barbarians at the gate and the sappers in the tunnels, the heads of state or government of the euro area gave the finance ministers orders to mount the defences of the common currency.



The extraordinary Europe Day ECOFIN Council 9 to 10 May 2010 (document 9596/10) mobilised a European financial stabilisation mechanism by reaching the following conclusions, worth reading in full, before the expected dawn attack by the financial markets:

"The Council and the Member States have decided today on a comprehensive package of measures to preserve financial stability in Europe, including a European Financial Stabilisation mechanism with a total volume of up to EUR 500 billion.

In the wake of the crisis in Greece, the situation in financial markets is fragile and there was a risk of contagion which we needed to address. We have therefore taken the final steps of the support package for Greece, the establishment of a European stabilisation mechanism and a strong commitment to accelerated fiscal consolidation, where warranted.

First, following the successful conclusion of procedures in euro area Member States and the meeting of euro area Heads of State or Government, the way has been cleared for the implementation of the support package for Greece. The Commission has signed today, on behalf of the euro area Member States, the loan agreement with Greece and the first disbursement will proceed, as planned, before 19 May. The Council strongly supports the ambitious and realistic consolidation and reform programme of the Greek government.

Second, the Council is strongly committed to ensure fiscal sustainability and enhanced economic growth in all Member States and therefore agrees that plans for fiscal consolidation and structural reforms will be accelerated, where warranted. We therefore welcome and strongly support the commitment of Portugal and Spain to take significant additional consolidation measures in 2010 and 2011 and present them to the 18 May ECOFIN Council. The adequacy of such measures will be assessed by the Commission in June in the context of the excessive deficit procedure. The Council also welcomes the commitment to announce by the 18 May ECOFIN Council structural reform measures aimed at enhancing growth performance and thus indirectly fiscal sustainability henceforth.

Third, we have decided to establish a European stabilisation mechanism. The mechanism is based on Art. 122.2 of the Treaty [TFEU] and an intergovernmental agreement of euro area Member States. Its activation is subject to strong conditionality, in the context of a joint EU/IMF support, and will be on terms and conditions similar to the IMF.

Art. 122.2 of the Treaty foresees financial support for Member States in difficulties caused by exceptional circumstances beyond Member States’ control. We are facing such exceptional circumstance today and the mechanism will stay in place as long as needed to safeguard financial stability. A volume of up to EUR 60 billion is foreseen and activation is subject to strong conditionality, in the context of a joint EU/IMF support, and will be on terms and conditions similar to the IMF. The mechanism will operate without prejudice to the existing facility providing medium term financial assistance for non euro area Member States' balance of payments.

In addition, euro area Member States stand ready to complement such resources through a Special Purpose Vehicle that is guaranteed on a pro rata basis by participating Member States in a coordinated manner and that will expire after three years, respecting their national constitutional requirements, up to a volume of EUR 440 billion. The IMF will participate in financing arrangements and is expected to provide at least half as much as the EU contribution through its usual facilities in line with the recent European programmes.

At the same time, the EU will urgently start working on the necessary reforms to complement the existing framework to ensure fiscal sustainability in the euro area, notably based on the Commission Communication to be adopted on 12 May 2010. We underline the importance that we attach to strengthening fiscal discipline and establishing a permanent crisis resolution framework.

We underlined the need to make rapid progress on financial market regulation and supervision, in particular with regard to derivative markets and the role of rating agencies. Furthermore, we need to continue to work on other initiatives, such as the stability fee, which aim at ensuring that the financial sector shall in future bear its share of burden in case of a crisis, also exploring the possibility of a global transaction tax. We also agreed to speed up work on crisis management and resolution.

We also reiterate the support of the euro area Member States to the ECB in its action to ensure the stability to the euro area. "

The ECOFIN Council continued with the following information:

The Council also adopted a regulation establishing a European financial stabilisation mechanism.

In addition, the representatives of the governments of the euro area member states adopted a decision to commit to provide assistance through a Special Purpose Vehicle that is guaranteed on a pro rata basis by participating member states in a coordinated manner and that will expire after three years, up to EUR 440 billion, in accordance with their share in the paid-up capital of the European Central Bank and pursuant to their national constitutional requirements.

The representatives of the governments of the 27 EU member states adopted a decision allowing the Commission to be tasked by the euro area member states in this context.

No-bailout?



On 10 May 2010 the European Commission published an explanatory press release (MEMO/10/173) on the European stabilisation mechanism. The Commission argued that the assistance would be given as interest-bearing loans, not grants, and as such compatible with the no-bailout rule of Article 125 TFEU.



Council Regulation 407/2010



The Council of the European Union issued Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism; published OJEU 12.5.2010 L 118/1.


Transparency



The different players have issued press information about the various turns of the crisis tale, but when we looked for hard decisions in the Official Journal of the European Union (OJEU) and under preparatory acts on Eur-Lex around 19 to 21 May, we noticed the absence of official proposals and other decisions, other than Council Regulation 407/2010 and decisions by the European Central Bank (ECB).

A clear paper trail distinguishes the rule of law from government by communiqués.

Have things improved?




Ralf Grahn

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

European financial stabilisation mechanism: No-bailout rule background

The size of the decisions to shore up the eurozone is mind-boggling, but they require more than blessings or condemnation based on gut reactions.

The directly applicable Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism (published OJEU 12.5.2010 L 118/1) came into force yesterday, 13 May 2010.

