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ACT No. XII of 2012 AN ACT to authorize the participation within the European Stability Mechanism and to grant financial stability support by issuing financial instruments or by entering into financial or other agreements or arrangements with Members of the European Stability
Table of Provisions (36)
Statutory Text (36 Articles)
I assent.
G EORGE A BELA
(L.S.)
President
10th July, 2012
ACT No. XII of 2012
AN ACT to authorize the participation within the European
Stability Mechanism and to grant financial stability support by
issuing financial instruments or by entering into financial or other
agreements or arrangements with Members of the European Stability
Mechanism, financial institutions or other third parties.
BE IT ENACTED by the President, by and with the advice and
consent of the House of Representatives, in this present Parliament
assembled, and by the authority of the same, as follows:-
(1) The short title of this Act is the Participation and Short title and
Granting of Financial Stability Support under the European Stability commencement.
Mechanism Act, 2012.
(2) This Act shall come into force on such date as the Minister
responsible for Finance may by notice in the Gazette establish, and
different dates may be so established for different provisions or
different purposes of this Act.
European Council Decision of the 17 December 2010
(Article 2)
Throughout the crisis, we have taken decisive action to preserve financial
stability and promote the return to sustainable growth. We will continue to do so
and the EU and the euro area will emerge stronger from the crisis.
Growth prospects are strengthening and the fundamentals of the European
economy are sound. The temporary stability tools put in place earlier this year
have proved their utility, but the crisis has demonstrated that there can be no
complacency. This is why we agreed today on the text of a limited amendment to
the Treaty on the establishment of a future permanent mechanism to safeguard the
financial stability of the euro area as a whole. This amendment should enter into
force on 1 January 2013. We also reiterated our commitment to reach agreement
on the legislative proposals on economic governance by the end of June 2011 with
the aim of strengthening the economic pillar of the Economic and Monetary Union
and to continue to implement the Europe 2020 strategy.
I.
ECONOMIC POLICY
1. The European Council welcomed the report presented by its President
following up on its conclusions of 28 and 29 October 2010. It agreed that the
Treaty should be amended in order for a permanent mechanism to be established
by the Member States of the euro area to safeguard the financial stability of the
euro area as whole (European Stability Mechanism). This mechanism will replace
the European Financial Stability Facility (EFSF) and the European Financial
Stabilisation Mechanism (EFSM), which will remain in force until June 2013. As
this mechanism is designed to safeguard the financial stability of the euro area as a
whole, the European Council agreed that Article 122(2) TFEU will no longer be
needed for such purposes. Heads of State or Government therefore agreed that it
should not be used for such purposes.
2. The European Council agreed on the text of the draft Decision
amending the TFEU set out in Annex I. It decided to immediately launch the
simplified revision procedure provided for in Article 48(6) TEU. The consultation
of the institutions concerned should be concluded in time to allow the formal
adoption of the Decision in March 2011, completion of national approval
procedures by the end of 2012, and entry into force on 1 January 2013.
3. The European Council also called for Finance Ministers of the euro area
and the Commission to finalise work on the intergovernmental arrangement setting
up the future mechanism by March 2011, integrating the general features set out in
the Eurogroup statement of 28 November 2010, which the European Council
endorsed (Annex II). The mechanism will be activated by mutual agreement of the
euro area Member States in the case of risk to the stability of the euro area as a
whole.
4. Member States whose currency is not the euro will, if they so wish, be
involved in this work. They may decide to participate in operations conducted by
the mechanism on an ad hoc basis.
5. The European Council called for the acceleration of the work on the six
legislative proposals on economic governance, building on the recommendations
of the Task Force endorsed last October and keeping a high level of ambition, so
that they can be adopted by June 2011. It welcomed the Council’s report on the
treatment of systemic pension reform under the Stability and Growth Pact and
called for the report to be reflected in the specifications on the implementation of
the reformed SGP.
6. Recalling its conclusions of October 2010, the European Council looked
forward to the Commission’s intention to make proposals for the new multiannual
financial framework by June 2011 and invited the institutions to cooperate in order
to facilitate its timely adoption.
7. The new Europe 2020 strategy for jobs and growth will continue to
guide the Union and the Member States in responding to the crisis and promoting
the delivery of structural reforms. The European Council welcomed the progress
achieved since the launch of the strategy, as shown in the report presented by the
Presidency.
In this Act, unless the context otherwise requires
Interpretation.
"European Financial Stability Facility" has the meaning
assigned to it by article 2 of the Participation and Guarantees under Cap. 505.
the European Financial Stability Facility Act;
"European Financial Stabilisation Mechanism" means the
financial assistance granted to Members States which experienced or
are threatened with a severe economic or financial disturbance in
terms of Council Regulation (EU) No. 407/2010 of 11 May 2010
establishing a European Financial Stabilisation Mechanism;
"European Stability Mechanism" means the permanent stability
mechanism, established by the European Council on the 17 December
2010 to assume the tasks fulfilled by the European Financial Stability
Facility and the European Financial Stabilisation Mechanism to
provide, where needed, financial assistance to the Members of the
European Stability Mechanism, in accordance with the decision
annexed as Schedule 1 and which shall take the form of an
intergovernmental organization under public international law, to be
located in Luxembourg, as established by a decision of the European
Council on the 25 March 2011, which decision is annexed as
Schedule 2;
"Malta" meaning assigned to it by article 124 of the Constitution
of Malta;
"Members of the European Stability Mechanism" means the
Euro Area Member States of the European Union and such other
Member State of the European Union that has joined the European
Stability Mechanism following the adoption by the Council of the
European Union of the decision to abrogate its derogation from
adopting the euro in accordance with Article 140(2) of the Treaty on
the Functioning of the European Union;
"Minister" means the Minister responsible for Finance or his
representative delegate in writing to exercise any of his functions
under this Act;
"Stability support" shall mean the financial support granted by
the Board of Governors of the European Stability Mechanism, as
implemented by the Board of Directors of the same European
Stability Mechanism, to a Member of the European Stability
Mechanism for the purpose of sub-article (2) of article 3 of this Act,
through precautionary financial assistance in the form of a
precautionary conditioned credit line or in the form of an enhanced
conditions credit line, loans, loans to a Member of the European
Stability Mechanism for the specific purpose of re-capitalising the
financial institutions of that Member of the European Stability
Mechanism, the purchase of bonds on the primary market with the
objective of maximizing the cost efficiency of the financial
assistance, and operations on the secondary bond market, in terms of
article 14 to 18 of the Treaty;
"the Treaty" means the treaty establishing the European
Stability Mechanism between the Kingdom of Belgium, the Federal
Republic of Germany, the Republic of Estonia, Ireland, The Hellenic
Republic, The Kingdom of Spain, The French Republic, The Italian
Republic, The Republic of Cyprus, the Grand Duchy of Luxembourg,
Malta, The Kingdom of the Netherlands, the Republic of Austria, The
Portuguese Republic, the Republic of Slovenia, The Slovak Republic
and the Republic of Finland, as approved by the Council of the
European Union, signed on the 2 February 2012, annexed as Schedule
European Council Decision of the 25 March 2011
(Article 2)
Over recent months, Europe has gone through a serious financial crisis.
Although economic recovery in Europe is now on track, risks remain and we must
continue our determined action. We adopted today a comprehensive package of
measures which should allow us to turn the corner of the financial crisis and
continue our path towards sustainable growth. This package will strengthen the
economic governance of the European Union and ensure the lasting stability of the
euro area as a whole. We also agreed robust action at the EU level to stimulate
growth by strengthening the Single Market, reducing the overall burden of
regulation and promoting trade with third countries. We discussed the grave
situation in Libya, expressing our satisfaction after the adoption of UNSCR 1973
and underlining our determination to contribute to its implementation. Regarding
the Southern Neighbourhood, we reiterated our determination to develop a new
partnership with the region and called for a rapid implementation of the
orientations set on 11 March 2011; we agreed on first concrete steps to support the
countries of the Southern Neighbourhood in the short term. Finally, we discussed
the lessons to be drawn from the events that occurred in Japan, notably as regards
nuclear safety.
I.
ECONOMIC POLICY
1. The European Council today adopted a comprehensive package of
measures to respond to the crisis, preserve financial stability and lay the ground for
smart, sustainable, socially inclusive and job-creating growth. This will strengthen
the economic governance and competitiveness of the euro area and of the
European Union.
Implementing the European Semester: Europe 2020, fiscal consolidation
and structural reform
2. Within the new framework of the European semester, the European
Council endorsed the priorities for fiscal consolidation and structural reform. * It
underscored the need to give priority to restoring sound budgets and fiscal
sustainability, reducing unemployment through labour market reforms and making
new efforts to enhance growth. All Member States will translate these priorities
into concrete measures to be included in their Stability or Convergence
Programmes and National Reform Programmes. On this basis, the Commission
will present its proposals for country-specific opinions and recommendations in
good time for their adoption before the June European Council.
*In line with the Council’s conclusions of 15 February and 7 March 2011 and further to the Commission’s Annual
Growth Survey. See also the Presidency’s synthesis report of 16 March 2011.
3. In particular, Member States will present multi-annual consolidation
plans including specific deficit, revenue and expenditure targets, the strategy
envisaged to reach these targets and a timeline for its implementation. Fiscal
policies for 2012 should aim to restore confidence by bringing debt trends back
onto a sustainable path and ensuring that deficits are brought back below 3% of
GDP in the timeframe agreed upon by the Council. This requires in most cases an
annual structural adjustment well above 0.5% of GDP. Consolidation should be
frontloaded in Member States facing very large structural deficits or very high or
rapidly increasing levels of public debt.
4. Fiscal consolidation efforts must be complemented by growth-
enhancing structural reforms. To that end, Member States emphasise their
commitment to the Europe 2020 Strategy. In particular, they will implement
measures in order to
-
make work more attractive;
-
help the unemployed get back to work;
-
combat poverty and promote social inclusion;
-
invest in education and training;
-
balance security and flexibility;
-
reform pension systems;
-
attract private capital to finance growth;
-
boost research and innovation;
-
and allow cost-effective access to energy and step up energy
efficiency policies.
5. Member States will set out the main measures required to move towards
the Europe 2020 headline targets as agreed in June 2010. They will also present
policy measures to correct harmful and persistent macroeconomic imbalances and
improve competitiveness.
6. In implementing these policies, and in order to ensure wide ownership,
close cooperation will be maintained with the European Parliament and other EU
institutions and advisory bodies (ESC, CoR), with the full involvement of national
parliaments, social partners, regions and other stakeholders.
7. The Single Market has a key role to play in delivering growth and
employment and promote competitiveness. The European Council welcomes the
Commission’s intention to present the Single Market Act and invites the European
Parliament and the Council to adopt by the end of 2012 a first set of priority
measures to bring a new impetus to the Single Market. Particular emphasis should
be laid on measures which create growth and jobs and bring tangible results to
citizens and businesses. Emphasis should also be put on completing the Digital
Single Market. The overall regulatory burden, in particular for SMEs, should be
reduced at both European and national levels. The Commission will report on this
issue by the summer. The European Council also welcomed the intention of the
Commission to propose ways of exempting micro-enterprises from certain future
regulations. On the basis of the Commission’s communication "Towards a better
functioning single market for services", the European Council calls on Member
States to fully implement the services Directive and on the Commission and
Member States to take further actions where necessary to improve the internal
market for services.
8. The external dimension of the Single Market is also important and the
focus should be on promoting free, fair and open trade, with a focus on concluding
the WTO Doha Round and Free Trade Agreements in 2011 in line with the
conclusions of the 16 September 2010 European Council. Work should be rapidly
taken forward, following the Commission report setting out priorities for
dismantling barriers to trade in third countries.
Strengthening governance
9. The package of six legislative proposals on economic governance is key
to ensuring enhanced fiscal discipline and avoiding excessive macroeconomic
imbalances. It includes a reform of the Stability and Growth Pact aimed at
enhancing the surveillance of fiscal policies and applying enforcement measures
more consistently and at an earlier stage, new provisions on national fiscal
frameworks and a new surveillance of macroeconomic imbalances.
10. The European Council welcomes the general approach reached on the
proposals in the Council, opening the way for negotiations with the European
Parliament. It called for work to be taken forward with a view to their adoption in
June 2011.
Providing a new quality of economic policy coordination: the Euro Plus
Pact
11. The Euro Plus Pact as agreed by the euro area Heads of State or
government and joined by Bulgaria, Denmark, Latvia, Lithuania, Poland, Romania
(see Annex I) will further strengthen the economic pillar of EMU and achieve a
new quality of economic policy coordination, with the objective of improving
competitiveness and thereby leading to a higher degree of convergence reinforcing
our social market economy. The Pact remains open for other Member States to
join. The Pact will fully respect the integrity of the Single Market.
12. The Member States that have signed up to the Pact are committed, on
the basis of the indicators and principles it contains, to announce a set of concrete
actions to be achieved within the next twelve months. A number of Member States
have already announced first commitments. All participating Member States will
present their commitments as soon as possible and in any event in time for their
inclusion in their Stability or Convergence Programmes and National Reform
Programmes to be submitted in April and for their assessment at the June European
Council.
Restoring the health of the banking sector
3. (1) Subject to the provisions of this Act, the Authority to
Government of Malta shall participate in the European Stability participate
the European
Mechanism as a shareholder in the authorized share capital, Governor Stability
Mechanism.
and an alternate Governor within the Board of Governors, and as
Director and alternate Director on the Board of Directors, in
accordance with the terms and conditions set out in the Treaty, as may
be amended from time to time, for the purposes identified under sub-
article (2).
