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The European Stability Mechanism (ESM) is a permanent rescue funding programme to succeed the temporary European Financial Stability Facility and European Financial Stabilisation Mechanism in the 17-member Eurozone. The ESM is due to be launched as soon as Member States representing 90% of the capital commitments have ratified it, which is expected in July 2012.[1]
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Following the European sovereign debt crisis that resulted in the bailout of EU states, there has been a drive to reform the functioning of the Eurozone in the event of a crisis. This led to the creation, amongst other things, of a bail-out mechanism: the European Financial Stability Facility (EFSF) and the European Financial Stability Mechanism (EFSM). These, together with the IMF, would bailout EU states in trouble. However, the EFSF and EFSM were intended only as a temporary measure (to expire in 2013), in part due to the lack of a legal basis in the EU treaties.
In order to resolve the issue, the German government felt a treaty amendment would be required. After the difficult ratification of the Treaty of Lisbon, many states and statesmen opposed reopening treaty amendment and the British government opposes changes affecting the United Kingdom.[2][3] However, after winning the support of French President Nicolas Sarkozy[4] Germany won support from the European Council in October 2010 for a new treaty. It would be a minimal amendment to strengthen sanctions and create a permanent bail-out mechanism. It would not fulfil the German demand to have the removal of voting rights as a sanction as that would require deeper treaty amendment. The treaty would be designed so there would be no need for referendums and for it to come into force in July 2012.[5] It will run one year parallel to the temporary bail-out mechanism, which expires 2013. European Council President Herman Van Rompuy is to explore the changes through the simplified revision procedure.[6]
On 16 December 2010 the European Council agreed a two line amendment (see below) to the treaty that would avoid any referendums. It would simply change the EU treaties to allow for a permanent mechanism to be established.[7] In March of the following year leaders also agreed to a separate eurozone-only treaty that would create the ESM itself.[8]
In March 2011, the European Parliament approved the treaty amendment after receiving assurances that the European Commission, rather than EU states, would play 'a central role' in running the ESM, despite wishing it had been more involved earlier.[9][10]
On 16 December 2010 the European Council agreed a two line amendment. The text is being inserted into Article 136 of the Treaty on the Functioning of the European Union as paragraph 3.[11][12] The amendment reads:
| “ | The member states whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality. | ” |
In addition to that amendment the European Stability Mechanism itself will be established by a treaty among the eurozone states: the Treaty Establishing the European Stability Mechanism.
According to this treaty, the European Stability Mechanism will be an intergovernmental organisation under public international law and will be located in Luxembourg. It would be open to other members to join and would be led by a Board of Governors. Each state would appoint a governor and the board would either be chaired by the President of the Euro Group or by a separate elected chair from amongst the governors themselves.[13][14]
German Finance Minister Wolfgang Schaeuble was quoted saying paid-in capital of the ESM may be around 80 billion euros, giving it a total capacity of 500 billion euros.[15]
| ESM member state |
Percentage of contributions |
Number of shares |
Capital subscription (€) |
Nominal GDP 2010 (millions of US$) |
|---|---|---|---|---|
| Germany | 27.1464 | 1,900,248 | 190,024,800,000 | 3,315,643 |
| France | 20.3859 | 1,427,013 | 142,701,300,000 | 2,582,527 |
| Italy | 17.9137 | 1,253,959 | 125,395,900,000 | 2,055,114 |
| Spain | 11.9037 | 833,259 | 83,325,900,000 | 1,409,946 |
| Netherlands | 5.717 | 400,190 | 40,019,000,000 | 783,293 |
| Belgium | 3.4771 | 243,397 | 24,339,700,000 | 465,676 |
| Greece | 2.8167 | 197,169 | 19,716,900,000 | 305,415 |
| Austria | 2.7834 | 194,838 | 19,483,800,000 | 376,841 |
| Portugal | 2.5092 | 175,644 | 17,564,400,000 | 229,336 |
| Finland | 1.7974 | 125,818 | 12,581,800,000 | 239,232 |
| Ireland | 1.5922 | 111,454 | 11,145,400,000 | 204,261 |
| Slovakia | 0.824 | 57,680 | 5,768,000,000 | 86,262 |
| Slovenia | 0.4276 | 29,932 | 2,993,200,000 | 46,442 |
| Luxembourg | 0.2504 | 17,528 | 1,752,800,000 | 52,433 |
| Cyprus | 0.1962 | 13,734 | 1,373,400,000 | 22,752 |
| Estonia | 0.186 | 13,020 | 1,302,000,000 | 19,220 |
| Malta | 0.0731 | 5,117 | 511,700,000 | 7,801 |
Critics say the ESM resembles an enabling act, because it severely confines the economic sovereignty of its member states without parliamentary influence or control.[16] See article 9:
| “ | ESM Members hereby irrevocably and unconditionally undertake to pay on demand any capital call made on them by the Managing Director pursuant to this paragraph, such demand to be paid within seven days of receipt. | ” |
Article 27 define extensive immunity rules like the following:
| “ | The property, funding and assets of the ESM shall, wherever located and by whomsoever held, be immune from search, requisition, confiscation, expropriation or any other form of seizure, taking or foreclosure by executive, judicial, administrative or legislative action. | ” |
So even judicial control is removed from any physical or judiciary persons, including member states.
Articles 10 and 30 state:
| “ | [The Board of Governors] may decide to change the authorized capital and amend article 8 [establishing the volume of authorized capital to 7×1011 €] (…) accordingly. | ” |
| “ | Governors, directors (…) and staff members are immune from legal process with respect to acts performed by them (…) and shall enjoy inviolability in respect of their official papers and documents. | ” |
Which effectively leave whole member states defenceless and at mercy of few people at the core of the ESM.
In Germany some politicians in liberal party FDP and in conservative bavarian party CSU, both minor parties of the current government coalition, are against the European Stability Mechanism. [17]
Both opposition parties the Finns and the Centre Party oppose the ESM.
Front National opposes the ESM.
Geert Wilders Party for Freedom opposes any increase or systematisation of transfer payments, from the Netherlands to other EU countries, through means such as the ESM.
Second strongest government party Freedom and Solidarity (SaS) is against European Stability Mechanism as it does not believe it will help protect countries in debt crisis.[18][19] On 11 October 2011 the National Council of the Slovak Republic rejected the proposed bill with 55 votes for and 9 votes against, 78 members of the parliament abstained, thus not reaching the necessary quorum for approval. Voting was associated with a vote of confidence and led to the downfall of the government.
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