The euro debt crisis has started but not ended with Greece. Yet, in 2010, we were told that the creation of the European Financial Stability Mechanism (EFSM) and the European Financial Stability Facility (EFSF) would prevent the Greek debit crisis to spread to other eurozone countries. Then, Ireland was subject to pressure from European Institutions and Member States into accepting a rescue package in order to stop “contagion” to other eurozone Member States, particularly Portugal and Spain. Accordingly, Ireland became the second eurozone Member State to be bailed out, followed by Portugal.


It is important to mention that both the EFSF and the EFSM breach article 125 TFEU, the “no bailout clause, that forbids Member States for being liable for the debts of another, whilst the EFSM is also a misuse of Article 122 (2) TFEU, which is meant for national disasters. In fact, Angela Merkel started promoting the idea of a limited treaty amendment to set up a permanent eurozone stability mechanism, replacing both temporary mechanisms, the European Financial Stability Facility and the European Financial Stabilisation Mechanism, in March 2010. Then, at Germany and France insistence, in October 2010, the European Council agreed on ‘the need for Member States to establish a permanent crisis mechanism to safeguard the financial stability of the euro area as a whole’ and to amend the Treaty to that effect, providing it was a “limited” change. 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.” The European Stability Mechanism Treaty was signed on 11 July 2011. It is possible to argue that the ESM treaty breaches the EU Treaties, particularly Article 48 (6), Article 136 and Article 125 TFEU.

All measures to prevent the eurozone sovereign debt crisis have failed, including the EFSF, the EFSM as well as the ESM and the situation got worse throughout 2011. In another desperate attempt to save the euro, the Eurozone leaders agreed, last December, that the ESM Treaty should enter into force as soon as Member States representing 90% of the capital commitments have ratified it. They decided to anticipate the entry into force of the ESM to July 2012, instead of July 2013 as initially foreseen. However, it is important to note that 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. 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. Hence, 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 TFEU. However, this does not come as a surprise as Madame Lagarde conceded, when she still was Finance Minister for France, that they broke all the rules because they wanted to save the euro at all costs, and they continue to do so. In fact, the House of Commons European Scrutiny Committee noted “that there is an increasing tendency for the EU to propound the virtues of the rule of law but not to apply it in practice.” The Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union, signed on 2 March, is another example of Brussels turning a blind eye to breaches of the EU Treaties. Under this intergovernmental Treaty the EU institutions, particularly the European Commission and the European Court of Justice will be exercising functions beyond those given to them under the EU Treaties, which breaches EU law. A group of member states cannot confer any role or further powers to the EU institutions, through an intergovernmental treaty, outside the EU framework, without the approval of all EU member states. The UK has given no consent to the use of the EU institutions in this treaty. Thus, this Treaty is unlawful. However, the drafters of the treaty were not particularly concerned with its legality since the main aim is to save the euro.

Nevertheless, this Treaty will do nothing to resolve the present debt crisis, which, in fact, is getting worse. Wolfgang Münchau, Douglas McWilliams and Roger Bootle in their evidence to the House of Commons European Scrutiny Committee, agreed that this Treaty does not resolve the present crisis. They believe that the fiscal compact won’t achieve its objective of helping to save the eurozone immediate problems. According to the European Scrutiny Committee “(…) the SCG Treaty does little towards solving the eurozone crisis, other perhaps than providing some comfort to international markets.” The Committee said, “As undesirable as it may be, some form of breakdown of the eurozone clearly remains possible.”

Last December, the eurozone Member States agreed to provide EUR 150 billion of additional resources through bilateral loans to the IMF's General Resources Account. However, it was not enough to reach the EUR 200 billion target agreed at the December’s European Council “to ensure that the IMF has adequate resources to deal with the crisis." The IMF has confirmed that it needs to raise $500 billion in extra lending resources to help struggling economies from the effects of the eurozone debt crisis. However, last February the G20 Finance ministers, particularly from the US, China, India, Brazil, Russia and Japan said that eurozone member states must increase their own bailout funds before they can expect any further help from the IMF. Christine Lagarde has made clear that an increase of the eurozone's bail-out funds is necessary before the IMF’s members can decide to increase the IMF's lending capacity.

