IV - Early Emergency Funding

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.
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What political/legal difficulties
did Malta 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?

No discussion in the negation of the EFSF known.

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 Malta and in what way does it involve Parliament?

The Maltese Parliament passed an Act of Parliament, named ‘Participation and Guarantees under the European Financial Stability Facility Act’ (Act XIV of 2010; Chapter 505[1] ), after a very fast parliamentary procedure[2] on 14 July 2010 by unanimous vote. The Act entered into force on 3 August 2010. The Act refers directly to the EFSF Framework Agreement by guaranteeing every financial instrument or financial arrangement of the EFSF up to a sum of Euro 398.44 million. This sum was increased by Bill 86 of 2011[3] (which became the ‘Participation and Guarantees under the European Financial Stability Facility and the Government Borrowing and the Granting of Loans to the Hellenic Republic (Amendment) Act (Part 1 & Part 2)’ or Act XVIII of 2011[4] ) to Euro 704.33 million, passed by the House of Representatives on 10 October 2011 by unanimous vote. The procedure at the House of Representatives comprises five stages (three readings by the House, one Committee stage and one Report Stage[5] ) and the parliamentary procedure is completed by the assent of the President of Malta. The commencement of an act depends on the publication of the act in the Public Gazette. Act XVIII of 2011 entered into force on 18 October 2011.

Member states are obliged to issue Guarantees under the EFSF. What procedure was used for this in Malta? 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?

The Maltese Parliament has authorized the government to issue Guarantees to the EFSF in the ‘Participation and Guarantees under the European Financial Stability Facility Act’ (see question IV.2). There is no additional parliamentary procedure. Malta issues a guarantee of Euro 704 million for the EFSF. The guarantee contains the obligation that the Minister for Finance, on behalf of the Maltese government, signs the payment and the money comes from the Maltese treasury. There will be no payment via bank guarantee, but via government guarantee. Malta’s statistics on the public debt contain an “EFSF Credit Line Facility” with a debt of Euro 4.5 million.[6]

Activation problems        
What political/legal difficulties
did Malta encounter during the national procedures related to the entry into force of the EFSF Framework Agreement and/or the issuance and increase of guarantees?

During the reading of the original EFSF-Act, there was no in-depth discussion in Parliament. Since the Maltese government, led by Prime Minister Lawrence Gonzi and his Nationalist Party, did not have much time to adopt the law, parliament supported this by a very speedy adoption procedure.

Discussions took place during the parliamentary procedure of the amendment bill (‘Participation and Guarantees under the European Financial Stability Facility (Amendment) Bill’) (see question IV.2). The leader of the opposition, Joseph Muscat (Labour Party), criticised during the second reading in the plenary session on 5 October 2011, that the government has not given enough information about the on-going euro-crisis and the rescue mechanism.[7] He criticised that the “old” countries did not have to fulfil such strict obligations like the new countries. In particular in the case of Greece, the slack control was mentioned and the fact that German and French banks were engaged in Greece which is seen as having generated efficient control. In addition, the big Member States France and Germany had infringed the Maastricht criteria without any consequences. Another point of criticism, mentioned by Joseph Muscat (Labour Party), was the fact, that the European governments do not have any plan for economic growth, which is seen as the sole possibility to stop the negative development in crisis countries.[8] Helena Dalli, member of the Labour Party, confirmed this point of view and emphasised that all austerity measures had negative effects on the citizens of those countries, which had received financial support and had been obliged to pass certain austerity measures, in particular Greece.[9]

