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 France 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?
One amending Budget Act proposed altogether to give the French guarantee to the EFSF and to increase the French contribution to the IMF resources (Loi n° 2010-606 du 7 juin 2010 de finances rectificative pour 2010 (1), articles 3 and 4). It was presented to Parliament by the government as the part played by France in the stabilisation of the Eurozone – together with the adoption of the EFSM at EU level – and the next step to tackle the crisis after the bilateral approach taken to grant loans to Greece.
The government also stressed that the contribution to the EFSF to be agreed to by France (111 billion euros) might have no impact on the national budget, as the primary aim was to create an instrument dissuasive enough to be never used. Although some doubts were raised, a considerable majority of MPs voted the government proposal (see question IV.3 for more details on the debates at Parliament).
The government has presented the EFSM, the EFSF, and the increase of the resources of the IMF, together with the bilateral loans to Greece, as “stabilisation instruments” – and as the first of three kinds of developments in the management of the crisis. The second one was the strengthening of the European economic governance and budgetary discipline. Then French Minister for European Affairs, Pierre Lellouche, said this second development in particular was, to a large extent, the result of President Sarkozy’s leadership. The third development pertained to fighting speculation and regulating finance. Overall, Pierre Lellouche insisted on the important role played by France and Germany, who were said to have shared a joint position during the negotiations that led to these developments. The EFSF itself was presented as similar to an already existing French instrument refinancing banks, the SFEF (Société de financement de l’économie française).
Thus, the way the government presented these instruments – as “French-led” for a significant part – made less salient the issues of difficulties having taken place during the negotiation, or concerns over national sovereignty. Moreover, sovereignty appeared, in the debates, more threatened by the state of the public debt on financial markets, than by the responses to this threat.
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 France and in what way does it involve Parliament?
Under article 61 of the Organic Law on Budget Acts (Loi organique relative aux lois de finance of 1st August 2001 – “LOLF”), State guarantees are authorised by a Budget Act voted by the Parliament (see also question II.1 on the legislative process applicable for Budget Acts). Article 34-II-5° of the LOFL reads that the Budget Act of the year authorizes the State to give its guarantee and establishes its “regime”. The French guarantee to the EFSF was authorised by Parliament in an amending Budget Act (Loi n° 2010-606 du 7 juin 2010 de finances rectificative pour 2010 (1), article 3).
Member states are obliged to issue Guarantees under the EFSF. What procedure was used for this in France? 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?
See also question IV.2.
The guarantees were authorized by an amending Budget Act adopted on 7 June 2010. They constituted the last development in a chain of measures taken to tackle the crisis since 2008, and members of Parliament noted the stress imposed by financial markets on national legislatures (as well as an accelerated pace for lawmaking).
The amending Budget Act followed the normal legislative process (see question II.1 on the legislative process for Budget Acts), and was adopted by a considerable majority. This majority included the parliamentary groups of the right-wing party in power (UMP), of centrists, and of the main party of the opposition: the centre-left-wing Socialist Party (PS). After one reading in both Houses of Parliament (as is the rule for Budget Acts, see also question II.1), the Act was swiftly adopted.
Three amendments were adopted by the National Assembly, two of which were only redactional. The third one importantly required that the Finance Committees of both Houses of Parliament be informed whenever the EFSF granted financing or loans. The modified text went through to the Senate and was eventually voted without further modification.
More amendments were proposed by the parliamentary groups of the far left CRC (GDR at the National Assembly, CRC at the Senate), which constituted the main opponent to the EFSF in the debates. These amendments were all rejected.
Wide ranging debates took place, dealing with the general management of the crisis and not limited to the EFSF. Overall, there was a broad majority in favor of the creation of the EFSF, which was understood as a step forward in European solidarity and a necessary tool for the stabilization of the Eurozone, in a context of tightening access to financial markets for Greece, Ireland, Portugal, Spain and Italy.
However, several voices in Parliament, including the Socialist Party, regretted that the mechanism was limited in time. Some MPs (including allies of the majoritarian right-wing party) argued in favour of rescheduling the debt of countries that are not likely to be able to reimburse the loans in too short an amount of time.
The question why Greece should not see its debts “restructured” rather than financed was also raised by several MPs across the political spectrum. The Government answered essentially that such restructuring would eventually lead to the destruction of the euro (see also question IV.8 on the debates that occurred when France granted a bilateral loan to Greece).
The interest rate of the loans to Greece was criticized, too, as too high by several MPs from the far left to the UMP. The government answered by comparing it to the even higher interest rates demanded of Greece on the financial markets, and stressing that such rates were an expression of the risk taken by the lender. Also, the rate was set so as to align it with IMF rates.
