Czech Republic

VIII - ESM Treaty

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 the Czech Republic 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.
CR is not a party to the ESM Treaty. During the negotiations on the EC Decision on Art. 136 Amendment, CR announced its general position on the ESM:

  1. “Mechanism shall be activated in the case of a threat to the Eurozone as a whole,
  2. shall be considered ‘assistance of last resort’ (ultima ratio),
  3. on the request of the affected Member State of the Union,
  4. strict conditionality of the financial assistance,
  5. involvement of private sector and IMF, and
  6. an option for a voluntary involvement of a MS that is not member of the Eurozone, on an ad hoc basis.”[1]

All these main characteristics were included in the ESM Treaty.

CR followed the preparation of the ESM Treaty closely given its obligation to join the Euro; therefore I will shortly describe the situation regarding the current debates on the issue. Given Art. 2/1 of the ESM Treaty, a potential accession of CR is dependent on abrogation of the derogation from adopting euro. Although in theory, a MS with derogation, except Denmark and the UK, are under obligation to join Euro once they fulfil the convergence criteria, in reality (especially given the criteria of participation in ERM II for at least two years) the accession to the Eurozone is dependent on a political will of a MS with derogation. Despite the Czech Republic discussing a possibility to join the Eurozone for a decade, there has not been a target date set yet. After the tenure of the Eurosceptic President Klaus (who was supported by Civic Democrats and the Czech National Bank, whose all members of the Banking Council he has appointed during his tenure), the new President Miloš Zeman has profiled himself as pro-European by signing Art. 136 Amendment in April 2013, shortly after his inauguration. In an interview for Passauer Neue Presse, President Zeman mentioned he could imagine CR joining the Eurozone in five years, a move denied by then PM Nečas (leader of rather Eurosceptic Civic Democrats), as well as by then Finance Minister Kalousek (deputy leader of pro-European TOP 09) as unrealistic. Successful monetary policy of the Czech National Bank in the last decade and the Eurocrisis only add arguments for not changing the status quo. There are also doubts about the Czech Republic obligation to join the Eurozone based on the on-going transformation of the Eurozone governance. The argument goes that given that CR could not participate in majority of these changes (due to not being a member of the Eurozone), its obligation to join the Eurozone, the Czech Republic agreed to by the fact of its accession to the EU in 2004, is not valid anymore as the content of this obligation has transformed considerably. This leads to an argument that an accession to the Eurozone must be subject to a nation-wide referendum. The last poll has shown that 77% of the respondents were against the adoption of the Euro.[2]

During the ratification debates on the European Council Decision on Art. 136 TFEU Amendment, the Government emphasized that the consent to the Decision and the position of CR towards the ESM are separate issues. It indirectly admitted that it is not given that CR will join Euro and even if that happens, CR will negotiate the terms of its accession to the ESM.[3] In early 2014, with new centre-left government and with new President, who, as mentioned above, publicly announced his support to the Czech membership in the Eurozone and who on a first occasion appointed a supporter of Euro accession to the Czech National Bank’s Banking Council, the situation has started to change. In February 2014, the Czech Prime Minister Sobotka has pledged to accede to the Fiscal Compact and the Banking Union.[4]

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

CR is not a party to the ESM Treaty.

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

CR is not a party to the ESM Treaty.

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

No.

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?

CR is not a party to the ESM Treaty.

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.

CR is not a party to the ESM Treaty.

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

CR is not a party to the ESM Treaty.

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?
CR is not a party to the ESM Treaty.

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

It was calculated that CR, if it joins ESM right away, would contribute in the first five years by the amount of 32 bn CZK (cca 1.2 bn Euro).[5] According to an opposition party Public Affairs, CR would pay additional 40 bn CZK in 12 years and 310 bn CZK in guarantees. This potential burden will become an important factor in whether to join the Euro or not.[6] According to a fraction within Civic Democrats (in line with then President Klaus), through the ESM, CR would burden future generations beyond any reasonable measures; the ESM incites moral hazard of debtors; and the creditors are obliged to “irrevocably and unconditionally undertake to pay on demand any… capital call made on them, within seven days” (Art. 9/3 in fine of the ESM Treaty).[7] 

[1] See “Czech Government and Parliament position on Draft Council Decision on Art. 136 Amendment”, p. 4-5.

[2] Centrum pro výzkum veřejného mínění Sociologický ústav AV ČR, Občané o přijetí eura – duben 2013 (Citizens on Euro adoption – April 2013), May 3, 2013, available at: http://cvvm.soc.cas.cz/media/com_form2content/documents/c1/a7005/f3/pm130503.pdf. A graph showing long-term view of citizens on the adoption of Euro indicates that until 2006 there was a majority support for the adoption of Euro, since 2006 the negative view prevailed with 2010 being the decisive turning point towards strong opposition to the Euro adoption. While the shift between 2006 and 2009 can be assigned to the successful monetary policy of the Czech National Bank and the increasing Euroscepticism of then President Klaus, fully revealed after his reelection in 2008 (that made him a lame-duck President given that he could not been reelected), the radical shift in 2009 and later must be assigned to the perception of the Eurocrisis and its management. Ibid.

[3] Foreign Minister Karel Schwarzenberg, stenographic protocol, Chamber of Deputies of the Parliament, May 9, 2012, available at: http://www.psp.cz/eknih/2010ps/stenprot/038schuz/s038123.htm#r4.

[4] Oliver, C., New Czech prime minister vows to ratify EU fiscal compact, Financial Times, Feb. 20, 2014, http://www.ft.com/intl/cms/s/0/c413ca0c-9a4f-11e3-8e06-00144feab7de.html#axzz2ttcsndWl.

[5] MP Jan Bauer, chairman of the Chamber of Deputies Committee for EU affairs, stenographic protocol, Chamber of Deputies of the Parliament, May 9, 2012, available at: http://www.psp.cz/eknih/2010ps/stenprot/038schuz/s038124.htm.

[6] MP Kateřina Klasnová (Public Affairs), stenographic protocol, Chamber of Deputies of the Parliament, June 5, 2012, available at: http://www.psp.cz/eknih/2010ps/stenprot/040schuz/s040017.htm.

[7] MP Michal Doktor (Civic Democrats), stenographic protocol, Chamber of Deputies of the Parliament, June 5, 2012, available at: http://www.psp.cz/eknih/2010ps/stenprot/040schuz/s040018.htm.