European Stability Mechanism Treaty Research Articles

The Administrative Tribunal of the European Stability Mechanism: ESMAT at Ten

The Administrative Tribunal of the European Stability Mechanism (ESMAT) is an international administrative tribunal hearing appeals brought by current and former staff of the European Stability Mechanism (ESM), which is an international organization. Sitting in Luxembourg, though separate to the European Union (EU) and outside the EU legal order, the Tribunal has its own Statute and Rules of Procedure to supplement the ESM Treaty. As ESMAT reaches the age of ten, and having delivered its first judgments, this articles probes ESMAT’s legal design and rulings to-date to determine the credibility of the international administrative tribunal in providing redress, as an internal justice regime in a standalone international organization. It finds that despite the preadolescent age of ESMAT, it is a well-designed international tribunal, established by law, and can provide the necessary judicial remedies to parties where necessary, given its applicable law.

The ESM Reform and Its Missing Legitimacy in Non-Euro Area Member States

The goal of this article is to analyse whether the European Stability Mechanism (ESM) and its current reform have been subjected to sufficient legal and democratic approval in non-euro area Member States. It is argued that the establishment of the ESM and the consequential obligation to accede to it after entering the euro area is at least to a certain extent legally and democratically underpinned by Article 136(3) Treaty on the Functioning of the European Union (TFEU). The establishment of the prospective euro area entrants’ obligation to join the ESM after adopting the euro is a manifestation of the normative value of Article 136(3) TFEU. However, the 2021 ESM reform has not been accompanied by a similar Treaty amendment and thus lacks legal and democratic legitimacy in non-euro area countries. This may have legal and political consequences for the obligation to adopt the euro in the affected countries. ESM, European Stability Mechanism Reform, ESM Treaty, Economic and Monetary Union, euro adoption, euro area entry criteria, Article 136 TFEU, democratic legitimacy

Umschuldungsklausel bei Anleihen der Euro-Staaten

A speciality of contracts seems to be the small print - also in contracts between the members of the European Union. The European Stability Mechanism Treaty (ESM), concluded with the purpose to install the ESM as an international financial institution and as backstop for the Single Resolution Fund (SRF), contains in one of its articles the inconspicuous reference to a mandatory majority action clause. This clause will be modified together with the prepared amendment of the ESM treaty. This amendment offers the perfect opportunity to describe Collective Action Clauses like majority action clauses - facilitating the restructuring of debt - in general and in particular those for sovereign debt of the Euro countries including their effects on the creditors position taking into account the role of the ECB as major creditor.

Fiscal Integration in an Experimental Union: How Path-Breaking Was the EU's Response to the COVID-19 Pandemic?

Fiscal Integration in an Experimental Union: How Path-Breaking Was the EU's Response to the COVID-19 Pandemic?

On selling sovereigns held by the ECB to the ESM

A repetition of austerity policies of the early 2010s is not consistent with maintaining adequate growth and sovereign debt sustainability in the post-pandemic environment, argue the authors of this CEPS Policy Insight. Likewise, a debt restructuring process with deep haircuts will just upset the fragile state of the markets and create a run on the debt of the most vulnerable member states, forcing the ECB to buy even more debt. Common policies are thus required to keep the sovereigns acquired by the ECB with its Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) programmes out of financial markets for an indefinite period. The European Stability Mechanism (ESM) can offer the appropriate instrument by purchasing the ECB-held sovereign debt and issuing own liabilities to fund the purchases. The programme could develop gradually, over several years, to ensure the smooth rollover of expiring securities. As the purchases would be funded by the ESM’s own liabilities, backed by the sovereign holdings, ESM debt would become the long- sought-after European safe asset. The authors argue that this ESM action could be conducted without an ESM Treaty change. It would be premised on the legal framework of the revised Article 14 (precautionary financial assistance). The ESM could then gradually evolve into a debt management agency for the euro area. The transfer of much of ECB sovereign holdings to the ESM would restore monetary policy independence and ease any frictions in this field, thereby allowing EU policymakers’ focus to shift to the completion of the European Banking Union. This paper follows up on a CEPS Policy Insight of October 2020, in which Stefano Micossi argued that the increase in sovereign indebtedness under way in the euro area should be managed through collective policy actions.

