The Legal Framework of the European Financial Stability Facility

We now have the initial legal framework of the European Financial Stability Facility. It will be registered as a limited liability company under Luxembourg law (Société Anonyme). The EFSF has been incorporated with Luxembourg as its sole shareholder to expedite its creation, but after the completion of the national approval procedures the shareholding of each Member State in the EFSF will correspond to its respective share in the paid-up capital of the ECB. The obligation of euro-area Member States to issue guarantees for the EFSF debt instruments will enter into force as soon as a critical mass of Member States, representing 90% of shareholding, has completed the relevant national parliamentary procedures.

At the same time EU governments agreed to provide their national budget drafts to each other and to the European Commission before seeking national parliamentary approval. The idea is for each government to present its broad estimates for growth, inflation, revenue and expenditure levels in the spring, roughly six months before national budgets go through parliaments.

Eurointelligence once again underscores the importance of a more comprehensive policy response, citing the Concluding Statement of the IMF Mission on Euro-Area Policies. The main difference is in thoroughly addressing the macroeconomic imbalances, including in the German tax and regulatory systems which have built-in incentives for manufacturing investments, and disincentives for consumption.

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