PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT (cap_523) | MT

Laws of Malta — Chapter 523 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT

Preamble — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

CHAPTER 523

PARTICIPATION AND GRANTING OF FINANCIAL

STABILITY SUPPORT UNDER THE EUROPEAN

STABILITY MECHANISM 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.

17th July, 2012 *

ACT XII of 2012 .

Laws of Malta — Chapter 523 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT

Art. 1 Short title. — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

The short title of this Act is the Participation and Granting of

Financial Stability Support under the European Stability

Mechanism Act.

Laws of Malta — Chapter 523 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT

Schedule 1 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

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

p ro v e d t h e i r u t i l i t y, b u t t h e c r i s i s h a s d e m o n s t r a t e d t h a t t h e re c a n b e n o

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

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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.

Laws of Malta — Chapter 523 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT

Art. 2 Interpretation. — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

In this Act, unless the context otherwise requires

"European Financial Stability Facility" has the meaning assigned

to it by article 2 of the Participation and Guarantees under 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

p u b l i c i n t e r n a t i o n a l l a w, t o b e l o c a t e d i n L u x e m b o u rg , a s

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;

*see article 1(2) of this Act as originally promulgated, and Legal Notice 232 of

2012 .

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

"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 t he Kingdom of Belgium, t he 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

Luxem bourg, Mal t a, T he Ki ngdom of the Ne the rl a nds, t he

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 3.

Laws of Malta — Chapter 523 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT

Schedule 2 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

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.

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

*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.

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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

Laws of Malta — Chapter 523 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT

Art. 3 Authority to participate in the European Stability Mechanism. — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

(1) Subject to the provisions of this Act, the Government

of Malta shall participate in the European Stability Mechanism as a

shareholder in the authorized share capital, Governor 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. *

Laws of Malta — Chapter 523 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT

Schedule 3 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

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 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

*OJ L 91, 6.4.2011, p. 1.

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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.

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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

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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 Article.

7. The Board of Governors shall take the following decisions by qualified

majority

(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 Treaty.

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

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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.

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

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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

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SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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

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SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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

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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

f r o m t h e M a n a g i n g D i r e c t o r a n d a f t e r h a v i n g r e c e i v e d a r e p o r t fr o m t h e

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

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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

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SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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

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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

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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.

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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.

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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

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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

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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

T h i s Tr e a t y s h a l l b e o p e n f o r a c c e s s i o n b y o t h e r M e m b e r S t a t e s o f t h e

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.

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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.

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Contribution Key of the ESM

ESM Member

ESM key (%)

Kingdom of Belgium

Federal Republic of Germany

Republic of Estonia

Ireland

Hellenic Republic

Kingdom of Spain

French Republic

Italian Republic

Republic of Cyprus

Grand Duchy of Luxembourg

Malta

Kingdom of the Netherlands

Republic of Austria

Portuguese Republic

Republic of Slovenia

Slovak Republic

Republic of Finland

Total

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ANNEX II

Subscriptions to the authorised capital stock

Number of shares

Capital subscription

(EUR)

243 397

24 339 700 000

Federal Republic of Germany

1 900 248

190 024 800 000

13 020

1 302 000 000

111 454

11 145 400 000

197 169

19 716 900 000

833 259

83 325 900 000

1 427 013

142 701 300 000

1 253 959

125 395 900 000

13 734

1 373 400 000

Grand Duchy of Luxembourg

17 528

1 752 800 000

5 117

511 700 000

Kingdom of the Netherlands

400 190

40 019 000 000

194 838

19 483 800 000

175 644

17 564 400 000

29 932

2 993 200 000

57 680

5 768 000 000

125 818

12 581 800 000

7 000 000

700 000 000 000

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SCHEDULE 4 (Article 4)

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Art. 4 Ratification of Treaty. — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

The Government of Malta is hereby authorised to ratify the

Treaty while depositing a letter dated 3 July 2012 issued by the

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.

*Art. 12: Principles

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Art. 5 Granting of financial stability assistance beyond article 3. — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

Any participation and stability assistance granted by the

Government of Malta beyond the purpose specified under sub-

article (2) of Article 3, may only be done in such a manner and for

such purpose as the House of Representatives may by resolution

determine.

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Art. 6 Bye-Laws. — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

(1) The Minister may participate in the formulation of

Bye-Laws for the better carrying out of any obligations under the

Treaty.

(2) The Minister may make regulations to implement the Bye-

Laws adopted by the European Stability Mechanism under the

Treaty.

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Art. 7 Public Accounts Committee. — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

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.

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Art. 8 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

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

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Art. 9 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

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.

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Art. 10 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

The European Council endorsed the Council’s conclusions of 14 December

2010 on enlargement and agreed to give Montenegro the status of candidate country.

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Art. 11 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

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.

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Art. 12 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

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.

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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).

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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."

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

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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

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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.

T h e E S M w i l l c o m p l e m e n t t h e n e w f r a m e w o r k o f r e i n f o r c e d e c o n o m ic

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.

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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."

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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

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.

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.

Stepping up growth-enhancing structural reforms: we are

determined to accelerate structural reforms to enhance growth.

Strengthening the Stability and Growth Pact and implementing a

new macrosurveillance framework from summer 2011.

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.

Further strengthening of the financial system both as regards the

regulatory and supervisory frameworks and conducting new stress tests

in the banking sector.

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.

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Art. 13 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

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.

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Art. 14 — PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT Open official source

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.

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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

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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.

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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

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The European Council discussed the situation in Libya and endorsed the

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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.

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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.

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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.

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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.

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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.

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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.

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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-

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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.

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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.

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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

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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.

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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.

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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.

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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

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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.

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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.

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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

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.

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.

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.

Participating Member States are fully committed to the completion of

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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

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•

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 sustainability gap are indicators agreed by the Commission and Member States to assess fiscal

sustainability.

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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 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.

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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.

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

*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.

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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.

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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

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 vote of the Member State whose default is at the origin of the loss to be covered is suspended for

this decision.

#As a consequence of joining the euro area, a Member State shall become a member of the ESM with

full rights and obligations.

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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 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

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.

*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.

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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

*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.

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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-

e c o n o m i c p ro g r a m m e c a n n o t re a l i s t i c a l l y re s t o re t h e p u b l i c de b t t o 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. 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)

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

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

Notes

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.

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY

SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM

PARTICIPATION AND GRANTING OF FINANCIAL STABILITY SUPPORT UNDER THE EUROPEAN STABILITY MECHANISM ACT

Table of Provisions (35)

Statutory Text (35 Articles)

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