It is important to recall that the eurozone leaders agreed that the ESM will have a capital base of €700bn. Hence, when it enters into force, the ESM would have an effective lending capacity of €500 billion, through a combination of €80bn of paid-in capital and €620bn in the form of callable capital and of guarantees from eurozone states. Last December, the Eurozone leaders agreed to anticipate the entry into force of the ESM but there was no decision on increasing its lending capacity. All eurozone member states except Germany wanted the ESM’s lending capacity to be increased. Germany has been therefore resisting calls, from the other member states and from the IMF, to contribute more to this mechanism. Obviously, additional guarantees would place a further burden on Germany.

After Angela Merkel decision to drop her opposition, the eurozone member states agreed to temporarily combine the lending capacity of the EFSF used to bailout Greece, Ireland and Portugal, with the permanent ESM. In a statement issued on 30 March, the Eurogroup reiterated “The ESM will be the main instrument to finance new programmes as from July 2012” and “The EFSF will, as a rule, only remain active in financing programmes that have started before that date.” However, “For a transitional period until mid-2013, it may engage in new programmes in order to ensure a full fresh lending capacity of EUR 500 billion.” They agreed, therefore, that “The current overall ceiling for ESM/EFSF lending, as defined in the ESM Treaty, will be raised to EUR 700 billion”, however “As of mid-2013, the maximum lending volume of ESM will be EUR 500 billion.” Hence, in practical terms, it would have a lending capacity of 500 billion euros as €200bn is already committed for Greece, Ireland and Portugal through the EFSF. Consequently, there was no increase in the ESM.

It remains to be seen if such decision is enough to persuade the above-mentioned countries to agree to increase their contributions to the IMF in order to support the eurozone. George Osborne has already shown his willingness to ask, again, permission to the Parliament to increase the UK’s contribution to the IMF. David Cameron and George Osborne have been constantly reminding us of the Coalition Government’s achievement of keeping Britain out of the eurozone bailouts, but now they are prepare to “indirectly” contribute to such bailouts through the IMF.

The eurozone deal is clearly inadequate. According Wolfgang Munchau "The G20 should tell the eurozone that Friday’s deal is unacceptable.” He wrote, in the Financial Times, “It is unreasonable to expect the rest of the world to make up the rest, especially given the negative impact of the eurozone’s austerity programmes on the rest of the world."

The eurozone recent agreement on the lending capacity of the bailout funds has not reduced speculation on the future of the eurozone and has not lower the borrowing costs, particularly of Spain and Italy. This deal was not enough to convince financial markets, as Spain's borrowing costs were pushed to levels that prompted bailouts for Greece, Portugal and Ireland. Last week Spanish 10-year bond yields jumped above 6 per cent for the first time since December. Bearing in mind that a 7 per cent level is deemed as a possible trigger for a bailout, there are therefore fears that Spain could become the next member state to need a bailout. Unsurprisingly, Spanish ministers as well as the European Commission have denied that Spain needs financial help.

The bailout funds are not enough to deal with either Italy or Spain, which are the third and fourth biggest economies in the eurozone. As Bill Cash said in his pamphlet “It's the EU stupid”, there will be no money to pay for further bailouts. He noted, “The money required for all the bailouts is not within the economic capacity of Germany or the political will in the Eurozone countries.” How the eurozone would get out of the mess remains to be seen. For how long are Member States willing to pay for the debt of eurozone countries to avoid defaults? The Eurozone should accept once and for all that the Euro does not work. However, they now want to move towards a fiscal and political union in order to save it. According to Angela Merkel the eurozone member states have set themselves on an “irreversible course towards a fiscal union”. She believes that the solution for the eurozone debt crisis is further integration. Angela Merkel has recently said "My vision is political union, because Europe has to follow its own path. We need to get closer step by step, in all policy areas". In fact, according to Angela Merkel "In the course a long process, we will transfer more powers to the Commission, which will then work as a European government for European competencies". However, the answer is not “more Europe”, in fact as more Europe we have as worse become the situation. According to Bill Cash the creation of a political union would make irreparable damage to the UK and it won’t stabilise the EU. Bill Cash believes that the real problems are contained in the existing treaties and they are the reason why we have the crisis in Europe, consequently they must be fundamentally changed.