Cyprus

VIII - ESM Treaty

The European Stability Mechanism (ESM) Treaty was signed on July 11 2011. It was later renegotiated and a new ESM Treaty was signed on February 2, 2012. The Treaty provides a permanent emergency fund that is intended to succeed the temporary emergency funds. It entered into force on September 27, 2012 for 16 contracting parties (Estonia completed ratification on October 3). The 17 contracting parties are the member states of the Eurozone, but the ESM Treaty is concluded outside EU law.      
(
http://www.european-council.europa.eu/eurozone-governance/esm-treaty-signature?lang=it and  http://www.esm.europa.eu/pdf/FAQ%20ESM%2008102012.pdf)

Negotiation
VIII.1
What political/legal difficulties
did Cyprus encounter in the negotiation of the ESM Treaty, in particular in relation to the implications of the treaty for (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process.

The Minister of Foreign Affairs of Cyprus and the Cypriot government were favourable of the creation of a permanent stability mechanism and a Treaty amendment, as a last resort (necessary) solution.

All the participating parties at the plenary session of the Parliament agreed with the objectives of the ESM Treaty, whereas a few ‘leftish’ parties, both in government and opposition  (‘democratic Party’ , the ‘leftish’ coalition ‘AKEL- Left- Nees Dynameis’ together with the member of the Social Democrats’ Movement (EDEK) ‘) reserved their right to take position on the matter during the discussion of the Act at the House of Parliament. The aforementioned parties eventually voted in favour of the new Draft Bill, after pointing out, however, that they disagreed with the way the decision on the Treaty amendment and the creation of a permanent stability mechanism was taken at a European level, in particular in light of the disregard of the voices of the ‘peoples of Europe’ and the lack of any referenda that would express these voices (see also Question VI.3).

Ratification
VIII.2
How has the ESM Treaty been ratified in Cyprus and on what legal basis/argumentation?

The ratifying Law for the ESM Treaty is Law 14 (III) of 2012 approved by the House of Representatives on 31 May 2012 and published in the Cypriot Official Gazette on 15 June 2012 (Number 4164/15 June 2012, p. 3820). According to the Constitution of Cyprus, the ratification procedure follows simple majority voting in the parliament (Art. 169(2)); whereas the President and the Council of Ministers can veto the parliaments’ decision (Art. 50(1) a). If a constitutional amendment is required the majority of 2/3 of members of parliament is required (Art. 182 (2), (3)). This however was not the case here.

The ratification was notified to the EU Council on 28/06/2012. The ratifying procedure for international agreements is provided in Article 169 (2) of the Constitution of Cyprus. Article 169 of the Cypriot Constitution stipulates that provided that Article 50 and Article 57 (3) of the Cypriot Constitution are met:[1]

(1)  Any international agreement among other states or any other international organization that concerns commercial issues, economic cooperation, payments and credits and modus Vivendi inclusive, is concluded following a Decision of the Ministerial Council.

(2)  The negotiation of any other Treaty, Convention, or International Agreement as well as the conclusion of them takes place following the Ministerial Council’s decision. They can only, however, acquire legal value and bind the Cypriot Republic if they are ratified by Law, which is enacted by the House of Parliament, upon which they are considered concluded.

(3)  Treaties, Conventions and Agreements agreed in accordance with the aforementioned provisions of the present Article are from their publication in the Official Gazette of the Cypriot Republic superior to any other national law, on condition that these Treaties, Conventions and Agreements apply respectively to the other party.

(4)  The Cypriot Republic can exercise every choice and discretion stipulated in the EC Treaty and the EU Treaty and any other Treaty the Republic concludes, that amends or replaces them (the Treaties). [2]

Ratification difficulties  
VIII.3
What political/legal difficulties
did Cyprus encounter during the ratification of the ESM Treaty?

