European Stability Mechanism
Encyclopedia
The European Stability Mechanism (ESM) is a permanent rescue funding programme to succeed the temporary European Financial Stability Facility
and European Financial Stabilisation Mechanism
. The ESM is due to be launched in mid-2013.
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. However, after winning the support of French President Nicolas Sarkozy
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 2013 when the temporary bail-out mechanism expires. European Council President Herman Van Rompuy
is to explore the changes through the simplified revision procedure.
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. In March of the following year leaders also agreed to a separate eurozone-only treaty that would create the ESM itself.
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.
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.
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.
Finland
Both opposition parties the Finns
and the Centre Party
oppose the ESM.
France
Front National
opposes the ESM.
Netherlands
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.
Slovakia
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. 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
.
European Financial Stability Facility
The European Financial Stability Facility is a special purpose vehicle financed by members of the eurozone to combat the European sovereign debt crisis. It was agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing...
and European Financial Stabilisation Mechanism
European Financial Stabilisation Mechanism
The European Financial Stabilisation Mechanism is an emergency funding programme reliant upon funds raised on the financial markets and guaranteed by the European Commission using the budget of the European Union as collateral...
. The ESM is due to be launched in mid-2013.
History
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 EurozoneEurozone
The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...
in the event of a crisis. This led to the creation, amongst other things, of a bail-out mechanism: the European Financial Stability Facility
European Financial Stability Facility
The European Financial Stability Facility is a special purpose vehicle financed by members of the eurozone to combat the European sovereign debt crisis. It was agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing...
(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
Treaty of Lisbon
The Treaty of Lisbon of 1668 was a peace treaty between Portugal and Spain, concluded at Lisbon on 13 February 1668, through the mediation of England, in which Spain recognized the sovereignty of Portugal's new ruling dynasty, the House of Braganza....
, many states and statesmen opposed reopening treaty amendment and the British government opposes changes affecting the United Kingdom. However, after winning the support of French President Nicolas Sarkozy
Nicolas Sarkozy
Nicolas Sarkozy is the 23rd and current President of the French Republic and ex officio Co-Prince of Andorra. He assumed the office on 16 May 2007 after defeating the Socialist Party candidate Ségolène Royal 10 days earlier....
Germany won support from the European Council
European Council
The European Council is an institution of the European Union. It comprises the heads of state or government of the EU member states, along with the President of the European Commission and the President of the European Council, currently Herman Van Rompuy...
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 2013 when the temporary bail-out mechanism expires. European Council President Herman Van Rompuy
Herman Van Rompuy
Herman Achille Van Rompuy is the first long-term and full-time President of the European Council...
is to explore the changes through the simplified revision procedure.
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. In March of the following year leaders also agreed to a separate eurozone-only treaty that would create the ESM itself.
In March 2011, the European Parliament approved the treaty amendment after receiving assurances that the European Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
, rather than EU states, would play 'a central role' in running the ESM, despite wishing it had been more involved earlier.
Treaty basis
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. The amendment reads:Treaty Establishing the European Stability Mechanism
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
Euro Group
The Euro Group or Eurogroup is a meeting of the finance ministers of the eurozone . It is the political control over the euro currency and related aspects of the EU's monetary union such as the Stability and Growth Pact...
or by a separate elected chair from amongst the governors themselves.
Contributions
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.| 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
GermanyIn Germany some politicians in liberal party FDP
Free Democratic Party (Germany)
The Free Democratic Party , abbreviated to FDP, is a centre-right classical liberal political party in Germany. It is led by Philipp Rösler and currently serves as the junior coalition partner to the Union in the German federal government...
and in conservative bavarian party CSU
Christian Social Union of Bavaria
The Christian Social Union in Bavaria is a Christian democratic and conservative political party in Germany. It operates only in the state of Bavaria, while its sister party, the Christian Democratic Union , operates in the other 15 states of Germany...
, both minor parties of the current government coalition, are against the European Stability Mechanism.
Finland
Both opposition parties the Finns
True Finns
True Finns or The Finns is a populist and nationalist political party in Finland, founded in 1995 following the dissolution of the Finnish Rural Party. The head of the movement is Timo Soini. In the 2011 Finnish parliamentary election, The party won 19.1% of votes, becoming the third largest party...
and the Centre Party
Centre Party (Finland)
The Centre Party is a centrist and Nordic agrarian political party in Finland. It is one of the four largest political parties in the country, along with the Social Democratic Party , the National Coalition Party and the True Finns , and currently has 35 seats in the Finnish Parliament...
oppose the ESM.
France
Front National
Front National
Front National can mean:* Front National , a French political party* Front National , a World War II French Resistance group* Front National , a Belgian political party...
opposes the ESM.
Netherlands
Geert Wilders Party for Freedom
Party for Freedom
The Party for Freedom is a Dutch right-wing political party. Founded in 2005 as the successor to Geert Wilders' one-man party in the House of Representatives, it won nine seats in the 2006 general election, making it the fifth largest party in parliament, and third largest opposition party. It...
opposes any increase or systematisation of transfer payments, from the Netherlands to other EU countries, through means such as the ESM.
Slovakia
Second strongest government party Freedom and Solidarity
Freedom and Solidarity
Freedom and Solidarity , abbreviated to SaS, is a centre-right classical liberal political party in Slovakia. The party was established in 2009 and is led by its founder, the economist Richard Sulík, who designed Slovakia's flat tax system...
(SaS) is against European Stability Mechanism as it does not believe it will help protect countries in debt crisis. 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
Slovak parliamentary election, 2012
A parliamentary election will take place in Slovakia on 10 March 2012. The election follows the fall of Prime Minister Iveta Radičová's Slovak Democratic and Christian Union – Democratic Party-led coalition in October 2011 over a no confidence vote her government failed because of its support for...
.
See also
- European Financial Stability FacilityEuropean Financial Stability FacilityThe European Financial Stability Facility is a special purpose vehicle financed by members of the eurozone to combat the European sovereign debt crisis. It was agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing...
- European Financial Stabilisation MechanismEuropean Financial Stabilisation MechanismThe European Financial Stabilisation Mechanism is an emergency funding programme reliant upon funds raised on the financial markets and guaranteed by the European Commission using the budget of the European Union as collateral...
- Maiden Lane TransactionsMaiden Lane TransactionsMaiden Lane Transactions refers to three limited liability companies created by the Federal Reserve Bank of New York in 2008 as a financial vehicle to facilitate transactions involving three entities: the former Bear Stearns company as the first entity, the former American International Group's...
- Term Asset-Backed Securities Loan FacilityTerm Asset-Backed Securities Loan FacilityThe Term Asset-Backed Securities Loan Facility is a program created by the U.S. Federal Reserve to spur consumer credit lending. The program was announced on November 25, 2008 and was to support the issuance of asset-backed securities collateralized by student loans, auto loans, credit card...
- Treaties of the European UnionTreaties of the European UnionThe Treaties of the European Union are a set of international treaties between the European Union member states which sets out the EU's constitutional basis. They establish the various EU institutions together with their remit, procedures and objectives...
- Troubled Assets Relief ProgramTroubled Assets Relief ProgramThe Troubled Asset Relief Program is a program of the United States government to purchase assets and equity from financial institutions to strengthen its financial sector that was signed into law by U.S. President George W. Bush on October 3, 2008...