The eurozone leaders are desperate “to ensure the stability, unity and integrity of the euro area.” Hence, in order to respond to escalating concerns on financial markets, they agreed to establish different stabilization mechanisms to prevent the Greek debt crisis from spreading to other countries, the European Financial Stability Facility, the European Financial Stabilisation Mechanism and the European Stability Mechanism. The permanent European Stability Mechanism will replace the European Financial Stability Facility and the European Financial Stabilisation Mechanism. However, the Greek debt crisis has spread to other eurozone countries and the euro zone debt crisis is escalating.
The Maastricht rules were introduced to avoid situations as the present one whereas eurozone Member States, including France and Germany, have been disregarding the Stability and Growth Pact (SGP) rules, running large debts and deficits, threatening to default and weakening the euro. The EMU pillars have failed, the SGP does not work and the bail out clause has been breached.
These mechanisms that provide financial assistance to EU Member States in financial difficulties, the so-called EU bailout funds, the EFSF and the ESM do not work, they are just piling up debt. On top of that, they are illegal. It is important to mention that both the EFSF and the ESM are not in line with the EU Treaties, they breach, particularly, article 125 TFEU, the no bailout clause, which forbids Member States for being liable for the debts of another. In fact, the ESM is now facing legal challenges in Germany, Ireland and Estonia.
One could say that under the terms of the EU treaties it is not possible to create a permanent crisis mechanism “to safeguard the financial stability of the euro area as a whole” without amending the bail out rule. Hence, any amendment to the Treaties in this regard is incompatible with Article 125. By amending the Treaty authorizing the eurozone countries to create a permanent financial support mechanism has not reduced the effect of the bailout clause, as any derogation from this provision is incompatible with the principles of the EMU.
Nevertheless, on 25 March 2011, using the simplified revision procedure provided for in article 48 (6) TEU, the European Council formally adopted the text of a draft decision amending Article 136 TFEU to allow Eurozone member states to create a permanent financial support mechanism, by adding a paragraph whereby the “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.” It is important to recall that Article 48(6) TEU allows Treaty amendments to be made, within the TFEU Part III “on internal policies and actions of the Union” by European Council, as long as there is unanimity and the amendments do not extend the competences of the European Union. However, it is possible to argue that the European Council decision to amend the Treaty increases the competences conferred on the Union in the Treaties. The creation of the ESM entails further transfer of powers to Brussels namely further political and fiscal cooperation. When asked whether the establishment of the ESM could be considered as an extension of the competence of the EU in the economic field, Mark Hoban replied to European Scrutiny Committee, “Clearly, in a way it is, because member states are contributing towards a bail-out fund, or a firewall. There is, in that sense, co-operation.” The Treaty amendment has conferred new competences on the European Union, consequently the conditions for the simplified revision procedure were not met.
Moreover, the amendment to the Treaty intended to create a permanent crisis mechanism “to safeguard the financial stability of the euro area as a whole” is incompatible with Article 125 and with the principles of the EMU. The amendment to Article 136 has allowed the ESM to render financial assistance to eurozone countries in need.
Hence, the European Stability Mechanism Treaty, which was first signed in July 2011, is illegal as it breaches the EU Treaties, particularly Article 48 (6), Article 136 and Article 125 TFEU. The ESM was established by a treaty among the euro-area Member States as an intergovernmental organisation under public international law. The ECJ has made clear that an international agreement cannot affect the allocation of responsibilities defined in the Treaties and, consequently, the autonomy of the Community legal order. In fact, Member States may only sign international agreements that are compatible with EU law. The Court of Justice should be asked for its opinion on the compatibility of these intergovernmental treaties with the Union treaties. If doesn’t have direct jurisdiction to interpret, apply or review intergovernmental agreements but it has jurisdiction to control whether the member states when concluding or implementing these agreements act in violation of their obligation under community law.
It is important to note that all eurozone member states are required, under the treaty, to become ESM Members. Recital 7 specifically states, “As a consequence of joining the euro area, a Member State of the European Union should become an ESM Member with full rights and obligations, in line with those of the Contracting Parties.” But, the treaty will enter into force even if not all eurozone countries have ratified it. In this way, it circumvents the procedure for the adoption of revisions to the EU treaties, in order to ensure that the treaty enters into force by July 2012 even if all eurozone countries do not ratify it. Whereas under the EU amending treaty process a treaty must be ratified by all member states to enter into force, this is not required for an intergovernmental agreement. Nevertheless, it is possible to argue that the amendment to article 136 requires that all eurozone member states must ratify the treaty before it comes into force.
Under Article 48 (6), the European Council’s decision amending the Treaty cannot enter into force until it is approved by the Member States, in accordance with their respective constitutional requirements. The Decision states that it shall enter into force on 1 January 2013 provided all the domestic instruments of ratification have been received by then. There is a conflict between the date of entry into force of the European Council Decision, which is 1 January 2013, and the date of enter into force of the mechanism that the Decision allows to be established. The ESM is set to come into force in July 2012, before the amendment to Article 136. In order to accelerate the ratification of the ESM treaty, the Eurozone leaders decided to turn a blind eye to the amendment of article 136.
Moreover, there is no public scrutiny over how the EFSF and the ESM are being used. Both funds lack democratic oversight and accountability. According to the Dutch Court of Auditors, the ESM and the EFSF are not transparent or accountable. Kees Vendrik, vice-president of the Netherlands Court of Audit, said at a European Parliament’s Public hearing on “Budgetary control of the European Financial Stability Facility (EFSF), the European Financial Stabilisation Mechanism (EFSM) and the European Stability Mechanism (ESM)”, held on 24 April, “In the case of the European Stability Mechanism (ESM) and the other financial stability instruments that have been set up, European leaders are taking decisions on unprecedented amounts of public funds coming not only from Eurozone member states but also from the European Union itself and international financial institutions.” He noted, “In order to get and maintain adequate public backing for these instruments, transparent reporting on what is being undertaken, holding to account those dealing with the operations and a good independent public audit of the use and effect of the funds are necessary.” However, he stressed, “the financial stability instruments that have been developed do not take these principles enough into account.” Moreover, the Dutch Court of Auditors noted, “Democratic control and public scrutiny only exist to the limited extent that ministers of Finance can be held to account by their national parliament for their individual share in the functioning of the ESM and not for the functioning of the ESM bodies or the organisation as such.”
