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 Slovenia 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?
There is not much information about the position Slovenia adopted in negotiating the EFSF and the EFSM. The position Slovenia was to adopt in negotiating the proposal for the Council Regulation establishing a European financial stabilisation mechanism was discussed by the Slovenian Government on May 9, 2010. However, the transcript of the debate in not publicly available. The discussion that took place on that date is defined as “internal,” indicating that the public was excluded from the debate.
The position Slovenia adopted during the ECOFIN meeting that took place in Luxembourg on June 8 was discussed by the Slovenian Government on June 3, 2010. On this occasion, the government discussed the position the Slovenian Ministry of Finance would adopt during the meeting of the working group developing the proposal of the measures to be adopted to impose the financial stability of the Member States. However, also the transcript of this debate is not publicly available. Therefore, publicly available documents do not clarify what position the Slovenian government adopted during the negotiation.
During the negotiation process of the EFSF and the EFSM, media did not report information about the position adopted by the Slovenian government, nor was such position evident from the Government or the Parliamentary debate. After the two mechanisms were adopted, the press did nonetheless comment that Slovenia provided one of the highest guarantees among the member states, when such guarantee is calculated in relative terms. The Slovenian guarantee represented 5.8 percent of GDP, whereas those of others countries, such as France, Germany, and Belgium, were respectively 4.7 percent, 5 percent, and 4.5 percent.
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 Slovenia and in what way does it involve Parliament?
To provide the legal basis for the participation in the EFSF, the National Assembly adopted in July 2010 the Act Regulating the Guarantees of the Republic of Slovenia for Ensuring Financial Stability in the Euro Area (Official Gazette of RS, no. 59/10 and 79/2011) [hereinafter Guarantees Act]. The Government presented the draft of the act on July 1st, 2010, and the National Assembly approved the draft on July 13, 2010.
Article 4 of the Guarantees Act determined that the Government should approve the utilisation of the funds for each financial program, which need to be unanimously approved by the Member states of the Eurozone. The act provided that in approving each program, the Government and the National Assembly shall cooperate in accordance with the Act on Cooperation between the National Assembly and the Government in EU Affairs (Official Gazette of RS, no. 34/04 and 43/10). Further, the act authorized the Minister of Finance to enter into individual guarantee agreements and make “guarantee statement” for the obligations authorized by the government. Article 4(6) of the Guarantees Act provided that the Government should inform the National assembly each quarter about the approved loans, guarantees, and the loans granted to individual instalments, that are funded by the financial instruments covered by the guarantee of Slovenia.
On September 27, 2011 the National Assembly voted for the amendment of the act, which increased the Slovenian guarantees following the June 2011 Euro-zone Heads of Government decision. The National assembly passed the amendment with 49 votes in favour, 4 against, whereas 24 members did not vote. The Act Amending the Act Regulating the Guarantees of the Republic of Slovenia for Ensuring Financial Stability in the Euro Area entered into force in October 2011, and expanded the guaranty of Slovenia.
Member states are obliged to issue Guarantees under the EFSF. What procedure was used for this in Slovenia? 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 procedure is determined in the Act Regulating the Guarantees of the Republic of Slovenia for Ensuring Financial Stability in the Euro Area. (see answer to question IV.2).
On July 13, 2010 the National Assembly discussed the draft act. There was an intensive debate concerning the adoption of the Guarantees Act among the political parties. Most political parties that were members of the left-wing governing coalition (SD, Desus, LDS) were in favour of the Act. They stressed that the adoption of the Act was an important step in showing the support of Slovenia towards the EU. They also argued that the act was fundamental to ensure a stable economic position of Slovenia, given that Slovenia, as a member of the Euro zone, was affected by the stability of the euro zone. The central left party Zares, at the time a member of the coalition, declared nonetheless that it will not adopt a unified position in the voting of the act and clarified that its representatives will vote based on their personal believes. Zares observed that the Guarantees act would transfer to the Government responsibilities which would regularly lie in the domain of the National Assembly. The Act provided that the government would have the competence to approve the guarantee, whereas the National Assembly—the body that would regularly be in charge of it, would be only informed about the adoption of that measures four times a year.
Political parties part of the opposition did not support the suggested act. SDS, SLS, SNS—all right wing political parties—declared that they will vote against the act. SLS maintained that issuing such guarantee would be detrimental to the stability of the Slovenian economy. The opponents of the Act suggested that the Act should be amended in the way that the decision for granting each warranty would be established through a law, which would have to be adopted by the National Assembly.