Several members of parliament, PS included, also raised doubts and expressed skepticism about the assertion that granting the guarantee of the State would not modify the budgetary balance as long as the mechanism was left unused. The main discourse from the government was, indeed, that the design of the mechanism could make its actual use unnecessary. UMP senator Serge Dassault, for instance, stressed the risk that the outlook of the French debt by rating agencies could be negatively impacted by its participation in the EFSF. Minister of the Economy Christine Lagarde did not share his worries for the French outlook.
The main criticisms came from the far left. First, they argued that the EFSF was yet another manifestation of the conformation of European governments to the requirements of financial markets, rather than “breaking” the power of the latter over governments.
They also expressed their doubts about the justifications given for the creation of the EFSF. It was compared to the bilateral aid to Greece and presented as another example of how richer European countries try to actually save their own banks exposed in Greece, and to help their own weapon industry under contract with Greece.
The provisions regarding the “conditionality” to be imposed on the countries that would benefit from the EFSF were criticized as well. Indeed, as no precision was given regarding this conditionality, power on the matter would be given to the European Commission and the IMF, institutions presented as not easy to situate by the public on the political spectrum, and not directly accountable to the people.
Far left Martine Billard (GDR) also underlined what she presented as an inconsistency: article 122-2 TFEU now appeared to allow action on financial markets while, a few weeks before, article 123 seemed to forbid it.
She also regretted that the debate took place on a Monday afternoon (most of the members of parliament are usually still visiting their home constituencies at that moment of the week). The “solemn vote” of the amending Budget Act, however, would take place the following day – apparently at the insistence of the GDR.
What political/legal difficulties did France 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 EFSF Framework Agreement met relatively few difficulties to enter into force (see question IV.3 for the debates in Parliament). The increase of the French guarantee from 111 billion euros to 159 billion euros in September 2011 was also voted rather swiftly by the Parliament.
Yet, the amending Budget Act providing for this increase faced more opposition than the amending Budget Act authorizing the EFSF in 2010 (see also question IV.6). Moreover, the government felt the need to seek counsel from the Council of State on the legal need for France to have Parliament ratify the EFSF Framework Agreement. The Council of State concluded that ratification was unnecessary, provided certain conditions of information of Parliament were met (see also question IV.5).
Is there a (constitutional) court judgment about the EFSM or EFSF in France?
There is no decision of the Constitutional Council on the EFSM, nor, apparently, of the Council of State. There is also no Constitutional Council decision on the EFSF.
However, the government sought the advice of the Council of State (Conseil d’Etat) at the occasion of the increase of the French guarantee to the EFSF, during the summer of 2011. The Council of State is the highest French administrative jurisdiction, with two main roles: jurisdictional and advisory. In its advisory role, the Council of State describes its own role as to control the quality of the documents presented to it, their coherence, and their suitability to obtain the stated objectives. It aims at ensuring the legal certainty of these documents, their respect for the hierarchy of norms, and for the great principles of competence allocation.
The Rapport public 2012 gives some information on the advice sought and given on the EFSF, but the complete version of the advice does not seem to be accessible to the public. The short summary available reveals that the Council of State was consulted on the proposal of Act that would become the second amending Budget Act for 2011 (Loi n° 2011-1117 of 19 September 2011), which purpose was to authorise an increase in the guarantee given by the State to the EFSF (from 111 billion to 159 billion euros).
The question asked by the government to the Council – following an accelerated procedure called “saisie d’extrême urgence” – appears to have regarded the need for the Executive to seek ratification by Parliament of the agreement promising the French guarantee to the EFSF, in order to conform to the requirements of article 53 of the Constitution.
Under article 53 of the French Constitution: “Peace Treaties, Trade agreements, treaties or agreements relating to an international organization, those committing the finances of the State, those modifying provisions which are the preserve of statute law, those relating to the status of persons, and those involving the ceding, exchanging or acquiring of territory, may be ratified or approved only by an Act of Parliament”. As the EFSF may be said to be an international agreement pertaining to a “commitment of the resources of the State” for up to 159 billion euros, the government may indeed have feared that the absence of a process of ratification was a possible violation of the Constitution.
However, the Council of State issued a measured advice: “[n]oting that the project of amending Budget Act for 2011 authorizing that the guarantee of the French Republic be granted to the EFSF had for sole objective to grant the guarantee of the State to an organ created by an intergovernmental agreement, and that this agreement, taking the form of an agreement under international private law and according to which the signatory States have decided to create a financial body under private law, the mission of which consists in intervening on the financial markets according to the procedures and instruments ordinary to these markets, the Council of State has considered that prior ratification of this agreement, within the forms required under article 53 of the Constitution, was not necessary.”. It is difficult to infer from this sole summary whether the reasoning of the Council of State, to declare ratification unnecessary, was that the amending Budget Act authorised a guarantee to an organ that had been created through a separate agreement; or if it was that this agreement existed under private international law and established a body under private law.