(2) The European Stability Mechanism shall provide stability
support under strict conditions, appropriate to the financial assistance
instrument chosen, to a Member of the European Stability Mechanism
which is experiencing or is threatened by severe financial problems,
which support is indispensable to safeguard the financial stability of
the euro area as a whole and of its Members States. *
The Treaty Establishing the European Stability Mechanism
(Article 2)
TREATY
ESTABLISHING THE EUROPEAN STABILITY MECHANISM
BETWEEN THE KINGDOM OF BELGIUM, THE FEDERAL REPUBLIC OF
GERMANY, THE REPUBLIC OF ESTONIA, IRELAND, THE HELLENIC
REPUBLIC, THE KINGDOM OF SPAIN, THE FRENCH REPUBLIC, THE
ITALIAN REPUBLIC, THE REPUBLIC OF CYPRUS, THE GRAND DUCHY
OF LUXEMBOURG, MALTA, THE KINGDOM OF THE NETHERLANDS,
THE REPUBLIC OF AUSTRIA, THE PORTUGUESE REPUBLIC, THE
REPUBLIC OF SLOVENIA, THE SLOVAK REPUBLIC AND THE REPUBLIC
OF FINLAND
THE CONTRACTING PARTIES, the Kingdom of Belgium, the Federal
Republic of Germany, the Republic of Estonia, Ireland, the Hellenic Republic, the
Kingdom of Spain, the French Republic, the Italian Republic, the Republic of
Cyprus, the Grand Duchy of Luxembourg, Malta, the Kingdom of the Netherlands,
the Republic of Austria, the Portuguese Republic, the Republic of Slovenia, the
Slovak Republic and the Republic of Finland (the "euro area Member States" or
"ESM Members");
COMMITTED TO ensuring the financial stability of the euro area;
RECALLING the Conclusions of the European Council adopted on 25 March
2011 on the establishment of a European stability mechanism;
WHEREAS
(1) The European Council agreed on 17 December 2010 on the need for
euro area Member States to establish a permanent stability mechanism. This
European Stability Mechanism ("ESM") will assume the tasks currently fulfilled
by the European Financial Stability Facility ("EFSF") and the European Financial
Stabilisation Mechanism ("EFSM") in providing, where needed, financial
assistance to euro area Member States.
(2) On 25 March 2011, the European Council adopted Decision 2011/199/
EU amending Article 136 of the Treaty on the Functioning of the European Union
with regard to a stability mechanism for Member States whose currency is the
euro * adding the following paragraph to Article 136: "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
*OJ L 91, 6.4.2011, p. 1.
strict conditionality".
(3) With a view to increasing the effectiveness of the financial assistance
and to prevent the risk of financial contagion, the Heads of State or Government of
the Member States whose currency is the euro agreed on 21 July 2011 to "increase
[the] flexibility [of the ESM] linked to appropriate conditionality".
(4) Strict observance of the European Union framework, the integrated
macro-economic surveillance, in particular the Stability and Growth Pact, the
macroeconomic imbalances framework and the economic governance rules of the
European Union, should remain the first line of defence against confidence crises
affecting the stability of the euro area.
(5) On 9 December 2011 the Heads of State or Government of the Member
States whose currency is the euro agreed to move towards a stronger economic
union including a new fiscal compact and strengthened economic policy
coordination to be implemented through an international agreement, the Treaty on
Stability, Coordination and Governance in the Economic and Monetary Union
("TSCG"). The TSCG will help develop a closer coordination within the euro area
with a view to ensuring a lasting, sound and robust management of public finances
and thus addresses one of the main sources of financial instability. This Treaty and
the TSCG are complementary in fostering fiscal responsibility and solidarity
within the economic and monetary union. It is acknowledged and agreed that the
granting of financial assistance in the framework of new programmes under the
ESM will be conditional, as of 1 March 2013, on the ratification of the TSCG by
the ESM Member concerned and, upon expiration of the transposition period
referred to in Article 3(2) TSCG on compliance with the requirements of that
article.
(6) Given the strong interrelation within the euro area, severe risks to the
financial stability of Member States whose currency is the euro may put at risk the
financial stability of the euro area as a whole. The ESM may therefore provide
stability support on the basis of a strict conditionality, appropriate to the financial
assistance instrument chosen if indispensable to safeguard the financial stability of
the euro area as a whole and of its Member States. The initial maximum lending
volume of the ESM is set at EUR 500 000 million, including the outstanding EFSF
stability support. The adequacy of the consolidated ESM and EFSF maximum
lending volume will, however, be reassessed prior to the entry into force of this
Treaty. If appropriate, it will be increased by the Board of Governors of the ESM,
in accordance with Article 10, upon entry into force of this Treaty.
(7) All euro area Member States will become ESM Members. 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.
(8) The ESM will cooperate very closely with the International Monetary
Fund ("IMF") in providing stability support. The active participation of the IMF
will be sought, both at technical and financial level. A euro area Member State
requesting financial assistance from the ESM is expected to address, wherever
possible, a similar request to the IMF.
(9) Member States of the European Union whose currency is not the euro
("non euro area Member States") participating on an ad hoc basis alongside the
ESM in a stability support operation for euro area Member States will be invited to
participate, as observers, in the ESM meetings when this stability support and its
monitoring will be discussed. They will have access to all information in a timely
manner and be properly consulted.
(10) On 20 June 2011, the representatives of the Governments of the
Member States of the European Union authorised the Contracting Parties of this
Treaty to request the European Commission and the European Central Bank
("ECB") to perform the tasks provided for in this Treaty.
(11) In its statement of 28 November 2010, the Euro Group stated that
standardised and identical Collective Action Clauses ("CACs") will be included, in
such a way as to preserve market liquidity, in the terms and conditions of all new
euro area government bonds. As requested by the European Council on 25 March
2011, the detailed legal arrangements for including CACs in euro area government
securities were finalised by the Economic and Financial Committee.
(12) In accordance with IMF practice, in exceptional cases an adequate and
proportionate form of private sector involvement shall be considered in cases
where stability support is provided accompanied by conditionality in the form of a
macro-economic adjustment programme.
(13) Like the IMF, the ESM will provide stability support to an ESM
Member when its regular access to market financing is impaired or is at risk of
being impaired. Reflecting this, Heads of State or Government have stated that the
ESM loans will enjoy preferred creditor status in a similar fashion to those of the
IMF, while accepting preferred creditor status of the IMF over the ESM. This
status will be effective as of the date of entry into force of this Treaty. In the event
of ESM financial assistance in the form of ESM loans following a European
financial assistance programme existing at the time of the signature of this Treaty,
the ESM will enjoy the same seniority as all other loans and obligations of the
beneficiary ESM Member, with the exception of the IMF loans.
(14) The euro area Member States will support equivalent creditor status of
the ESM and that of other States lending bilaterally in coordination with the ESM.
(15) ESM lending conditions for Member States subject to a macroeconomic
adjustment programme, including those referred to in Article 40 of this Treaty,
shall cover the financing and operating costs of the ESM and should be consistent
with the lending conditions of the Financial Assistance Facility Agreements signed
between the EFSF, Ireland and the Central Bank of Ireland on the one hand and the
EFSF, the Portuguese Republic and Banco de Portugal on the other.
(16) Disputes concerning the interpretation and application of this Treaty
arising between the Contracting Parties or between the Contracting Parties and the
ESM should be submitted to the jurisdiction of the Court of Justice of the
European Union, in accordance with Article 273 of the Treaty on the Functioning
of the European Union ("TFEU").
(17) Post-programme surveillance will be carried out by the European
Commission and by the Council of the European Union within the framework laid
down in Articles 121 and 136 TFEU,
HAVE AGREED AS FOLLOWS
CHAPTER 1
MEMBERSHIP AND PURPOSE
ARTICLE 1
Establishment and members
1. By this Treaty, the Contracting Parties establish among themselves an
international financial institution, to be named the "European Stability
Mechanism" ("ESM").
2. The Contracting Parties are ESM Members.
ARTICLE 2
New members
1. Membership in the ESM shall be open to the other Member States of the
European Union as from the entry into force of the decision of the Council of the
European Union taken in accordance with Article 140(2) TFEU to abrogate their
derogation from adopting the euro.
2. New ESM Members shall be admitted on the same terms and conditions
as existing ESM Members, in accordance with Article 44.
3. A new member acceding to the ESM after its establishment shall
receive shares in the ESM in exchange for its capital contribution, calculated in
accordance with the contribution key provided for in Article 11.
ARTICLE 3
Purpose
The purpose of the ESM shall be to mobilise funding and provide stability
support under strict conditionality, appropriate to the financial assistance
instrument chosen, to the benefit of ESM Members which are experiencing, or are
threatened by, severe financing problems, if indispensable to safeguard the
financial stability of the euro area as a whole and of its Member States. For this
purpose, the ESM shall be entitled to raise funds by issuing financial instruments
or by entering into financial or other agreements or arrangements with
ESM Members, financial institutions or other third parties.
CHAPTER 2
GOVERNANCE
ARTICLE 4
Structure and voting rules
1. The ESM shall have a Board of Governors and a Board of Directors, as
well as a Managing Director and other dedicated staff as may be considered
necessary.
2. The decisions of the Board of Governors and the Board of Directors
shall be taken by mutual agreement, qualified majority or simple majority as
specified in this Treaty. In respect of all decisions, a quorum of 2/3 of the members
with voting rights representing at least 2/3 of the voting rights must be present.
3. The adoption of a decision by mutual agreement requires the unanimity
of the members participating in the vote. Abstentions do not prevent the adoption
of a decision by mutual agreement.
4. By way of derogation from paragraph 3, an emergency voting procedure
shall be used where the Commission and the ECB both conclude that a failure to
urgently adopt a decision to grant or implement financial assistance, as defined in
Articles 13 to 18, would threaten the economic and financial sustainability of the
euro area. The adoption of a decision by mutual agreement by the Board of
Governors referred to in points (f) and (g) of Article 5(6) and the Board of
Directors under that emergency procedure requires a qualified majority of 85% of
the votes cast.
Where the emergency procedure referred to in the first subparagraph is used,
a transfer from the reserve fund and/or the paid-in capital to an emergency reserve
fund is made in order to constitute a dedicated buffer to cover the risks arising
from the financial support granted under that emergency procedure. The Board of
Governors may decide to cancel the emergency reserve fund and transfer its
content back to the reserve fund and/or paid-in capital.
5. The adoption of a decision by qualified majority requires 80 % of the
votes cast.
6. The adoption of a decision by simple majority requires a majority of the
votes cast.
7. The voting rights of each ESM Member, as exercised by its appointee or
by the latter's representative on the Board of Governors or Board of Directors,
shall be equal to the number of shares allocated to it in the authorised capital stock
of the ESM as set out in Annex II.
8. If any ESM Member fails to pay any part of the amount due in respect
of its obligations in relation to paid-in shares or calls of capital under Articles 8, 9
and 10, or in relation to the reimbursement of the financial assistance under Article
16 or 17, such ESM Member shall be unable, for so long as such failure continues,
to exercise any of its voting rights. The voting thresholds shall be recalculated
accordingly.
ARTICLE 5
Board of Governors
1. Each ESM Member shall appoint a Governor and an alternate Governor.
Such appointments are revocable at any time. The Governor shall be a member of
the government of that ESM Member who has responsibility for finance. The
alternate Governor shall have full power to act on behalf of the Governor when the
latter is not present.
2. The Board of Governors shall decide either to be chaired by the
President of the Euro Group, as referred to in Protocol (No 14) on the Euro Group
annexed to the Treaty on the European Union and to the TFEU or to elect a
Chairperson and a Vice-Chairperson from among its members for a term of two
years. The Chairperson and the Vice-Chairperson may be re-elected. A new
election shall be organised without delay if the incumbent no longer holds the
function needed for being designated Governor.
3. The Member of the European Commission in charge of economic and
monetary affairs and the President of the ECB, as well as the President of the Euro
Group (if he or she is not the Chairperson or a Governor) may participate in the
meetings of the Board of Governors as observers.
4. Representatives of non-euro area Member States participating on an ad
hoc basis alongside the ESM in a stability support operation for a euro area
Member State shall also be invited to participate, as observers, in the meetings of
the Board of Governors when this stability support and its monitoring will be
discussed.
5. Other persons, including representatives of institutions or organisations,
such as the IMF, may be invited by the Board of Governors to attend meetings as
observers on an ad hoc basis.
6. The Board of Governors shall take the following decisions by mutual
agreement
(a)
to cancel the emergency reserve fund and transfer its content back
to the reserve fund and/or paid-in capital, in accordance with Article 4(4);
(b) to issue new shares on terms other than at par, in accordance with
Article 8(2);
(c)
to make the capital calls, in accordance with Article 9(1);
(d) to change the authorised capital stock and adapt the maximum
lending volume of the ESM, in accordance with Article 10(1);
(e)
to take into account a possible update of the key for the
subscription of the ECB capital, in accordance with Article 11(3), and the
changes to be made to Annex I in accordance with Article 11(6);
(f)
to provide stability support by the ESM, including the economic
policy conditionality as stated in the memorandum of understanding referred
to in Article 13(3), and to establish the choice of instruments and the
financial terms and conditions, in accordance with Articles 12 to 18;
(g) to give a mandate to the European Commission to negotiate, in
liaison with the ECB, the economic policy conditionality attached to each
financial assistance, in accordance with Article 13(3);
(h) to change the pricing policy and pricing guideline for financial
assistance, in accordance with Article 20;
(i)
to change the list of financial assistance instruments that may be
used by the ESM, in accordance with Article 19;
(j)
to establish the modalities of the transfer of EFSF support to the
ESM, in accordance with Article 40;
(k) to approve the application for membership of the ESM by new
members, referred to in Article 44;
(l)
to make adaptations to this Treaty as a direct consequence of the
accession of new members, including changes to be made to the distribution
of capital among ESM Members and the calculation of such a distribution as
a direct consequence of the accession of a new member to the ESM, in
accordance with Article 44; and
(m)
to delegate to the Board of Directors the tasks listed in this
7. The Board of Governors shall take the following decisions by qualified
(a)
to set out the detailed technical terms of accession of a new
member to the ESM, in accordance with Article 44;
(b) whether to be chaired by the President of the Euro Group or to
elect, by qualified majority, the Chairperson and Vice-Chairperson of the
Board of Governors, in accordance with paragraph 2;
(c)
to set out by-laws of the ESM and the rules of procedure
applicable to the Board of Governors and Board of Directors (including the
right to establish committees and subsidiary bodies), in accordance with
paragraph 9;
(d) to determine the list of activities incompatible with the duties of a
Director or an alternate Director, in accordance with Article 6(8);
(e)
to appoint and to end the term of office of the Managing Director,
in accordance with Article 7;
(f)
to establish other funds, in accordance with Article 24;
(g) on the actions to be taken for recovering a debt from an ESM
Member, in accordance with Article 25(2) and (3);
(h) to approve the annual accounts of the ESM, in accordance with
Article 27(1);
(i)
to appoint the members of the Board of Auditors, in accordance
with Article 30(1);
(j)
to approve the external auditors, in accordance with Article 29;
(k) to waive the immunity of the Chairperson of the Board of
Governors, a Governor, alternate Governor, Director, alternate Director or
the Managing Director, in accordance with Article 35(2);
(l)
to determine the taxation regime applicable to the ESM staff, in
accordance with Article 36(5);
(m)
on a dispute, in accordance with Article 37(2); and
(n)
any other necessary decision not explicitly provided for by this
8. The Chairperson shall convene and preside over the meetings of the
Board of Governors. The Vice-Chairperson shall preside over these meetings when
the Chairperson is unable to participate.