The Reform of the European Stability Mechanism: Process, Substance, and the Pandemic

The European Stability Mechanism (ESM) has been instrumental in safeguarding the financial stability of the Euro area and of its Member States. This article looks at the tumultuous process of reforming the ESM. It analyses the main changes that would be brought about by the draft revised ESM Treaty, whose text was agreed upon in June 2019 and finalized in December 2020. These concern the ESM’s purposes and operations; the procedure for granting stability support to a Euro area Member State; precautionary financial assistance instruments; single-limb collective action clauses; and the common backstop to the Single Resolution Fund. The focus then shifts to the changes agreed upon in response to the COVID-19 crisis. A new credit line has been introduced, the Pandemic Crisis Support, which builds on an existing instrument. It is argued that the reforms posited in the draft revised ESM Treaty would plug important gaps in the framework of the Economic and Monetary Union. Nevertheless, some of the ESM’s underlying vulnerabilities would remain, notably as regards its governance, the status of non-Euro area Member States, and the framework for its transparency and accountability. A more comprehensive reform could have taken place, which would have improved upon the overall structure of the Euro area. European Stability Mechanism, ESM Treaty, ESM reform, Pandemic Crisis Support, European Monetary Fund, economic governance, accountability

From the European Stability Mechanism to the European Monetary Fund: There and Back Again

AbstractIn December 2018, the Euro Summit endorsed the Term Sheet on the European Stability Mechanism (ESM) reform prepared by the Eurogroup. In this context, the Euro Summit did not acknowledge the proposal of the European Commission to transform the ESM into the European Monetary Fund (EMF), but simply gave the Eurogroup a mandate to draft the relevant amendments to the ESM Treaty and submit them to the European Council of June 2019. Nonetheless, the justifications for the incorporation of the ESM into the body of the European Treaties continue to be valid and may come back into play. In this respect, it is worth highlighting two flaws that have emerged in the proposed transformation of the ESM into the EMF. First, the ESM Treaty does not contain any rule about extinction and transfer of functions. Second, the Commission’s proposal did not clarify what status the EMF would have enjoyed in the EU legal framework.

The Reform of the European Stability Mechanism: Process, Substance, and the Pandemic

The European Stability Mechanism (ESM) has been instrumental in safeguarding the financial stability of the Euro area and its Member States. This article looks at the tumultuous process of reforming the ESM. It analyzes the main changes brought about by the draft revised ESM Treaty. These concern the ESM’s purposes and operations; the procedure for granting stability support to a Euro area Member State; precautionary financial assistance instruments; single-limb collective action clauses; and the common backstop to the Single Resolution Fund. The focus then shifts to the changes agreed upon in response to the COVID-19 crisis. A new credit line has been introduced, the Pandemic Crisis Support, which builds on an existing instrument. It is argued that the reforms posited in the draft revised ESM Treaty will plug important gaps in the framework of the Economic and Monetary Union. Nevertheless, some of the ESM’s underlying vulnerabilities remain, notably as regards its governance, the status of non-Euro area Member States, and the framework for its transparency and accountability. A more comprehensive reform could have taken place, which would have improved upon the overall structure of the Eurozone.

Exploring Governance Issues between the SRB and the ESM in the Use of the Common Backstop

To date, the resolution of the Banco Popular Espanol, being the first and only resolution case in the euro area, has had the “benefit” of bringing to light several shortfalls of this crisis management system. Back then, thanks to the sale of business, the need of the use of the Single Resolution Fund (SRF) has been avoided, prompting criticism on whether the fund had sufficient means to overcome a major widespread crisis. During the period elapsed from the last financial crisis, the euro area banking sector has built capital and liquidity buffers, which were aimed at protecting them for future shocks. Although it is now widely accepted that crises are of a cyclical nature, new risks and the high interconnectivity of today’s economic activities brought an unexpected crisis due to the current pandemic. The consequences of this unprecedented event in modern history had severe effects to the worldwide economy, mostly for the boundless block of labour activities, which caused severe losses for households, enterprises and governments that consequently affected the financial intermediation function of the banks. Concerning the European Stability Mechanism (ESM), the current pandemic has had the effect to put temporary on hold the discussion on the revision of the ESM Treaty, including its role as a Backstop to the SRF, so that the Mechanism could experience a new role through the ESM Pandemic Crisis Support. In such a framework, this paper aims to bring back the attention to the unfinished path in the establishment of the Common Backstop by addressing an important element of risk, namely its decision-making process. The main aim is to explore possible governance issues, which could hamper a timely and effective use of the Common Backstop, in the case that the SRF would be depleted and no alternative funding sources would be available.

