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.
(http://www.efsf.europa.eu/attachments/20111019_efsf_framework_agreement_en.pdf and http://www.efsf.europa.eu/attachments/faq_en.pdf)
What political/legal difficulties did Finland 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 earlier credit package adopted to assist Iceland (2009) and the opportunity provided for Latvia to borrow from Finland (2010) had attracted only little discussion in Finland. The Council Decision concerning the European Financial Stabilisation Mechanism of 2010 proved no particular difficulties for Finland. It provoked little discussion, and the same initially applied to the EFSF. The Government seems to have faced few difficulties with these new instruments during the negotiations. Basically, even if the crisis itself was unwelcome, the Government was in favour of these instruments in that particular situation, even if the big picture relating to the extent and depth of the crisis was not clear yet.
During the autumn 2010, the Grand Committee of the Parliament was informed several times about the developments concerning the situation. Also the possible need to amend the European Union Treaties was discussed. As during the euro crisis more generally, the Government has – in our view – demonstrated a willingness to seek various solutions and alternative ways out of the crisis.
While the situation was rather calm during the autumn 2010, the situation gradually grew more challenging for the Finnish Government, at least partly because of the approaching parliamentary elections of April 2011 and partly because the seriousness of the financial and economic situation became clearer. In the debates in the Parliament, the opposition raised questions concerning the relationship of Government’s politics obligating Finland to take part in the various emergency funds, on the one hand, and the attempts to cut public spending in Finland, on the other. Discussions in the Parliament were characterised by a deep suspicion concerning the Government’s intentions.
The national political and even constitutional pressure became serious at the same time as new decisions to increase the earlier guarantee commitments became imminent. The decision by the Heads of Government of the euro zone in March 2011 led to a difficult political situation in Finland, and increasing the commitments and the amendment of the Framework agreement later became a painful exercise for the new Government (appointed in June 2011).
On 14 March 2011 the situation led to an interpellation (VK 6/2010) in the Parliament, a procedure that in Finland always ends with a vote of confidence in the Government. The vote(s) were held on 15 March 2011 (aye 104 – no 62 final), and subsequently the Government won a clear confidence in the Parliament (PTK 172/2010). The amendment of the Framework agreement was accepted by the Parliament in 28 September 2011.
Prior to the parliamentary elections held in April 2011 one of the major parties (the SDP) had promised that it would require securities for the various guarantee commitments and financial aid if it secured a position in Government. After the elections, it turned into the second largest government party, also holding the position of the Minister of Finance, who also acts as the Prime Minister’s first deputy. Thus, there has been a need for special arrangements in order to have these collaterals (see in greater detail reply to question I.1).
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 Finland and in what way does it involve Parliament?
The Government proposal (No 95/2010 vp, Belgian etc ja Euroopan rahoitusvakausvälineen välisen ERVV-puitesopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta) was presented on 18 June 2010. It was announced in the Parliament on 18 June 2010 and sent to the Finance Committee of the Parliament on 21 June 2010. After the Committee handling, it was returned to the plenary for consideration and was discussed on 23 and 30 June 2010. The act was approved on the 30 June 2011 (aye 157 – no 31). The President signed the act (No 669/2010) on 14 July and it entered into force on 16 August 2010.
A noteworthy aspect relates to the fact that the proposal was not sent to the handling of the Parliament’s Constitutional Law Committee at all. This Committee was later given the possibility to consider the Framework Agreement when it was first amended (see below question IV.4).
Despite its private law features, in Finland, the Framework Agreement was accepted by the Parliament according to Section 94.1 of the Constitution of Finland on 30 June 2011 (aye 157 – no 31). (Sec. 94.1, first sentence: “The acceptance of the Parliament is required for such treaties and other international obligations that contain provisions of a legislative nature, are otherwise significant, or otherwise require approval by the Parliament under this Constitution.) The provisions of the Agreement, in so far as they were of a legislative nature, were brought into force by an Act of Parliament (No 669/2010), and the rest of the Agreement by a Government Decree (No 691/2010).
Member states are obliged to issue Guarantees under the EFSF. What procedure was used for this in Finland? 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?
An Act on the State securities for the European Financial Stability Facility was enacted based on Governmental proposal (No 71/2010 vp, laiksi Euroopan rahoitusvakausvälineelle annettavista valtiontakauksista). The proposal was presented and announced in the Parliament on 4 June 2010, and sent to the Finance Committee on 8 June 2010. It was discussed and decided by the Parliament on 15–16 and 21 and 24 June 2010. The President signed the act (No 668/2010) on 14 July and it entered into force on the 15 July 2010.
According to Section 82 of the Constitution on State debt and guarantees,“ the incurrence of State debt shall be based on the consent of the Parliament, which indicates the maximum level of new debt or the total level of State debt. A State security and a State guarantee may be given on the basis of the consent of the Parliament.”
