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)
What political/legal difficulties did France 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.
France and Germany appear to have been the initiators of the acceleration of the process leading to an earlier adoption of the ESM, out of concern for a worsening of the rating of France’s debt.
The French government declared that a consensus existed among European leaders over the replacement of the EFSF by the new mechanism. The government said it pushed for and obtained, in particular, three elements during the negotiations. First, an association of the national and European parliaments in the mechanism, through their organisation in a “conference” of parliaments. Second and third, the introduction of two complementary parts of the ESM Treaty: on the strengthening of economic governance in the Eurozone, and on coordination of economic policies aiming at growth.
One main disagreement between the heads of states and governments appears to have born on the introduction or not, in the ESM Treaty, of a disposition requiring that the Fiscal Compact be signed by any State asking to benefit from the Mechanism. France was in favour of keeping a margin of manoeuvre on the matter and it obtained, with the support of other Member-States, that this requirement be mentioned only as a political one in the preamble of the ESM Treaty.
How has the ESM Treaty been ratified in France and on what legal basis/argumentation?
The ratification of the ESM Treaty was submitted as an Act, through an “accelerated procedure”, by the President of the Republic Nicolas Sarkozy to the vote of both Houses of Parliament. The same Act authorised the approval of the amendment of article 136 TFEU. The government submitted the proposal of Act to Parliament for ratification, as required under article 53 of the Constitution.
Under article 53 of the 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”..
An “accelerated procedure” (see annex) was used, which shortens the procedure of adoption of the Act, in particular by limiting the number of readings of the Act to one in each Houses. Adopted by both Houses after one reading, the Act authorising the ratification the ESM Treaty was published in the Official Journal on March 8, 2012 (the same day as the approval of the article 136 TFEU amendment).
What political/legal difficulties did France encounter during the ratification of the ESM Treaty?
See also question V.3.
The debates which arose during the ratification process of the ESM Treaty were tightly intertwined with more general arguments over the French and European response to the crisis, in particular the Fiscal Compact.
The context of ratification facilitated this connection. The participants to the debates underlined that the ESM Treaty contained a political commitment to make the benefit of the Stability Mechanism dependent on the ratification of the Fiscal Compact, debates over the ESM Treaty also involved considerations over the Fiscal Compact. Thus, justifications given for abstention votes (mainly PS and associates) and votes against (mainly far left GDR and CCRC, and ecologists) the ratification of the ESM Treaty drew on more varied and comprehensive issues.
These issues included: the opportunity to renegotiate the Fiscal Compact; the focus on austerity of the current instruments in comparison with concerns over growth; the brutality of the conditionality imposed on bail-out countries, in a process leading to the subordination of sovereign States to other States or bureaucrats; sovereignty and democratic issues, in particular the role of the national and European Parliament(s); wishes for more ambitious EU Treaty reforms; the Franco-German relationship, and different assessments of the German role in the management of the Eurozone crisis.
These more comprehensive issues constituted the background to the main obstacles to the Act in both Houses of Parliament. The PS and its associates abstained from voting on the Act, in both Houses – including the Senate where a PS led coalition had won a small majority in September 2011 (see question I.1 on the political context for more information on majority changes). The far left and ecologists voted against the Act. A prior “rejection proposal” was introduced before the National Assembly, as well as an “objection of inadmissibility” in the Senate. Both had been lodged by the far left, and both were rejected. In the end, the draft law was adopted after the first reading by both Houses, with the support of centre and right-wing votes, in virtue of an “accelerated procedure” that had become common use under President Sarkozy even before the crisis. The parliamentary debates show that it was important to the French government to be the first to ratify these instruments, so as to set an “example” and give momentum to a process of ratifications that could face difficulties across Europe.
While the ratification procedure of the ESM Treaty implied wide-ranging debates over the Euro-zone crisis as a whole, the focus will here be on the arguments dealing directly with the ESM itself (for the other parts of the see also questions V.3 and IX.3).
The main opponents to the ESM were MPs from the far left, who voted against the Law proposal. They argued that the ESM Treaty actually increased the powers of the EU, at the expenses of national sovereignty. To the argument that the intergovernmental nature of the ESM Treaty empowered individual Member States, it was answered that the involvement of the European Commission, of the ECB and of the European Court of Justice actually enhanced EU powers and pertained to a disguised federalism.
The absence of accountability of the ESM before the European Parliament and national parliaments was criticised by the far left. Article 35 of the ESM Treaty was also targeted, underlying the immunity of the ESM officials against prosecution, which was perceived as insulating them from the peoples of Europe and undermining the legitimacy of the instrument.
People’s sovereignty was also said to be encroached upon by the involvement, in the case of France, of 16 billion euros and potentially 142 additional billion euros in the Mechanism. Indeed, the “offshoring” of the control of such amounts of public money appeared as a renunciation of budgetary control by the Parliament.
The Socialist Party also criticised the ESM, but only abstained from voting on the ratification Act. Given that, at that time, the left had a potential majority at the Senate, it seems that the choice of a simple abstention allowed the Act to be finally adopted by the Senate on the basis of support by the right-wing MPs and their allies.
The PS criticised more generally the architecture of the Euro-crisis measures, arguing that they were not balanced, too much focused on fiscal discipline and did not take enough into account growth and steering measures for the economy. The political link between the ESM and the Fiscal Compact was especially criticised as enshrining the mechanism of stabilisation in this discipline-only perspective. The toughness of the conditionality imposed on Greece and its social consequences were presented as an example of the wrong outcomes entailed by such perspective, and as harming European cohesion.
The link between the ESM and the Fiscal Compact was also criticised as it was considered less certain that every relevant Member State would find the political resources to ratify the Fiscal Compact and introduce changes in its Constitutional law.