The Council of State however considered necessary that the government transmitted to the Parliament, “for its complete information at the time of the debate on the project of amending Budget Act, a consolidated version, in official French translation, of the terms of the agreement taken on 7 June 2010” between 17 Eurozone members States, as well as of “the modifying decisions taken on 11 March and 21 July 2011 by the Heads of State or Government of the same States”.
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?
State guarantees and their increases are authorized by Parliament through Budget Acts (see also question IV.2). As for the EFSF, the French Parliament introduced an amendment in the act authorizing the first guarantee of the State to the new instrument, and obtained the right to be informed every time the EFSF would grant financing and loans.
Following a summit of Heads of State and Government of the Euro Area on July 21, 2011, State contributions to the EFSF were increased, and new modalities governed its use. Like before, the authorization to give additional French guarantees to the EFSF (from 111 billion to 159 billion euros) was to be achieved through an amending Budget Act voted by Parliament (Loi n° 2011-1117 of 19 September 2011) (see also question IV.2).
The new Act introduced a change in the information of the Parliament as regards the EFSF. Article 3-IV of Loi n° 2010-606 du 7 juin 2010 de finances rectificative pour 2010 was amended in a way that Parliament would no longer be informed every time the EFSF granted financing and loans. Instead, the government would only need to inform the committees of both Houses of Parliament in a report, every semester, on the use made of the EFSF.
The changes in the modalities of use of the EFSF, decided by the European heads of States and governments on July 21, 2011, were also acknowledged.
The main party of the opposition – the Socialist Party (PS) – continued to support the principle of the EFSF as well as the need to increase the guarantees given to it by France. However, the PS also criticized more vocally this instrument as coming too late and doing too little, and argued in favour of a mutualisation of debts through the creation of Euro-bonds.
The far left continued to criticize the EFSF as a way to provide State guarantee to speculators, and continued to manifest its opposition to austerity measures imposed on Greece, presented as brutal and counter-productive.
Although the far left voted against the amending Budget Act, as well as most of the PS (with the notable exception of François Hollande and Jérôme Cahuzac), the Act was adopted with a center and right-wing majority. It is to be noted that the Act did not pertain to the EFSF only, and that it was opposed also on other provisions contained in it.
What political/legal difficulties did France encounter in the application of the EFSF?
The EFSF was again at the centre of debate in Parliament at the occasion of the increase of France’s guarantee to the scheme, in September 2011 (see also question IV.6). In this context, debates on the Greek aid package, decided by heads of States and governments on 21 July 2011, gave rise to increasingly diverging views between the two main parties of the political spectrum, regarding to the most adequate way out of the crisis.
Neither the right wing majority (UMP) nor the main, centre-left-wing party in opposition (PS) challenged the idea that a Greek default would cause a domino-effect on the other fragile States of the Eurozone.
However, the PS deplored that the German Chancellor Angela Merkel and the French President Nicolas Sarkozy buried the option of a mutualisation of debt through Euro-bonds, at the Elysée summit of 17 and 18 August 2011. Without this option, the PS argued, the EFSF would never suffice to appease the markets once and for all. Moreover, the PS argued that renouncing to euro-obligations had the effect of worrying the markets as much as a Greek default would have, while not yet having the upside of relieving the Greek State from a part of its debt. Involvement of the private sector in the relief of the Greek debt, also, was criticised by the Socialist Party for the voluntary form it took.
In case France 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?
France participated in the funding of Greece on a bilateral basis. The Member States of the Eurozone set, on April 11, 2010, the technical conditions for the granting of a possible loan to Greece, for a maximum of 30 billion euros the first year. France announced its participation to the scheme for an amount of 3,9 billion euros, with a maximum lending authorization of 6,3 billion euros for Greece in 2010. The total lending capacity made available to Greece was soon raised to 16,3 billion euros over three years. The government assured that, as a financial operation, the loan would not appear as a deficit on public accounts. The Parliament authorized the loan, promised to Greece by the right-wing government, in the amending Budget Act of May 7, 2010 (Loi n° 2010-463), with an overwhelming majority. The far left constituted the main opposition to the Act.
The main reason advanced by the right-wing majority for granting the loan to Greece was a principle of financial solidarity between European states in times of crisis. Greece and other indebted Eurozone States being under attack on the financial markets, not showing this financial solidarity would give substance to the threat of a collapse of the Eurozone. Comparatively, the exposure of France and French banks to the Greek economy, estimated at around 53 billion euros, was said to be important, but not decisive in the decision to help the country. Moreover, financial assistance to Greece was considered in conformity with European law by the right-wing majority despite articles 123 and 125 of the TFEU, as long as it took the form of a loan, and on the basis of article 122 and 148 of the Treaty.
