IV - Early Emergency Funding

Prior to 2010, loan assistance to States was made primarily via bilateral agreements (to Latvia, Hungary, Romania, 1st round of Greek loan assistance).           
The European Financial Stabilisation Mechanism (EFSM) and the European Financial Stability Facility (EFSF) are two temporary emergency funds, both resulting from the turbulent political weekend of 7-9 May 2010. On May 9, a Decision of the Representatives of the Governments of the Euro Area Member States was adopted expressing agreement on both funds.     
The EFSM is based on a ‘Council regulation establishing a European financial stabilisation mechanism’ of May 11, 2010 adopted on the basis of article 122(2) TFEU and therefore binding on all 27 member states of the EU.      
The EFSF is a special purpose vehicle created under Luxembourgish private law by the 17 member states of the Eurozone. The EFSF Framework Agreement was signed on June 7, 2010. On June 24, 2011, the Heads of State or Government of the Eurozone agreed to increase the EFSF’s scope of activity and increase its guarantee commitments.
( and

What political/legal difficulties
did Cyprus encounter in the negotiation of the EFSF and the EFSM, in particular in relation to (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process?

The Draft Bill on the ratification of the EFSF was discussed at the Cypriot Parliament on 24 June 2010, under the ‘urgency procedure’, after it had been discussed by the Parliamentarian Committee of Finance and Budget on 14 and 21 June 2010.[1] The Committee[2] recommended to the Parliament the enactment of the Bill under discussion in law, by simple majority.[3] The ‘democratic Party’ , the ‘leftish’ coalition ‘AKEL- Left- Nees Dynameis’ together with the member of the Social Democrats’ Movement (EDEK) agreed on the enactment of the Bill in law. The main objections did not relate to issues of (budgetary) sovereignty or the constitutionality of the EFSF but rather on the capacity/ability of Cyprus to meet its financial obligations as to the guarantees. In this respect, the representatives of the Ministry of Finance had to stress that the contribution of Cyprus in guarantees would not exceed 5% of the GDP of Cyprus, a manageable amount, considering in particular the many benefits Cyprus would gain from its participation in the EFSF, such as the more favourable interest rates, the stricter application of the SGP, the better control of the statistical data, and the improvement of the budgetary position of many Member States.

Entry into force 
Article 1(1) EFSF Framework Agreement provides that it will enter into force if sufficient Eurozone member states have concluded all procedures necessary under their respective national laws to ensure that their obligations shall come into immediate force and effect and provided written confirmation of this. What does this procedure look like in Cyprus and in what way does it involve Parliament?

The EFSF Framework Agreement was implemented in Cyprus as an ordinary piece of legislation, Law 13 (III) of 2010 with the title ‘The law on the participation of the Republic of Cyprus in the European Financial Stability Facility’. According to the accounting Laws 112 (I) of 2002 and 22 (I) of 2004 on the management of the revenue and expenditure of the Republic of Cyprus, any loan agreement has to be ratified by law in order to be valid.[4] The standard procedure for the adoption of laws in Cyprus is described in Art. 73, 78 and 80 of the Constitution of the Republic of Cyprus. In brief, the Draft Bill is brought before the House of Parliament where it is presented and discussed (the procedure commonly known as ‘first’ and ‘second reading’) and approved or rejected by simple majority. The relevant Draft Bill is then brought before a specialised Parliamentary Committee, in the present case the Parliamentarian Committee of Finance and Budget, which discusses, amends and finalizes the Draft Bill. For the preparation of the Draft Bill on the EFSF the Committee was convened twice, on 14 (with the presence of the Minister of Finance) and 21 June 2010. Following the procedure, the Committee prepared an explanatory report, which was distributed before the discussion at the House of Parliament (sitting in plenary session). The discussion at the House of Parliament (known also as the ‘third reading of the Draft Bill), sitting in plenary session, took place on 24 June 2010. The Draft Bill was discussed and approved by the House of Parliament by simple majority.

Upon the increase in the lending capacity of the EFSF, Cyprus passed the new Law 22 (III) of 2011 ratifying the Agreement regarding Cyprus’ participation in the EFSF (Official Gazette of the Republic of Cyprus No. 4151) incorporating these amendments.[5]

Member states are obliged to issue Guarantees under the EFSF. What procedure was used for this in Cyprus? What debates have arisen during this procedure, in particular in relation to the implications of the guarantees for (budgetary) sovereignty, constitutional law
, socio-economic fundamental rights, and the budgetary process?

No budgetary sovereignty or constitutional issues were raised neither in the report of the Parliamentarian Committee of Finance and Budget, nor during the plenary session at the Parliament. The main issue that was raised was the financial capacity of Cyprus to meet its obligations/guarantees.[6] (See also question I.1)

Activation problems  
What political/legal difficulties
did Cyprus encounter during the national procedures related to the entry into force of the EFSF Framework Agreement and/or the issuance and increase of guarantees?

No significant difficulties were encountered during the national procedures relating to the entry into force of the EFSF Framework Agreement. Neither in the Report of the Parliamentarian Committee nor during the discussion in the House of Parliament are any debates observed, besides the questions and doubts earlier raised on the financial capacity of Cyprus to meet its obligations/guarantees.[7]

Case law      
Is there a (constitutional) court judgment about the EFSM or EFSF in Cyprus?

No such judgment exists on the (constitutionality of) the EFSM or EFSF.

What is the role of Parliament in the application of the EFSF, for example with regard to decisions on aid packages (Loan Facility Agreement and Memorandum of Understanding) and the disbursement of tranches, both of which need unanimous approval by the so-called Guarantors, i.e. the Eurozone member states?

The Parliament has no formal role in the application of the EFSF.

Implementing problems     
What political/legal difficulties
did Cyprus encounter in the application of the EFSF?

No political or legal difficulties have arisen with regard to the application of the EFSF.

Bilateral support      
In case Cyprus participated in providing funding on a bilateral basis to other EU Member States during the crisis, what relevant Parliamentary debates or legal issues have arisen?

In the framework of the 1st and 2nd adjustment programme for Greece, €80 billion was pooled through the Greek Loan Facility (GLF), which consists of pooled bilateral loans from the Euro Area Member States. Cyprus’ contribution amounted to €110million.

What other information is relevant with regard to Cyprus and the EFSM/EFSF?

As a result of the financial difficulties it was facing, Cyprus decided to request – on 8 April 2013 – to have its commitment to provide further guarantees suspended. In view of the fact that Cyprus was experiencing severe financial difficulties and had requested financial assistance, its request to step out as a guarantor of the EFSF, was approved by the Eurogroup Working Group (EWG) on 29 April 2013. The liability of Cyprus as a guarantor for notes issued prior to its stepping out is not affected.

[1] For the procedure see Art. 73 of the Constitution of the Republic of Cyprus.


[3] Art. 78 of the Constitution of the Republic of Cyprus.

[4] Preamble of Law 13 (III) of 2010