So, the Tsipras government has submitted its proposals for a third bailout. Specifically, new and non-triumphalist Minister of Finance Euclid Tsakalotos wrote on Wednesday to the European Stability Mechanism (ESM) seeking a three-year loan facility “given the risk to the financial stability of Greece as a member state and of the euro area as a whole” [see letter here]. This will be the first operation with respect to Greece of the eurozone’s “permanent rescue mechanism”, which was established in 2012. Relevant and timely then to consider how the ESM decides such requests.
Like all good EU institutions, the ESM operates on the basis of treaty provisions. In the case of the ESM, the treaty in question is the appropriately-named “Treaty Establishing the European Stability Mechanism”. Articles 4-6 and 13 of the treaty set out the rules respectively for decision making and considering requests for “stability support” from acceding Member States. Under Article 13 and upon receipt of a request for stability support, the Chairperson of the Board of Governors (Eurogroup President Jeroen Dijsselbloem) refers the request to the European Commission. The Commission (with the European Central Bank and International Monetary Fund) must assess (a) if there is a risk to the financial stability of the eurozone or its Member States, (b) if the public debt of the applicant Member State is “sustainable”, and (c) the actual financing needs of the applicant Member State. The 19-person Board of Governors may then dcecide to grant the stability support in principle. Under Article 5 of the treaty, the Board of Governors must take decisions on the provision of stability support by “mutual agreement” – a unanimous vote of participating governors excluding abstentions. However, the treaty includes a “emergency voting procedure” under which the Board may act by qualified majority. For decisions including the provision of stability support, the treaty requires a qualified majority of 85% of votes cast. ESM votes are equal to the acceding Member State’s shares of paid-up ESM capital. These range from 5,117 for Malta to 1,900,248 for Germany. Germany, France and Italy each have a blocking minority.
Should the Board of Governors decide in principle to provide stability support, the Commission must then negotiate a memorandum of understanding with the applicant Member State setting out the policy “conditionality” attached to the support. With the approval of the Board of Governors the Commission can then sign to memorandum on behalf of the ESM. The ESM managing director (currently Commission and IMF-veteran Klaus Regling) will then prepare a “facility agreement” detailing all financial terms. This agreement and first disbursement of financial assistance must be approved by the ESM’s Board of Directors acting by qualified majority.
So now you know.