Limited change to the EU treaty will allow for the creation of a permanent crisis mechanism.
● Have EU leaders done enough to calm the markets?
EU leaders have agreed to set up a permanent crisis mechanism for the eurozone to start in 2013. On the first day of a two-day summit in Brussels, they agreed a limited change to the EU treaty to allow for the creation of the permanent mechanism.
The European Stability Mechanism (ESM) will succeed two temporary instruments set up in May to rescue eurozone countries that get into financial trouble: the European Financial Stability Mechanism (EFSM), which has €60 billion in EU funds, and the European Financial Stability Facility (EFSF), which has €440bn in funds from the eurozone members.
Ireland is currently receiving €22.5bn from the EFSM and €22.5bn from the EFSF as part of its €67.5bn assistance from the EU and the International Monetary Fund.
The ESM should come into operation in June 2013 when the two existing instruments expire.
Now that EU leaders have agreed to change the treaty, the text will be sent to the European Parliament, the European Commission and the European Central Bank. The three institutions have to give their opinion on proposals to change the treaty but their views do not bind the European Council.
The treaty change will be approved at the European Council in March, if the three institutions have given their views by then. The text will then be sent to the 27 member states for ratification. The aim is to complete ratification by 1 January 2013 so that the mechanism can be set up in June that year.
The treaty change was requested by Germany, which argues that without it the new mechanism could be challenged in Germany’s constitutional court.
The leaders of the European Union expressed their satisfaction with the agreement reached.
Herman Van Rompuy, the president of the European Council, said: “Tonight we agreed on a draft decision [on the treaty amendment required for a permanent crisis mechanism]. This includes the text of the treaty amendment itself. It consists of two sentences to be added to article 136 of the treaty. We agreed on this text after one and a half hours of discussion.
“This amendment will not increase the competence of the union and only affect the members of the eurozone themselves. That’s why everybody agreed to use a simplified revision procedure.
“After an opinion of the European Parliament, the European Commission and the central bank, the European Council will turn the draft decision of today into a full decision, by March 2011 at the latest. Then the amendment will have to be approved in each member state.
“The aim is for the amendment to enter into force on 1 January 2013 at the latest, so that the permanent mechanism itself can be in place in June 2013.”
José Manuel Barroso, the president of the European Commission, said: “These are radical changes that were not originally foreseen that required a coherent response. You will ask, ‘Is that enough?’ I think the important answer is that we are ready to do anything that is necessary to ensure financial stability in the euro area and the EU because the two are linked. “
Van Rompuy said: “The future European Stability Mechanism will be designed on the basis of the current mechanism, so IMF involvement is foreseen. The EU will continue to adhere strictly to standard IMF and international practices. Concerning the role of the private sector, decisions will be taken on a case-by-case basis and private sector involvement will not be a prior requirement for support under the future stability mechanism.”
The president of the European Council added: “The dinner discussion has confirmed the sense of determination and unity among the member states and the institutions. Everybody around the table shared the basic analysis. I insist: all 27 agree, even if the analysis concerns specifically the 16 euro countries. We thus have a joint strategy to make our economies crisis proof and to enhance structural economic growth in Europe.
“Our determination is clear. The heads of state and government of the eurozone stand ready to do whatever is required to ensure the stability of the eurozone as a whole. We took decisions collectively and these are decisions taken by the EU’s member states and by the institutions.”
Barroso said: “Today was a good day for Europe. I believe we have done what we needed to do. Everyone around the table showed determination to do what it takes to protect the euro. We are united on this. There is a common resolve to ensure Europe comes out of this crisis stronger.”
Asked about enlarging the existing stability fund prior to the permanent mechanism coming into force in 2013, Van Rompuy said: “We haven’t discussed an increase in lending capacity or flexibility. Only 4% of the fund has been used so far. Most of it is still available so there’s no real need to talk about increasing the capacity.”
Barroso added: “Only 4% has been used so it’s not an issue. In general terms we will do what is necessary to support the stability of the euro area.”
Safeguarding the eurozone
The treaty change will be a modification of Article 136 of the Lisbon treaty, which deals with measures that apply only to members of the eurozone. The amendment is expected to say that eurozone countries “may establish a stability mechanism” with the objective of safeguarding the financial stability of the eurozone “as a whole”. It will also state that granting assistance from the mechanism will take place under “strict conditionality”.
Countries that are not members of the eurozone, such as the UK, Sweden and Denmark, will not participate in the mechanism but will be “associated” with designing it.
The main outlines of the new mechanism were agreed by finance ministers at their extraordinary meeting on 28 November. From 2012, new bonds issued by eurozone countries will include collective action clauses that will set out a procedure for restructuring countries’ debts if they cannot meet their liabilities.
Tomorrow morning (17 December), Catherine Ashton, the EU’s foreign policy chief, will present a report to leaders on relations with strategic partners, the US, Russia and China.
EU leaders will also approve giving formal candidate status to Montenegro.