The Committee on Finance and Monetary Policy also provided a negative opinion about the suggested act. It maintained that the Act was in violation of Article 149 of the Slovenian Constitution, which determines that the state guarantees may be established exclusively through the adoption of a law. The Committee also pointed out that, based on the Constitution, it is possible to establish a guarantee only for a determined financial program, whereas the Guarantees act would provide a guarantee for unidentified projects. The National Assembly voted about such amendment and finally rejected it with 31 votes in favour and 43 against.
The Guarantees Act was finally approved with 44 votes in favour and 21 against. The deputy Bogdan Barovič (member of the extreme right party SNS) requested the government to withdraw the draft. The Government however noted that the request was submitted only after the National Assembly had already approved the draft, and thus rejected the request.
What political/legal difficulties did Slovenia encounter during the national procedures related to the entry into force of the EFSF Framework Agreement and/or the issuance and increase of guarantees?
On July 26, 2010 a group of 37 deputies submitted to the Constitutional Court a request for the assessment of the constitutionality of the Guarantees Act. The group of deputies suggested that the Guarantees Act was unconstitutional for several reasons. First, they argued that there was no valid justification for bringing the legislative proceeding of the Guarantees Act under the urgent procedure, instead of using the regular legislative procedure. Second, the deputies maintained that the Guarantees Act was in violation of Article 149 of the constitution, which provides that the decision for Slovenia to offer a guarantee can be established only with a legislative act. Third, the group of deputies also argued that the Guarantees Act would restrict too much the role of the National Assembly in approving guarantees, since the role would be limited, according to the Guarantees Act, to being informed about the measures taken by the Government.
On August 4 2010, the Constitutional Court sent to the National Assembly a request to submit its comments on the proposal of the deputies to suspend the implementation of the act. The central right party SDS argued that the act was unconstitutional. They emphasized that Slovenia had in the past negative experiences with giving guarantees. The guarantees offered to Yugoslavia almost drove the country into bankruptcy. Further, SDS argued that the taxpayers’ money should be managed in a transparent manner. They emphasized that the limits of the given guarantees are unclear and undefined. It was not clearly determined which countries would benefit from such financial aid. Furthermore, SDS stressed that the decision whether to grant a guarantee would not be taken by Slovenia, but rather by the big countries of the European Union—those that will have a direct interest in providing the financial aid. SDS also pointed out that the discussion would not take place within the National Assembly, which will be merely informed about the guarantee, but by the Government. It reiterated that Article 149 of the Constitution requires that a warranty should be given through a legislative act. SDS stated that the aim of this provision is to make sure that an important decision such as giving a guarantee, which has important consequences for the public finance, is be taken by the parliament and it should require the agreement of the majority. The majority of deputies needs to be convinced that the issuance of such guarantee is reasonable, SDS argued.
Members of the left wing party SD rejected the criticisms. They emphasized that the act clearly provides for one, single guarantee, and not multiple guarantees, as suggested by the opposition. They thus concluded that the act was in line with the requirement of the constitution.
The National Assembly discussed the issue during the meeting on August 26, 2010. The Government as well as the Legislative and Legal services submitted their opinions on the issue. The government stated that the criticisms presented by the deputies were taken into account when the act was drafted, rejecting in this way the plausibility of the criticism.
Is there a (constitutional) court judgment about the EFSM or EFSF in Slovenia?
Following the adoption of the Guarantees Act, a group of thirty-seven deputies of the National Assembly challenged the validity of the act on constitutional grounds. In February 2011, The Slovenian constitution court ruled that the act was constitutional.
1. Name of the Court: Constitutional Court of the Republic of Slovenia
2. Parties: NA Case U-I-178/10
3. Type of action/procedure: The procedure challenged the constitutionality of the Act.
4. Admissibility issues: Not applicable
5. Legally relevant factual situation: Slovenia adopted the guarantees act on July 13, 2010
6. Legal questions: Is the Act Regulating the Guarantees of the Republic of Slovenia for Ensuring Financial Stability in the Euro Area unconstitutional?
