ESM programme with Greece: Parliaments must approve negotiations

National parliaments of Greece and several other countries are now moving centre-stage before negotiations on a rescue package for Greece will actually start. Just before 9am on Monday, 13 July 2015, the 19 Eurozone leaders at the Euro Summit agreed on a Statement in which the Greek authorities commit themselves “to legislate without delay a first set of measures” by Wednesday, 15 July 2015. After that, the Eurogroup will hold a conference call to assess these prior actions and trigger the relevant national procedures – national parliaments from other Member states will debate and/or vote on negotiations with Greece. These procedures relate to the European Stability Mechanism (ESM), but parliaments may also decide to convene extraordinary debates, meetings and votes on the issue.

Why is it so complicated this time?

The situation is complicated, because trust within the Eurozone has broken down and several national leaders insisted on prior actions legislated in the Greek parliament. But from a purely legal perspective the situation is clear: The next major step at the EU level is a decision by the Board of Governors of the ESM to start formal negotiations with Greece the Board of Governors, a decision “to grant, in principle, stability support to the ESM Member concerned in the form of a financial assistance facility.” (Article 13(2) ESM Treaty)

But before this decision can be taken, several national parliaments have to give their government a mandate for negotiations. Such provisions for parliamentary involvement were adopted when the Treaty Establishing the European Stability Mechanism was ratified by national parliaments in 2012. They have yet had to be used for Greece: the second programme (that expired on 30 June 2015) had still been governed by the European Financial Stability Facility (EFSF) and not the ESM to which these provisions apply.

What does parliamentary involvement look like?

Germany, Estonia and Finland have explicit rules that their national parliament has to give a mandate for negotiations on an ESM programme. This means that without ex-ante parliamentary approval negotiations cannot start. Other parliaments could now decide to follow that example and bind their governments’ hands when they convene extraordinary debates and meetings. Interestingly, François Hollande announced at his press conference that the Assemblée nationale will vote on the Euro Summit agreement, but on Wednesday MPs will merely show public support for the French President.

The plenary of the German Bundestag can veto the start of negotiations: §4 ESMFinG (Gesetz zur finanziellen Beteiligung am Europäischen Stabilitätsmechanismus) refers to Article 13(2) ESM Treaty and states that the German representative in the ESM governing board may only agree to a proposal (starting negotiations) if the plenary has adopted a decision supporting this.

An other example is Estonia’s Act on Ratification and Implementation of the ESM Treaty which specifies with respect to Article 13(2) ESM Treaty in §4 that the Estonian representative is required to adhere to the decision of the European Union Affairs Committee which could also decide that a prior resolution of the plenary is needed.


What happens if these national procedures have been completed?

National procedures should probably be completed by the end of the week. Article 13(1) ESM Treaty sets out preconditions that have to be met for an ESM programme: The European Commission has to assess the existence of a risk to the financial stability of the euro area as a whole or of its Member States, whether public debt is sustainable and the actual or potential financing needs of the ESM Member concerned.

If a decision according to Article 13(2) ESM Treaty is adopted and all members of the Eurogroup/the Governing Board of the ESM consent to starting negotiations, they give a mandate to “the Institutions” to negotiate a Memorandum of Understanding: “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 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.” (Article 13(3) ESM Treaty)

Greece is in urgent need of money. What are possible short-term measures?

The path to an ESM programme is lengthy and also risky. According to the Euro Summit statement “the start of negotiations does not preclude any final possible agreement on a new ESM programme, which will have to be based on a decision on the whole package (including financing needs, debt sustainability and possible bridge financing).” The statement “takes note of the urgent financing needs of Greece which […] are estimated to amount to EUR 7bn by 20 July and an additional EUR 5bn by mid-August.” Bridge financing has been discussed at the regular Eurogroup meeting of Monday, 13 July 2015, followed by the Economic and Financial Affairs Council (ECOFIN) on Tuesday. Eurogroup President Jeroen Dijsselbloem said in a press conference on Monday, 13 July, that “some of the instruments would […] involve all member states.” This can be seen as a reference to the European Financial Stabilisation Mechanism (EFSM), an instrument set up by the European Commission in 2010 which has a maximum capacity of EUR 60bn that has not been used entirely. However, the United Kingdom has reportedly qualified this idea as a “non-starter”.

Dr. Valentin Kreilinger formally worked for the Jacques Delors Centre.