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 Slovakia 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.
In the negotiations, Slovakia focused on changing the distribution key, which it considered disproportional and disadvantaging smaller Member States. Radičová cabinet demanded that the calculations be based exclusively on the countries’ economic potential and not, as in the case of guarantees for the EFSF, half on the economic potential and half on the country’s population. “To push this demand through, the Slovak government was ready to support most of the provisions of the German and French Competitiveness Pact, presented in early February, and to mute its objections to the idea of a harmonisation of the base of the corporate income tax. During the meeting of the Eurogroup ministers of finance on March 21 a compromise was reached under which for 12 years from the accession to the euro area, the contribution of Slovakia and other countries whose GDP does not exceed 75% of the EU average, will be 75% based on their economic potential, and 25% based on the previous conditions (half on the economic potential and half on the population). Slovakia will thus save nearly 17% compared with the previous principles.” The new key “is just, better reflecting economic strength of the individual countries and for Slovakia, it means an overall decrease of its contribution up to €1.162bn.” Slovakia’s contribution to the ESM, estimated at €4.77 billion over five years (nearly €650 million annually, of which €132 million in the form of a direct transfer) is to be covered from loans, increasing its debt to GDP ratio.
Regarding the collateral request, then coalition party SaS, which effectively brought down the government during the EFSF increase of guarantees vote in the Slovak Parliament, called for loan repayment guarantees from the Greek government (the ‘collateral deal’) as the condition for Greek second package aid. This was carried through neither then nor in the case of the ESM later.
How has the ESM Treaty been ratified in Slovakia and on what legal basis/argumentation?
The Parliament agreed to shorten a legislative procedure for the ratification of the ESM. The Treaty was qualified as a presidential international treaty (Art. 7/4 of the Constitution) that requires implementation by a statute (Art. 7/5 of the Constitution). The specific law adopted for implementation of the obligations under the EFSF did not suffice. Given this qualification (meaning that the treaty was not considered as transferring new competences to the EU under Art. 7/2 of the Constitution and therefore did not require approval of the constitutional three-fifth majority in the Parliament), an absolute majority of MPs (that is of 76 MPs) was needed for the ratification. The Treaty is not directly applicable and does not enjoy primacy over statutes.
The vote on June 22, 2012 was rather persuasive with 118 MPs voting in favor to 20 against (5 abstentions, 1 not voting, 6 missing). Only opposition party SaS and most of the MPs of a new parliamentary party Obyčajní ĺudia a nezávislé osobnosti (Ordinary People and Independent Personalities; OĹaNO), which was in the previous parliamentary term a part of SaS, voted against.
What political/legal difficulties did Slovakia encounter during the ratification of the ESM Treaty?
At the time of the ESM ratification (approved by the Parliament on June 22, 2012, ratification concluded upon signature by the President on June 28, 2012, ratification notified to EU Council on June 29, 2012), Slovakia had a new government formed by a single party, Smer-SD of Robert Fico, which disposed of convincing majority of 83 out of 150 MPs in the Parliament. PM Fico is considered far less troublesome for the Eurozone economic governance reforms plans than the previous cabinet of center-right parties led by Iveta Radičová has been. “The chair of Smer-SD is convinced that since Slovakia is economically dependent on Germany and France, it must cooperate with these countries also politically, otherwise it will find itself on the sidelines of Europe.” Although Smer-SD of PM Fico disposed of sufficient majority for the ESM approval, PM Fico convened, in June 2012, a meeting of all parliamentary parties on the support to the ESM ratification and plans on fiscal consolidation in Slovakia. Leaders of all parliamentary parties, but Richard Sulík of SaS, pledged to support the ESM.
The capital contributions for paid-in shares started 15 days after the implementing statute was effective (the first contribution of €131.84M; the second contribution of €131.84M in Oct. 2012 and in 2013-14 three more payments totaling €359.52M (in April 2013, Oct. 2013, and first half of 2014)). The first payment was secured from state financial assets without a need to increase debt. The subsequent payments have been financed from the loans and thus have caused an increase of the state debt, which could lead to an obligation to adopt further austerity measures to keep the debt and deficit in line with the amended SGP, Fiscal Compact, and Fiscal Constitutional Responsibility Act (in 2013, the first threshold of the FRCA when debt brakes are activated has been surpassed). The main opponent of the ESM, SaS of Sulík, urged PM Fico to slow down the ratification process to allow for more public debate. Mr. Sulík commented that PM Fico was moving too quickly, stating that the poorest country of Europe (Slovakia) must by June 30 by any means declare in the Parliament that “it will save everybody around.” The remaining opposition parties partly agreed to “push the final decision to as late in June as possible, since by then it should be clear whether Germany and Greece will support the creation of the ESM.” The ESM ratification was closely connected to the consolidation of public finances efforts, where the division between Smer-SD and opposition was substantial. Although Smer-SD declared that it would seriously consider the solutions suggested by the opposition, its sufficient majority in the Parliament also bound Smer-SD to fulfill its promises to the voters, which meant to increase revenues (especially increasing corporate income tax) instead of cutting on expenditures, while the opposition urged for an opposite approach.
