No bailout clause

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The no bailout clause (also known as the no bailout clause ) describes a fundamental clause of the European Economic and Monetary Union (EMU), which is set out in Art. 125 TFEU and the liability of the European Union and all EU member states for the liabilities of individuals Excludes member states.

General

As part of the Maastricht Treaty , the no-bail-out clause was incorporated into the Treaty establishing the European Community (EC Treaty) as Art. 104b . In the course of various treaty reforms, the clause was first transferred to Article 103 of the EC Treaty by the Treaty of Amsterdam and finally by the Lisbon Treaty to Article 125 TFEU, although the wording was largely retained. By adding a third paragraph to Article 136 of the Lisbon Treaty, which enables the creation of a European Stability Mechanism (ESM), the no-bail-out clause was restricted.

The no-bail-out clause was designed to encourage EU member states to exercise budget discipline. You should not be able to hope to be supported by other Member States later in the event of unsound financial management (see also moral risk ). The clause complements the debt limits set out in the Stability and Growth Pact , which are also intended to prevent unsound financial management. On the other hand, it is criticized that failure to provide assistance in an emergency would be difficult to enforce because the political and economic costs of the alternatives could be even higher (see also Too Big to Fail ).

The no bailout clause is not an EU invention. The first economic area to use a no-bailout clause was the USA . In 1790, US Treasury Secretary Alexander Hamilton still assumed that the central government of the USA was behind the creditworthiness of the states . The no-bailout clause, which is still in force in the USA today, dates back to 1842, when over-indebted states unsuccessfully asked the central government for financial help, but it did not intervene. As a result, 12 states went bankrupt.

Emergence

Prior to the Maastricht Treaty called for the economically weaker countries, especially Spain , but also Portugal , Greece and Ireland , citing provided for in the EC Treaty Cohesion a revenue sharing between Member States. This should be added to the existing EC structural funds (such as the European Regional Development Fund ) and enable the economically weaker countries to meet the EU convergence criteria and to become more competitive than the richer countries. Germany in particular , but also France , pushed for a regulation that would force the member states to take responsibility for financial policy . It should prevent individual states from living beyond their means at the expense of others or from pursuing a more generous financial policy (= budget policy).

In the course of the conference the German negotiators prevailed with their demand. In the draft treaty of the Luxembourg Council Presidency in June 1991, the so-called no-bailout clause was introduced in Art. 104b. In the final phase of the negotiations, Spain called for a reorientation of the Cohesion Funds to be considered , at least after the Maastricht Treaty had come into force . In fact, the Cohesion Fund was set up in 1994 , which mainly pays or subsidizes environmental and infrastructure projects in economically weak EU countries. The Cohesion Fund accounts for a significantly smaller share of the European gross domestic product than, for example, the financial equalization of the German states .

It was unclear whether the no bailout clause contained in the Luxembourg draft contract would also exclude the voluntary assumption of third-party debts. The German Federal Ministry of Finance (BMF) feared that different interpretations would be possible with regard to joint projects of the various member states and voluntary debt assumption. For this reason, Germany, which advocated a clause that was as restrictive as possible, demanded that the word adhere be replaced by the word enter . In detail, the Federal Ministry of Finance (BMF reference M / VIIC2 / 326.3) stated: “It is not just about a (more formal) liability, but about the prohibition of compulsory or voluntary financial assistance in the event of an unsound budget policy, therefore do not stick but take action . ... In order to avoid gray areas, guarantees for joint economic projects should not be excluded. We therefore advocate deleting the last sentence. ”Germany was only able to partially assert itself with this position.

In the further course of the Intergovernmental Conference, a second paragraph was added to Article 104b, which created a new scope for interpretation: According to this, the Council of the European Union should implement the prohibitions provided for in the Article in accordance with the decision-making procedure pursuant to Article 189c of the EC Treaty (i.e. by qualified majority after consultation of the European Parliament ). In this version, the contract was finally signed and the content of the corresponding article has not been changed to this day.

