Proposal for a Council Regulation establishing a European financial stabilization mechanism
Date: 2010-05-09
Institutions: European Commission
Subjects: economic recession, economic stabilisation, euro area, financial aid, participating country (euro area)

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EUROPEAN COMMISSION 

Brussels, 9.5.2010 
COM(2010) 2010 final 

Proposal for a 

COUNCIL REGULATION 

establishing a European financial stabilization mechanism 

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Proposal for a 

COUNCIL REGULATION 

establishing a European financial stabilization mechanism 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 122 (2) thereof, 

Having regard to the proposal from the Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

Article  122  (2)  of  the  Treaty  foresees  the  possibility  of  granting  Union  financial 
assistance  to  a  Member  State  in  difficulties  or  seriously  threatened  with  severe 
difficulties caused by exceptional occurrences beyond its control.  

Such  difficulties  may  be  caused  by  a  serious  deterioration  in  the  international 
economic and financial environment. 

The  unprecedented  global  financial  crisis  and  economic  downturn  that  have  hit  the 
world over the last two years have seriously damaged economic growth and financial 
stability  and  provoked  a  strong  deterioration  in  the  deficit  and  debt  positions  of  the 
Member States. 

The deepening of the financial crisis has led to a severe deterioration of the borrowing 
conditions  of  several  euro-area  Member  States  beyond  what  can  be  explained  by 
economic  fundamentals.  At  this  point,  this  situation,  if  not  addressed  as  a  matter  of 
urgency, could present a serious threat to the stability, unity and integrity of the euro 
area as a whole. 

In order to address this exceptional situation beyond the control of the Member States, 
it  appears  necessary  to  put  in  place  immediately  a  Union  stabilization mechanism  to 
preserve  financial  stability  in  Europe.  Such  a  mechanism  should  allow  the  Union  to 
respond  in  a  coordinated,  rapid  and  effective  manner  to  acute  difficulties  in  a 
particular euro-area Member State. 

Given  their  particular  financial  implications,  the  decisions  to  grant  Union  financial 
assistance  pursuant  to  this  Regulation  are  implementing  powers  which  should  be 
conferred on the Council. 

Strong  economic  policy  conditions  should  be  imposed  in  case  of  activation  of  this 
mechanism  with  a  view  to  preserving  the  sustainability  of  the  public  finances  of  the 
Member  State  concerned  and  restoring  its  capacity  to  finance  itself  on  the  financial 
markets. 

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(8) 

(9) 

The  Commission  should  regularly  review  whether  the  exceptional  circumstances 
threatening the financial stability of the European Union as a whole still exist.  

The  existing  facility  providing  medium-term  assistance  for  non-euro-area  Member 
States as established by Council Regulation (EC) No 332/2002 should remain in place. 

HAS ADOPTED THIS REGULATION: 

Article 1  
Aim and scope  

With a view to preserving the stability, unity and integrity of the euro area as a whole, this 
Regulation establishes the conditions and procedures under which Union financial assistance 
may be granted to a euro-area Member State which is experiencing or is seriously threatened 
with a severe economic or financial disturbance caused by exceptional occurrences beyond its 
control.  

Article 2 
Form of the Union financial assistance 

1. 

Union financial assistance for the purposes of this Regulation shall take the form of a 
loan or of a credit line granted to the Member State concerned. 

To  this  end,  in  accordance  with  a  Council  decision  pursuant  to  Article  4,  the 
Commission  shall  be  empowered  on  behalf  of  the  European  Union  to  contract 
borrowings on the capital markets or with financial institutions.  

Subject to Article 3, the outstanding amount of loans or credit lines to be granted to 
Member  States  under  the  present  stabilization  mechanism  shall  be  limited  to  the 
margin available under the own resources ceiling for payment appropriations.  

Article 3 
Guarantees 

Loans and credit lines above the ceiling referred to in Article 2 (2) shall benefit from 
the joint and pro-rata guarantee of the euro-area Member States. 

Each euro area Member State shall guarantee the amounts above the ceiling referred 
to in paragraph 1 according to its share in the paid-up capital of the European Central 
Bank. 

In the cases covered by this Article, the Commission may rely on the services of the 
national  debt  offices  of  the  euro  area  Member  States,  which  offices  shall  be  at  the 
disposal of the Commission to this end. 