We started by discussing some aspects in the following blog posts (13 May 2010):



Background: European financial stabilisation mechanism



European financial stabilisation mechanism: Article 122 TFEU and legal base



European financial stabilisation mechanism: Open Europe accuses: “Profound dishonesty”



No-bailout rule

At the end of September and the beginning of October 2008 I followed the steps from the Treaty establishing the European Community (TEC) to the Treaty on the Functioning of the European Union (TFEU; Lisbon Treaty) with regard to the EU prohibitions against overdraft facilities and privileged access, before turning to what has become known in English under a catchy name: the no-bailout rule or clause.




EU: No-bailout rule I (2 October 2008) offered the reminder that the European Union (EU) is not a federal state, ready to pick up the tab for government failure. Economic and monetary union (EMU) is designed only to ensure responsible government borrowing in each nation state separately. Article 103 TEC was presented, as was the cooperation procedure (Article 252 TEC).



EU: No-bailout rule II (2 October 2008) presented Article III-75 of the draft Constitution, proposed by the European Convention, which downgraded the role of the European Parliament, merely to be consulted.



EU: No-bailout rule III (2 October 2008) noted the changes in the second paragraph of Article III-183 of the Constitutional Treaty (legal base).



EU: No-bailout rule IV (3 October 2008) noted the amendment made by the IGC 2007 to the second paragraph of Article 103 TEC in what became Article 125 TFEU after renumbering.



EU: No-bailout rule V (4 October 2008) looked at potential UK sources. It mentioned that Professor Steve Peers had stated that the measures concerned shall not constitute legislative acts, and that the EP’s role had been downgraded by moving from cooperation to consultation.



EU: No-bailout rule VI (5 October 2008) looked at legislative materials from Sweden and Finland, as well at some books on the Lisbon Treaty published at the time.


In the end, one student thanked my summaries for helping him pass his public finance exam and reading the posts jogged my memory, but following the legislative history of the no-bailout clause did not reveal any deeper discussion about the scope of the no-bailout clause or its relationship with exceptional financial assistance (the European financial stabilisation mechanism).


We have to continue our quest in coming blog posts.




Ralf Grahn

European financial stabilisation mechanism: Open Europe accuses: “Profound dishonesty”

In the 11 May 2010 post on the eurozone rescue package They Said It Wouldn’t Happen, the Open Europe Blog makes these specific allegations with regard to Article 122 TFEU:

3) EU leaders are basing parts of the bailout on Article 122 of the EU Treaties. This is profoundly dishonest and involves a huge legal stretch. Article 122 states that,

"Where a member state is in difficulties or is seriously threatened with difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the member state."

As we’ve stated before, the European Council has previously said that any use of this article must be compatible with the no bailout rule in the EU Treaties. This interpretation is now being completely ignored.

Telegraph journalist Bruno Waterfield summarises the issue well on his EUobserver blog,

“'Exceptional occurrences beyond control’? This is a lie. A whopping, howling lie told to us by Europe’s political class. This crisis is a product of human agency, the choices and decisions taken by people facing circumstances that are man-made and, thus, susceptible to political intervention. To use a legal clause designed for earthquakes or potentially extreme unforeseen circumstances that threaten the existence of one member state to save the skins of the EU’s political class is profoundly deceitful – quite aside from being legally dodgy."

(The whole Open Europe blog post is worth reading as a summary of the arguments leveled at the eurozone rescue package.)



Honestly?

At the time the Lisbon Treaty was drafted, the disruption of natural gas supply to EU member states was perceived as a grave risk. The ‘area of energy’ was added to the text.

As we have seen from the legislative history of Article 122 TFEU, the extension of qualified majority voting (QMV) and the addition of ‘a spirit of solidarity’ were duly presented to the ratifying parliaments.

The spirit of solidarity means that the member states have a greater responsibility than before to help a fellow-member in difficulties or even threatened with severe difficulties.

Even if QMV has been extended to other difficulties than natural disasters, a qualified majority is not an easy test to pass. The Council, where the governments of the member states are represented, has to be convinced about the legal conditions, the European Commission needs to make a proposal and the Council has to decide on the scope and the conditions for financial assistance.


Open Europe alleges that the “European Council” has previously said that any use of this article must be compatible with the no bail-out rule in the EU Treaties and that this interpretation is now being completely ignored.



First of all, the answer by the acting Presidency of the Council of the European Union is explicitly said not to be binding on either the Council or its members. Secondly, “exceptional occurrences beyond the control of a Member State” have never been defined nor discussed by the Council. Thirdly, the Council stands ready to examine any proposal from the Commission based on then Article 100(2) TEC. In conjunction with the Declaration on Article 100 TEC, the compatibility with the “no bail-out” rule is then mentioned in passing in a sentence leading to the inter-institutional agreement on budgetary discipline and financial perspectives.

When in fact, the acting Presidency declared its willingness to examine any proposal from the Commission compatible with the treaties, Open Europe’s assertion can be seen as somewhat misleading.

Open Europe’s allegation that the interpretation is now being completely ignored is not backed up by anything in the quoted excerpt.

Of course, even if Open Europe’s allegations are partly misleading and partly lack even a shred of evidence, it does not necessarily mean that they are wrong.

For a somewhat more objective take on the European financial stabilisation mechanism, we need to take a closer look at the no bail-out rule (now Article 123 TFEU) and to discuss the meaning of exceptional occurrences beyond the control of member states.

The discussion continues here on Grahnlaw.




Ralf Grahn