The Cypriot Parliamentary Committee of Economics and the Budget conducted a study on the suggested Draft Bill on the ratification of the ESMT. The relevant discussion took place on 21 and 28 May 2012 with the participation of the Minister of Finance and representatives of the respective Minister.[3]

The report of the Committee after reminding the purposes and the functions of the ESM, notes that the participation of Cyprus will be approximately €1.373 billion, a part of which will be disposed in installments as paid-in capital, while another will take the form of ‘blocked capital’ .  

During the discussions in the Parliament for the ratification of the ESMT, AKEL’s[4]  representative Mr. Evagorou, asked for an intervention. Among other issues, Mr. Evagorou, noted that despite the AKEL- Aristera- Nees Dinameis reservations and concerns as to the way the decision about the ESM and the ESM’s content was made at a European level, the party will vote in favour of the Draft Bill, after having taken into account the international and national facts. He, nevertheless, criticised the fact that following the Decision of the European Council, the preparations for the Treaty amendment as well as its new content were neither debated before the peoples of each State nor subject to a referendum by the peoples’ of Europe. He continued by reminding that the Treaty amendment on Art. 136 TFEU is the result of the existing differences within the EU, whereby a certain group of States interprets solidarity differently and applies it following its own special economic interests. This is particularly reflected in the countries of the South and has as a result huge deficits, differences in competitiveness among the Member States and most importantly, inability to grow, inability to create new employment posts, unemployment and poverty.

According to Mr. Evagorou (and AKEL), what the EU needs at the moment is a new Agreement for growth, which will be premised on qualitative and social criteria and will take into account the particular characteristics of each country and economy. In Mr. Evagorou’s and AKEL’s view the austerity imposed cannot possibly generate growth for the peoples’ of Europe. In the same line of argument, Mr. Evagorou notes that under the new reality decisions are not taken anymore by the peoples’ of Europe, but instead by the technocrats, such as the IMF or the European Commission. However, as Mr. Evagorou – speaking on behalf of the AKEL- concludes, if the ‘monitoring framework’ in the EU was really strict and was implemented to the benefit of the public interest and interest of the ‘workers’, it could set out the framework for an ‘equal development’ of the states.

Mr. Papadopoulos, from the opposition Democratic Party, took the floor and noted that he was convinced by Mr. Evagorou’s argument, and that he also endorsed the view that this Draft Bill goes against the interests of the peoples of Cyprus. He, hence, asked to change his vote (as not being in favour of the ratification).

Mr. Mitsopoulos of the opposition Democratic Rally (Dimokratikos Synagermos) continued, by reminding that both the Treaty amendment and the creation of the ESMT were discussed and unanimously adopted at the European Council. Thus, he pointed out, that if the AKEL party wished a referendum, it could and should have raised the issue of the adoption or rejection of the ESM before the European Council.

Mr. Perdikis, of the opposition Ecologists’ party, tabled an amendment to the Draft Bill that aimed at democratizing the participation of Cyprus in the ESM. Mr. Perdikis referred to the provision of the ratifying Law on the appointment of an administrator and a deputy administrator. Mr. Perdikis suggested that this appointment takes place through a consensus procedure within the Parliament and in addition that a cooperation mechanism is established between the Ministry of Finance and the Parliamentarian Committee for Finance.

The relevant amendment was approved by the Parliament (30 votes in favour and 18 against) on 31 May 2013 and the Draft Bill was enacted into Law.

Case law          
VIII.4
Is there a (constitutional) court judgment on the ESM Treaty?

No such Court judgment exists with reference to the ESM Treaty.

Capital payment    
VIII.5
What is the role of Parliament in the payment of the (first instalment of) paid-in capital required by the ESM Treaty (article 36 ESM Treaty)? What relevant debates have arisen in relation to this payment?    

According to the Preamble of Law 14 (III) of 2012 the Minister of Finance is delegated by the Council of Ministers of Cyprus to ‘debit’ the national budget with the relevant amounts.

Application & Parliament
VIII.6
What is the role of Parliament in the application of the ESM Treaty, for example with regard to decisions to grant financial assistance and the disbursement of tranches, which both require unanimous adoption by the Board of Governors composed of the national Finance Ministers.

