Bill Cash asked the Chancellor of the Exchequer:

(1) for what reasons he did not challenge the legal basis of the European Financial Stability Mechanism;

(2) whether he received legal advice on the legality of the European Financial Stability Mechanism in (a) May and (b) June 2010.

Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative)

The European Financial Stability Mechanism (EFSM) was created following agreement by a qualified majority of member states at the ECOFIN meeting on 9 May 2010. The meeting took place before the formation of the coalition Government and was attended by the then Chancellor of the Exchequer, Mr Darling, who consulted opposition parties. The Chancellor of the Exchequer cautioned against committing the UK to proposals that have a lasting effect on the UK's public finances. However, he made it clear that given Mr Darling was still Chancellor of the Exchequer at that point, it was for him to reach decisions. All contact between the Treasury and the Opposition parties followed the agreed Cabinet Office guidelines for the 2010 general election.

The terms of the EFSM are set out in EU Council Regulation No. 407/2010. It is compatible with the Treaty on the Functioning of the European Union ¦ (TFEU), Article 122(2) of which states:

“Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, acting by a qualified majority on a proposal from the Commission, may grant, under certain conditions, Community financial assistance to the Member State concerned.”

The Council decided that, in these circumstances, those criteria applied, as the regulation itself makes clear.

The Government have secured agreement at the December European Council that the EFSM will cease to exist in 2013 at the latest, that Article 122(2) TFEU will not be used for the purpose of ensuring the financial stability of the euro area as a whole, and that only euro area member states will be required to contribute to the permanent European Stability Mechanism.