9. The Board of Governors shall adopt their rules of procedure and the by-
laws of the ESM.
ARTICLE 6
Board of Directors
1. Each Governor shall appoint one Director and one alternate Director
from among people of high competence in economic and financial matters. Such
appointments shall be revocable at any time. The alternate Directors shall have full
power to act on behalf of the Director when the latter is not present.
2. The Member of the European Commission in charge of economic and
monetary affairs and the President of the ECB may appoint one observer each.
3. Representatives of non-euro area Member States participating on an ad
hoc basis alongside the ESM in a financial assistance operation for a euro area
Member State shall also be invited to participate, as observers, in the meetings of
the Board of Directors when this financial assistance and its monitoring will be
discussed.
4. Other persons, including representatives of institutions or organisations,
may be invited by the Board of Governors to attend meetings as observers on an ad
hoc basis.
5. The Board of Directors shall take decisions by qualified majority, unless
otherwise stated in this Treaty. Decisions to be taken on the basis of powers
delegated by the Board of Governors shall be adopted in accordance with the
relevant voting rules set in Article 5(6) and (7).
6. Without prejudice to the powers of the Board of Governors as set out in
Article 5, the Board of Directors shall ensure that the ESM is run in accordance
with this Treaty and the by-laws of the ESM adopted by the Board of Governors. It
shall take decisions as provided for in this Treaty or which are delegated to it by
the Board of Governors.
7. Any vacancy in the Board of Directors shall be immediately filled in
accordance with paragraph 1.
8. The Board of Governors shall lay down what activities are incompatible
with the duties of a Director or an alternate Director, the by-laws of the ESM and
rules of procedure of the Board of Directors.
ARTICLE 7
Managing Director
1. The Managing Director shall be appointed by the Board of Governors
from among candidates having the nationality of an ESM Member, relevant
international experience and a high level of competence in economic and financial
matters. Whilst holding office, the Managing Director may not be a Governor or
Director or an alternate of either.
2. The term of office of the Managing Director shall be five years. He or
she may be re-appointed once. The Managing Director shall, however, cease to
hold office when the Board of Governors so decides.
3. The Managing Director shall chair the meetings of the Board of
Directors and shall participate in the meetings of the Board of Governors.
4. The Managing Director shall be chief of the staff of the ESM. He or she
shall be responsible for organising, appointing and dismissing staff in accordance
with staff rules to be adopted by the Board of Directors.
5. The Managing Director shall be the legal representative of the ESM and
shall conduct, under the direction of the Board of Directors, the current business of
the ESM.
CHAPTER 3
CAPITAL
ARTICLE 8
Authorised capital stock
1. The authorised capital stock shall be EUR 700 000 million. It shall be
divided into seven million shares, having a nominal value of EUR 100 000 each,
which shall be available for subscription according to the initial contribution key
provided for in Article 11 and calculated in Annex I.
2. The authorised capital stock shall be divided into paid-in shares and
callable shares. The initial total aggregate nominal value of paid-in shares shall be
EUR 80 000 million. Shares of authorised capital stock initially subscribed shall
be issued at par. Other shares shall be issued at par, unless the Board of Governors
decides to issue them in special circumstances on other terms.
3. Shares of authorised capital stock shall not be encumbered or pledged in
any manner whatsoever and they shall not be transferable, with the exception of
transfers for the purposes of implementing adjustments of the contribution key
provided for in Article 11 to the extent necessary to ensure that the distribution of
shares corresponds to the adjusted key.
4. ESM Members hereby irrevocably and unconditionally undertake to
provide their contribution to the authorised capital stock, in accordance with their
contribution key in Annex I. They shall meet all capital calls on a timely basis in
accordance with the terms set out in this Treaty.
5. The liability of each ESM Member shall be limited, in all
circumstances, to its portion of the authorised capital stock at its issue price. No
ESM Member shall be liable, by reason of its membership, for obligations of the
ESM. The obligations of ESM Members to contribute to the authorised capital
stock in accordance with this Treaty are not affected if any such ESM Member
becomes eligible for, or is receiving, financial assistance from the ESM.
ARTICLE 9
Capital calls
1. The Board of Governors may call in authorised unpaid capital at any
time and set an appropriate period of time for its payment by the ESM Members.
2. The Board of Directors may call in authorised unpaid capital by simple
majority decision to restore the level of paid-in capital if the amount of the latter is
reduced by the absorption of losses below the level established in Article 8(2), as
may be amended by the Board of Governors following the procedure provided for
in Article 10, and set an appropriate period of time for its payment by the ESM
Members.
3. The Managing Director shall call authorised unpaid capital in a timely
manner if needed to avoid the ESM being in default of any scheduled or other
payment obligation due to ESM creditors. The Managing Director shall inform the
Board of Directors and the Board of Governors of any such call. When a potential
shortfall in ESM funds is detected, the Managing Director shall make such capital
call(s) as soon as possible with a view to ensuring that the ESM shall have
sufficient funds to meet payments due to creditors in full on their due date. 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.
4. The Board of Directors shall adopt the detailed terms and conditions
which shall apply to calls on capital pursuant to this Article.
ARTICLE 10
Changes in authorised capital stock
1. The Board of Governors shall review regularly and at least every five
years the maximum lending volume and the adequacy of the authorised capital
stock of the ESM. It may decide to change the authorised capital stock and amend
Article 8 and Annex II accordingly. Such decision shall enter into force after the
ESM Members have notified the Depositary of the completion of their applicable
national procedures. The new shares shall be allocated to the ESM Members
according to the contribution key provided for in Article 11 and in Annex I.
2. The Board of Directors shall adopt the detailed terms and conditions
which shall apply to all or any capital changes made under paragraph 1.
3. Upon a Member State of the European Union becoming a new ESM
Member, the authorised capital stock of the ESM shall be automatically increased
by multiplying the respective amounts then prevailing by the ratio, within the
adjusted contribution key provided for in Article 11, between the weighting of the
new ESM Member and the weighting of the existing ESM Members.
ARTICLE 11
Contribution key
1. The contribution key for subscribing to ESM authorised capital stock
shall, subject to paragraphs 2 and 3, be based on the key for subscription, by the
national central banks of ESM Members, of the ECB's capital pursuant to Article
29 of Protocol (No 4) on the Statute of the European System of Central Banks and
of the European Central Bank (the "ESCB Statute") annexed to the Treaty on
European Union and to the TFEU.
2. The contribution key for the subscription of the ESM authorised capital
stock is specified in Annex I.
3. The contribution key for the subscription of the ESM authorised capital
stock shall be adjusted when
(a)
a Member State of the European Union becomes a new ESM
Member and the ESM's authorised capital stock automatically increases, as
specified in Article 10(3); or
(b) the twelve year temporary correction applicable to an ESM
Member established in accordance with Article 42 ends.
4. The Board of Governors may decide to take into account possible
updates to the key for the subscription of the ECB's capital referred to in paragraph
1 when the contribution key is adjusted in accordance with paragraph 3 or when
there is a change in the authorised capital stock, as specified in Article 10(1).
5. When the contribution key for the subscription of the ESM authorised
capital stock is adjusted, the ESM Members shall transfer among themselves
authorised capital stock to the extent necessary to ensure that the distribution of
authorised capital stock corresponds to the adjusted key.
6. Annex I shall be amended upon decision by the Board of Governors
upon any adjustment referred to in this Article.
7. The Board of Directors shall take all other measures necessary for the
application of this Article.
CHAPTER 4
OPERATIONS
ARTICLE 12
Principles
1. If indispensable to safeguard the financial stability of the euro area as a
whole and of its Member States, the ESM may provide stability support to an ESM
Member subject to strict conditionality, appropriate to the financial assistance
instrument chosen. Such conditionality may range from a macro-economic
adjustment programme to continuous respect of pre-established eligibility
conditions.
2. Without prejudice to Article 19, ESM stability support may be granted
through the instruments provided for in Articles 14 to 18.
3. Collective action clauses shall be included, as of 1 January 2013, in all
new euro area government securities, with maturity above one year, in a way
which ensures that their legal impact is identical.
ARTICLE 13
Procedure for granting stability support
1. An ESM Member may address a request for stability support to the
Chairperson of the Board of Governors. Such a request shall indicate the financial
assistance instrument(s) to be considered. On receipt of such a request, the
Chairperson of the Board of Governors shall entrust the European Commission, in
liaison with the ECB, with the following tasks
(a)
to assess the existence of a risk to the financial stability of the
euro area as a whole or of its Member States, unless the ECB has already
submitted an analysis under Article 18(2);
(b) to assess whether public debt is sustainable. Wherever
appropriate and possible, such an assessment is expected to be conducted
together with the IMF;
(c)
to assess the actual or potential financing needs of the ESM
Member concerned.
2. On the basis of the request of the ESM Member and the assessment
referred to in paragraph 1, the Board of Governors may decide to grant, in
principle, stability support to the ESM Member concerned in the form of a
financial assistance facility.
3. If a decision pursuant to paragraph 2 is adopted, the Board of Governors
shall entrust the European Commission - in liaison with the ECB and, wherever
possible, together with the IMF - with the task of negotiating, with the ESM
Member concerned, a memorandum of understanding (an "MoU") detailing the
conditionality attached to the financial assistance facility. The content of the MoU
shall reflect the severity of the weaknesses to be addressed and the financial
assistance instrument chosen. In parallel, the Managing Director of the ESM shall
prepare a proposal for a financial assistance facility agreement, including the
financial terms and conditions and the choice of instruments, to be adopted by the
Board of Governors.
The MoU shall be fully consistent with the measures of economic policy
coordination provided for in the TFEU, in particular with any act of European
Union law, including any opinion, warning, recommendation or decision addressed
to the ESM Member concerned.
4. The European Commission shall sign the MoU on behalf of the ESM,
subject to prior compliance with the conditions set out in paragraph 3 and approval
by the Board of Governors.
5. The Board of Directors shall approve the financial assistance facility
agreement detailing the financial aspects of the stability support to be granted and,
where applicable, the disbursement of the first tranche of the assistance.
6. The ESM shall establish an appropriate warning system to ensure that it
receives any repayments due by the ESM Member under the stability support in a
timely manner.
7. The European Commission – in liaison with the ECB and, wherever
possible, together with the IMF – shall be entrusted with monitoring compliance
with the conditionality attached to the financial assistance facility.
ARTICLE 14
ESM precautionary financial assistance
1. The Board of Governors may decide to grant precautionary financial
assistance in the form of a precautionary conditioned credit line or in the form of
an enhanced conditions credit line in accordance with Article 12(1).
2. The conditionality attached to the ESM precautionary financial
assistance shall be detailed in the MoU, in accordance with Article 13(3).
3. The financial terms and conditions of the ESM precautionary financial
assistance shall be specified in a precautionary financial assistance facility
agreement, to be signed by the Managing Director.
4. The Board of Directors shall adopt the detailed guidelines on the
modalities for implementing the ESM precautionary financial assistance.
5. The Board of Directors shall decide by mutual agreement on a proposal
from the Managing Director and after having received a report from the
European Commission in accordance with Article 13(7), whether the credit line
should be maintained.
6. After the ESM Member has drawn funds for the first time (via a loan or
a primary market purchase), the Board of Directors shall decide by mutual
agreement on a proposal from the Managing Director and based on an assessment
conducted by the European Commission, in liaison with the ECB, whether the
credit line continues to be adequate or whether another form of financial assistance
is needed.
ARTICLE 15
Financial assistance for the re-capitalisation of financial institutions
of an ESM Member
1. The Board of Governors may decide to grant financial assistance
through loans to an ESM Member for the specific purpose of re-capitalising the
financial institutions of that ESM Member.
2. The conditionality attached to financial assistance for the re-
capitalisation of an ESM Member's financial institutions shall be detailed in the
MoU, in accordance with Article 13(3).
3. Without prejudice to Articles 107 and 108 TFEU, the financial terms
and conditions of financial assistance for the re-capitalisation of an ESM
Member’s financial institutions shall be specified in a financial assistance facility
agreement, to be signed by the Managing Director.
4. The Board of Directors shall adopt the detailed guidelines on the
modalities for implementing financial assistance for the re-capitalisation of an
ESM Member's financial institutions.
5. Where applicable, the Board of Directors shall decide by mutual
agreement, on a proposal from the Managing Director and after having received a
report from the European Commission in accordance with Article 13(7), the
disbursement of the tranches of the financial assistance subsequent to the first
tranche.
ARTICLE 16
ESM loans
1. The Board of Governors may decide to grant financial assistance in the
form of a loan to an ESM Member, in accordance with Article 12.