The Act on securities was enacted in the regular legislative procedure (Section 72 of the Constitution). According to the Act, the Government decides on the securities which are given to the Facility, but prior to this decision it is under an obligation to issue a statement to the Parliament. The situation is exceptional because statements are used in this context against what can be considered to be their constitutional function (Sec. 44 of the Constitution). Another peculiarity relates to how the Government is, based on an ordinary Act of Parliament, placed under an obligation to issue a statement to the Parliament in a certain situation. Normally the issuing of statements belongs to the political discretion of the Government; according to the Constitution “at the conclusion of the consideration of a statement, a vote of confidence in the Government or a Minister shall be taken, provided that a motion of no confidence in the Government or the Minister has been put forward during the debate.”
The Government has issued five statements during the crisis: Statements 2/2010 vp (on Ireland), 1/2011 vp (Portugal), 1/2012 vp (Greece), 3/2012 vp (Spain) and 1/2013 (on continuing the State Securities).
What political/legal difficulties did Finland encounter during the national procedures related to the entry into force of the EFSF Framework Agreement and/or the issuance and increase of guarantees?
The national procedures used to bring the EFSF Framework Agreement into force nationally were not difficult. However, problems emerged and evolved gradually because of the subsequent increase of the guarantee commitments.
The Government informed the Parliament about the plans to increase the guarantee commitments in a memorandum (U 26/2011 vp) which was handled in the Grand Committee and other Committees. Also the Constitutional Law Committee issued a statement on this memorandum (its position was included in its meeting protocol 11/2011 vp of 31 August 2011).
The Government agreed with the changes to the guarantees as such but it did not consider all the proposals made at Eurozone level appropriate. The Government took a negative view on the proposal that the EFSF Board could decide by qualified majority on certain matters, and argued that the central features relating to the new measures should be either decided by unanimity among the guarantors or be included in the Framework Agreement itself.
Afterwards, the Government issued a proposal considering the acceptance of the changes required by the revised Framework Agreement and bringing them into force by law, also amending the law on State securities for the Facility, on 16 September 2011 (No 31/2011 vp, Belgian etc ja Euroopan rahoitusvakausvälineen välisen sopimuksen muuttamista koskevan sopimuksen hyväksymisestä sekä laiksi sen lainsäädännön alaan kuuluvien määräysten hyväksymisestä ja laiksi Euroopan rahoitusvälineelle annettavista valtiontakauksista annetun lain 2 §:n muuttamisesta). The proposal was announced on 16 September and sent to the Committees on 20 September 2011. This time the proposal was also handled in the Constitutional Law Committee of the Parliament.
The starting point for the considerations of the Constitutional Law Committee, which issued its statement on 22 September 2011 (PeVL, i.e. Statement of Constitutional Law Committee 5/2011 vp), was the finding that the funding of the Facility was guaranteed by the Contracting States. The fact that Section 82.2 of the Constitution requires the Parliament’s consent for a state security was an additional justification for a requirement of the Parliament’s approval. The Constitutional Law Committee paid special attention to the constitutional effects of a increase of the Finnish liabilities when the total amount of the securities by the Member States for the Facility was increased from EUR 440 billion to EUR 780 billion; for the Finnish part this entailed an increase from EUR 8 billion to EUR 14 billion. When evaluating the absolute amount of Finnish liabilities in relation to the annual national budget, the Constitutional Law Committee established that the risks related to the increase did not endanger the possibilities of Finland to meet the obligations it has based on its Constitution. This particular statement, which is not further developed in the Committee’s practice, and the unspecified obligations of the State it builds on, is rather open to different interpretations. The Constitutional Law Committee has not developed this statement further. It could be interpreted to refer for example to various economic, social and cultural rights that the State has the responsibility to provide for its citizens according to the Constitution and various international treaties. It could also be understood as referring to the external responsibilities of the State in its various international commitments. Various risk calculations are typically difficult to conduct, and the Parliament, its Committees and the experts they consult are largely reliant on the information and estimates provided by the Government. At the same time, the statement suggests that the absolute amount of commitments and the risks involved may affect the Committee’s future conclusions concerning the compatibility of a proposed financial measure with the Constitution (see also question X on the ESM Treaty). However, in view of the amount of commitments and the risks involved, the Constitutional Law Committee has confirmed the Government’s wide room of manoeuvre, which the latter exercises under an equally wide political responsibility.
Since the relevant Act included no accurate information concerning the exact amount of the securities in the way that the constitutional practice was deemed to require, the Government needed to propose a correction to the Act to remedy this omission (proposal No 150/2011 vp). This was preceded by an overheated political and partly constitutional discussion of the Government’s ability to act constitutionally and convincingly in the situation. Even the Constitutional Law Committee issued a statement on the issue (PeVL 14/2011 vp), and it gave a statement (PeVL 3/2012 vp) during the handling of the new proposal.
