Euro-crisis and the constitutionality of bail-out plans

Post by Prof. Lorna Woods



In May 2010, at the height of the Greek debt crisis, the EU set up a European Financial Stability Facility (EFSF). It allows the borrowing of up to €250 billion against up to €440 billion of joint eurozone government guarantees with the aim of helping a eurozone member state that cannot finance itself on the markets and has already been used to support Greece and Ireland. Those countries that are providing the support are proposing changes, notably a European Stability Mechanism (ESM), a permanent system to handle crises in the euro zone. This, however, would mean changes to the Treaties.

Meanwhile even the EFSF has been challenged. In Germany, a constitutional complaint was filed regarding Germany’s participation in the EFSF. The complaint (in German) may be found here.

The German Federal Constitutional Court handed down its ruling on 7th September 2011 (a link to the press release in English may be found here).  The Court reviewed the complaints insofar as the German acts to implement the EFSF and ESM constitute a transfer of power of the Bundestag as protected by Article 38 GG. This, then, is to some extent a repeat of the concerns raised in the Lisbon judgment. The Court recognised that there is a threat to the value of voting so as make the realisation of the citizens’ political will legally or practically impossible if authorisations to give guarantees are granted in order to implement obligations which Germany incurs under international agreements – in this instance concluded in order to maintain the liquidity of euro Member States.  

The Court held that the Bundestag must stay in control of the budget, so when establishing mechanisms of considerable financial importance which can lead to incalculable burdens on the budget, the German Bundestag must ensure that mandatory approval by the Bundestag is obtained again. The Court is concerned about “incalculable automatism” – but here decided that neither of the two impugned acts establishes or consolidates an such an automatism by which the Bundestag would relinquish its right to adopt the budget and control its implementation by the government. Nonetheless, the Court also required some controls on implementation, requiring prior approval before the giving of guarantees.

Of course, while the hurdle of the constitutional complaint has now been dealt with, there remains the step of getting the agreement of the appropriate committee in the Bundestag. Moreover, this in itself does not solve the debt crisis which rumbles on.  The German Chancellor has suggested that changes to the Lisbon Treaty are required so as to give the Union the power to force the countries with large debts to take steps to bring in spending cuts.

Meanwhile, it is not just the Germans who are talking about the need for change. The Dutch Prime Minister and the Dutch Financial Minister have issued a paper, ‘A Vision on the Future of the Economic and Monetary Union’ (available only in Dutch) on the 7th September – the same day of the German constitutional Court ruling. They propose a new “commissioner for budgetary discipline” who would have the authority to veto national budget plans which break EU debt and deficit rules. Even more, they propose the possibility of forcing budget offenders to leave the Euro.  This latter possibility is not currently permitted by the Treaty (though a Commissioner could be within the scope of the Treaties), and a Commission spokesperson on the Stability and Growth Pact seemed keen to quash this idea.  Plans to change and to strengthen the Stability and Growth Pact have not yet been agreed.
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