2. The conditionality attached to the ESM loans shall be contained in a
macro-economic adjustment programme detailed in the MoU, in accordance with
Article 13(3).
3. The financial terms and conditions of each ESM loan shall be specified
in a financial assistance facility agreement, to be signed by the Managing Director.
4. The Board of Directors shall adopt the detailed guidelines on the
modalities for implementing ESM loans.
5. The Board of Directors shall decide by mutual agreement, on a proposal
from the Managing Director and after having received a report from the
European Commission in accordance with Article 13(7), the disbursement of the
tranches of the financial assistance subsequent to the first tranche.
ARTICLE 17
Primary market support facility
1. The Board of Governors may decide to arrange for the purchase of
bonds of an ESM Member on the primary market, in accordance with Article 12
and with the objective of maximising the cost efficiency of the financial assistance.
2. The conditionality attached to the primary market support facility shall
be detailed in the MoU, in accordance with Article 13(3).
3. The financial terms and conditions under which the bond purchase is
conducted shall be specified in a financial assistance facility agreement, to be
signed by the Managing Director.
4. The Board of Directors shall adopt the detailed guidelines on the
modalities for implementing the primary market support facility.
5. The Board of Directors shall decide by mutual agreement, on a proposal
from the Managing Director and after having received a report from the
European Commission in accordance with Article 13(7), the disbursement of
financial assistance to a beneficiary Member State through operations on the
primary market.
ARTICLE 18
Secondary market support facility
1. The Board of Governors may decide to arrange for operations on the
secondary market in relation to the bonds of an ESM Member in accordance with
Article 12(1).
2. Decisions on interventions on the secondary market to address
contagion shall be taken on the basis of an analysis of the ECB recognising the
existence of exceptional financial market circumstances and risks to financial
stability.
3. The conditionality attached to the secondary market support facility
shall be detailed in the MoU, in accordance with Article 13(3).
4. The financial terms and conditions under which the secondary market
operations are to be conducted shall be specified in a financial assistance facility
agreement, to be signed by the Managing Director.
5. The Board of Directors shall adopt the detailed guidelines on the
modalities for implementing the secondary market support facility.
6. The Board of Directors shall decide by mutual agreement, on a proposal
from the Managing Director, to initiate operations on the secondary market.
ARTICLE 19
Review of the list of financial assistance instruments
The Board of Governors may review the list of financial assistance
instruments provided for in Articles 14 to 18 and decide to make changes to it.
ARTICLE 20
Pricing policy
1. When granting stability support, the ESM shall aim to fully cover its
financing and operating costs and shall include an appropriate margin.
2. For all financial assistance instruments, pricing shall be detailed in a
pricing guideline, which shall be adopted by the Board of Governors.
3. The pricing policy may be reviewed by the Board of Governors.
ARTICLE 21
Borrowing operations
1. The ESM shall be empowered to borrow on the capital markets from
banks, financial institutions or other persons or institutions for the performance of
its purpose.
2. The modalities of the borrowing operations shall be determined by the
Managing Director, in accordance with detailed guidelines to be adopted by the
Board of Directors.
3. The ESM shall use appropriate risk management tools, which shall be
reviewed regularly by the Board of Directors.
CHAPTER 5
FINANCIAL MANAGEMENT
ARTICLE 22
Investment policy
1. The Managing Director shall implement a prudent investment policy for
the ESM, so as to ensure its highest creditworthiness, in accordance with
guidelines to be adopted and reviewed regularly by the Board of Directors. The
ESM shall be entitled to use part of the return on its investment portfolio to cover
its operating and administrative costs.
2. The operations of the ESM shall comply with the principles of sound
financial and risk management.
ARTICLE 23
Dividend policy
1. The Board of Directors may decide, by simple majority, to distribute a
dividend to the ESM Members where the amount of paid-in capital and the reserve
fund exceed the level required for the ESM to maintain its lending capacity and
where proceeds from the investment are not required to avoid a payment shortfall
to creditors. Dividends are distributed pro rata to the contributions to the paid-in
capital, taking into account the possible acceleration referred to in Article 41(3).
2. As long as the ESM has not provided financial assistance to one of its
members, the proceeds from the investment of the ESM paid-in capital shall be
returned to the ESM Members according to their respective contributions to the
paid-in capital, after deductions for operational costs, provided that the targeted
effective lending capacity is fully available.
3. The Managing Director shall implement the dividend policy for the
ESM in accordance with guidelines to be adopted by the Board of Directors.
ARTICLE 24
Reserve and other funds
1. The Board of Governors shall establish a reserve fund and, where
appropriate, other funds.
2. Without prejudice to Article 23, the net income generated by the ESM
operations and the proceeds of the financial sanctions received from the ESM
Members under the multilateral surveillance procedure, the excessive deficit
procedure and the macro-economic imbalances procedure established under the
TFEU shall be put aside in a reserve fund.
3. The resources of the reserve fund shall be invested in accordance with
guidelines to be adopted by the Board of Directors.
4. The Board of Directors shall adopt such rules as may be required for the
establishment, administration and use of other funds.
ARTICLE 25
Coverage of losses
1. Losses arising in the ESM operations shall be charged
(a)
firstly, against the reserve fund;
(b)
secondly, against the paid-in capital; and
(c)
lastly, against an appropriate amount of the authorised unpaid
capital, which shall be called in accordance with Article 9(3).
2. If an ESM Member fails to meet the required payment under a capital
call made pursuant to Article 9(2) or (3), a revised increased capital call shall be
made to all ESM Members with a view to ensuring that the ESM receives the total
amount of paid-in capital needed. The Board of Governors shall decide an
appropriate course of action for ensuring that the ESM Member concerned settles
its debt to the ESM within a reasonable period of time. The Board of Governors
shall be entitled to require the payment of default interest on the overdue amount.
3. When an ESM Member settles its debt to the ESM, as referred to in
paragraph 2, the excess capital shall be returned to the other ESM Members in
accordance with rules to be adopted by the Board of Governors.
ARTICLE 26
Budget
The Board of Directors shall approve the ESM budget annually.
ARTICLE 27
Annual accounts
1. The Board of Governors shall approve the annual accounts of the ESM.
2. The ESM shall publish an annual report containing an audited statement
of its accounts and shall circulate to ESM Members a quarterly summary statement
of its financial position and a profit and loss statement showing the results of its
operations.
ARTICLE 28
Internal Audit
An internal audit function shall be established according to international
standards.
ARTICLE 29
External audit
The accounts of the ESM shall be audited by independent external auditors
approved by the Board of Governors and responsible for certifying the annual
financial statements. The external auditors shall have full power to examine all
books and accounts of the ESM and obtain full information about its transactions.
ARTICLE 30
Board of Auditors
1. The Board of Auditors shall consist of five members appointed by the
Board of Governors for their competence in auditing and financial matters and
shall include two members from the supreme audit institutions of the ESM
Members - with a rotation between the latter - and one from the European Court of
Auditors.
2. The members of the Board of Auditors shall be independent. They shall
neither seek nor take instructions from the ESM governing bodies, the ESM
Members or any other public or private body.
3. The Board of Auditors shall draw up independent audits. It shall inspect
the ESM accounts and verify that the operational accounts and balance sheet are in
order. It shall have full access to any document of the ESM needed for the
implementation of its tasks.
4. The Board of Auditors may inform the Board of Directors at any time of
its findings. It shall, on an annual basis, draw up a report to be submitted to the
Board of Governors.
5. The Board of Governors shall make the annual report accessible to the
national parliaments and supreme audit institutions of the ESM Members and to
the European Court of Auditors.
6. Any matter relating to this Article shall be detailed in the by-laws of the
ESM.
CHAPTER 6
GENERAL PROVISIONS
ARTICLE 31
Location
1. The ESM shall have its seat and principal office in Luxembourg.
2. The ESM may establish a liaison office in Brussels.
ARTICLE 32
Legal status, privileges and immunities
1. To enable the ESM to fulfil its purpose, the legal status and the
privileges and immunities set out in this Article shall be accorded to the ESM in
the territory of each ESM Member. The ESM shall endeavour to obtain recognition
of its legal status and of its privileges and immunities in other territories in which
it performs functions or holds assets.
2. The ESM shall have full legal personality; it shall have full legal
capacity to
(a)
acquire and dispose of movable and immovable property;
(b)
contract;
(c)
be a party to legal proceedings; and
(d) enter into a headquarter agreement and/or protocols as necessary
for ensuring that its legal status and its privileges and immunities are
recognised and enforced.
3. The ESM, its property, funding and assets, wherever located and by
whomsoever held, shall enjoy immunity from every form of judicial process
except to the extent that the ESM expressly waives its immunity for the purpose of
any proceedings or by the terms of any contract, including the documentation of
the funding instruments.
4. 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.
5. The archives of the ESM and all documents belonging to the ESM or
held by it, shall be inviolable.
6. The premises of the ESM shall be inviolable.
7. The official communications of the ESM shall be accorded by each
ESM Member and by each state which has recognised the legal status and the
privileges and immunities of the ESM, the same treatment as it accords to the
official communications of an ESM Member.
8. To the extent necessary to carry out the activities provided for in this
Treaty, all property, funding and assets of the ESM shall be free from restrictions,
regulations, controls and moratoria of any nature.
9. The ESM shall be exempted from any requirement to be authorised or
licensed as a credit institution, investment services provider or other authorised
licensed or regulated entity under the laws of each ESM Member.
ARTICLE 33
Staff of the ESM
The Board of Directors shall lay down the conditions of employment of the
Managing Director and other staff of the ESM.
ARTICLE 34
Professional secrecy
The Members or former Members of the Board of Governors and of the
Board of Directors and any other persons who work or have worked for or in
connection with the ESM shall not disclose information that is subject to
professional secrecy. They shall be required, even after their duties have ceased,
not to disclose information of the kind covered by the obligation of
professional secrecy.
ARTICLE 35
Immunities of persons
1. In the interest of the ESM, the Chairperson of the Board of Governors,
Governors, alternate Governors, Directors, alternate Directors, as well as the
Managing Director and other staff members shall be immune from legal
proceedings with respect to acts performed by them in their official capacity and
shall enjoy inviolability in respect of their official papers and documents.
2. The Board of Governors may waive to such extent and upon such
conditions as it determines any of the immunities conferred under this Article in
respect of the Chairperson of the Board of Governors, a Governor, an alternate
Governor, a Director, an alternate Director or the Managing Director.
3. The Managing Director may waive any such immunity in respect of any
member of the staff of the ESM other than himself or herself.
4. Each ESM Member shall promptly take the action necessary for the
purposes of giving effect to this Article in the terms of its own law and shall
inform the ESM accordingly.
ARTICLE 36
Exemption from taxation
1. Within the scope of its official activities, the ESM, its assets, income,
property and its operations and transactions authorised by this Treaty shall be
exempt from all direct taxes.
2. The ESM Members shall, wherever possible, take the appropriate
measures to remit or refund the amount of indirect taxes or sales taxes included in
the price of movable or immovable property where the ESM makes, for its official
use, substantial purchases, the price of which includes taxes of this kind.
3. No exemption shall be granted in respect of taxes and dues which
amount merely to charges for public utility services.
4. Goods imported by the ESM and necessary for the exercise of its
official activities shall be exempt from all import duties and taxes and from all
import prohibitions and restrictions.
5. Staff of the ESM shall be subject to an internal tax for the benefit of the
ESM on salaries and emoluments paid by the ESM, subject to rules to be adopted
by the Board of Governors. From the date on which this tax is applied, such
salaries and emoluments shall be exempt from national income tax.
6. No taxation of any kind shall be levied on any obligation or security
issued by the ESM including any interest or dividend thereon by whomsoever
held
(a)
which discriminates against such obligation or security solely
because of its origin; or
(b) if the sole jurisdictional basis for such taxation is the place or
currency in which it is issued, made payable or paid, or the location of any
office or place of business maintained by the ESM.
ARTICLE 37
Interpretation and dispute settlement
1. Any question of interpretation or application of the provisions of this
Treaty and the by-laws of the ESM arising between any ESM Member and the
ESM, or between ESM Members, shall be submitted to the Board of Directors for
its decision.
2. The Board of Governors shall decide on any dispute arising between an
ESM Member and the ESM, or between ESM Members, in connection with the
interpretation and application of this Treaty, including any dispute about the
compatibility of the decisions adopted by the ESM with this Treaty. The votes of
the member(s) of the Board of Governors of the ESM Member(s) concerned shall
be suspended when the Board of Governors votes on such decision and the voting
threshold needed for the adoption of that decision shall be recalculated
accordingly.
3. If an ESM Member contests the decision referred to in paragraph 2, the
dispute shall be submitted to the Court of Justice of the European Union. The
judgement of the Court of Justice of the European Union shall be binding on the
parties in the procedure, which shall take the necessary measures to comply with
the judgment within a period to be decided by said Court.
ARTICLE 38
International cooperation
The ESM shall be entitled, for the furtherance of its purposes, to cooperate,
within the terms of this Treaty, with the IMF, any State which provides financial
assistance to an ESM Member on an ad hoc basis and any international
organisation or entity having specialised responsibilities in related fields.
CHAPTER 7
TRANSITIONAL ARRANGEMENTS
ARTICLE 39
Relation with EFSF lending
During the transitional phase spanning the period from the entry into force of
this Treaty until the complete run-down of the EFSF, the consolidated ESM and
EFSF lending shall not exceed EUR 500 000 million, without prejudice to the
regular review of the adequacy of the maximum lending volume in accordance
with Article 10. The Board of Directors shall adopt detailed guidelines on the
calculation of the forward commitment capacity to ensure that the consolidated
lending ceiling is not breached.
ARTICLE 40
Transfer of EFSF supports
1. By way of derogation from Article 13, the Board of Governors may
decide that the EFSF commitments to provide financial assistance to an ESM
Member under its agreement with that member shall be assumed by the ESM as far
as such commitments relate to undisbursed and unfunded parts of loan facilities.
