Abstract
EFSM and EFSF were temporarily established for preventing any Euro area Member State’s insolvency. The ESM is a permanent mechanism which has common features with the ad hoc mechanism for Greece and the EFSM/EFSF. The purpose of this paper is to assess the effectiveness of ESM as a crisis management mechanism from a law perspective. The comparison between ESM and EFSM/EFSF serve as the basis of this assessment. The paper examines the legal foundation of ESM and the legal nature of the mechanism and presents the decision making process and the actors involved. The new legal basis prescribes that the ESM is activated only when the financial assistance is indispensible for the stability of the euro area as a whole and that the financial assistance is attached to strict conditionality. The contribution to the capital is made by the Euro area Member States, the financial assistance is conditional on a macro-economic adjustment programme and the terms are non-concessional. Although the ESM has a legal basis on European Law it has the legal form of an intergovernmental organisation. The judicial review of ESM was assigned to the European Court of Justice.
Highlights
The crisis in the financial markets of U.S.A. in 2008 was just the beginning of the current, global, economic and financial crisis
The new legal basis prescribes that the European Stability Mechanism (ESM) is activated only when the financial assistance is indispensible for the stability of the euro area as a whole and that the financial assistance is attached to strict conditionality
The contribution to the capital is made by the Euro area Member States, the financial assistance is conditional on a macro-economic adjustment programme and the terms are non-concessional
Summary
The crisis in the financial markets of U.S.A. in 2008 was just the beginning of the current, global, economic and financial crisis. The Member States established two different financial mechanisms which are both along the same lines with the ad hoc mechanism for Greece. They both provide financial assistance to the distressed Euro area Member States. EFSM and EFSF were temporarily established for preventing any Euro area Member State’s insolvency. The prolongation of these mechanisms would have raised the question of legality of the mechanisms. The contribution to the capital is made by the Euro area Member States, the financial assistance is conditional on a macro-economic adjustment programme and the terms are non-concessional. The analysis is confined in the institutional structure of the ESM while the relevant economic and political aspects of the ESM are beyond the scope of this paper
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