The different versions of the no bailout clause
Luxembourg draft treaty 1991 (Art. 104 (1) (b) EC Treaty) Amendment proposed by the BMF (M / VIIC2 / 326.5) Maastricht Treaty 1992 (Art. 104b EC Treaty) Lisbon Treaty 2009 (Art. 125 TFEU)
The Community is not responsible for the obligations of the governments, local authorities or other public bodies of the Member States; this is without prejudice to the mutual financial guarantees for the joint implementation of a specific economic project.
The Member States are not liable for the obligations of the governments, local authorities or other public bodies of another Member State; this is without prejudice to the mutual financial guarantees for the joint implementation of a specific economic project. 		Neither the Community nor a Member State shall defend the obligations of the governments, local authorities or other public bodies of a Member State. (1) The Community shall not be liable for the liabilities of central governments, regional or local authorities or any other public corporation, other public law body or public company of Member States and shall not assume any liability for such liabilities; this is without prejudice to the mutual financial guarantees for the joint implementation of a particular project. A Member State shall not be liable for and assume no liability for the obligations of central governments, regional or local authorities or other public bodies, other bodies governed by public law or public undertakings of any other Member State; this is without prejudice to the mutual financial guarantees for the joint implementation of a particular project. (1) The Union shall not be liable for the liabilities of central governments, regional or local authorities or other public law bodies, other bodies governed by public law or public undertakings of Member States and shall not take responsibility for such liabilities; this is without prejudice to the mutual financial guarantees for the joint implementation of a particular project. A Member State shall not be liable for and assume no liability for the obligations of central governments, regional or local authorities or other public bodies, other bodies governed by public law or public undertakings of any other Member State; this is without prejudice to the mutual financial guarantees for the joint implementation of a particular project.
2. The Council may, if necessary, in accordance with the procedure laid down in Article 189c, determine the definitions for the application of the prohibitions provided for in Article 104 and this Article. 2. If necessary, on a proposal from the Commission and after consulting the European Parliament, the Council may determine the definitions for the application of the prohibitions provided for in Articles 123 and 124 and in this Article.

function

According to Art. 122 and Art. 143 TFEU, the Council of the EU can decide on financial aid measures for individual member states in certain emergency situations. The no-bailout clause makes it clear that this does not apply in the event of a national bankruptcy . This avoids frivolous national debts at the expense of other members. The no-bail-out clause complements the Stability and Growth Pact ( Art. 126 TFEU), which lays down maximum levels for the indebtedness of member states. In order to avoid the purchase of public debt securities by the European Central Bank and the resulting possible inflation and devaluation of the common currency, the euro , Art. 123 TFEU prohibits the direct acquisition of debt securities of the member states by the European Central Bank.

The no-bail-out clause is also intended to encourage candidates for EMU to carefully consider joining. With the abolition of national monetary policy , states can no longer compensate their debts through seigniorage and currency policy . While many EU member states were able to reorganize their fiscal and economic policy budget situation again and again through inflation and devaluation until the 1980s, this option no longer applies with the monetary union, so that (if a bailout by the economically more stable countries is ruled out) the only way to reduce debt and Avoiding national bankruptcy lies in a drastic austerity policy. For countries that are not sure of their future financial situation, it should therefore be more advisable not to join the monetary union.

criticism

Both before and after the official introduction of the euro as the common currency, there was criticism of the no-bailout clause. Basically, two lines of argument can be distinguished:

  • In one view, the no bailout clause is not formulated in a strict enough manner that, in case of doubt, it may not be enforceable.
  • On the other hand, the clause itself is viewed as being ineffective and potentially damaging to the eurozone economy .

Lack of enforcement

The risk that the no-bailout clause could not be given sufficient respect due to too much room for interpretation is justified, among other things, by the relatively broad formulations on the solidarity principle in the FEU Treaty. According to Art. 122, for example, in the event of natural disasters and other "extraordinary events that are beyond its control", the EU Council decides to receive financial aid from the EU budget, which could be interpreted as a risk protection against national bankruptcy.

This inadequate acceptance runs the risk of moral hazard . Some EMU states are over-indebted because they are aware that in case of doubt the other member states would step in to help them. If the lenders share this view, they are also inclined to continue to finance countries that are already highly indebted, as the default risk is covered by the other Member States and the EU itself. The non-bailout clause is therefore not credible enough to discipline states with high debts on the European financial markets that trade the euro .