2. The ESM may, if authorised by its Board of Governors, acquire the
rights and assume the obligations of the EFSF, in particular in respect of all or part
of its outstanding rights and obligations under, and related to, its existing loan
facilities.
3. The Board of Governors shall adopt the detailed modalities necessary to
give effect to the transfer of the obligations from the EFSF to the ESM, as referred
to in paragraph 1 and any transfer of rights and obligations as described in
paragraph 2.
ARTICLE 41
Payment of the initial capital
1. Without prejudice to paragraph 2, payment of paid-in shares of the
amount initially subscribed by each ESM Member shall be made in five annual
instalments of 20% each of the total amount. The first instalment shall be paid by
each ESM Member within fifteen days of the date of entry into force of this Treaty.
The remaining four instalments shall each be payable on the first, second, third and
fourth anniversary of the payment date of the first instalment.
2. During the five-year period of capital payment by instalments, ESM
Members shall accelerate the payment of paid-in shares, in a timely manner prior
to the issuance date, in order to maintain a minimum 15% ratio between paid-in
capital and the outstanding amount of ESM issuances and guarantee a minimum
combined lending capacity of the ESM and of the EFSF of EUR 500 000 million.
3. An ESM Member may decide to accelerate the payment of its share of
paid-in capital.
ARTICLE 42
Temporary correction of the contribution key
1. At inception, the ESM Members shall subscribe the authorised capital
stock on the basis of the initial contribution key as specified in Annex I. The
temporary correction included in this initial contribution key shall apply for a
period of twelve years after the date of adoption of the euro by the ESM Member
concerned.
2. If a new ESM Member's gross domestic product (GDP) per capita at
market prices in euro in the year immediately preceding its accession to the ESM is
less than 75 % of the European Union average GDP per capita at market prices,
then its contribution key for subscribing to ESM authorised capital stock,
determined in accordance with Article 10, shall benefit from a temporary
correction and equal the sum of
(a)
25% of the percentage share in the ECB capital of the national
central bank of that ESM Member, determined in accordance with Article 29
of the ESCB Statute; and
(b) 75% of that ESM Member's percentage share in the gross national
income (GNI) at market prices in euro of the euro area in the year
immediately preceding its accession to the ESM.
The percentages referred to in points (a) and (b) shall be rounded up or down
to the nearest multiple of 0,0001 percentage points. The statistical terms shall be
those published by Eurostat.
3. The temporary correction referred to in paragraph 2 shall apply for a
period of twelve years from the date of adoption of the euro by the ESM Member
concerned.
4. As a result of the temporary correction of the key, the relevant
proportion of shares allocated to an ESM Member pursuant to paragraph 2 shall be
reallocated amongst the ESM Members not benefiting from a temporary correction
on the basis of their shareholding in the ECB, determined in accordance with
Article 29 of the ESCB Statute, subsisting immediately prior to the issue of shares
to the acceding ESM Member.
ARTICLE 43
First appointments
1. Each ESM Member shall designate its Governor and alternate Governor
within the two weeks of the entry into force of this Treaty.
2. The Board of Governors shall appoint the Managing Director and each
Governor shall appoint a Director and an alternate Director within the two months
of the entry into force of this Treaty.
CHAPTER 8
FINAL PROVISIONS
ARTICLE 44
Accession
This Treaty shall be open for accession by other Member States of the
European Union in accordance with Article 2 upon application for membership
that any such Member State of the European Union shall file with the ESM after
the adoption by the Council of the European Union of the decision to abrogate its
derogation from adopting the euro in accordance with Article 140(2) TFEU. The
Board of Governors shall approve the application for accession of the new
ESM Member and the detailed technical terms related thereto, as well as the
adaptations to be made to this Treaty as a direct consequence of the accession.
Following the approval of the application for membership by the Board of
Governors, new ESM Members shall accede upon the deposit of the instruments of
accession with the Depositary, who shall notify other ESM Members thereof.
ARTICLE 45
Annexes
The following Annexes to this Treaty shall constitute an integral part thereof
1)
Annex I: Contribution key of the ESM; and
2)
Annex II: Subscriptions to the authorised capital stock.
ARTICLE 46
Deposit
This Treaty shall be deposited with the General Secretariat of the Council of
the European Union ("the Depositary"), which shall communicate certified copies
to all the signatories.
ARTICLE 47
Ratification, approval or acceptance
1. This Treaty shall be subject to ratification, approval or acceptance by
the signatories. Instruments of ratification, approval or acceptance shall be
deposited with the Depositary.
2. The Depositary shall notify the other signatories of each deposit and the
date thereof.
ARTICLE 48
Entry into force
1. This Treaty shall enter into force on the date when instruments of
ratification, approval or acceptance have been deposited by signatories whose
initial subscriptions represent no less than 90% of the total subscriptions set forth
in Annex II. Where appropriate, the list of ESM Members shall be adjusted; the
key in Annex I shall then be recalculated and the total authorised capital stock in
Article 8(1) and Annex II and the initial total aggregated nominal value of paid-in
shares in Article 8(2) shall be reduced accordingly.
2. For each signatory which thereafter deposits its instrument of
ratification, approval or acceptance, this Treaty shall enter into force on the day
following the date of deposit.
3. For each State which accedes to this Treaty in accordance with
Article 44, this Treaty shall enter into force on the twentieth day following the
deposit of its instrument of accession.
Done at Brussels on the second day of February in the year two thousand and
twelve in a single original, whose Dutch, English, Estonian, Finnish, French,
German, Greek, Irish, Italian, Maltese, Portuguese, Slovak, Slovenian, Spanish
and Swedish texts are equally authentic, which shall be deposited in the archives of
the Depositary which shall transmit a duly certified copy to each of the
Contracting Parties.
ANNEX I
Contribution Key of the ESM
ESM Member
ESM key (%)
Kingdom of Belgium
3,4771
Federal Republic of Germany
27,1464
Republic of Estonia
0,1860
Ireland
1,5922
Hellenic Republic
2,8167
Kingdom of Spain
11,9037
French Republic
20,3859
Italian Republic
17,9137
Republic of Cyprus
0,1962
Grand Duchy of Luxembourg
0,2504
Malta
0,0731
Kingdom of the Netherlands
5,7170
Republic of Austria
2,7834
Portuguese Republic
2,5092
Republic of Slovenia
0,4276
Slovak Republic
0,8240
Republic of Finland
1,7974
Total
100,0
ANNEX II
Subscriptions to the authorised capital stock
ESM Member
Number of shares
Capital subscription
(EUR)
Kingdom of Belgium
243 397
24 339 700 000
Federal Republic of Germany
1 900 248
190 024 800 000
Republic of Estonia
13 020
1 302 000 000
Ireland
111 454
11 145 400 000
Hellenic Republic
197 169
19 716 900 000
Kingdom of Spain
833 259
83 325 900 000
French Republic
1 427 013
142 701 300 000
Italian Republic
1 253 959
125 395 900 000
Republic of Cyprus
13 734
1 373 400 000
Grand Duchy of Luxembourg
17 528
1 752 800 000
Malta
5 117
511 700 000
Kingdom of the Netherlands
400 190
40 019 000 000
Republic of Austria
194 838
19 483 800 000
Portuguese Republic
175 644
17 564 400 000
Republic of Slovenia
29 932
2 993 200 000
Slovak Republic
57 680
5 768 000 000
Republic of Finland
125 818
12 581 800 000
Total
7 000 000
700 000 000 000
The Government of Malta is hereby authorised to ratify the Ratification of
Treaty while depositing a letter dated 3 July 2012 issued by the Treaty.
European Commission annexed as Schedule 4 stating the
Government’s understanding that where the Treaty refers to the
financial stabiltiy of the Euro Area as a whole and of its Member
States, this should be interpreted to mean the Euro Area as a whole or
one of its Member States in isolation, whatever its size.
(Article 4)
Passed by the House of Representatives at Sitting No. 499 of the 6th July,
2012. M ICHAEL F RENDO
Speaker
R AYMOND S CICLUNA
Clerk to the House of Representatives
Any participation and stability assistance granted by the Granting of
Government of Malta beyond the purpose specified under sub-article financial
stability
(2) of Article 3, may only be done in such a manner and for such assistance
beyond article 3.
purpose as the House of Representatives may by resolution
determine.
(1) The Minister may participate in the formulation of Bye-Laws.
Bye-Laws for the better carrying out of any obligations under the
Treaty.
(2) The Minister may make regulations to implement the Bye-
*Art. 12: Principles
Laws adopted by the European Stability Mechanism under the Treaty.
The persons appointed by the Government of Malta to
represent it on the governing and administrative organs of the
European Stability Mechanism shall appear at least once a year and
preferably during the month of March before the Public Accounts
Committee or before another committee of the House of
Representatives which from time to time may be tasked with the
economic and financial scrutiny of Government for the purpose of
rendering account of the workings of that Mechanism and of the
European Financial Stability Facility insofar as this is in conformity
with their duties and with the obligations of Malta.
The European Council welcomed the Statement by the Heads of State or
Government of the euro area and the EU institutions (Annex III).
II.
OTHER ISSUES
The European Council welcomed the first progress report presented by
the High Representative on the European Union's relations with its strategic
partners. On this basis, the European Council invited the High Representative, in
close cooperation with the Commission and the Foreign Affairs Council, to take
this work forward in line with its conclusions of September 2010, setting out
common European interests and identifying all possible leverages to achieve them.
The European Council will take stock of progress once a year and, where
necessary, set orientations. The launch of the EEAS and its coordinating role
provide a valuable opportunity to step up this work.
The European Council endorsed the Council’s conclusions of 14
December 2010 on enlargement and agreed to give Montenegro the status of
candidate country.
The European Council condemned the violence perpetrated since the
second round of the presidential election in Côte d’Ivoire, in particular the
recourse to violence against civilians on 16 December. It called firmly on all the
parties to act with restraint. It recalled the availability expressed by the
International Criminal Court to prosecute the persons responsible for such acts. It
called on all Ivorian leaders, both civilian and military, who have not yet done so
to place themselves under the authority of the democratically elected President,
Mr°Alassan Ouattara. It confirmed the determination of the EU to take targeted
restrictive measures against those who would continue to obstruct the respect of
the sovereign will expressed by the Ivorian people.
The European Council welcomed the successful outcome of the COP-16
in Cancun as an important step forward in global efforts to reach the agreed
objective of staying below 2°C increase in global temperatures, and noted with
satisfaction the successful implementation of the strategy it agreed in March.
ANNEX I
DRAFT EUROPEAN COUNCIL DECISION
of …
amending Article 136 of the Treaty on the Functioning of the European Union
with regard to a stability mechanism for Member States
whose currency is the euro
THE EUROPEAN COUNCIL,
Having regard to the Treaty on European Union, and in particular Article
48(6) thereof,
Having regard to the proposal for revising Article 136 of the Treaty on the
Functioning of the European Union submitted to the European Council by the
Belgian Government on 16 December 2010,
[Having regard to the opinion of the European Parliament, 1 ]
[Having regard to the opinion of the European Commission, 2 ]
[After obtaining the opinion of the European Central Bank, 3 ]
1 Opinion of … (not yet published in the Official Journal).
2 Opinion of … (not yet published in the Official Journal).
3 Opinion of … (not yet published in the Official Journal).
Whereas
(1) Article 48(6) of the Treaty on European Union (TEU) allows the
European Council, acting by unanimity after consulting the European Parliament,
the Commission and, in certain cases, the European Central Bank, to adopt a
decision amending all or part of the provisions of Part Three of the Treaty on the
Functioning of the European Union (TFEU). Such a decision may not increase the
competences conferred on the Union in the Treaties and its entry into force is
conditional upon its subsequent approval by the Member States in accordance with
their respective constitutional requirements.
(2) At the meeting of the European Council of 28 and 29 October 2010, the
Heads of State or Government 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 invited the President of the European Council to undertake
consultations with the members of the European Council on a limited treaty
change required to that effect.
(3) On 16 December 2010, the Belgian Government submitted, in
accordance with Article 48(6), first subparagraph, of the TEU, a proposal for
revising Article 136 of the TFEU by adding a paragraph under which 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 and
stating that the granting of any required financial assistance under the mechanism
will be made subject to strict conditionality. At the same time, the European
Council adopted conclusions about the future stability mechanism (paragraphs 1 to
4).
(4) The stability mechanism will provide the necessary tool for dealing with
such cases of risk to the financial stability of the euro area as a whole as have been
experienced in 2010, and hence help preserve the economic and financial stability
of the Union itself. At its meeting of 16 December 2010, the European Council
agreed that, as this mechanism is designed to safeguard the financial stability of
the euro area as whole, Article 122(2) of the TFEU will no longer be needed for
such purposes. The Heads of State or Government therefore agreed that it should
not be used for such purposes.
(5) On 16 December 2010, the European Council decided to consult, in
accordance with Article 48(6), second subparagraph, of the TEU, the European
Parliament and the Commission, on the proposal. It also decided to consult the
European Central Bank. [On […dates…], the European Parliament, the
Commission and the European Central Bank, respectively, adopted opinions on the
proposal.]
(6) The amendment concerns a provision contained in Part Three of the
TFEU and it does not increase the competences conferred on the Union in the
Treaties,
HAS ADOPTED THIS DECISION
Article 1
The following paragraph shall be added to Article 136 of the Treaty on the
Functioning of the European Union
"3. 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."
Article 2
Member States shall notify the Secretary-General of the Council without
delay of the completion of the procedures for the approval of this Decision in
accordance with their respective constitutional requirements.
This Decision shall enter into force on 1 January 2013, provided that all the
notifications referred to in the first paragraph have been received, or, failing that,
on the first day of the month following receipt of the last of the notifications
referred to in the first paragraph.
Article 3
This Decision shall be published in the Official Journal of the European
Union.