Moreover, the intergovernmental nature of the ESM was criticised by the PS as it escaped a framework where the European Parliament and national parliaments could have a substantial role.
Although the principle of a permanent stability mechanism was not put into question, the PS also considered that the ESM should be able to access the liquidities of the ECB in order to be fully efficient. The government answered that the ECB was already playing an important role of stabilisation, although it was not yet directly linked with the ESM – but that such a development would however be conceivable in the future. The PS also stressed that France’s participation to the ESM would still have an impact on public finances, even though it would not be accounted as a public deficit for the purposes of budgetary balance.
Finally, the PS raised concerns over the compatibility with the Constitution of what could be considered as a State guarantee granted outside a Budget Act (see also question VIII.4)
Is there a (constitutional) court judgment on the ESM Treaty?
There is no decision by the Constitutional Council on the ESM Treaty. However, the French Government has sought and received advice from the Council of State (Conseil d’Etat), highest administrative court in the French legal system, on the legality of the ESM Treaty.
The point of possible constitutional difficulty evaluated by the Council of State, and which was raised by the main party of opposition at the time (PS), bore on the non-inscription, in a Budget Act, of [the “paid in capital” and ] “on call capital” allocated to the ESM. Yet, as such allocation could in certain cases be assimilated to a form of guarantee of the State, it could appear to violate the Organic Law on Budget Acts (the LOLF; see also question II.1), which provided that guarantees from the State must be authorized by the vote of a Budget Act.
In other words, the issue at stake seems to have been that the amending Budget Act for 2012 (that would become Loi n° 2012-354 du 14 mars 2012), examined in Parliament around the same time in February 2012, only provided for authorization by Parliament of the “paid-in capital” (up to 16 billion euros for France, with a first installment of 6 billion euros), and not for France’s commitment on the “on call” capital (of 142 billion euros).
The answer from the Council of State, drawing on precedent, apparently meant that, as long as Parliament was informed on the “on-call capital” commitment, its formal acceptance in a Budget Act was not necessary. This analysis was then endorsed by the government.
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?
See also question VII.4.
Parliament voted the first instalment of paid-in capital in an amending Budget Act (Loi n° 2012-354 of 14 March 2012). Debates were similar to the more general ones that took place at the occasion of the ratification of the ESM Treaty: the Socialist Party welcomed the principle of the Mechanism but considered it should have come earlier and with lending capacity. The far left called for a referendum on the main crisis instruments and condemned firmly the course taken by the crisis management. It criticised the ESM in the broader landscape of measures (especially the Fiscal Compact) that, they argued, abusively limited the social function of the States, placed France under tutelage, and durably imposed austerity on Europe.
However, if the amending Budget Act was opposed by both the PS and the far left, it was mainly because of its other provisions. The Act was eventually adopted despite the opposition of the Senate (now with a left-wing majority), because of the prevalence of the National Assembly (still dominated by the right-wing coalition) in cases of disagreement between the Houses of Parliament.
Application & Parliament
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 ESM Treaty provided for national parliaments (and the European parliament) to be informed by annual reports on the activities and accounts of the Mechanism. According to the government, it is France that obtained that both the European parliament and national parliaments would be associated to the ESM, by setting up a parliamentary conference – although they would not have decisional powers. Instalments for the ESM are voted by Parliament in Budget Acts, as was the case with the amending Budget Act of 14 March 2012 (Loi n° 2012-354). However, it seems that the commitment on “on call capital” made by the government for the ESM, did not require a ratification by Parliament – only that it be informed (see question VIII.4).
What political/legal difficulties did France encounter in the application of the ESM Treaty?
It seems first of all that rather than difficulties the application of the ESM has encountered enthusiasm in France. Indeed, its ever growing importance was underlined and positively assessed by the Finances Committee of the Senate in June 2013, while its possibility to recapitalize banks directly was also welcomed.
In fact, the French contribution to the ESM was used as an argument for good administration since during the debate on the Accounting act (loi de règlement) for 2013 the fact that France had reduced its public expenditure in spite of its contribution to the ESM was assessed positively.
The positive reaction provoked by the ESM can seem somewhat surprising given the fact that the French parliament is in no strong position in the application of the ESM Treaty: it does receive a letter from the Minister for Finances on the financial situation of the ESM every three months but its only intervention takes place when the yearly Financial Act is approved. At that point, the Parliament is led to vote on the financial participation of the French State to the ESM. As a consequence, debates regarding the use of the ESM only take place during hearings organized by the Finances Committee at their request so that the political attention is not much attracted on this issue.
When the ESM was used to rescue the Cypriot banks, though, several parliamentary questions were submitted to the Government. A written question was posed by deputy Jacques Bompard (not registered to any particular group) as to whether European and French taxpayers’ money had not been used to save money which lawful origins could be doubted. The foreign minister answered repeating its engagement to fight for transparency and against money laundering and stating that an external audit on this question had been requested for Cyprus. GDR deputy Jean-Jacques Candelier also strongly criticized the blackmailing dynamic vis a vis the Cypriot people and RDSE senator Jean-Pierre Chevènement questioned the way in which the restructuration of Cyprus was achieved.
There has not been any particular legal difficulty in the application of the ESM Treaty: the Treaty was regularly ratified after the approval of an act authorizing such ratification of 8 March 2012 and credits were regularly approved in Finance Acts.
Have there been any relevant changes in national legislation in order to implement or to comply with requirements set by the ESM-Treaty?
It doesn’t seem so, except for the changes pertaining to the ratification of the Fiscal Compact as part of the same architecture as the ESM Treaty (see section IX on the Fiscal Compact).
What other information is relevant with regard to France and the ESM Treaty?
France, together with other European and non European States, continued to raise its contribution to the IMF while setting up the ESM.