SOLIDARITY AND FINANCIAL DISCIPLINE IN THE EU

Lecce 31 May 2013

Prof. Pietro Manzini

University of Bologna

Solidarity in the EU Treaty

Article 3, para 3 TEU

• The Union shall promote economic, social and territorial cohesion, and solidarity among Member States

Article 4. para. 3

• Pursuant the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying tasks which flow from the Treaty

Solidarity enforced in the economic policy chapter

Article 122, para.2 TFEU

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 President of the Council shall inform the European Parliament of the decision taken.

The non-solidarity clauseArticle 125, par. 1, TFEU

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. A Member State 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 another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.

New solidarity

• Article 136, para. 3, (inserted)The Member States whose currency is the euro may

establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.

ESM

5° wheras:This Treaty and the TSCG are complementary in

fostering fiscal responsibility and solidarity within the economic and monetary union. It is acknowledged and agreed that the granting of financial assistance in the framework of new programmes under the ESM will be conditional, as of 1 March 2013, on the ratification of the TSCG by the ESM Member concerned and, upon expiration of the transposition period referred to in Article 3(2) TSCG on compliance with the requirements of that article.

Art. 3(2) TSCG (Fiscal Compact)

• the budgetary position of the general government of a Contracting Party shall be balanced or in surplus

• (balanced budget rule)

Cyprus Case

• EU Solidarity: ESM will provide approximately €9 billion, and the IMF will contribute around €1 billion.

• Conditions: The Bank of Cyprus was recapitalized through a partial deposit/equity conversion of its uninsured deposits (over €100,000). A full bail-in of equity shareholders (shares were suspended); senior and junior bondholders was conducted with a conversion of the claims into equity

Synoptic table

Solidarity rules Assisted institution

State responsibility

Conditions

Art. 122

Art. 125

Public Authorities

Public Undertakings

No

EU Membership +

“certain conditions”

Art. 136

ESM

Public Authorities Yes

Strict conditionality

+

Compliance to balanced budget rule

Art. 136

ESM

Financial Institutions

(trough MS) Yes

Strict conditionality

+

Compliance to balanced budget rule

+

Depositors pay

What did we learn?

Experience is a great teacher, but she sends in terrific bills

Minna Antrim (1861-1950)