Bailout Fund: Euro Zone Changing ESM to Satisfy German Court

By Stefan Kaiser and

The final hurdle may now have been cleared for the implementation of the European Stability Mechanism, the permanent euro bailout fund. Euro-zone member states appear to have reached an agreement on a legally binding statement that addresses the conditions stipulated by Germany's highest court before the ESM Treaty can be ratified.

The European Parliament building in Brussels: Euro-zone member states have agreed to a declaration that will allow the permanent bailout fund to start its work soon. Zoom
AFP

The European Parliament building in Brussels: Euro-zone member states have agreed to a declaration that will allow the permanent bailout fund to start its work soon.

It appears increasingly probable that the permanent euro bailout fund, the European Stability Mechanism (ESM), will be able to start its work in just a few weeks time. Last week, Germany's Federal Constitutional Court gave its green light for the ratification of the ESM Treaty, but it attached some conditions. SPIEGEL ONLINE has learned from government sources that European Union ambassadors of the 17 euro-zone member states plan to sign a so-called "interpretive declaration" in Brussels next Wednesday agreed to last week by the currency union's finance ministers.

The declaration is to clarify that the upper ceiling for a nation's liability established in the treaty can only be exceeded with the permission of that country's parliament. The declaration will also strengthen the rights of parliaments in obtaining information from ESM.

With the declaration, euro-zone states plan to address the central conditions set by the German high court on Sept. 12 to allow Germany to ratify the treaty. The court rejected injunctions against ratification of the ESM treaty, but they nevertheless demanded clarification on two points:

  • Without the authorization of Germany's federal parliament, the Bundestag, the country's cap for liability cannot exceed €190 billion ($246 billion), even if there are other possible interpretations of the ESM Treaty's language.

  • Assurances must also be given that professional secrecy requirements of ESM board members and employees will not interfere with German parliament's right to information.

Both of these points have now been addressed in the declaration that has been negotiated, a draft of which has been obtained by SPIEGEL ONLINE. "No provision of the Treaty may be interpreted as leading to payment obligations higher than the portion of the authorized capital stock corresponding to each ESM Member," it states. At least not "without prior agreement of each Member's representative and due regard to national procedures." In the case of Germany, this means that the upper ceiling of €190 billion cannot be exceeded without prior permission from parliament.

The declaration also speaks to the second concern identified by the German high court. Professional secrecy requirements in the ESM treaty shall not "prevent providing comprehensive information to the national parliaments, as foreseen by national regulation," it says.

Berlin government sources told SPIEGEL ONLINE that the language of the declaration has already been largely agreed to by ESM member states. But it still needs to be agreed to by national governments before it is officially signed next week. In Germany, this approval is expected to be provided during a meeting of Chancellor Angela Merkel's cabinet next Wednesday, just prior to the official signing in Brussels. A diplomat in Brussels added, however, that last-minute changes to the language could not be ruled out.

Under the preliminary plans, the ESM is expected to go into operation on October 8, with a lending capacity for crisis-plagued euro-zone countries of up to €500 billion ($647 billion). It will ultimately replace the current temporary bailout program, the European Financial Stability Facility.

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1. Pensions
Nixtou 09/20/2012
My elderly mother receives a pension from Germany. Recently, it was decided by the German government that German pensioners residing abroad would be required to pay income tax, not only on the pensions they receive from Germany, but also the pensions they receive from the country they reside in, which in my mother's case is Canada. What is very unfair about all of this is that she already pays income tax to the Canadian government for both of these pensions. So, in essence she is being taxed twice for both of these incomes. We were advised that there was an agreement made between the two countries that allows this to go on, but that Germany only just attained the funds and manpower to be able to institute the law that has been around since 2003 and are doing this to these pensioners retroactively. I'd really like have the German Prime Minister explain to me how this is fair. Especially when there are certain people who "hide" their money in offshore accounts and pay no taxes. Give me a break!
2.
taleoftwotreaties 09/21/2012
---Quote (Originally by sysop)--- The final hurdle may now have been cleared for the implementation of the European Stability Mechanism, the permanent euro bailout fund. Euro-zone member states appear to have reached an agreement on a legally binding statement that addresses the conditions stipulated by Germany's highest court before the ESM Treaty can be ratified. http://www.spiegel.de/international/europe/0,1518,857027,00.html ---End Quote--- Thanks for publishing the wording of the agreement. It has been carefully crafted as one would expect, and makes no explicit mention of national parliaments. The ESM has another legal hurdle, this one in the European Court of Justice in Luxembourg. That is because the Irish Supreme Court has formally asked the Luxembourg Court a series of three questions including whether the ESM is compatible with the EU treaties. The full Court reference document is on the Supreme Court website. The provisional hearing date in the ECJ is just over one month from now, on October 23.
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Graphic: The ESM firewall. Zoom
DER SPIEGEL

Graphic: The ESM firewall.

Graphic: Countries that have already received bailouts or are expecting one. Zoom
DER SPIEGEL

Graphic: Countries that have already received bailouts or are expecting one.



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