A  Member  State  receiving  a  financial  support  decided  by  the  Council  under  the 
present  Regulation  shall  not  provide  a  guarantee.  The  guarantee  to  be  provided  by 
the other Member States shall be recalculated accordingly. 

2. 

1. 

2. 

3. 

4. 

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5. 

1. 

2. 

3. 

Member  States  shall  take  the  measures  necessary  to  ensure  that  the  guarantee  is 
provided  within  ten  days  following  the  Council  decision  taken  in  accordance  with 
Article 4. 

Article 4 
Procedure  

The  Member  State  seeking  Union  financial  assistance  shall  discuss  with  the 
Commission in liaison with the ECB an assessment of its financial needs and submit 
a  draft  economic  and  financial  adjustment  programme  to  the  Commission  and  the 
Economic and Financial Committee. 

Union  financial  assistance  shall  be  granted  by  a  decision  adopted  by  the  Council, 
acting by a qualified majority on a proposal from the Commission. 

The decision to grant a loan shall contain: 

(a) 

(b) 

the amount, the average maturity, the pricing formula, the maximum number of 
instalments,  the  availability  period  of  the  Union  financial  assistance  and  the 
other detailed rules needed for the implementation of the assistance including 
for the implementation of the guarantee referred to in Article 3;  

the  general  economic  policy  conditions  which  are  attached  to  the  Union 
financial  assistance  with  a  view  to  re-establishing  a  sound  economic  or 
financial situation in the Member State concerned and to restoring its capacity 
to finance itself on the financial markets; 

(c) 

an approval of the adjustment programme prepared by the beneficiary Member 
State  to  meet  the  economic  conditions  attached  to  the  Union  financial 
assistance.  

4. 

The decision to grant a credit line shall contain:  

(a) 

(b) 

(c) 

the  amount,  the  fee  for  the  availability  of  the  credit  line,  the  pricing  formula 
applicable  for  the  release  of  funds  and  the  availability  period  of  the  Union 
financial assistance and the other detailed rules needed for the implementation 
of the assistance, including for the implementation of the guarantee referred to 
in Article 3;  

the  general  economic  policy  conditions  which  are  attached  to  the  Union 
financial  assistance  with  a  view  to  re-establishing  a  sound  economic  or 
financial situation in the Member State concerned; 

an approval of the adjustment programme prepared by the beneficiary Member 
State  to  meet  the  economic  conditions  attached  to  the  Union  financial 
assistance. 

5. 

The Commission and the Member State concerned shall conclude a Memorandum of 
Understanding  detailing  the  general  economic  policy  conditions  laid  down  by  the 
Council, after having obtained the opinion of the economic and financial committee. 

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6. 

7. 

8. 

1. 

2. 

3. 

1. 

2. 

The  Commission  shall  communicate  the  Memorandum  of  Understanding  to  the 
European Parliament and to the Council. 

The Commission shall re-examine the general economic policy conditions referred to 
in  paragraphs  (3)  (b)  and  (4)  (b)  at  least  every  six  months  and  discuss  with  the 
Member  State  concerned  the  changes  that  may  be  needed  to  its  adjustment 
programme. 

The  Council,  acting  by  a  qualified  majority  on  a  proposal  from  the  Commission, 
shall  decide  on  any  adjustments  to  be  made  to  the  initial  general  economic  policy 
conditions  and  shall  approve  the  revised  adjustment  programme  as  prepared  by  the 
beneficiary Member State. 

If a financing outside the Union subject to economic policy conditions is envisaged, 
notably  from  the  IMF,  the  Member  State  concerned  shall  first  consult  the 
Commission.  The  Commission  shall  examine  the  possibilities  available  under  the 
Union financial assistance facility and the compatibility  of the envisaged economic 
policy  conditions  with  the  commitments  taken  by  the  Member  State  concerned  for 
the implementation of the Council recommendations and Council decisions adopted 
on the basis of Article 121, Article 126 and Article 136 of the Treaty. It shall inform 
the Economic and Financial Committee. 

Article 5 
Disbursement of the loan 

The loan shall as a rule be disbursed in instalments. 

The Commission shall verify at regular intervals whether the economic policy of the 
beneficiary  Member  State  accords  with  its  adjustment  programme  and  with  the 
conditions  laid  down  by  the  Council  pursuant  to  Article  4(3)  (b).  To  this  end,  that 
Member  State  shall  provide  all  the  necessary  information  to  the  Commission  and 
give the latter its full cooperation. 

