EU leaders to agree on law change for euro stability-draft

* Leaders to pave the way for European Stability Mechanism

* ESM to replace existing EFSF, EFSM in June 2013

* Non-euro EU states to take part in ESM actions if they want

By Jan Strupczewski

BRUSSELS, Dec 11 (BestGrowthStock) – European Union leaders will
agree next week to insert two sentences into the EU treaty to
pave the way for the creation of the European Stability
Mechanism from 2013, draft conclusions of the summit showed.

The ESM is to open the way for private sector investors to
take a loss in case of a sovereign debt restructuring, which
will put market pressure on governments to conduct sound fiscal
policies and prevent another sovereign debt crisis.

The ESM would also provide financial support to euro zone
countries which suffer liquidity, but not solvency problems,
through a fund that is likely to be bigger than the current 750
billion euros bailout fund the euro zone has at its disposal.

But to create the ESM, Germany and France insisted that the
EU’s highest law, the EU treaty, has to be amended so that its
operations are not deemed unconstitutional by German courts.

The conclusions, obtained by Reuters, said leaders of the
27-nation bloc would agree to amend the treaty by adding the
following sentences to the existing article 136:

“The Member States whose currency is the euro may establish
a stability mechanism to safeguard the stability of the euro
area as a whole. The granting of financial assistance under the
mechanism will be made subject to strict conditionality.”

The ESM will be based on the agreement reached by euro zone
finance ministers on November 28. For a full text of the
agreement see:


The leaders’ conclusions, which are always prepared in
advance of a summit and almost never changed, said the amendment
did not increase the powers conferred on the European Union by
member states.

This means that the change would not have to be subject to a
referendum in Ireland and also satisfies Britain which insisted
the change should not entail any transfer of power to Brussels.

The leaders, who meet on Thursday and Friday in Brussels,
will also agree that the ESM would replace the European
Financial Stability Facility and the European Financial
Stability Mechanism, which will be operational until June 2013.

The leaders would like consultations with the European
Parliament, the European Commission and the European Central
Bank on the change to the treaty to end in March 2011 and for
approvals in individual countries to finish by end 2012, so that
the new law would be in place from the start of 2013.

Euro zone finance ministers are also to finish work on
setting up the ESM through an intergovernmental arrangement by
March 2011.

“The mechanism will be activated by mutual agreement of the
euro area Member States in case of risk to the stability of the
euro area as a whole,” the draft leaders’ conclusions said.

The EU summit will also decide that while the mechanism will
be for euro zone members, other EU countries can be involved in
the work setting it up if they want to and can take part in ESM
operations on an ad hoc basis.

This is similar to the case of Ireland, where the euro zone
countries, acting through the EFSF, lent to Dublin, but Britain,
Sweden and Denmark, all non-euro zone members of the EU, also
provided bilateral loans.

(Reporting by Jan Strupczewski)

EU leaders to agree on law change for euro stability-draft