An important point of discussion raised during the Committee Stage concerned the procedure for the enactment of the first EFSF-Act. The records of the parliament did not contain the original agreement between the Member States concerning the EFSF, which was seen by Alfred Sant (Labour Party) as a fundamental procedural failure and which would make the law void.[10] The amendment bill refers to the original Maltese EFSF-Act and Alfred Sant was not of the opinion that such a reference is permissible if the original EFSF-Act is not valid. However, the parliamentary notes about the respective debate about the original Maltese EFSF-Act contain indications that the agreement was put on the table of the House of Representatives. Since Alfred Sant was not convinced of these indications, he demanded a ruling of the chairman of the House of Representatives. The chairman has this competence as part of the parliamentary procedure and he can interpret the Standing Orders of the House of Representatives. However, these rulings do not have the force of law, but members of the House of Representatives must obey them.[11] In this case, the ruling contained the reasoning that the House of Representatives should continue with the parliamentary procedure because the question whether a law is void or not can only be answered by the Maltese courts.[12] However, the ruling could not end the discussion and the House of Representatives adjourned the discussion onto the next sitting five days later. The discussion about the parliamentary procedure, which continued on 10 October 2010, led to the question, which procedural step the House of Representatives was making (Ratification or Implementation of the amended EFSF-agreement). It was not clear which of these steps parliament was discussing. Alfred Sant demanded a further ruling by the chairman and the ruling made it clear that a Parliamentary Act which authorizes the Government to borrow, lend and provide guarantees is an implementation act which implicitly contains the ratification of the EFSF-agreement. It is not necessary to pass two separate laws for these legally distinguishable steps.[13]

Furthermore, the government was criticised for not giving sufficient information to the Parliament and to enter into obligations without prior discussion in Parliament. The opposition (Labour Party) had demanded that the government should explain in more detail how the specific rescue mechanisms work and what was the position of the government in the Council of the European Union. However, government gave detailed information only some hours before the discussion in parliament began, which made an adequate preparation for the opposition (Labour Party) nearly impossible. In general, many members of the Labour Party criticised that the discussion does not face reality very much, on the national as well as on the European level. Based on this need to face reality, opposition in parliament (Labour Party) emphasised that budgetary sovereignty will not be the same as it is today. The countries lending money to others will demand that they have some kind of influence about the spending policy of other countries.

Moreover, Labour Party (opposition at this time) argued for the introduction of Eurobonds on the European level. These bonds are seen as a more adequate mechanism to solve the specific situation of crisis countries. Another point, which was mentioned and needed clarification, was the fact that the EFSF lends money to Member States with an interest rate between 3.5 and 4 %. However, if the guarantees are needed Member States have to borrow money from the financial market with an average rate of 5 %. This could lead to a loss every Member States has to bear.

It was also emphasised that the Maltese economy is mainly based on financial services and internet gambling, while other sectors such as tourism or construction work are losing their importance in the national economy. Malta must protect the financial sector as an important economic sector for the country, but must keep in mind that financial services can become a threat to the national financial stability. A further point was that there are some plans about new taxes or taxation harmonisation, which could endanger the highly important financial sector in Malta.

Also during the Committee Stage, the Labour Party (parliamentary opposition) proposed that the discussion should be continued next day, because they would like to prepare for the discussion properly. There were some changes to the law and its interpretation which had to be examined in detail. The government rejected this proposal by referring to the fact that international media are waiting for the approval of Malta (as one of the last countries) and it would endanger the credibility of the ratification process in the Eurozone and in Malta, if there would be a further postponement. The Labour Party accepted this, but emphasised its criticism with such fast ratification procedures.

The third and final reading passed the House of Representatives without any discussion. All parties agreed on the fact that it is necessary to show some solidarity with the European partner countries. This is why the bill was passed unanimously.     

Case law 
Is there a (constitutional) court judgment about the EFSM or EFSF in Malta?

No such judgment exists on the (constitutionality of) the EFSM or EFSF.

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?

In the framework of the EFSF the Maltese government decides about the disbursement of money. The parliament passed the law containing the amount of money up to which the Maltese government can issue guarantees (‘Participation and Guarantees under the European Financial Stability Facility Act’, see question IV.2). The Maltese Parliament only has the right to pose questions about the behaviour of the Maltese representative in the EFSF, but does not have to approve any measures in the application of EFSF.

Implementing problems  
What political/legal difficulties
did Malta encounter in the application of the EFSF?

The Maltese House of Representatives discussed the financial situation in Spain after their application for financial assistance for the Spanish banking sector in a plenary session on 19 June 2012.[14]

Alfred Sant (member of the then in opposition Labour Party) asked whether there are any reliable instruments to measure crisis phenomena, in particular occurring problems in the banking sector.[15] The European-wide stress tests for banks had identified that Spanish banks have problems, but not that there will be a complete breakdown. He also asked which criteria Maltese banks, in particular the Bank of Valletta, will have to fulfil to pass successfully the next stress test. Furthermore, he also demanded more clarification about the impact of the Spanish banking breakdown on the Maltese banking sector and further clarification of the government’s position on the financial transaction tax plans.