Is there a (constitutional) court judgment about the EFSM or EFSF in Finland
In the Finnish constitutional setting, which does not provide for a Constitutional Court and the ordinary courts have only a secondary role in the review of constitutionality of legislation, the Parliament’s Constitutional Law Committee is the primary control mechanism for ensuring the constitutionality of legislation, including international obligations and Union-related measures. The Committee has a central and active role. The Committee is politically organised within the Parliament: it is composed of MPs and reflects the power relations in the Parliament. But the Committee has an essentially judicial function: it establishes the correct interpretation of the Constitution. Its opinions generally enjoy authority and are treated as binding on Parliament and authorities. This makes the Committee the most central constitutional body of Finland.
Another feature which should be noted here is the organization of the participation and information of the Parliament in the European Union related matters. The core provisions are found in Chapter 8 of the Constitution in Sections 93.2, 96 and 97 of the Constitution. According to Section 93.2, the Government (not the President) prepares and decides in EU matters unless they require the approval of the Parliament, in which case the latter participates in the national preparation of EU decisions. The Parliament considers those proposals for acts, agreements and other EU measures that under the Constitution belong to its competence.
The Constitutional Law Committee has considered the measures combating the euro crisis as matters belonging to Section 96 or 97, which regulate in particular the ex ante participation and information rights of the Parliament in European Union affairs, irrespective of whether formally taken within the formal EU framework or outside of it (with regard to the Constitutional Law Committee’s findings on the EFSF, see question IV.4). It has thereby allocated the primary competence in these matters to the Government under Section 93.2, but simultaneously placed it under a strict obligation to report to the Parliament in all matters falling under the competence of the latter. This is in line with the traditional interpretation of Sections 96 and 97, which have been generally understood to extend beyond the matters that belong formally to Union competence to questions that can be considered ’comparable’ to Union matters both as regards their substance and their effects. Additionally, the relevant international agreements have also been approved by the Parliament under the Section 94/95 Procedure relating to the formal ratification of international agreements, offering the Parliament an exceptional possibility to address the same matters twice. Because they already had been considered ex ante by the Parliament in detail, the approval stage no longer raised significant problems.
The aforementioned interpretation of the Constitutional Law Committee has guaranteed strong rights of participation for the Parliament, giving it a wide prerogative to be informed while the matters were being negotiated and to require substantive and significant modifications to the proposed instruments (including e.g. ESM Treaty, Fiscal Compact) in order to guarantee their compatibility with the Finnish Constitution. Had the international agreements been treated as ’traditional’ international agreements, the Parliament’s rights of participation would have been limited to a ‘yes’ or ‘no’ at the stage when the substantive negotiations had already ended.
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?
As explained above, the Government is under an obligation to issue a statement to the Parliament each time when the Facility decides on new aid.
In addition, all decision making in the Facility falls under Sections 96 and 97 of the Constitution, which regulate in particular the participation and information rights of the Parliament in European Union affairs. The Government has to communicate the relevant proposals for EU measures without delay for the determination of the Parliament’s position. In matters that fall under the Parliament’s competence, its position in practice equals the Finnish position, even if the Parliament usually leaves the details to the Government’s discretion and limits itself to steering the main political lines. Proposals are considered by the Parliament’s Grand Committee which ultimately determines its position, and also in the specialist committees. If the matter involves a constitutional dimension, it is sent to the Constitutional Law Committee, which is one of the specialist committees. The Government is obliged to keep the relevant committees updated with information on the negotiations and to keep the Grand Committee informed of its position. Section 97 of the Constitution includes provisions on the Parliament’s right to receive information on international affairs. It requires the Government to keep the Grand Committee informed through reports on the preparation of EU matters other than those falling under Section 96, either upon request or when otherwise necessary. On the basis of the information provided, the committees may issue statements to the Government, and they frequently do so.
What political/legal difficulties did Finland encounter in the application of the EFSF?
National decision-making linked to the EFSF presumes a Government statement, which is followed by its consideration in the Plenary and a subsequent vote of confidence. For Finland, the questions relating to collaterals have been the key challenge both in the domestic debates and in relation to the other euro countries, since Finland has been the only country to require a collateral. For Finland the request for the collaterals is not a constitutional or legal demand: the condition has been of polical nature, dating back to the negotiations of the parties which form the Government. The condition was agreed as a part of the current coalition’s agenda and is elaborated in Attachment 3 to the Government Program. .. Negotiating the collateral agreements has been challenging both legally and because of the strict time tables involved. Additional challenges have been constituted by stepping-out guarantors, creditor status, ambiguities relating to maximum lending capacity and several questions relating to governance. The usefulness of collaterals has also been subject to debate.
In case Finland 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?
Finland enabled Latvia to borrow from Finland (2010), but this decision was not politically or legally problematic. Additionally, it took part in the credit package adopted to assist Iceland (2009).
What other information is relevant with regard to Finland and the EFSM/EFSF?