Done at,
For the European Council
The President
ANNEX II
GENERAL FEATURES OF THE FUTURE MECHANISM
EUROGROUP STATEMENT OF 28 NOVEMBER 2010
"The recent events have demonstrated that financial distress in one Member
State can rapidly threaten macro-financial stability of the EU as a whole through
various contagion channels. This is particularly true for the euro area where the
economies, and the financial sectors in particular, are closely intertwined.
Throughout the current crisis, euro area Member States have demonstrated
their determination to take decisive and coordinated action to safeguard financial
stability in the euro area as a whole, if needed and return growth to a sustainable
path.
In particular, the European Financial Stability Facility (EFSF) has been set
up to provide for swift and effective liquidity assistance, together with the
European Financial Stabilisation Mechanism (EFSM) and the International
Monetary Fund, and on the basis of stringent programmes of economic and fiscal
policy adjustments to be implemented by the affected Member State and ensuring
debt sustainability.
On 28 - 29 October the European Council agreed on the need to set up a
permanent crisis mechanism to safeguard the financial stability of the euro area as
a whole. Eurogroup Ministers agreed that this European Stability Mechanism
(ESM) will be based on the European Financial Stability Facility capable of
providing financial assistance packages to euro area Member States under strict
conditionality functioning according to the rules of the current EFSF.
The ESM will complement the new framework of reinforced economic
governance, aiming at an effective and rigorous economic surveillance, which will
focus on prevention and will substantially reduce the probability of a crisis arising
in the future.
Rules will be adapted to provide for a case by case participation of private
sector creditors, fully consistent with IMF policies. In all cases, in order to protect
taxpayers' money, and to send a clear signal to private creditors that their claims
are subordinated to those of the official sector, an ESM loan will enjoy preferred
creditor status, junior only to the IMF loan.
Assistance provided to a euro area Member State will be based on a stringent
programme of economic and fiscal adjustment and on a rigorous debt
sustainability analysis conducted by the European Commission and the IMF, in
liaison with the ECB.
On this basis, the Eurogroup Ministers will take a unanimous decision on
providing assistance.
For countries considered solvent, on the basis of the debt sustainability
analysis conducted by the Commission and the IMF, in liaison with the ECB, the
private sector creditors would be encouraged to maintain their exposure according
to international rules and fully in line with the IMF practices.
In the unexpected event that a country would appear to be insolvent , the
Member State has to negotiate a comprehensive restructuring plan with its private
sector creditors, in line with IMF practices with a view to restoring debt
sustainability. If debt sustainability can be reached through these measures, the
ESM may provide liquidity assistance.
In order to facilitate this process, standardized and identical collective action
clauses (CACs) will be included, in such a way as to preserve market liquidity, in
the terms and conditions of all new euro area government bonds starting in June
2013. Those CACs would be consistent with those common under UK and US law
after the G10 report on CACs, including aggregation clauses allowing all debt
securities issued by a Member State to be considered together in negotiations. This
would enable the creditors to pass a qualified majority decision agreeing a legally
binding change to the terms of payment (standstill, extension of the maturity,
interest-rate cut and/or haircut) in the event that the debtor is unable to pay.
Member States will strive to lengthen the maturities of their new bond
emissions in the mediumterm to avoid refinancing peaks.
The overall effectiveness of this framework will be evaluated in 2016 by the
Commission, in liaison with the ECB.
We restate that any private sector involvement based on these terms and
conditions would not be effective before mid-2013.
President of the European Council Herman Van Rompuy has indicated that
his proposal on limited treaty change to the European Council at its next meeting
will reflect today's decision."
ANNEX III
STATEMENT BY THE HEADS OF STATE OR GOVERNMENT
OF THE EURO AREA AND THE EU INSTITUTIONS
The Heads of State or Government of the euro area and the EU
institutions have made it clear, as set out below, that they stand ready to do
whatever is required to ensure the stability of the euro area as a whole. The euro is
and will remain a central part of European integration. In particular, the Heads
called for determined action in the following areas
a)
Fully implementing existing programmes: we welcome the
impressive progress made in implementing the Greek programme and the
agreed adjustment programme for Ireland, including the adoption of the 2011
budget.
b)
Keeping up fiscal responsibility: we are all committed to strictly
implementing the budgetary policy recommendations, fully respecting the
fiscal targets for 2010 and 2011, and to correcting excessive deficits within
the agreed deadlines.
c)
Stepping up growth-enhancing structural reforms: we are
determined to accelerate structural reforms to enhance growth.
d)
Strengthening the Stability and Growth Pact and
implementing a new macrosurveillance framework from summer 2011.
e)
Ensuring the availability of adequate financial support
through the EFSF pending the entry into force of the permanent
mechanism: we note that only a very limited amount has been committed
from the EFSF to support the Irish programme.
f)
Further strengthening of the financial system both as regards
the regulatory and supervisory frameworks and conducting new stress tests in
the banking sector.
g)
Expressing full support for ECB action: we support the ECB in
its independent responsibility to ensure price stability, solidly anchor
inflation expectations and thereby contribute to financial stability of the euro
area. We are committed to ensuring the financial independence of the central
banks of the Eurosystem.
Elements of this strategy will be further developed in the coming months as a
comprehensive response to any challenges, as part of our new economic
governance.
The European Banking Authority and relevant authorities are carrying
out stress tests. The European Council underlines the importance of the peer
review process to be conducted in close cooperation with national supervisors, the
European Systemic Risk Board, the Commission and the European Central Bank
in order to increase the consistency and quality of the results. A high level of
disclosure for banks will be ensured, including on sovereign debt holdings.
Member States will prepare, ahead of the publication of the results,
specific and ambitious strategies for the restructuring of vulnerable institutions,
including private sector solutions (direct financing from the market or asset sales)
but also a solid framework in line with State aid rules for the provision of
government support in case of need.
As agreed by the European Council in June 2010, the introduction of a
global financial transaction tax should be explored and developed further. The
European Council notes the intention of the Commission to produce a report on
taxation of the financial sector by autumn 2011 at the latest.
Strengthening the stability mechanisms of the euro area
Recalling the importance of ensuring financial stability in the euro area,
the European Council adopted the decision amending the TFEU with regard to the
setting up of the European Stability Mechanism. It calls for the rapid launch of
national approval procedures with a view to its entry into force on 1 January 2013.
The European Council welcomes the decisions taken by the euro area
Heads of State or government on 11 March and endorses the features of the ESM
(see Annex II). The preparation of the ESM treaty and the amendments to the
EFSF agreement, to ensure its EUR 440 billion effective lending capacity, will be
finalised so as to allow signature of both agreements at the same time before the
end of June 2011.
II.
LIBYA / SOUTHERN NEIGHBOURHOOD
The European Council discussed the situation in Libya and endorsed the
conclusions adopted by the Foreign Affairs Council on 21 March. Recalling its
March 11 Declaration, the European Council expressed its satisfaction after the
adoption of UN Security Council Resolution 1973, which expresses the principle
of the responsibility to protect, and underlined its determination to contribute to its
implementation. It also welcomed the Paris Summit of 19 March as a decisive
contribution to its implementation. It condemned the continued defiance by the
Libyan regime of UN Security Council Resolutions 1970 and 1973, and the violent
and brutal repression the regime continues to inflict upon its own citizens. It noted
that the actions taken in conformity with the mandate from the Security Council
significantly contributed to protecting civilians and civilian-populated areas under
threat of attack and helped to save lives of civilians. When the civilian populations
are safe and secure from the threat of attack and the objectives of UNSCR 1973 are
met, military operations will come to an end.
The European Council emphasised the key role of Arab countries, and
particularly the Arab League, in actively supporting the implementation of
UNSCR 1973, and in finding a political solution to the crisis.
In line with UNSCR 1973, the European Union, together with the
League of Arab States, the United Nations and the African Union, will intensify its
efforts to find a solution to the crisis which responds to the legitimate demands of
the Libyan people. The European Council reiterated its call on Colonel Kadhafi to
relinquish power immediately in order to allow Libya to rapidly embark on an
orderly and Libyan-led transition to democracy through a broadbased dialogue,
also taking into consideration the need to ensure Libya's sovereignty and territorial
integrity. The EU stands ready to help foster this dialogue, including with the
National Transition Council, and to assist a new Libya economically and in the
building of its new institutions, in cooperation with the United Nations, the Arab
League, the African Union and others.
The European Union has acted swiftly to implement the sanctions
imposed by UNSC resolutions 1970 and 1973, including the designation of
additional persons and entities in the EU autonomous list of persons and entities
subject to restrictive measures. The European Union stands ready to initiate and
adopt further sanctions, including measures to ensure that oil and gas revenues do
not reach the Kadhafi regime. Member States will take similar proposals to the
UNSC.
The humanitarian situation in Libya and on its borders remains a source
of serious concern. The EU will continue to provide humanitarian assistance to all
those affected, in close cooperation with all the humanitarian agencies and NGOs
involved. The EU has stepped up and will continue its planning on support for
humanitarian assistance / civil protection operations, including by maritime means.
The European Council noted with satisfaction the smooth conduct of the
referendum on constitutional amendments held in Egypt on 19 March as a
significant step towards a more open and democratic political system.
Noting that the situation in each country is different, the European
Council expressed its utmost concern at the situation in Syria, Yemen and Bahrain,
strongly condemned the escalation of violence and the use of force against
demonstrators, and urged all parties concerned to engage in meaningful and
constructive dialogue without delay or preconditions. It endorsed the conclusions
adopted by the Foreign Affairs Council on 21 March.
Work should be rapidly taken forward to develop a new partnership with
the region, in line with the European Council's declaration of 11 March 2011. This
partnership will be founded on deeper economic integration, broader market access
and closer political cooperation, and will follow a differentiated and performance-
based approach. As first steps in the implementation of the 11 March package, and
on the basis of the joint Commission/High Representative communication, the
European Council calls for rapid progress to be made along the following lines
-
the EU and its Member States will step up their humanitarian
assistance;
-
ongoing aid programmes in the Southern Mediterranean countries
will be screened and refocused, where possible in dialogue with the countries
concerned;
-
the ceiling for EIB operations for Mediterranean countries
undertaking political reform should be increased by EUR 1 billion, without
reducing operations in the EU’s Eastern neighbours;
-
EBRD shareholders should consider the possible extension of the
Bank's activities to countries in the Southern Neighbourhood;
-
the proposals on pan-Euro-Mediterranean rules of origin should
be adopted without delay and the Commission is invited to present proposals
on further means to enhance trade and foreign direct investment in the region
in the short, medium and long term.
The European Council welcomes the recent visit of the Presidency and
the Commission to Egypt as part of a first phase of consultations to promote a
comprehensive approach to migration between the countries of the Southern
Neighbourhood region and the European Union. In this context the European
Council invites the Commission to present its proposals on the Global Approach to
Migration as well as on the Mobility Partnership well in advance of the June
European Council.
The European Council also looks forward to the presentation by the
Commission of a Plan for the development of capacities to manage migration and
refugee flows in advance of the June European Council. Agreement should be
reached by June 2011 on the regulation enhancing the capabilities of Frontex. In
the meantime the Commission will make additional resources available in support
to the agency's 2011 Hermes and Poseidon operations and Member States are
invited to provide further human and technical resources. The EU and its Member
States stand ready to demonstrate their concrete solidarity to Member States most
directly concerned by migratory movements and provide the necessary support as
the situation evolves.
III. JAPAN
The European Union will support Japan as it strives to overcome the
challenges it faces after the earthquake and the tsunami that struck it with such
tragic consequences.
Following an initial request from the Japanese government, it is
mobilising relief supplies for the affected population. It stands ready to provide
further support if requested. More generally, the EU is interested in developing its
cooperation with Japan on disaster relief.
The European Union commends the swift and decisive action taken by
the Japanese authorities in response to disorder on financial markets. It welcomes
the action taken by the G7 on the yen. It stands ready to cooperate fully with Japan
to address the economic and financial consequences of these events, including in
the framework of the G8 and the G20.
Looking to the future, the European Council reiterates the strategic
importance of the EU/Japan relationship. The forthcoming summit must be used to
strengthen this relationship and bring forward our common agenda, including
through the potential launch of negotiations for a free trade agreement on the basis
that Japan is willing to tackle inter alia the issue of non-tariff barriers and
restrictions on public procurement.
In this connection, the European Council stresses the need to fully draw
the lessons from these events, and to provide all necessary information to the
public. Recalling that the energy mix is the competence of Member States, it calls
for work to be taken forward as a matter of priority on the following aspects
-
the safety of all EU nuclear plants should be reviewed, on the
basis of a comprehensive and transparent risk and safety assessment ("stress
tests"); the European Nuclear Safety Regulatory Group (ENSREG) and the
Commission are invited to develop as soon as possible the scope and
modalities of these tests in a coordinated framework in the light of lessons
learned from the accident in Japan and with the full involvement of Member
States, making full use of available expertise (notably from the Western
European Nuclear Regulators Association); the assessments will be
conducted by independent national authorities and through peer review; their
outcome and any necessary subsequent measures that will be taken should be
shared with the Commission and within the ENSREG and should be made
public; the European Council will assess initial findings by the end of 2011,
on the basis of a report from the Commission;
-
the priority of ensuring the safety of nuclear plants obviously
cannot stop at our borders; the EU will request that similar "stress tests" be
carried out in the neighbouring countries and worldwide, regarding both
existing and planned plants; in this regard full use should be made of relevant
international organisations;
-
the highest standards for nuclear safety should be implemented
and continuously improved in the EU and promoted internationally;
-
the Commission will review the existing legal and regulatory
framework for the safety of nuclear installations and will propose by the end
of 2011 any improvements that may be necessary. Member States should
ensure the full implementation of the Directive on the safety of nuclear
installations. The proposed Directive on the management of spent fuel and
radioactive waste should be adopted as soon as possible. The Commission is
invited to reflect on how to promote nuclear safety in neighbouring
countries;
-
consequences for the world and for the EU need to be closely
monitored, paying particular attention to the volatility of energy and
commodity prices, in particular in the context of the G20.