Lack of functionality

The fact that it is assumed at all that member states in a crisis situation could be willing to take responsibility for the debts of other states is seen in the problem of too big to fail : Since the consequences of a national bankruptcy in the EMU would also be devastating for all other member states, If necessary, they would have to step in in their own interest.

Some authors like Dirk Meyer have attempted to derive the scenario of a national bankruptcy and the consequences for the rest of the EU. Accordingly, the euro as a common currency would lose value radically and damage the economy of most of Europe. At the same time, other countries with poor creditworthiness would have to pay a higher risk premium and run into liquidity problems. Interest rates would rise across the euro zone. The no -bail-out clause is de facto unenforceable without harming a large part of the EU.

Similarly, the prohibition on the direct purchase of government bonds by the European Central Bank under Article 123 of the TFEU ​​has been criticized. Many European banks are in possession of government bonds and could see their solvency in jeopardy in the event of a national bankruptcy due to the loss of the value of the bonds and the loss of payments. This in turn could lead to investors withdrawing their assets from the bank. Extensive networking of the banks would lead to a collapse of the banking system . This in turn would contradict the task of the European Central Bank, which is supposed to contribute to the “stability of the financial system” according to Art. 127 (5) TFEU.

Furthermore, criticism has been expressed that a consistent application of the stability pact and the no-bail-out clause could lead to deflationary consequences. During the euro crisis , for example, the fund manager George Soros warned that countries in bad economic situations would try to reduce their debts through tough austerity measures and that this would lead to a further deterioration in the economy . Soros' funds themselves had invested billions in Italian government bonds.

Greek financial crisis and European stabilization mechanism

In 2009/2010, the discussion about the no-bailout clause in the context of the Greek financial crisis and the resulting sovereign debt crisis in the euro area received a lot of attention. Greece was threatened with national bankruptcy, which would result in financial disadvantages for other EU countries. The Heads of State and Government therefore decided to apply Art. 122 (2) TFEU, according to which a Member State “is faced with difficulties or is seriously threatened with serious difficulties as a result of natural disasters or exceptional events beyond their control , [...] ", under certain conditions, financial assistance from the Union can be granted.

The decision as to the applicability of Art. 122 TFEU essentially depends on the circumstances in which the reasons for the crisis in Greece can be seen. Proponents of a bailout argue that action in the financial markets has significantly weakened Greece's situation. Due to market speculation, the credit conditions for an already creditworthy Greece would have worsened considerably. Such a development justifies the application of Article 122 of the TFEU. Opponents of the rescue package, however, see the causes of the crisis in Greece's flawed economic and financial policy . However, these causes are not beyond the control of the indebted country, so that the non-assistance clause should be applied.

In May 2010 the European Stabilization Mechanism was adopted, in which the EMU member states promise each other guarantees . This amounts to a total of 750 billion euros and is based on a combination of loans from the EU budget , reciprocal bilateral guarantees from the individual member states and a credit line from the IMF; According to the Stabilization Mechanism Act, Germany is involved with 123 billion euros. In addition, the European Central Bank began to buy up debt securities from the countries affected by the crisis.

The compatibility of these measures with those in Art. 123 and Art. 125 TFEU ​​was justified with the scope for interpretation documented there. The no-bail-out clause only forbids automatic liability, not the voluntary assumption of guarantees. In addition, the European Financial Stability Facility (EFSF) was established for the stabilization mechanism, which is not formally incorporated into the EU legal framework. For the European Central Bank , according to the wording of the contract, only the "direct acquisition" of government debt instruments is prohibited, not the purchase of such paper on the free capital market. Nevertheless, in May 2010, Peter Gauweiler and a group led by Joachim Starbatty, among others, filed a lawsuit against the stabilization mechanism before the German Federal Constitutional Court , who see it as a breach of the no-bail-out clause. On September 7, 2011, the Federal Constitutional Court rejected the constitutional complaint . With regard to the ESM, which is the successor structure to the EFSF, the European Court of Justice also clearly denied a violation of Art. 125 TFEU in its judgment in Case C-370/12 Thomas Pringle v Government of Ireland, Ireland, The Attorney General :