The ECB's performance under the ESM treaty on a sliding scale of delegation

AbstractTwo opposing theories explain the European Central Bank's (ECB) far‐reaching powers: principal‐agent and trusteeship. This article situates both theories on a sliding scale of delegation, with agents on one end of the spectrum, and trustees on the other. Applying this new perspective to the European Stability Mechanism (ESM) allows us to understand how the ECB, positioned on the agent side of the scale by the ESM Treaty, slides towards the trustee side in practice. This way, the article identifies two problems. Firstly, the ECB assumes a ‘zone of discretion’ that is not captured by the control mechanisms, thereby disregarding an essential feature of delegation. Secondly, the rationale of the Meroni doctrine, judicial review, is disregarded given the insufficient protection against the ECB's actions. These findings become increasingly important with the long‐term aim to incorporate the ESM in the EU legal order.

The ECB as Agent or Trustee in Light of the ESM?

Traditionally delegation theories justify the powers of non-majoritarian institutions, such as the European Central Bank (ECB). In this vein, this paper presents first a gliding scale of delegation with agents on the one end of the spectrum and trustees on the other. Secondly, this scale is applied to the ECB’s tasks delegated by the European Stability Mechanism (ESM). This paper argues that a divergence exists between the ECB’s role according to the ESM Treaty (an agent), and the politics of post-delegation (a trustee). This is problematic as the control mechanisms are not aligned with the ECB’s de facto discretion. Also, the legal boundaries of delegation, i.e. the Meroni doctrine, disclose a problem of judicial protection against the ECB’s actions in light of the ESM. The importance of this research has increased as the European Commission proposed to incorporate the ESM in the EU legal order, particularly because the tasks of the ECB have not been altered.

Taking Budgetary Powers Away from National Parliaments? On Parliamentary Prerogatives in the Eurozone Crisis

This paper analyses if and how the position of national parliaments has changed after the adoption of Euro-crisis measures and their first enforcement and tries to draw some conclusions on whether these changes are just temporary or, rather, are likely to endure in the long term and hence to represent a permanent transformation of national constitutional systems. The paper challenges the mainstream assumption that the powers of national parliaments in budgetary procedures have been annulled. It is argued that once the ratification/application and implementation of the most contested Euro-crisis provisions – Fiscal Compact, European Stability Mechanism Treaty and rescue packages – have taken place, in reaction to the most acute phase of the crisis, the combination of national and EU rules, for example on the European Semester are likely to preserve the budgetary powers of national parliaments compared to the pre-crisis period. Parliamentary passivity does not derive, or at least not primarily, from the Euro-crisis legal measures; rather from the political context that the Euro-crisis has triggered. Thus any analysis of the role of parliaments in the Eurozone crisis has to take into account parliamentary institutions ‘in context’, which are influenced by the peculiar political and economic situation of each country. Far from being a uniform category, national parliaments in the Eurozone crisis show asymmetries and a significant variety of positions and powers, since their role depends primarily on national constitutional arrangements.

ユーロ危機対応とEU立憲主義

The paper discusses basic constitutional problems that remain in the series of EU and non-EU measures for managing the Euro Crisis adopted by the EU and its Member States. The measures discussed in the paper include the amendment of Article 136 TFEU, the European Stability Mechanism (ESM) Treaty, the Treaty on Stability, Coordination and Governance (TSCG), and the so-called 6 Pack and 2 Pack measures. The present paper classifies these measures according to their aims, contents and their legal forms (whether they are adopted within the EU legal system or not) in order to analyse their legal coherence to the existing EU legal system. Based on the classification and the analysis of the coherence, the paper argues that the ESM Treaty, above all, creates an anomaly to the basic principle of ensuring the effective democratic control and oversight over EU policy making: the ESM is created because it is indispensable to the stabilisation of the EU’s monetary policy (Euro) and yet the ESM is created outside of the EU legal system, and as a result, it is left effectively unaccountable to the EU institutions (especially to the European Parliament and to the European Commission). The anomaly is problematic in light of democratic development of the EU and its Member States: the ESM Council would impose strict conditions on a particular Euro Member State in assisting its budgetary crisis, and the conditions imposed would effectively restrict the Member State’s budgetary autonomy, while it would do so without any democratic accountability, neither at national nor European level. Although the fact that the Euro Member States managed to agree to establish the ESM itself may be taken as a sign of “solidarity” between the states, the paper argues that the ESM would not promote the sense of “solidarity” between the peoples of Europe; it would rather promote distrust among the peoples of Europe to the ESM and the Euro systems because the ESM institution is free from democratic control at national as well as at European level and yet the conditions it imposes would directly affect the lives of the peoples in the assisted and assisting states. Those who try to make an analogy of the ESM institution with that of the IMF to justify the technical rationality of the ESM are overlooking the political context of European integration in which the ESM and the Euro system are created and maintained. The system is not just for the economic stability but also for the promotion of peoples’ identity as living in a European public space. The paper stresses the anomaly in the ESM in order to indicate the constitutionally sound direction of reform for the EU in the near future.