ANNEX I
THE EURO PLUS PACT
STRONGER ECONOMIC POLICY COORDINATION
FOR COMPETITIVENESS AND CONVERGENCE
This Pact has been agreed by the euro area Heads of State or government and
joined by Bulgaria, Denmark, Latvia, Lithuania, Poland, Romania to strengthen
the economic pillar of the monetary union, achieve a new quality of economic
policy coordination, improve competitiveness, thereby leading to a higher degree
of convergence. This Pact focuses primarily on areas that fall under national
competence and are key for increasing competitiveness and avoiding harmful
imbalances. Competitiveness is essential to help the EU grow faster and more
sustainably in the medium and long term, to produce higher levels of income for
citizens, and to preserve our social models. Other Member States are invited to
participate on a voluntary basis.
This renewed effort for stronger economic policy coordination for
competitiveness and convergence rests on four guiding rules
a.
It will be in line with and strengthen the existing economic
governance in the EU, while providing added value. It will be consistent
with and build on existing instruments (Europe 2020, European Semester,
Integrated Guidelines, Stability and Growth Pact and new macroeconomic
surveillance framework). It will involve a special effort going beyond what
already exists and include concrete commitments and actions that are more
ambitious than those already agreed, and accompanied with a timetable for
implementation. These new commitments will thereafter be included in the
National Reform and Stability Programmes and be subject to the regular
surveillance framework, with a strong central role for the Commission in the
monitoring of the implementation of the commitments, and the involvement
of all the relevant formations of the Council and the Eurogroup. The
European Parliament will play its full role in line with its competences.
Social partners will be fully involved at the EU level through the Tripartite
Social Summit.
b.
It will be focused, action oriented, and cover priority policy areas
that are essential for fostering competitiveness and convergence. It will
concentrate on actions where the competence lies with the Member States. In
the chosen policy areas common objectives will be agreed upon at the Heads
of State or Government level. Participating Member States will pursue
these objectives with their own policy-mix, taking into account their
specific challenges.
c.
Each year, concrete national commitments will be undertaken
by each Head of State or Government. In doing so, Member States will take
into account best practices and benchmark against the best performers,
within Europe and vis-à-vis other strategic partners.
The implementation of commitments and progress towards the common
policy objectives will be monitored politically by the Heads of State or
Government of the euro area and participating countries on a yearly basis, on
the basis of a report by the Commission. In addition, Member States commit
to consult their partners on each major economic reform having potential
spill-over effects before its adoption.
d.
Participating Member States are fully committed to the
completion of the Single Market which is key to enhancing the
competitiveness in the EU and the euro area. This process will be fully in line
with the treaty. The Pact will fully respect the integrity of the Single
Market.
Our goals
Participating Member States undertake to take all necessary measures to
pursue the following objectives
•
Foster competitiveness
•
Foster employment
•
Contribute further to the sustainability of public finances
•
Reinforce financial stability
Each participating Member State will present the specific measures it will
take to reach these goals. If a Member State can show that action is not needed on
one or the other areas, it will not include it. The choice of the specific policy
actions necessary to achieve the common objectives remains the responsibility of
each country, but particular attention will be paid to the set of possible measures
mentioned below.
Concrete policy commitments and monitoring
Progress towards the common objectives above will be politically monitored
by the Heads of State or Government on the basis of a series of indicators covering
competitiveness, employment, fiscal sustainability and financial stability.
Countries facing major challenges in any of these areas will be identified and will
have to commit to addressing these challenges in a given timeframe.
a.
Foster competitiveness
Progress will be assessed on the basis of wage and productivity
developments and competitiveness adjustment needs. To assess whether wages are
evolving in line with productivity, unit labour costs (ULC) will be monitored over
a period of time, by comparing with developments in other euro area countries and
in the main comparable trading partners. For each country, ULCs will be assessed
for the economy as a whole and for each major sector (manufacturing; services; as
well as tradable and non-tradable sectors). Large and sustained increases may lead
to the erosion of competitiveness, especially if combined with a widening current
account deficit and declining market shares for exports. Action to raise
competitiveness is required in both all countries, but particular attention will be
paid to those facing major challenges in this respect. To ensure that growth is
balanced and widespread in the whole euro area, specific instruments and common
initiatives will be envisaged to foster productivity in regions lagging behind.
Each country will be responsible for the specific policy actions it chooses to
foster competitiveness, but the following reforms will be given particular
attention
(i)
respecting national traditions of social dialogue and industrial
relations, measures to ensure costs developments in line with productivity,
such as
•
review the wage setting arrangements, and, where
necessary, the degree of centralisation in the bargaining process, and the
indexation mechanisms, while maintaining the autonomy of the social
partners in the collective bargaining process;
•
ensure that wages settlements in the public sector support
the competitiveness efforts in the private sector (bearing in mind the
important signalling effect of public sector wages).
(ii)
measures to increase productivity, such as
•
further opening of sheltered sectors by measures taken at
the national level to remove unjustified restrictions on professional
services and the retail sector, to foster competition and efficiency, in full
respect of the Community acquis;
•
specific efforts to improve education systems and promote
R&D, innovation and infrastructure;
•
measures to improve the business environment,
particularly for SMEs, notably by removing red tape and improving the
regulatory framework (e.g. bankruptcy laws, commercial code).
b.
Foster employment
A well functioning labour market is key for the competitiveness of the euro
area. Progress will be assessed on the basis of the following indicators: long term
and youth unemployment rates, and labour participation rates.
Each country will be responsible for the specific policy actions it chooses to
foster employment, but the following reforms will be given particular attention
•
labour market reforms to promote "flexicurity", reduce
undeclared work and increase labour participation;
•
life long learning;
•
tax reforms, such as lowering taxes on labour to make work pay
while preserving overall tax revenues, and taking measures to facilitate the
participation of second earners in the work force.
c.
Enhance the sustainability of public finances
In order to secure the full implementation of the Stability and Growth Pact,
the highest attention will be paid to
•
Sustainability of pensions, health care and social benefits
This will be assessed notably on the basis of the sustainability gap
indicators * . These indicators measure whether debt levels are sustainable based on
current policies, notably pensions schemes, health care and benefit systems, and
taking into account demographic factors.
Reforms necessary to ensure the sustainability and adequacy of pensions and
social benefits could include
•
aligning the pension system to the national demographic
situation, for example by aligning the effective retirement age with life
expectancy or by increasing participation rates;
•
limiting early retirement schemes and using targeted incentives to
employ older workers (notably in the age tranche above 55).
•
National fiscal rules
Participating Member States commit to translating EU fiscal rules as set out
in the Stability and Growth Pact into national legislation. Member States will
retain the choice of the specific national legal vehicle to be used, but will make
sure that it has a sufficiently strong binding and durable nature (e.g. constitution or
framework law). The exact formulation of the rule will also be decided by each
country (e.g. it could take the form of a "debt brake", rule related to the primary
balance or an expenditure rule), but it should ensure fiscal discipline at both
national and sub-national levels. The Commission will have the opportunity, in full
respect of the prerogatives of national parliaments, to be consulted on the precise
fiscal rule before its adoption so as to ensure it is compatible with, and supportive
*The sustainability gap are indicators agreed by the Commission and Member States to assess fiscal sustainability.
of, the EU rules.
d.
Reinforce financial stability
A strong financial sector is key for the overall stability of the euro area. A
comprehensive reform of the EU framework for financial sector supervision and
regulation has been launched.
In this context, Member States commit to putting in place national legislation
for banking resolution, in full respect of the Community acquis. Strict bank stress
tests, coordinated at EU level, will be undertaken on a regular basis. In addition,
the President of the ESRB and the President of the Eurogroup will be invited to
regularly inform Heads of State or Government on issues related to macro-
financial stability and macroeconomic developments in the euro area requiring
specific action. In particular, for each Member State, the level of private debt for
banks, households and non-financial firms will be closely monitored.
In addition to the issues mentioned above, attention will be paid to tax policy
coordination.
Direct taxation remains a national competence. Pragmatic coordination of tax
policies is a necessary element of a stronger economic policy coordination in the
euro area to support fiscal consolidation and economic growth. In this context,
Member States commit to engage in structured discussions on tax policy issues,
notably to ensure the exchange of best practices, avoidance of harmful practices
and proposals to fight against fraud and tax evasion.
Developing a common corporate tax base could be a revenue neutral way
forward to ensure consistency among national tax systems while respecting
national tax strategies, and to contribute to fiscal sustainability and the
competitiveness of European businesses.
The Commission has presented a legislative proposal on a common
consolidated corporate tax base.
Concrete yearly commitments
In order to demonstrate a real commitment for change and ensure the
necessary political impetus to reach our common objectives, each year
participating Member States will agree at the highest level on a set of concrete
actions to be achieved within 12 months. The selection of the specific policy
measures to be implemented will remain the responsibility of each country, but the
choice will be guided by considering in particular the issues mentioned above.
These commitments will also be reflected in the National Reform Programmes and
Stability Programmes submitted each year which will be assessed by the
Commission, the Council, and the Eurogroup in the context of the European
Semester.
ANNEX II
Term Sheet on the ESM
The European Council has decided to add to Article 136 of the Treaty the
following paragraph
"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".
Further to this decision, the European Council has agreed on the need for
euro-area Member States to establish a permanent stability mechanism: the
European Stability Mechanism (ESM). The ESM will be activated by mutual
agreement * , if indispensable to safeguarding the financial stability of the euro area
as a whole. The ESM will assume the role of the European Financial Stability
Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM) in
providing external financial assistance to euro-area Member States after June
2013. Access to ESM financial assistance will be provided on the basis of strict
policy conditionality under a macro-economic adjustment programme and a
rigorous analysis of public-debt sustainability, which will be conducted by the
Commission together with the IMF and in liaison with the ECB. The beneficiary
Member State will be required to put in place an appropriate form of private-sector
involvement, according to the specific circumstances and in a manner fully
consistent with IMF practices.
The ESM will have an effective lending capacity of € 500 billion ** . The
adequacy of the lending capacity will be reviewed on a regular basis and at least
every five years. The ESM will seek to supplement its lending capacity through the
participation of the IMF in financial assistance operations, while non-euro area
Member States may also participate on an ad hoc basis.
The remainder of this term sheet sets out the key structural features of the
ESM
Institutional form
The ESM will be established by a treaty among the euro-area Member States
as an intergovernmental organisation under public international law and will be
located in Luxembourg. The statute of the ESM will be set out in an annex to the
treaty.
*A decision taken by mutual agreement is a decision taken by unanimity of the Member States participating to the
vote, i.e. abstentions do not prevent the decision from being adopted.
**During the transition from EFSF to ESM, the combined lending capacity will not exceed this amount.
Function and funding strategy
The function of the ESM will be to mobilise funding and provide financial
assistance, under strict conditionality, to the benefit of euro-area Member States,
which are experiencing or are threatened by severe financing problems, in order to
safeguard the financial stability of the euro area as a whole.
The Member States of the euro area will give to the ESM the financial
sanctions received under the Stability and Growth Pact and the Macroeconomic
Imbalances procedures. Such sanctions will form part of the paid-in capital.
The ESM will use an appropriate funding strategy so as to ensure access to
broad funding sources and enable it to extend financial assistance packages to
Member States under all market conditions. Any associated risk will be contained
through adequate asset and liability management.
Governance
The ESM will have a Board of Governors consisting of the Ministers of
Finance of the euro-area Member States (as voting members), with the European
Commissioner for Economic and Monetary Affairs and the President of the ECB
as observers. The Board of Governors will elect a Chairperson from among its
voting members.
The Board of Governors will be the highest decision-making body of the
ESM and will take the following major decisions by mutual agreement
-
the granting of financial assistance;
-
the terms and conditions of financial assistance;
-
the lending capacity of the ESM;
-
changes to the menu of instruments.
All other decisions by the Board of Governors will be taken by qualified
majority, unless stated otherwise.
The ESM will have a Board of Directors, which will carry out specific tasks
as delegated by the Board of Governors. Each euro-area Member state will appoint
one Director and one alternate Director. In addition, the Commission and the ECB
will each nominate an observer and an alternate to the Board of Directors. All
decisions by the Board of Directors will be taken by qualified majority, unless
otherwise stated.
Voting weights within the Board of Governors and the Board of Directors
will be proportional to the Member States’ respective subscriptions to the capital
of the ESM. A qualified majority is defined as 80 percent of the votes.
The Board of Governors will appoint a Managing Director responsible for the
day-to-day management of the ESM. The Managing Director will chair the Board
of Directors.
Capital structure
The ESM will aim to obtain and maintain the highest credit rating from the
major credit rating agencies.
The ESM will have a total subscribed capital of € 700 billion. Of this amount,
€ 80 billion will be in the form of paid-in capital provided by the euro-area
Member States being phased in from July 2013 in five equal annual instalments. In
addition, the ESM will also dispose of a combination of committed callable capital
and of guarantees from euro area Member States to a total amount of € 620 billion.
During the transitional phase from 2013 to 2017, Member States commit to
accelerate, in the unlikely event that this is needed, the provision of appropriate
instruments in order to maintain a minimum 15 percent ratio between paid-in
capital and the outstanding amount of ESM issuances.
The contribution key of each Member State in the total subscribed capital of
the ESM will be based on the paid-in capital key of the ECB as annexed. By
ratifying the Treaty establishing the ESM, Member States legally commit to
provide their contribution to the total subscribed capital.
The Board of Governors will decide by mutual agreement when adapting the
amount of total subscribed capital or when calling capital, except in the specific
cases described below. First, the Board of Directors can decide, by simple
majority, to restore -by calling in capital- the level of paid-in capital in the event
that the amount of paid-in capital is reduced by the absorption of losses * . Second,
an on-demand guarantee procedure will be put in place that allows calling in
capital automatically from the shareholders of the ESM if needed to avoid a
payment shortfall to the creditors of the ESM. The liability of each shareholder
will in all circumstances be limited to its share in the subscribed capital.
