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Germany Adopts ESM 'Interpretative Declaration'

by Ulrika Lomas,, Brussels

27 September 2012

The German cabinet has recently approved the so-called ‘interpretative declaration’ agreed by the European Stability Mechanism (ESM) treaty states and has subsequently submitted the joint statement to both the German Bundestag and Bundesrat (lower and upper houses of parliament).

According to the German finance ministry, the cabinet’s decision implements the conditions set by Germany’s Federal Constitutional Court on September 12 for ratification of the permanent euro rescue mechanism, the ESM, marking a further significant step forward towards entry into force of the treaty.

Following months of uncertainty, the Constitutional Court earlier this month finally gave the green light to the long-awaited permanent euro rescue mechanism and the fiscal compact, aimed at ensuring greater fiscal discipline in Europe.

The government is convinced that the joint declaration comprehensively takes into account the stipulations of the Court, thereby ensuring that the ESM treaty enters into force as quickly as possible.

On the sidelines of the informal Eurogroup meeting in Nicosia on September 14, Germany’s European partners agreed that they all share the same interpretation of the ESM accord and are willing to document this in a legally binding joint interpretive declaration.

The German government had informed its ESM treaty partners of the Federal Constitutional Court’s provisos, and there were no objections raised regarding the clarifications to be made. The declaration does not necessitate changes to either the ESM treaty itself or to the ratification requirements.

The declaration clarifies that the upper ceiling for a member states' share of the capital stock, as provided for in the text, can only be exceeded with the permission of that country’s parliament. The statement also ensures that national parliaments are accorded a comprehensive right to information.

In its ruling on September 12, the Federal Constitutional Court stated that the ESM treaty may be ratified if it is ensured under international law that the provision in the first sentence of Article 8(5) limits all payment obligations of the Federal Republic of Germany to the amount stipulated in the agreement, approximately EUR190bn (USD245bn).

The Court said that no provision of the treaty may be interpreted in a way that establishes higher payment obligations for the Federal Republic of Germany without the agreement of the German representative.

The Court warned that steps must also be taken to ensure, via international law, that the provisions do not stand in the way of the Bundestag and Bundesrat being provided with comprehensive information.

All of these points have been addressed in the declaration, which must now be approved by national governments before it is officially signed in Brussels.

It is currently anticipated that the ESM, with its firepower of up to EUR500bn, will enter into force on October 8. The permanent rescue mechanism for debt-ridden eurozone states is to eventually replace the temporary bailout instrument, the European Financial Stability Facility (EFSF).

TAGS: tax | economics | fiscal policy | law | Germany | currency | European Union (EU) | Europe

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