Is there a (constitutional) court judgment on the ESM Treaty?
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?
There is no direct involvement of the Parliament in the first and subsequent instalments of the paid-in capital. However, the Parliament decided on these instalments indirectly by giving its consent to the ESM Treaty (the amounts and schedule of instalments were known and debated) and by adopting a statute implementing the ESM Treaty – Law No. 296/2012 Coll., on the European Stability Mechanism (ESM Act). The ESM Act entered into force on Sept. 28, 2012 and the first payment was due 15 days later. The Act also amended Law No. 386/2002 Coll., on State Debt and State Guarantees, to allow for an exception from an obligation of the Finance Ministry not to exceed resources for financing a state debt by more than 30% of state debt guarantees due in a budgetary year during that budgetary year (that is payments for the Slovak contribution to the ESM capital are not counted for the purposes of the 30% cap). It also provided that the resources obtained for the financing of the Slovak contribution to the ESM capital are considered state financial actives (§ 4/3 of the State Debt and State Guarantees Act). For more information on the role of the Parliament (or rather a lack of it) in the ESM application see the answer to the question VIII.6. For the debates that related to the payments see the answers to questions VIII.3 and VIII.6.
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.
During the ratification process in the Parliament, two resolutions dealing with the role of the Parliament in the application of the ESM Treaty were considered, though both failed. The first was offered by the vice-chairman of the Parliament and chairman of KDH Ján Figeľ. According to this draft resolution, the Governor for Slovakia is obliged to vote in favor, against, or abstain from a voting on financial assistance to the member of the ESM in compliance with a mandate given to him by the Parliament. In emergency situation, where the Board of Governors must decide quickly and the mandate from the Parliament cannot be obtained within such time frame, the Committee for European Affairs or the Budget Committee of the Parliament may act instead. The Governor is obliged to respect the mandate given by the Parliament in the following situations under the ESM Treaty:
– decision on the change of authorised capital stock (Art. 10/1 ESM Treaty)
– decision on the call in of authorised unpaid capital (Art. 9/1 and 4 of ESM Treaty)
– decision on whether to entrust the European Commission with the task of negotiating a MoU with the ESM Member concerned (Art. 13/3 of ESM Treaty)
– decision on the approval of conditions set in the MoU by the Board of Governors (Art. 13/4 of ESM Treaty)
– decision on the change of list of instruments of financial assistance when the volume of the assistance remain unchanged.
The resolution received support of all opposition parties. However, because the governing party Smer-SD abstained from the voting, the resolution was short of 12 votes to pass (while for the approval of the ESM Treaty absolute majority was required, for the resolution to pass simply majority would suffice – that is the quorum depended on the number of MPs present).
The second resolution offered by MP Daniel Lipšic of KDH read: “National Council of the Slovak Republic calls upon the Government of the Slovak Republic to ensure, in relation to the Treaty Establishing the European Stability Mechanism (ESM), that any payment of the contribution of the Slovak Republic to the capital, or its part, of the ESM will be conditioned by providing sufficient guarantees to the Slovak Republic from a receiver of the financial assistance.” The resolution was justified by the following arguments that have circulated in the Slovak political debate on the EU response to the sovereign-debt crisis since the first Greek aid package was negotiated: “1. Slovak share on the ESM capital represents 0.824% and is therefore irrelevant for the ESM entry into force (90% suffice). 2. Slovakia without any assistance bailed out its banking sector ten years ago by an overall amount of €3.3bn, which is not reflected in any way in the position of Slovakia in the ESM and this fact creates a substantial disadvantage for Slovakia. 3. Slovakia due to its prudent fiscal policy reached a situation, where, from the point of view of citizens’ level of pensions, incomes, and living standards, Slovakia belongs to the group of poorest members of the Eurozone. It is therefore absolutely unacceptable that Slovakia contributes from its funds for current and future modest pensions to several fold higher pensions of rich countries without proper compensations and guarantees. That is not solidarity as we understand it. 4. ESM Treaty in its current version means that citizens of Slovakia, one of the poorest members of the Eurozone, will lend the amount of €5.8bn or more (€1000 per capita) and voluntarily give up its ability to decide on how these resources are used, while having no remedy against such decisions (given the immunity and competences of the Board of Directors).”
