Author: Charles Proctor
Over the past three years, the EU has sought to respond to the Eurozone sovereign debt crisis in a number of ways. In terms of financial support, it has established various funds, culminating in the European Stability Mechanism. It has also strengthened the Stability and Growth Pact, and Eurozone members have signed a Treaty on Stability, Coordination and Governance. It is fair to say that these measures have tended to follow the crisis, rather than to prevent it.
A leaked agenda for a recent preparatory meeting (a so-called "Sherpa meeting") discloses an attempt to get ahead of the curve. Noting that "… it is important to reinforce policy coordination well before Member States face severe economic difficulties …", the paper warms to its theme by proposing that Member States should enter into contractual commitments to assist other Member States that encounter financial challenges. Although such loans would be of a bilateral nature when actually made, it appears that the framework for these arrangements would be a politically binding agreement. In addition, it appears that the Commission would have a significant role in loan allocations.
It is not clear why these commitments should not be given to the European Stability Mechanism itself, since the overall financial effect might be the same. It may be that bilateral agreements would be more attractive, in the sense that the creditor Member State may have a greater degree of control.
The "no bailout" clause in Article 125 of the Treaty has attracted a lot of attention during the crisis. But it is now clear that bilateral lending arrangements do not constitute a "bailout" and that, accordingly, these do not contravene Article 125.
Whilst this proposal is clearly at an early stage, it may mark a new attempt to establish financial structures that may avoid or mitigate future crises within the Eurozone. We must await developments.
Charles Proctor, Partner, Fladgate LLP (email@example.com)