Any contribution to subscribed capital by a Member State ** joining the ESM
after July 2013 will be made according to the same terms applied for the original
contributions. The practical implications for the overall amount of subscribed
capital and the distribution of capital among the Member States will be decided by
the Board of Governors by mutual agreement.
As long as the ESM has not been activated and provided that the effective
lending capacity is not less than 500 billion, the proceeds from the investment of
the ESM paid-in capital will be returned to the Member States, after deductions for
*The vote of the Member State whose default is at the origin of the loss to be covered is suspended for this deci-
sion.
**As a consequence of joining the euro area, a Member State shall become a member of the ESM with full rights
and obligations.
operational costs. Following the first activation of the ESM, the proceeds from the
investment of ESM capital and financial assistance activity will be retained within
the ESM. However, in the event that paid-in capital exceeds the level required to
maintain the lending capacity of the ESM, the Board of Directors can decide, by
simple majority to distribute a dividend to the euro-area Member States based on
the contribution key.
Instruments
If indispensable to safeguard the stability of the euro area as a whole, in line
with the amendment to Article 136 of the Treaty, the ESM will provide financial
assistance subject to strict conditionality under a macro-economic adjustment
programme, commensurate with the severity of the imbalances of the Member
State. It will be provided through loans. However, it may intervene, as an
exception, in debt primary markets on the basis of a macro-economic adjustment
programme with strict conditionality and if agreed by the Board of Governors by
mutual agreement.
•
ESM stability support (ESS)
The ESM can grant short-term or medium term stability support to a euro-
area Member State, which is experiencing severe financing problems. Access to an
ESS will imply a macroeconomic adjustment programme with adequate policy
conditionality commensurate with the severity of the underlying imbalances in the
beneficiary Member State. The length of the programme and maturity of the loans
will depend on the nature of the imbalances and the prospects of the beneficiary
Member States regaining access to financial markets within the time that ESM
resources are available.
Primary market support facility
The ESM can purchase the bonds of a Member State, which is experiencing
severe financing problems, on the primary market, with the objective of
maximizing the cost efficiency of the support. Conditions and modalities under
which bond purchasing would be conducted will be specified in the Decision on
the terms and conditions of financial assistance.
The Board of Governors may review the instruments at the ESM's disposal
and may decide to make changes to the menu of instruments.
IMF involvement
The ESM will cooperate very closely with the IMF in providing financial
assistance * . In all circumstances, active participation of the IMF will be sought,
both on the technical and the financial level. The debt sustainability analysis will
*It is however understood that any IMF involvement will be consistent with its mandate under the Articles of
Agreement and by applicable decision and policies of the IMF Board.
be jointly conducted by the Commission and the IMF, in liaison with the ECB. The
policy conditions attached to a joint ESM/IMF assistance will be negotiated jointly
by the Commission and the IMF, in liaison with the ECB.
Activation of financial assistance, programme monitoring and follow-up
Financial assistance from the ESM will in all cases be activated on a request
from a Member State to the other Members States of the euro area. The Eurogroup
will inform the Council that a request for activation of support has been made. On
receipt of such a request, the Board of Governors will ask the Commission to
assess, in liaison with the ECB, the existence of a risk to the financial stability of
the euro area as a whole and to undertake a rigorous analysis of the sustainability
of the public debt of the Member State concerned, together with the IMF and in
liaison with the ECB. The subsequent steps in the activation of ESM financial
assistance will be as follows
•
If an ESS is requested, the Commission, together with the IMF
and in liaison with the ECB, will assess the actual financing needs of the
beneficiary Member State and the nature of the required private sector
involvement, which should be consistent with IMF practices.
•
On the basis of this assessment, the Board of Governors will
mandate the Commission to negotiate, together with the IMF and in liaison
with the ECB, a macro-economic adjustment programme with the Member
State concerned, detailed in a MoU.
•
The Commission will propose to the Council a decision
endorsing the macro-economic adjustment programme. The Board of
Governors will decide on the granting of financial assistance and the terms
and conditions under which assistance is provided. When the programme has
been adopted by the Council, the Commission will sign the MoU on behalf of
the euro area Member States subject to prior mutual agreement by the Board
of Governors. The Board of Directors will then approve the financial
assistance agreement which would contain the technical aspects of the
financial assistance to be provided.
•
The Commission, together with the IMF and in liaison with the
ECB, will be responsible for monitoring compliance with the policy
conditionality required by a macroeconomic adjustment programme. It will
report to the Council and to the Board of Directors. On the basis of this
report, the Board of Directors will decide by mutual agreement on the
disbursement of the new tranches of the loan.
•
After discussion in the Board of Governors, the Council can
decide, on a proposal by the Commission, to implement post-programme
surveillance, which can be maintained for as long as a specified amount of
the financial assistance has not been repaid.
Consistency with the EU multilateral surveillance framework
Approval by the EU Member States will be sought to allow the euro-area
Member States to task the Commission, together with the IMF and in liaison with
the ECB, the analysis of the debt sustainability of the Member State requesting
financial support, the preparation of the adjustment programme accompanying the
financial assistance, as well as with the monitoring of its implementation.
While the Board of Governors has the autonomy to decide on the existence
and modalities of financial assistance under an intergovernmental framework, the
policy conditionality established under an enhanced surveillance or a
macroeconomic adjustment programme should be consistent with the EU
surveillance framework and must guarantee the respect of EU procedures. To this
end, the Commission intends to propose a Regulation clarifying the necessary
procedural steps under Article 136 of the Treaty in order to enshrine the policy
conditionality in Council decisions and ensure consistency with the EU
multilateral surveillance framework. The Council and the Commission will inform
the European Parliament on a regular basis about the establishment and the
operations of the ESM.
Pricing
The Board of Governors will decide on the pricing structure for financial
assistance to a beneficiary Member State.
The ESM will be able to lend at a fixed or variable rate. The pricing of the
ESM will be in line with IMF pricing principles and, while remaining above the
funding costs of ESM, will include an adequate mark up for risks.
The following pricing structure will apply to ESM loans
1)
ESM funding cost
2)
A charge of 200 bps applied on the entire loans
3)
A surcharge of 100 bps for loan amounts outstanding after 3 years
For fixed rate loans with maturities above 3 years, the margin will be a
weighted average of the charge of 200 bps for the first 3 years and 200 bps plus
100 bps for the following years.
The pricing structure will be defined in the pricing policy of the ESM, which
will be reviewed periodically.
Private sector involvement
1. Modalities for involving the private sector
An adequate and proportionate form of private-sector involvement will be
expected on a case by case basis where financial assistance is received by the
beneficiary State. The nature and extent of this involvement will be determined on
a case-by-case basis and will depend on the outcome of a debt sustainability
analysis, in line with IMF practice * , and on potential implications for euro-area
financial stability.
(a) If, on the basis of a sustainability analysis, it is concluded that a
macro-economic adjustment programme can realistically restore the public
debt to a sustainable path, the beneficiary Member State will take initiatives
aimed at encouraging the main private investors to maintain their exposures (e.g. a
"Vienna Initiative" approach). The Commission, the IMF, the ECB and the EBA
will be closely involved in monitoring the implementation of such initiatives.
(b) If, on the basis of a sustainability analysis, it is concluded that a
macro-economic programme cannot realistically restore the public debt to a
sustainable path, the beneficiary Member State will be required to engage in
active negotiations in good faith with its creditors to secure their direct
involvement in restoring debt sustainability. The granting of the financial
assistance will be contingent on the Member State having a credible plan and
demonstrating sufficient commitment to ensure adequate and proportionate private
sector involvement. Progress in the implementation of the plan will be monitored
under the programme and will be taken into account in the decision on
disbursements.
In negotiating with creditors, the beneficiary Member State will adhere to the
following principles
•
Proportionality: the Member State
will
seek
solutions
proportionate to its debt sustainability problem.
•
Transparency: the Member State concerned will engage in an
open dialogue with creditors and share relevant information with them on a
timely basis.
•
Fairness: the Member State will consult creditors on the design
of any rescheduling or restructuring of public debt with a view to reaching
negotiated solutions. Measures reducing the net present value of the debt will
be considered only when other options are unlikely to deliver the expected
results.
•
Cross-border co-ordination: the risk of contagion and potential
spill over effects on other Member States and third countries will be duly
taken into account in the design of measures to involve the private sector.
*In line with the IMF, debt is considered sustainable when a borrower is expected to be able to continue servicing
its debts without an unrealistically large correction to its income and expenditure. This judgement determines the
availability and the appropriate scale of financing.
The measures taken will be accompanied with a proper communication by
the Member State concerned aimed at preserving the financial stability of the
Euro Area as a whole.
2. Collective Action Clauses
Collective Action Clauses (CACs) will be included in all new euro area
government securities, with maturity above one year, from July 2013. The
objective of such CACs will be to facilitate agreement between the sovereign and
its private-sector creditors in the context of private sector involvement. The
inclusion of CACs in a bond will not imply a higher probability of default or of
debt restructuring relating to that bond. Accordingly, the creditor status of
sovereign debt will not be affected by the inclusion of CACs.
The main features of the CACs will be consistent with those commonly used
in the US and the UK markets since the G10 report on CACs. CACs will be
introduced in a way which preserves a level playing field among euro area
Member States. This implies the use of identical and standardised clauses for all
euro area Member States, harmonised in the terms and conditions of securities
issued by the Members States. Their basis will be consistent with the CACs that
are common in New York and English law.
CACs will include an aggregation clause, enabling a super majority of
bondholders across multiple bond issues subject to such a clause and subject to the
law of a single jurisdiction to include a majority action clause where the needed
majority of creditors for the restructuration would not be attained within a single
bond issue. Appropriate representation will be put in place. Most important
issues - the reserve matters - (e.g. key payment terms, conversion or exchange of
bonds) will be decided with a larger majority than non-reserve matters.
Appropriate quorum requirements will apply. Changes agreed by the relevant
majorities are binding on all bondholders.
An appropriate disenfranchisement clause will apply to ensure a proper
voting process. Appropriate clauses to prevent disruptive legal action will be
considered.
CACs will be introduced in a standardised manner, which ensures that their
legal impact is identical in all euro-area jurisdictions and so preserves a level
playing field among euro-area Member States. The euro area Member States will
adopt the necessary measures to give effect to the CACs.
Euro area Member States will be allowed to continue to "tap" outstanding
debt without CACs under pre-determined conditions after June 2013 in order to
preserve the necessary liquidity of old bonds and to give sufficient time to euro
area Member States to create, in an orderly fashion, new bonds on all benchmark
maturities. The detailed legal arrangements for including CACs in euro-area
government securities will be decided on the basis of work to be undertaken by the
EFC Sub-Committee on EU Sovereign Debt Markets, following appropriate
consultation with market participants and other stakeholders, and be finalised by
the end of 2011.
3. Preferred Creditor Status of the ESM
Like the IMF, the ESM will provide financial assistance to a Member State
when its regular access to market financing is impaired. Reflecting this, Heads of
State or Government have stated that the ESM will enjoy preferred creditor status
in a similar fashion to the IMF, while accepting preferred creditor status of IMF
over ESM.
This shall be effective as of 1 July 2013 without prejudice to the terms and
conditions of any other agreement provided under the EFSF and the Greek facility.
Transitional arrangements between EFSF and ESM
As originally foreseen, the EFSF will remain in place after June 2013 so as to
administer the outstanding bonds. It will remain operational until it has received
full payment of the financing granted to the Member States and has repaid its
liabilities under the financial instruments issued and any obligations to reimburse
guarantors. Undisbursed and unfunded portions of existing loan facilities should
be transferred to the ESM (e.g. payment and financing of instalments that would
become due only after the entry into force of ESM). The consolidated EFSF and
ESM lending shall not exceed € 500 bn.
To ensure a smooth transition from the EFSF to the ESM, the CEO of the
EFSF will be tasked with the practical preparation of the establishment of the
ESM. He will regularly report on the progress made to the Eurogroup Working
Group.
Participation of the non euro area Member States
Non euro area Member States can participate on an ad hoc basis alongside
the ESM in financial assistance operations for euro area Member States. If non-
euro area Member States participate in such operations, they will be represented in
the relevant meetings of the ESM boards that will decide on the granting and the
monitoring of the assistance. They will have access to all relevant information in a
timely manner and be appropriately consulted. The euro area Member States will
support equivalent creditor status of the ESM and that of other Member States
lending bilaterally alongside the ESM.
Dispute settlement
If a dispute arises between a euro area Member State and the ESM in
connection with the interpretation and application of the treaty establishing the
ESM, the Board of Governors will decide on this dispute. If the Member State
contests this decision, such dispute shall be submitted to the European Court of
Justice in accordance with Art. 273 TFEU.
With regard to the relationship between the ESM and third parties, the
applicable governing law and jurisdiction will be dealt with by the legal and
contractual documentation which will then be put in place between the ESM and
those third parties.
Annex: ESM contribution key based on the ECB key
Country
ISO
ESM key
Austria
AT
2,783
Belgium
BE
3,477
Cyprus
CY
0,196
Estonia
EE
0,186
Finland
FI
1,797
France
FR
20,386
Germany
DE
27,146
Greece
EL
2,817
Ireland
IE
1,592
Italy
IT
17,914
Luxembourg
LU
0,250
Malta
MT
0,073
Netherlands
NL
5,717
Portugal
PT
2,509
Slovakia
SK
0,824
Slovenia
SI
0,428
Spain
ES
11,904
Total
EA17
100,0
The ESM key is based on the ECB capital contribution key.
Member States with a GDP per capita of less than 75% of the EU average will
benefit from a temporary correction for a period of 12 years after their entry in the
euro area.
This temporary correction will be three quarters of the difference between GNI
and ECB capital shares (effectively comprising of 75% of GNI share and 25% of
ECB capital share) as follows: ESM share = ECB key share - 0,75*(ECB key
share - GNI share)
The downwards compensation on those countries is redistributed among all the
other countries according to their ECB key share.
GNI and GDP per capita in 2010.
Sources: ECB, Ameco and DG ECFIN calculations.