7. Arguments of the parties:
Petitioners: A group of thirty-seven deputies of the National Assembly (hereinafter petitioners) required the assessment of the constitutionality of the Act Regulating the Guarantees of the Republic of Slovenia for Ensuring Financial Stability in the Euro Area (hereinafter: the Guarantees Act). They alleged that the Act is inconsistent with Article 2, Article 3, the second paragraph of Article 120, Articles 148, 149, and 153 of the Constitution of the Republic of Slovenia (hereinafter: Constitution). The petitioners maintained that a separate legal act should be adopted whenever a new guarantee is issued. They did not agree that an individual act could establish a duty to provide future guarantees, determining only the total amount and duration of the guarantee, without however determining other mandatory elements. They consequently argued the Act was in violation of Article 149 of the Constitution, which determines that the issuance of a guarantee is only possible with the adoption of a legal act. The petitioners further argued that the Act interfered with the position of the National Assembly, limiting its role to the confirmation of the offered guarantees in accordance with the respective funding programs. Such measure was in their view in violation of the principle of separation of powers determined in Article 3 and the principle of proportionality determined in Article 2 of the Constitution. The petitioners also argued that commitments made by the state were not foreseen in the budget for the years 2010 and 2011. Article 5 of the Public Finance Act however provides that the amount of borrowing and any proposed government guarantee needs to be determined through a specific procedure and approved in the Budget Implementation Act. Also for this reason the petitioners maintained that the Guarantees Act was in violation of Article 148 of the Constitution. Finally, the petitioners stated that the guarantee placed with the Act did not determine its fundamental elements as provided in the Code of Obligations for the establishment of a valid guarantee.
8. Answer by the Court to the legal questions and legal reasoning of the Court
The Constitutional court first stated that since the entrance in the Euro-zone, Slovenia shares the monetary policy with the EU. The decision of the Slovenian Government and National Assembly should hence not only respect the interest of Slovenia, but also the interest of the entire EU. The Supreme Court also maintained that the bankruptcy of one of the Member States would not only jeopardize the euro as a common currency, but also the economies of its Member States. For this reason, Member States need to coordinate their activities and cooperate, in mutual respect, and assist each other in the fulfilment of the objectives pursued by the EU. The Supreme Court stated that long-term economic effects and the consequences for the monetary stability cannot be assessed in the light of a single intervention, but must be constantly monitored. The performance of such activities is however not in the hands of the court, but rather of government and parliament. For this reason, the Supreme Court ruled that the constitutional review of such government’s and parliament’s actions must be very limited.
Next, the Constitutional Court found that the challenged Act regulates the participation of the Republic of Slovenia in the EFSF, and provides the procedure for granting guarantees for the liabilities of the institution. Given that the petitioners did not challenge the participation of Slovenia in the institution, the Constitutional Court evaluated only whether the determination of the guarantees for liabilities of the EFSF was in conformity with the Slovenian Constitution.
The Constitutional Court found that the power the National Assembly granted to the Government through the Guarantee Law was not undefined, but on the contrary clearly determined. The Guarantees Act determined: (i) the purpose of the guarantee (that was, to fund the instruments which will provide adequate funds for Member States in financial difficulty), (ii) the limit of the guarantee (2,073 billion EUR), (iii) the duration of the guarantee; (iv) the debtor (that is, the EFSF), and (v) the types of transactions for which the guarantee is given. The Constitutional Court ruled that it was possible to determine both the content and purpose of the provisions governing the guarantee. The Guarantees Act was therefore not inconsistent with the principle of clarity and definiteness, which is one of the principles of the rule of law (article 2 of the Constitution) and the provisions concerning the organization and work of the state administration (article 102 of the Constitution).
The Constitutional Court has also explained that the legal nature of a guarantee, or the compliance with the element determined in the Code of Obligations were not relevant for the determination of the constitutionality of the legal act, and thus rejected the complaint on this ground.
The Constitutional Court evaluated the statement that the National Assembly should adopt a special law for each guarantee, and not just one, general law. The Constitutional Court rejected such statement. It held that the Guarantees Act does not determine separate guarantees, but a single guarantee in the amount of up to EUR 2.073 billion, which is not taken at once, but in several instalments, depending on the needs. The Supreme Court found there was no need to adopt a law each time an instalment was used. The Act clearly and precisely defined the field within which the Slovenian government can move in approving individual funding programs. Further, the Supreme Court stated that the Government cooperates with the National Assembly when determining the funding programs. This means that the National Assembly will participate in the creation of the positions of the Republic of Slovenia on the proposed funding program or will adopt its point of view.