The second resolution failed as well with similar results (61 MPs of the opposition voted in favor, while governing party Smer-SD abstained from the vote).
The law implementing the ESM Treaty, the ESM Act, gives competence regarding the management of Slovak asset in the ESM to the Ministry of Finance (§ 2/2 of the ESM Act). For the use of state financial actives for the payments of Slovak contributions to the ESM (for both paid-in and callable shares), consent of the Government is required (§ 2/4). The Ministry is responsible among others for monitoring of fulfillment of the conditions assumed by debtors based on the ESM Treaty, MoU, and other legally binding documents (§ 3). Slovakia is represented in the ESM by the Finance Minister in the Board of Governors and in his absence by an alternate governor, who is appointed by the Government on a recommendation from the Finance Minister from high-ranking officials of the Ministry. The Director and alternate Director for Slovakia are also appointed by the Government on a recommendation from the Finance Minister (§ 4/1 and 2).
For the following decision made by the Finance Minister (Governor) in the Board of Governors, the Government must give consent before the decision is taken:
– a decision to make the capital call (§ 4/3).
For the following decisions made by the Finance Minister (Governor) in the Board of Governors, the Parliament must give consent before the decision is taken:
– a decision to change the authorized capital stock and adapt the maximum lending volume of the ESM
– a decision on update of the key for contributions (§ 4/4/).
The Government decides with consent of the Parliament on the financial assistance to Slovakia (§ 5).
With regard to decisions to grant financial assistance and the disbursement of tranches, the ESM Act does not explicitly provide for the decision-making in these cases, which means that the decision is in the competence of the Finance Ministry (§ 2/2 – the Ministry manages the Slovak asset in the ESM). The Finance Minister, his alternate, the Director and his alternate enjoy criminal immunity for their decisions made in the ESM (Art. 35 of the ESM Treaty and § 4/5 of the ESM Act). During the legislative process on the ESM Act, the opposition parties offered two amendments explicitly providing that consent of the Parliament is required for any decision on financial assistance from the ESM. Neither of these amendments passed.
What political/legal difficulties did Slovakia encounter in the application of the ESM Treaty?
The decisions were effectively in the hands of the Prime Minister and the Government, although the Ministry of Finance is formally responsible. According to Radko Kuruc, an advisor to the Finance Minister, Slovakia joined others in conditioning the financial aid by having direct supervision on the Spanish Fund for Orderly Bank Restructuring and guarantees from Spain that managers of restructured banks would not receive bonuses.
PM Fico conditioned his support to a financial assistance to Cyprus by “active cooperation on exchange of information,” mentioning that there were many firms incorporated in Cyprus operating in Slovakia, without a possibility to discover their true owners and avoid possible money-laundering. The Government adopted a resolution approving the financial aid to Cyprus from the ESM. At this time, PM Fico made the Slovak position much stricter: The conditions of the financial aid must mean “total control over the finances of this state. This state must implement harsh measures… in the social security system, in the area of privatization, and in the banking system.”
The opposition have not attempted to block application of the ESM and rather supported it with an exception of SaS. However, any attempts to increase capital would be problematic.
Have there been any relevant changes in national legislation in order to implement or to comply with requirements set by the ESM-Treaty?
The ESM Treaty was implemented by Law No. 296/2012 Coll., on the European Stability Mechanism (ESM Act). The ESM Act also amended Law No. 530/1990 Coll., on Bonds, Law No. 350/1996 Coll., on Rules of Procedure of the National Council of the Slovak Republic, and Law No. 386/2002 Coll., on State Debt and State Guarantees. These changed were discussed above.
What other information is relevant with regard to Slovakia and the ESM Treaty?
On Sept. 28, 2012, a group of MPs offered a draft resolution on a potential increase of funds of the ESM. The draft resolution reacted to the German plan on increasing the ESM funds by involving private capital through the so-called leveraging. The draft resolution required that the Government would need to secure consent of the Parliament before supporting such decision in the ESM. However, in the vote on Nov. 7, 2012, the Parliament voted down the draft resolution with governing Smer-SD voting against (all opposition parties supported the draft resolution).