Open Europe Blog

As we expected, doubts are already arising over the package agreed at last week’s summit. In particular, Finland and the Netherlands have today expressed strong reservations about the plans to allow the EFSF and ESM to purchase the debt of struggling countries.

Finland suggested today that it will not support any bond purchases by the bailout funds, while the Netherlands took a less stringent line simply saying that it would assess each purchase on a case by case basis (although behind the scenes it is widely thought not to be keen on the idea).

However, as has been noted, the countries may have backed themselves into a corner here with one of the previous summit amendments to the ESM treaty, which says:

“An emergency voting procedure shall be used where the Commission and the ECB both conclude that a failure to urgently adopt a decision to grant or implement financial assistance, as defined in Articles 13 to 18, would threaten the economic and financial sustainability of the euro area. The adoption of a decision by mutual agreement by the Board of Governors referred to in points (f) and (g) of Article 5(6) and the Board of Directors under that emergency procedure requires a qualified majority of 85% of the votes cast.”

It is worth remembering though that under the EFSF unanimity is still needed so in the short term they can block any attempt to purchase bonds. However, once the ESM comes into force, in around a week’s time if done on schedule, the countries could well be outvoted, since they control less than 8% of the votes combined. It is obviously not completely clear cut, the ‘emergency procedure’ would need support from the ECB and/or the Commission, although it is unlikely that the purchases would be started up in a non-emergency situation. At the very least it should make for an interesting vote on the ESM in the upper house of the Dutch parliament tomorrow and even though ratification is likely (especially since the lower house has already approved it) we’d hazard a guess that this isn’t the last we’ve seen of this issue.

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