The Constitutional Court also rejected the claim that the Act is inconsistent with the first paragraph of Article 148 of the Constitution, which provides that all revenues and expenditures of the state and local communities to finance public expenditure must be included in the budgets. The Constitutional Court clarified that the Revised Budget for 2010 provided for all the expenses that have direct financial implications for the budget. It also clarified that one of the fundamental differences between a loan and a guarantee is, inter alia, the time when the obligation arises for the guarantor. Since a guarantee is conditional (and as such is a future, uncertain fact), there are no direct financial implications, but they might only arise in some point in the future. For this reason, the budget provided only the means, which are in the view of the legislator sufficient to secure the guarantees in the specific financial period. The Constitutional Court also stated that it is necessary to take into account the characteristics of the European mechanism, where the EFSF in 2010 has not even started to carry out the operations for which it was founded, and the legislature has clearly said that in 2010 no guarantee will be realized.
The Constitutional Court concluded that the Act was constitutional.
9. Legal effects of the judgment/decision:
The validity of the Act Regulating the Guarantees of the Republic of Slovenia for Ensuring Financial Stability in the Euro Area was confirmed.
10. Shortly describe the main outcome of the judgment/decision and its broader political implications.
The Constitutional Court concluded that the Guarantees act respected the provisions of the Slovenian Constitution, by conferring to the Slovenian government a limited authority to establish the guarantee. The Constitutional Court concluded that it was possible to determine both the content and purpose of the provisions governing the guarantee. The Guarantees Act was therefore in line with the principles of the Constitution.
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?
The National Assembly is involved in several ways in the application of the EFSF. First, the Act on Cooperation between the National Assembly and the Government in EU Affairs determines that there is a general duty of collaboration between the National Assembly and the Government in discussing matters related to EU. By law, the Government thus needs to cooperate with the National Assembly when taking decisions related to the application of the EFSF. Further, Article 4(6) of the Guarantees Act in the Euro Area provides that the Government has the duty to inform the National Assembly each quarter of any approved loans and guarantees. Finally, the National Assembly participates in determining the positions of the Republic of Slovenia concerning the proposed funding program, or can alternatively adopt its own position on the specific matter.
What political/legal difficulties did Slovenia encounter in the application of the EFSF?
See answer to question IV.4.
In case Slovenia 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?
What other information is relevant with regard to Slovenia and the EFSM/EFSF?
The revision of the Guarantees Act was discussed first on September 2, 2011, and later on September 27 2011. The amendment of the act provided for an increase of the Slovenian guarantee (from 2.73 billion to 3.664 billion), as well as for a new procedure for the determination of the total guarantee of Slovenia. The act was adopted through an expedite procedure. Some members were against the adoption of the amendment through an expedite procedure. For example, Jože Tanko—member of the right wing SDS—maintained there was no valid justification for adopting the act through the expedite procedure rather than the regular procedure. However, the decision to adopt the act through an expedite procedure was passed with 41 votes in favour and 32 against.
During the discussion of the amendment, the Committee on Finance and Monetary Policy presented its assessment of the amendment and supported its adoption. Some political parties expressed concerns with the increased guarantee of Slovenia. For example, Franc Pukšič, member of the right wing SLS, maintained that each country should focus on assuring its own financial stability. He maintained that the established mechanism risks driving other countries, including Slovenia, to financial problems. He emphasized that by helping other members, Slovenia is putting itself at risk. Pukšič also maintained that the burden for each Slovenian was much higher. He argued that 100 EUR for a Slovenian have a different value than for a German, given that salaries in Slovenia are much lower, but prices are the same. Matjaž Zanoškar, member of the left wing party Desus, on the other hand maintained that exactly because Slovenia might need a financial aid in the future, Desus will support the suggested amedment. Borut Sajovi, member of the left wing LDS, maintained that the party was concerned about the amount of the guarantee Slovenia was offering, but also argued that there was no other option to address the crisis than adopt the amendment. Luka Jurij, member of the left wing SD, maintained that the rejection of the amendment would jeopardise the effectiveness of the mechanisms for the financial stability. He observed that even if only one of the member states does not confirm the increase in guarantee this would cause a chaos on the European and global financial markets, and consequently on the European and global economy. He maintained that this would be particularly detrimental to the Slovenian financial sector, the Slovenian economy, and thus for Slovenians themselves. The amendment was finally passed with 49 votes in favour and 4 against.