Moreover, at the end of his intervention, he criticised that there seems to be no proportionality requirement for the lending procedure to Spain, because it is the fourth biggest economy in Europe and the Eurogroup will have to help Spain in order to avoid the complete collapse of the Eurozone. This puts a big country like Spain in a better position than small countries. He clarifies his argument by the example of the loan of Malta to the state-owned airline ‘Air Malta’ of about Euro 52 million. It took a lot of time to convince the European Commission that this financial support is necessary and the Commission obliged Malta to combine the lending with certain conditions in order to comply with the European state aid rules. In November 2010 the European Commission granted the Maltese government temporary permission to lend Air Malta € 52 million (rescue aid).[16] This loan is based on the ‘Government Borrowing and Granting of Loans to Air Malta plc Act’ (Act XVIII of 2010).[17] In May 2011 the Maltese government notified the European Commission of a € 130 million capital increase in order to restructure Air Malta. The European Commission had doubts that the restructuring plan is in conformity with the EU Rescue and Restructuring Guidelines, but approved the restructuring plan after an in-depth investigation in June 2012.[18] Malta had to demonstrate its capacity to ‘rescue’ Air Malta by generating money through the sale of land, subsidiaries and other assets. In contrast to this difficult procedure for Malta, the lending of money to Spain of a remarkably higher sum was – following the argumentation of Alfred Sant – made over night. This is not seen as a fair treatment of small countries such as Malta.

A further point of discussion concerned the way of lending to Spain. Finance Minister Tonio Fenech (Nationalist Party) had to make clear that the Maltese contribution is not increased by helping Spain because all the loans are made via the EFSF and the ESM. George Vella, member of the Labour Party (opposition), asked whether financial assistance to Spain will be given through the same procedure as in the case of the Greek loans. The Finance Minister Fenech answered that he is not exactly sure how the lending will be made, but assures that Malta’s contribution to the ESM and the EFSF will not be increased by this decision. In addition, Fenech emphasises that the lending of money to Greece via bilateral loans had to be done because there was no mechanism for such a case and since there are new mechanisms (ESM and EFSF), there is no necessity to help Spain via bilateral loans.[19]

Concerning the aid package for Ireland, Maltese Finance Minister Tonio Fenech (Nationalist Party) explained in the House of Representatives in a plenary session on 29 November 2010 that the package consists of 85 billion euro.[20] Amongst other sources, 22.5 billion come from the EFSM and 17.7 billion from the EFSF. Charles Mangion, member of the Labour Party, which was in opposition at this time, asked why there is an interest rate of 5.8 %.[21] Malta had provided a loan to Air Malta with a similar interest rate and he said that the risk of loss is greater in the case of Ireland than with Air Malta. On the other side, Ireland will probably not be able to pay such a high interest rate. Furthermore, he required clarification about the procedure on the European level to authorize the respective tranches of the € 85 billion loan, in particular whether the European rescue institutions can influence the disbursement of the next tranche and whether this decision has to be made unanimously by the board of governors. In addition, Alfred Sant, member of the Labour Party, criticised that the Irish people have to suffer because of the austerity measures, while the reason for the financial problems of Ireland was the gambling of the banks.[22] Finance Minister Fenech (Nationalist Party) answered that the banking sector is too much linked with other financial institutions, so that it would not be politically acceptable to let these banks go bankrupt.[23]

Bilateral support    
In case Malta 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?

Malta has given bilateral loans to Greece. These loans had to be approved by parliament, since they do not fall under the EFSF where parliamentary approval of individual disbursements is not required (see also question II.6).

The first law is Act III of 2010 (‘Government Borrowing and Granting of Loans to the Hellenic Republic Act’)[24] , which authorised and regulated the raising of loans for the Hellenic Republic. The sum was limited to Euro 30 million (Article 3 (1) of Act III of 2010). The Minister for Finance is authorised to borrow the money under the conditions of the ‘Local Loans (Registered Stock and Securities) Ordinance’[25] (Article 3 (2) of Act III of 2010). In cases of urgency, the Minister is also allowed to use temporarily money from the Consolidated Fund. The Maltese Parliament has passed the law on 12 May 2010 and the Act came into force on 18 May 2010.