Pringle v. Ireland (E.C.J.)

On November 27, 2012, the Court of Justice of the European Union (ECJ) issued a landmark decision on the question of the compatibility of the European Stability Mechanism Treaty with European Union law. The Court ruled on the following issues related to the permanent bailout fund: the validity of Decision 2011/199/EU adopted by the European Council to amend Article 136 of the Treaty on the Functioning of the European Union (TEFU) in accordance with the simplified revision procedures; whether the European Council exceeded its competence by using the simplified revision procedure under Article 48(6) of the Treaty on European Union (TEU) to establish the stability mechanism in violation of the treaties; the compatibility of the Treaty Establishing the European Stability Mechanism (ESM) with the treaties founding the European Union; and whether Decision 2011/199/EU encroached on the competence of the Union to coordinate economic and monetary policies of the Member States.

Pringle V. Ireland. Case C-370/12

In the judgment Pringle v. Ireland, the full Court of Justice of the European Union (Court or ECJ) upheld the validity of the decision of the European Council enabling the simplified amendment of the Treaty on the Functioning of the European Union(TFEU). In its Decision 2011/199/EU, the Council had provided for the establishment of a permanent European Stability Mechanism (ESM) by those member states of the European Union (Union or EU) that had adopted the euroas their common currency and legal tender. The Court also found in this judgment that those member states had not violated EU law by negotiating and concluding the Treaty Establishing the European Stability Mechanism (ESM Treaty). The Court based the latter finding on the long-awaited clarification of the scope and content of the TFEU’s “no-bailout clause” (Art. 125(1)), which had been the subject of intense controversies among legal scholars, in particular in Germany.

Pringle: A Paradigm Shift in the European Union's Monetary Constitution

The reference from the Irish Supreme Court seeking a preliminary ruling in thePringlecase concerns the compatibility of the Treaty establishing the European Stability Mechanism (hereinafter ESM Treaty or ESMT) with European Union (EU) law. The Irish Supreme Court was concerned with the legal significance of Council Decision 2011/199, which amended the Treaty on the Functioning of the European Union (TFEU) by inserting a third paragraph in Art 136 TFEU. The new Art 136(3) provides that the Member States whose currency is the euro, may establish a mechanism such as the European Stability Mechanism (ESM) so long as that mechanism is only activated when indispensable to safeguarding the stability of the euro area as a whole, and only if the financial assistance is made subject to strict conditionality. But, because Decision 2011/199 has not yet been ratified by all Member States, the TFEU has not yet been amended. The ESMT nevertheless entered into force at the end of September 2012, and the ESMT commenced its operations in December 2012.

Contradiction, Circumvention and Conceptual Gymnastics: The Impact of the Adoption of the ESM Treaty on the State of European Democracy

This paper makes the claim that the legal framework governing the European Stability Mechanism (ESM) is contradictory, conceptually incoherent and may be characterized as a circumvention of Union law. It is further claimed that such circumvention, and the resulting establishment of a significant permanent institution outside and beyond the scope of the Union legal order, represents a challenge to European democracy and to the principle of respect for the rule of law.

Watching Karlsruhe/Karlsruhe Watchers

The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, more commonly known as the Fiscal Compact, and the Treaty establishing the European Stability Mechanism (ESM) are closely linked in several ways. Both treaties are formally placed outside the European Union framework, but substantively govern Union matters. Together they are designed to combat the sovereign debt crisis which has been ravaging the European Union for years now. The Fiscal Compact does so by enhancing and sharpening budgetary discipline in the Eurozone states, the ESM Treaty by offering assistance to Eurozone states in financial distress. To receive financial aid from the ESM, states not only need to have ratified the Fiscal Compact, but also to have implemented a balanced budget rule in their national law in the way the Compact demands. Apart from combating the crisis, the Treaties also bring reforms to the Eurozone; they express the wish of the signatory parties to share their destinies in new ways.