Friday 14 May 2010

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

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