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.
What political/legal difficulties did the United Kingdom 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 EFSM agreement fell between the UK General Election and the formation of the current Coalition Government. It therefore fell to the previous and outgoing administration to participate in the negotiations. Despite this, the Chancellor at the time, Alistair Darling (now Labour MP Edinburgh South West), consulted George Osborne (now the Chancellor) and Vince Cable (from the Liberal Democrats) about the UK’s involvement in the EFSM. There is some disagreement about the course the negotiations took.
According to the Prime Minister (David Cameron), George Osborne specifically objected to the agreement when the decision was taken by Alistair Darling. Alistair Darling argued that he agreed with George Osborne that everything would be done to keep Britain out of the main part of the rescue fund. Apparently they discussed, not voting against the EFSM and EFSF but instead abstaining in recognition that Britain could have been outvoted.
Alistair Darling, giving evidence regarding the ECOFIN meeting of 9-10 May 2010, noted that, in a telephone conversation with Commissioner Rehn, he stated that the UK could not be part of a larger European stabilisation fund and that there could be no question of a residual liability. He notes repeated attempts were made by the Commission and others to get the United Kingdom to contribute to this fund. Alistair Darling also notes that a question did arise as to whether or not it was open to the UK to abstain due to election purdah. The concern, however was that if Britain abstained it may have led to Britain being outvoted anyway as the decision was made by qualified majority, and the UK could not have unilaterally opted-out of the mechanism. The result he feared was that the UK would lose influence in the other matters.
The EFSM Regulation did not undergo Parliamentary scrutiny before its adoption. This was due both to the timing of the Council’s decision on it, and the speed with which it was adopted
The legal advice pertaining to Mr Darling’s decision remains unpublished. Mr Carswell (Conservative MP for Clacton) asked Mr Hoban (Conservative MP for Fareham) why during Parliamentary debates. Mr Hoban stated that policy advice could not be released too soon since it may stifle discussion. 
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 the United Kingdom and in what way does it involve Parliament?
The United Kingdom is not part of the EFSF.
Member states are obliged to issue Guarantees under the EFSF. What procedure was used for this in the United Kingdom? 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?
What political/legal difficulties did the United Kingdom encounter during the national procedures related to the entry into force of the EFSF Framework Agreement and/or the issuance and increase of guarantees?
Is there a (constitutional) court judgment about the EFSM or EFSF in the United Kingdom?
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?
What political/legal difficulties did the United Kingdom encounter in the application of the EFSF?
In case the United Kingdom 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?
The UK provided a bilateral loan to Ireland. The Loans to Ireland Act 2010 gave the UK the authority to do this. The Bill went through Parliament rapidly. All three readings in the House of Commons were on 15th December 2010 and all readings in the House of Lords were on 21st December 2010. It received Royal Assent on 21st December 2010.
During the Second Reading in the House of Commons, George Osborne noted that he had the authority under common law to make a loan to Ireland and seek retrospective authority from Parliament. In the end, he decided that that would be a wholly inappropriate thing to do and came to Parliament first.
Speed of passing
Chris Bryant (Labour MP) noted that an emergency procedure was being used to pass the Bill this time around. He requested reassurance that in the future, if similar arrangements are made, that the Government will use the normal procedure. Mr Hoban expressed his agreement that proper Parliamentary scrutiny is important, but said as the Bill was quite short, it could be passed quickly without compromising scrutiny. Peter Bone (Conservative MP) noted that the Bill was not being passed through an emergency measure, but that the Government simply urged the House to get it through quickly. He noted that “it is not the duty of the House to say to the Executive, “It will be jolly nice to get the Bill through quickly.” We are here to scrutinise the Bill… to hold the Government to account.” He further stressed that since the Bill will be certified as a money bill, the House of Lords will be unable to fully scrutinise it. In his opinion, to pass the Bill so quickly was an abuse of Parliament and its democracy.
It is important to note that the comments regarding the use of a quick procedure to pass this Bill do not relate solely to euro-crisis issues. The comments were that generally, in controversial issues, the Government attempted to reduce proper scrutiny.
Fear of EU jurisdiction
In the Committee Stage, Mr Cash expressed fears that despite the loan purporting to be bilateral, that it would come under EU jurisdiction. Proposed an amendment to stress the bilateral nature of the loan, which would state that it is “other than a loan by virtue of any provision by or under the European Communities Act 1972.” Most tellingly, he said: “If it is within the European Union legal framework, that means the European Court will get its hands on it. It may be that if there was a dispute or default or any of the other difficulties that could arise from the agreement in the Bill as enacted…. that will in no way alter the fact that ultimately, as long as parliamentary sovereignty prevails in the light of the European Communities Act, the Supreme Court will not prevent it from falling within the framework of the European Court of Justice.” Mr Hoban later commented that an EU loan made to Ireland through the EFSM would not be a loan from the UK to Ireland and would not be subject to the Bill.
What other information is relevant with regard to the United Kingdom and the EFSM/EFSF?
The Chairman of the Economic and Financial Affairs and International Trade Subcommittee wrote to Justine Greening MP on 27 July 2010 regarding the EFSM. He drew attention to the fact that the basis of the Regulation is Article 122(2) TFEU. He noted that the subcommittee has always found inconsistencies between the no-bail out clause for Eurozone countries in Article 125 and the medium term financing facility available to all Member States outside the euro-area. Justine Greening in her response drew attention to the fact that the mechanism would only allow for the provision of loans and not grants and thus require repayment with interest.
During the Committee Stage of the Loans to Ireland Bill Mr Cash expressed the opinion that Article 122 had been wrongly used. In his opinion, it ought only be used for natural disasters and energy supply and things of that kind. He expressed preference for the use of Article 136 TFEU for such measures since then it would only involve the Eurozone. He also felt that there has been an override of the proper scrutiny in the UK of the EFSM/EFSF.