Wednesday

21st Feb 2024

Legal challenges may delay eurozone bail-out fund

  • 'I am all for more Europe, just not one determined by political elites' (Photo: Cocoabiscuit)

Legal challenges in Germany, Ireland and Estonia, as well as political uncertainty in the Netherlands, may delay the setting up of a permanent eurozone bail-out fund at a time when Spain's economic woes require a strong firewall.

Citing democratic concerns, an Irish MP on Tuesday (17 April) lodged a constitutional complaint against the European treaties establishing the permanent eurozone bail-out fund - the European Stability Mechanism (ESM) - and the 'fiscal compact' on budget discipline required by Germany to agree to future bail-outs.

Read and decide

Join EUobserver today

Get the EU news that really matters

Instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

A similar complaint was lodged last month by the Estonian ombudsman, who questioned the 'emergency voting procedure' allowing big member states to take decisions even if smaller euro states object.

But even if Ireland and Estonia were to postpone ratification of the ESM treaty, the €500 billion strong bail-out fund could in theory still come into force on 1 July as planned, as the two countries contribute with less than 10 percent of the total capital - the threshold above which the ESM would be derailed.

However, if the German constitutional court accepts a legal challenge being prepared by the former justice minister - the calendar may still have to be re-drawn. Herta Daubler-Gmelin, justice minister in the first cabinet of Gerhard Schroeder said the ESM bailout fund “crossed a red line” and undermined the competences of national parliament to decide on national budgets.

“I’m convinced we will have a good chance with our case. I am all for more Europe, just not one determined by political elites,” she said Friday. Two other challenges are likely in Germany, from the Left Party and from a Bavarian MP who already challenged two EU treaties.

The Netherlands, which represents 5.7 percent of the ESM capital, is steering in troubled political waters, as the minority government has to count on the increasingly reluctant Social-Democratic opposition to back the two treaties in parliament.

EU officials in Brussels meanwhile are worried that Spain's raising borrowing costs are already a signal that markets have again started to lose confidence in the eurozone's ability to get its house in order. "The summer will be hot and it will start early," one source told this website.

Ten-year borrowing costs for Spain rose above six percent on Monday - for the first time since the European Central Bank started pumping €1 trillion worth of cheap loans into eurozone banks in November.

"In the current market discussions on Spain, it would be crucial to have the ESM as soon as possible," Carsten Brzeski, chief economist at ING told this website. He said a full-blown bail-out for Spain - which would eat up almost all ESM resources - is unlikely, but "bail-out light" recapitalising Spain's troubled banks "will happen."

As for the legal challenges and the political troubles, Brzeski said that "all depends on Karlsruhe" where the German Constitutional Court sits.

Twenty five EU leaders sign German-model fiscal treaty

Germany's vision of an EU of fiscally prudent states held in check by tight budgetary laws and the threat of legal action came a step closer on Friday when 25 leaders signed a new fiscal treaty.

Germany to delay eurozone bail-out fund

The 9 July start for the eurozone's €500bn bail-out fund is set to be delayed as Germany waits for a ruling by its highest court - a move adding to the woes of Italy and Spain.

France's Le Maire 'goes German' with austerity budget

The French government announced €10bn in further spending cuts. However, defence spending is set to increase significantly, up to €413bn from €295bn, while €400m was cut from a fund meant for renovating schools, carpooling infrastructure, and other environmental projects.

France's Le Maire 'goes German' with austerity budget

The French government announced €10bn in further spending cuts. However, defence spending is set to increase significantly, up to €413bn from €295bn, while €400m was cut from a fund meant for renovating schools, carpooling infrastructure, and other environmental projects.

Opinion

The elephant in the room at this weekend's African Union summit

Italy's offer to mobilise €5.5bn over the next years, overwhelmingly in already-allocated loans and guarantees, pales in comparison to the financing challenges faced by Africa. Only an EU-wide coordinated financial offer can credibly respond to African needs.

Latest News

  1. Ukraine refugees want to return home — but how?
  2. African leaders unveil continent-wide plan to buy medicines
  3. EU urban-rural divide not bridged by cohesion policy, report finds
  4. Impending Rafah disaster shows up politics of humanitarian aid
  5. Sweden heading into Nato, after Orbán-Kristersson deal
  6. EU-Israel trade agreement must be on table to stop Rafah attack
  7. 'Nightmare' 2024 sees Orbán struggle ahead of EU elections
  8. 'Crying wolf' win for chemicals lobby at Antwerp EU meeting

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Join EUobserver

EU news that matters

Join us