The Parliament does not have any formal role in the activities of the ESM or in determining the actions of the Minister for Finance when acting as a member of the Board of Governors of the ESM. The only obligation of the Minister of Finance is to notify every 6 months the Parliamentarian Committee of Finance and Budget on the progress or any new developments on the ESM, in accordance with Recital 4 of the Preamble of Law 14 (III) of 2012.

Application difficulties      
VIII.7
What political/legal difficulties
did Cyprus encounter in the application of the ESM Treaty?

The only debate that arose in the Cypriot Parliament with regard to the application of the ESM Treaty concerned the application for financial assistance to Cyprus (see also question VIII.2).

The debate in the Parliamentarian Committee of Finance and Budget, as well as the discussion in the Parliament’s plenary session, summarize the debates that arose before Cyprus officially asked for the ESM’s financial assistance.

In the Parliamentarian Committee which convened on 29 April 2013,[5] the Minister of Finance of Cyprus noted first that the reasons that led to the imperative need to conclude the loan agreement was the exclusion of the Republic of Cyprus from the markets in May 2011 and the Greek Private Sector Involvement that brought about ‘damages’ of €4,5  billions to the Cypriot banks. He then, continued by pointing out that the Republic of Cyprus has lost part of its sovereignty from that point (ie the point of the exclusion and the damages to the banks), without however resorting to financial assistance as other countries did (ex. Ireland, Portugal and Greece). The Minister of Finance observed that this delay which was due to the efforts and attempts to find alternative lending possibilities proved to be particularly harmful, leaving Cyprus – at the (that) moment without any bargaining power and choices. At this point, he added, the main priority was the restart of the Cypriot economy through the removal of all bureaucracies and obstacles so that the country can benefit from the increased revenue from taxation. The amount of €3,4 billion from a total of €10 billion which constitutes the amount of the FFA will be used for purposes of state financing and growth. Consequently, the Minister concluded, if the State does not prove capable of raising this revenue, it will have at some point to take new fiscal consolidation measures, since the revenue will not be adequate to cover the state spending.

In the same line of argument, the Minister of Foreign Affairs pointed out that the Eurozone Member States, including Cyprus, have voluntarily delegated part of their sovereignty to the EU by becoming a member. The Minister further observed that Cyprus constitutes a different case than Greece.

The delegate of the Central Bank of Cyprus noted that at that point the first priority was the strict adherence to the fiscal target of the MoU and in particular curbing the projected fall in GDP, since otherwise the economy would enter a vicious circle of recession (see also question VIII.2).

Implementation
VIII.8
Have there been any relevant changes in national legislation in order to implement or to comply with requirements set by the ESM-Treaty?

Besides the relevant ratifying and implementing law of the ESMT there have been no other legislative changes in order to implement or comply with the requirements of the ESMT (except after Cyprus signed the MoU and the FFA for which see question X.7).

Miscellaneous
VIII.9
What other information is relevant with regard to Cyprus and the ESM Treaty?

Not applicable.

[1] Art. 50 of the Constitution of Cyprus provides that the President and the Vice-President of the Republic of Cyprus, separately or conjointly, shall have the right of final veto on any law or decision of the House of Representatives or any part thereof concerning, among other issues relating to ‘foreign affairs’, the conclusion of international treaties, conventions and agreements. Art. 57 (3) of the Constitution of Cyprus provides the deadline for the exercise of this veto which is within four days of the date when the decision has been transmitted to the President’s and Vice-President’s respective offices.

[2] Free translation of Article 169 of the Constitution of the Republic of Cyprus.

[4] AKEL is a ‘left-wing’ party that at the time was in government. It was succeeded in government after the presidential elections of 2013 by the ‘Dimokratikos Synagermos’ (Democratic Rally) party. The presidential election in Cyprus leads to a new government, as the President appoints and dismisses the members of the Ministry of Councils of the Republic (see also Question I.1) .