This Act was amended by the ‘Government Borrowing and Granting of Loans to the Hellenic Republic (Amendment) Act’ (Act III of 2012).[26] The new Act contains the reference to the amended loan facility agreement of the lending countries and the Hellenic Republic entered into in Brussels on 27 February 2012. The amended lending agreement forms part of the Act and contains amendments for the ‘Grace Period’, the ‘Term’ and the lowering of the interest rate. This amendment did not concern the new Euro 100 billion loan to Greece as part of the second aid package, but simply ratified the amendments to the first loan facility agreement from 8 May 2010. The bill was passed on 26 March 2012 by Parliament[27] and entered into force on 30 March 2012.

A first reading of a new bill took place on 13 May 2013[28] which amends the national ‘Government Borrowing and Granting of Loans to the Hellenic Republic Act’. The aim of this bill is to implement the amendments of the Loan Facility Agreement Contract between Greece and the lending countries entered into in Brussels on 19 December 2012. Part of the Bill is the amended lending agreement. The House of Representatives passed the bill on 25 June 2013 and it entered into force on 28 June 2013 as ‘Government Borrowing and Granting of Loans to the Hellenic Republic (Amendment) Act’ (Act No VI of 2013).[29]

What other information is relevant with regard to Malta and the EFSM/EFSF?

The Maltese Parliament discussed the amendment of the EFSF Act (see question IV.2) together with an amendment of the loan facility agreement between the lending countries and Greece from 14 June 2011, which made it necessary to amend the national ‘Government Borrowing and Granting of Loans to the Hellenic Republic Act’. This amendment forms part of the Act which ratified the participation in the EFSF and can be found under Article 5 of the ‘Participation and Guarantees under the European Financial Stability Facility and the Government Borrowing and the Granting of Loans to the Hellenic Republic (Amendment) Act (Part 1 & Part 2)’[30] (for more information see question IV.8).


[2]                       See the overview under



[5]              See for an overview of the significance of the respective stages David Joseph Attard, The Maltese Legal System, Volume I, 2012, p. 54-55

[6]                       Budget Speech 2013 by the Minister for Finance Tonio Fenech, 28 November 2012, p. 11,

[7]              Transcript of Sitting 389 of the Plenary Session of the House of Representatives on 5 October 2011, p. 509 et seq.,

[8]              Transcript of Sitting 389 of the Plenary Session of the House of Representatives on 5 October 2011, p. 509 et seq.,

[9]              Transcript of Sitting 389 of the Plenary Session of the House of Representatives on 5 October 2011, p. 520 et seq.,

[10]             Transcript of Sitting 389 of the Plenary Session of the House of Representatives on 5 October 2011, p. 536 et seq.,

[11]             See

[12]             Transcript of Sitting 389 of the Plenary Session of the House of Representatives on 5 October 2011, p. 540,

[13]             Transcript of Sitting 390 of the Plenary Session of the House of Representatives on 10 October 2011, p. 588,

[14]             Transcript of Sitting 491 of the Plenary Session of the House of Representatives on 19 June 2012, p. 482 et seq.,

[15]             Transcript of Sitting 491 of the Plenary Session of the House of Representatives on 19 June 2012, p. 486 et seq.,

[16]             See the press release IP/10/1509 of the European Commission from 15 November 2010,


[18]             See the press release IP/12/702 of the European Commission from 27 June 2012,

[19]             Transcript of Sitting 491 of the Plenary Session of the House of Representatives on 19 June 2012, p. 489 et seq.,

[20]             Transcript of Sitting 290 of the Plenary Session of the House of Representatives on 29 November 2010, p. 498 et seq.,

[21]             Transcript of Sitting 290 of the Plenary Session of the House of Representatives on 29 November 2010, p. 499-500,

[22]             Transcript of Sitting 290 of the Plenary Session of the House of Representatives on 29 November 2010, p. 500-501,

[23]             Transcript of Sitting 290 of the Plenary Session of the House of Representatives on 29 November 2010, p. 502 et seq.,




[27]                     Transcript of Sitting 460 of the Plenary Session of the house of Representatives on 26 March 2012, p. 953-971,



[30]   , p. 62 et seq