17th Nov 2019

Parliament to probe eurozone bail-out deal

An influential member of the European Parliament has questioned the way in which EU leaders and finance minsters rapidly cobbled together a €750 billion eurozone rescue mechanism at the beginning of last month, referring to the process as "highly undemocratic".

The comments, made by centre-right MEP Wolf Klinz on Thursday (3 June), refer in particular to the new balance-of-payments facility for eurozone states that makes up part of the support mechanism.

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  • Certain MEPs feel they should have been consulted on the eurozone deal (Photo: Photo: Xoe Cranberry)

Under the facility, the European Commission can raise up to €60 billion on capital markets and then lend the money to euro-area states that are struggling to meet their debt obligations.

"This is something that we are going to follow up," said Mr Klinz, who chairs parliament's special committee on the financial crisis, when asked whether parliament should have been consulted beforehand.

"It's the first step towards eurobonds," added the German deputy. "Personally I am against eurobonds to finance member-state debts."

Others have also questioned the legitimacy of the new tool, under which the commission can raise money at low interest rates by issuing bonds, backed by the bloc's roughly €140 billion annual budget.

However, officials say Article 122 of the EU treaties, which allows financial support to be given to member states struggling due to exceptional circumstances, provides a firm legal basis.

"We are facing such exceptional circumstance today and the mechanism will stay in place as long as needed to safeguard financial stability," finance ministers said last month in justifying their decision.

The other components of the euro area rescue mechanism include €440 billion in government-backed loan guarantees and bilateral loans on an intergovernmental basis, and €250 billion in IMF money.

Sources say EU leaders meeting in Brussels on the fateful Friday, 7 May, were presented with a doomsday scenario, with analysts predicting skyrocketing borrowing rates for several peripheral eurozone states the following week.

As part of the resulting deal to protect these states and the eurozone as a whole, the European Central Bank was also forced to throw standard practices out the window as policy makers rushed to agree measures before markets opened on Monday morning.

The bank's decision to commence sovereign bond purchases on the secondary market was previously seen as strictly taboo.

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