Does the EMF Require a Treaty Revision?

Angela Merkel says that a European Monetary Fund (EMF) could not be created without treaty changes. The reasoning is in the no-bailout clause (art. 125 TFEU). The exact wording is:

“The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.”

Now, some (such as Daniela Schwarzer) claim that another clause – art. 122 TFEU – should apply:

“Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned.”

The initial proposers of the EMF say that the drafters of the Maastricht Treaty had failed to appreciate that, in a context of fragile financial markets, the real danger of a financial meltdown makes a ‘pure’ no-bail-out response unrealistic.

The question is deadly serious – should we create the EMF on the current legal basis or should we amend the treaties?

To my opinion we definitely should amend the treaties first. In both Mrs. Schwarzer’s, and Mr. Gros’s and Mr. Mayer’s opinions we do not encounter any serious legal analysis of the no-bailout clause. They say that the urgency of the situation justifies the amendment, albeit circumventing, in a way, the TFEU.

The problem from my perspective lies in art. 122 TFEU in particular. The phrase “beyond its control” to me means that we should assess – case by case – the causality of the exceptional occurrences. It is clear to everyone that maintaining budget discipline IS in the control of national governments. Any interpretation of the current financial crisis as a force majeure is not convincing, since it would imply a systemic event has incapacitated the fiscal governance abilities of some (but not all) Member States.

The urgency of the situation is a different matter. It may well be true that without a bailout a bigger crisis might emerge. But we need to ask ourselves what is that we value more – a community based on law or something else.

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