“ The prohibition on the ECB and the central banks of the Member States, bodies and institutions of the Union and the Member States to grant overdrafts or other credit facilities or to purchase debt instruments directly from them is not circumvented by the ESM. This prohibition is specifically aimed at the ECB and the central banks of the Member States. If one or more Member States provide financial assistance to another Member State directly or through the ESM, this does not fall under the aforementioned prohibition. The "no bailout clause", according to which the Union or a Member State does not assume or be liable for the obligations of another Member State, is not intended to prohibit the Union and the Member States from providing any form of financial support to another Member State. Rather, it seeks to ensure that Member States maintain sound budgetary policies by ensuring that Member States remain subject to the logic of the market when they are indebted. It does not therefore prohibit one or more Member States from granting financial assistance to a Member State which remains liable for its own debts to its creditors, provided that the conditions attached are such as to induce sound budgetary policies. However, the ESM and the participating member states are not liable for the obligations of the recipient member state of stability aid and do not stand up for them in the sense of the “no bailout clause”. "

See also

literature

  • Ulrich Schröder: Financial support. In: Jan Bergmann (Ed.): Handlexikon der European Union. 4th edition. Nomos, Baden-Baden 2012, ISBN 978-3-8329-6323-1 . Digitized version ( Memento from August 5, 2015 in the Internet Archive )
  • Kai Hentschelmann: Financial aid in the light of the no bailout clause - personal responsibility and solidarity in the monetary union. In: EuR Europarecht, Volume 46 (2011), Heft 2, S. 282 ff. Please enter either wayback - or webciteID - or archive-is - or archiv-url parameters

Individual evidence

  1. ↑ Jonathan A Rodden / Gunnar S. Eskeland / Jennie Ilene Litvack (Ed.), Fiscal Decentralization and the Challenge of Hard Budget Constraints , 2003, p. 64
  2. ^ A b c Jan Viebig: The Maastricht Treaty: the positions of Germany and France on the European economic and monetary union. 1999, pp. 312-314.
  3. ↑ European Commission: The Cohesion Fund at a glance. ( Memento from February 27, 2009 in the Internet Archive )
  4. ^ A b c d Christiana Ratcheva: National Debt and Credibility of Monetary Policy in the European Economic and Monetary Union. Hamburg 2010, pp. 24–26, accessed on December 3, 2010.
  5. ^ Helmut Wagner: European economic policy. 2nd Edition. 1998, p. 180.
  6. ↑ Heinz-Dieter Smeets, Bernard Vogl: The stability and growth pact - a critical appreciation. In: The future of the social and tax state commemorative publication for the 65th birthday. P. 426, accessed December 3, 2010.
  7. ↑ Soros warns Europe against deflation. ( Memento of October 24, 2010 in the Internet Archive ) In: Financial Times Germany . October 22, 2010.
  8. ^ Interview - Why Soros Bought $ 2 Billion In Italian bonds. Reuters interview with George Soros. In: The Daily Bail. 2012.
  9. ↑ Michael Martens: Officials in Greece. The superfluous. In: FAZ. September 14, 2011, accessed July 21, 2018 .
  10. ↑ Debt Crisis. The fatal consequences of the introduction of the euro. In: Focus Online. March 28, 2011, accessed July 21, 2018 .
  11. ^ Herbert Edling: Economics - quickly recorded. 3. Edition. 2010, p. 373.
  12. ^ EU support plan in the cabinet on Tuesday. In: Manager magazine . May 10, 2010, accessed May 10, 2010 .
  13. ↑ European lawyer considers billions in aid to be legitimate. In: Spiegel Online . May 14, 2010.
  14. ^ Warning of a transfer union. In: Frankfurter Allgemeine . July 7, 2010.
  15. ↑ Constitutional complaints against measures to aid Greece and the euro rescue package unsuccessful - no violation of the budgetary autonomy of the Bundestag. Press release No. 55/2011 of the Federal Constitutional Court of 7 September 2011.
  16. ↑ In the proceedings on constitutional complaints ... ( Memento from June 30, 2013 in the web archive archive.today ) Judgment of the Federal Constitutional Court BvR 987/10, BvR 1485/10 and BvR 1099/10 of September 7, 2011.
  17. ↑ Thomas Pringle: PRESS RELEASE No. 154/12 (PDF) Court of Justice of the European Union. November 27, 2012. Retrieved September 14, 2019.