The vote in favour of the loan was justified, by the main party of opposition (PS, left), by the need to act quickly in the face of worsening conditions for Greece and other European countries on financial markets, and to make clear the financial support of France to Greece.
However, the discussions held at the Parliament showed questions and reservations on several issues (especially on the part of the centre-left and the far left).
First, the 5% interest rate was considered by several members of Parliament as shockingly high, considering the vocabulary of “solidarity” surrounding the loan. France could itself borrow on the financial markets at a much lower interest rate, and would therefore make a profit from the loan. If this fact were to be known by the Greek people, it could result in its revolt and distrust towards Europe.
Second, the conditionality imposed on Greece in exchange for the loan was deemed unfair and excessively painful on the Greek people, as it would entail a series of reforms and cuts in the Greek public sector. It was also said that the Greek people could not be held responsible for the decisions of the political and financial elite that caused the crisis. There again, revolt against Europe could be the outcome. Moreover, austerity conditions, combined with a 5% interest rate, would make it more difficult for the Greek authorities to repay public debts and reassure financial markets.
Third, the three-year plan for debt reduction was considered excessively optimistic by several Members of Parliament, both right and left wing. Instead of a three-year plan, the government was asked why it did not agree on a longer-term loan (20 to 30 years were mentioned), more gradual conditions, and a restructuring of the Greek debt. Members of Parliament also questioned why a Greek exit from the euro would be unthinkable.
The Minister of the Budget, François Baroin, and the Minister of the Economy, the Industry, and Employment Christine Lagarde, answered to these questions in several ways.
The 5% interest rate on the loan was presented as pressure put on Greece to reform quickly its public sector, in order to enable itself to repay the loan. Low rates would also give bad incentives to European States in the adoption of virtuous measures of debt control. Moreover, the rate had to be the same for all lenders, some of them benefiting from less interesting rates than France or Germany on financial markets.
Also, the form of the loan granted to Greece was all the more justified, according to the then French Government, considering that Greek authorities had led inadequate policies and lied regarding the public debt of the country.
Both the 5% interest rate and the conditionality imposed on Greece were presented as a mere copy of the practices of the IMF to deal with such cases. In particular, it was stressed that the interest rate imposed by the European leaders should be as similar as possible to the one available under an IMF scheme.
Finally, the measures conditioning the disbursement of the loan were deemed necessary, by the right-wing government, for the long-term viability of Greek finances and economy, as well as for the eventual reimbursement of the loan. A more gradual or lengthy scheme would not have prompted dynamic responses on the part of the Greek government, and the risk would have arisen to never see significant structural changes happen in the country.
The General Rapporteur on the proposal of Act at the Finance Committee of the Senate, Philippe Marini (UMP, the ruling party), accepted the situation of conditionality imposed on Greece as that of a “financial protectorate”, enacting the alienation of its independence. Yet, this alienation was qualified as “juridical”, one that was agreed to by the Greek authorities.
As regards the issues of a possible restructuring of the Greek debt or a Greek exit from the euro, the government answered that these options had been rejected at the level of the heads of States and governments, and were non-negotiable in Parliament. A restructuring was deemed too dangerous if it led to a chain-reaction on the financial markets over the sovereign debts of the weakest Eurozone-States, and an exit from Greece would lead to a collapse of the whole Eurozone.
The loan to Greece also led to broader discussions over European economic governance, its failures and its perspectives. The idea of a European Monetary Fund was advanced by many, from the right to the far left. The importance of disposing of a European tool (as opposed to one being international or American) was put forward. The role of the European Central Bank (ECB) was questioned, especially concerning the unconventional measures it took to stabilise the Greek debt. Members of the right-wing majority considered it was important to debate the role of the ECB regarding inflation, the coordination of fiscal systems, labour costs, and budgetary policies; yet they also considered these points as out of reach at the present stage of response to the crisis.
What other information is relevant with regard to France and the EFSM/EFSF?
The increase of the participation of the Eurozone countries to the IMF was understood as complementary to the creation of the EFSM/EFSF. The French Parliament voted this increase in article 4 of the same amending Budget Act as that authorising the first guarantee to the EFSF. In later debates, the centre-left (Socialist Party, PS) general rapporteur for the Finances Commission of the Senate underlined that the increase of the States’ participation to the IMF and the use of this money to aid European countries could be seen as a form of money printing outside of the control of the ECB.