On  the  basis  of  the  findings  of  such  verification,  the  Commission,  after  having 
obtained the opinion of the Economic and Financial Committee, shall decide on the 
release of further instalments. 

Article 6 
Release of funds 

The  Member  State  concerned  shall  inform  the  Commission  in  advance  of  its 
intention to draw down funds from its credit line. Detailed rules shall be laid down in 
the decision referred to in Article 4(4). 

The Commission shall verify at regular intervals whether the economic policy of the 
beneficiary  Member  State  accords  with  its  adjustment  programme  and  with  the 
conditions  laid  down  by  the  Council  pursuant  to  Article  4(4)(b).  To  this  end,  the 
Member  State  shall  provide  all  the  necessary  information  to  the  Commission  and 
give the latter its full cooperation. 

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3. 

1. 

2. 

3. 

4. 

5. 

6. 

On  the  basis  of  the  findings  of  such  verification,  the  Commission,  after  having 
obtained the opinion of the Economic and Financial Committee, shall decide on the 
release of the funds. 

Article 7 
Borrowing and lending operations 

The borrowing and lending operations referred to in Article 2 shall be carried out in 
euro. 

The  characteristics  of  the  successive  instalments  released  by  the  Union  under  the 
financial  assistance  facility  shall  be  negotiated  between  the  beneficiary  Member 
State and the Commission. 

Once  the  decision  on  a  loan  has  been  made  by  the  Council,  the  Commission  is 
authorised to borrow on the capital markets or from financial institutions at the most 
appropriate time in between planned disbursements so as to optimise cost of funding 
and preserve its reputation as the Union's issuer in the markets. Funds raised but not 
yet disbursed shall be kept at all times on dedicated cash or securities account which 
are handled in accordance with rules applying to off budget operations and cannot be 
used for any other goal than to provide financial support to Member States under the 
present mechanism. 

Where  a  Member  State  receives  a  loan  carrying  an  early  repayment  clause  and 
decides to exercise this option, the Commission shall take the necessary steps. 

At the request of the beneficiary Member State and where circumstances permit an 
improvement  in  the  interest  rate  on  the  loan,  the  Commission  may  refinance  all  or 
part of its initial borrowing or restructure the corresponding financial conditions. 

The Economic and Financial committee shall be kept informed of the developments 
in the operations referred to in paragraph 5. 

Article 8 
Costs 

The costs incurred by the Union in concluding and carrying out each operation shall be borne 
by the beneficiary Member State.  

Article 9 
Administration of the loans 

1. 

2. 

The Commission shall establish the necessary arrangements for the administration of 
the loans with the ECB 

The beneficiary Member State shall open a special account with its National Central 
Bank for the management of the Union medium-term financial assistance received. It 
shall also transfer the principal and the interest due under the loan to an account with 

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3. 

1. 

2. 

the  European  Central  Bank  fourteen  TARGET2  business  days  prior  to  the 
corresponding due date. 

Without  prejudice  to  Article  27  of  the  Statute  of  the  European  System  of  Central 
Banks and of the European Central Bank, the European Court of Auditors shall have 
the right to carry out in the beneficiary Member State any financial controls or audits 
that  its  considers  necessary  in  relation  to  the  management  of  that  assistance.  The 
Commission,  including  the European Anti-Fraud office, shall in particular have the 
right  to  send  its  officials  or  duly  authorised  representatives  to  carry  out  in  the 
beneficiary  Member  State  any  technical  or  financial  controls  or  audits  that  it 
considers necessary in relation to that assistance. 

Article 10 
Review and adaptation  

The Commission shall forward to the Economic and Financial Committee and to the 
Council,  within  six  months  following  the  entry  into  force  of  this  Regulation  and 
where appropriate every six months thereafter, a report on the implementation of this 
Regulation  and  on  the  continuation  of  the  exceptional  occurrences  that  justify  the 
adoption of this Regulation. 

Where appropriate, the report shall be accompanied by a proposal for amendments to 
this  Regulation  with  a  view  to  adapting  the  possibility  of  granting  financial 
assistance without affecting the validity of decisions already adopted. 

Article 11 
Entry into force 

This  Regulation  shall  enter  into  force  on  the  day  following  that  of  its  publication  in  the 
Official Journal of the European Union. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels,  

For the Council, 
The President 

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