08 November 2011

Speech by Dr Wolfgang Schäuble during deliberations on ESM in German Bundestag

"With the bill amending the Act on the Assumption of Guarantees in Connection with a European Stabilisation Mechanism, we are adapting our national legislation to take account of the amendments to the Framework Agreement on the European Financial Stability Facility that were adopted by the euro zone heads of state and government in March and July in order to enable this provisionally created European Financial Stability Facility to meet the challenges posed by economic developments and developments on the financial markets."

"All the assistance provided under the auspices of the rescue fund is always intended to help countries help themselves. It could not be otherwise. In the eurozone, we have communitised our currency, but not our economic and fiscal policies. In consequence, we can help Member States that are in difficulties gain time to resolve their problems. But the Member States must eliminate the causes of those problems themselves. There is no getting round this. It is the fundamental principle of the European architecture. This must not be overlooked."

"That is why all these measures, both in the individual case and generally, are subject to the precondition of agreement on strict conditionality. In other words, the adjustment measures necessary to cut deficits and improve economic productivity are agreed with the countries in question. That is what it says in the Stabilisation Mechanism Act."

"The amendments to the Framework Agreement on the European Financial Stability Facility provide for us to ensure the volume of financial assistance that was originally agreed can be made available, up to an upper limit of €440 billion, for which purpose appropriate adjustment programmes had to be agreed and indeed have been agreed.

"The Financial Stability Facility works on the principle that it delivers financial assistance, borrowing the requisite funds on the financial markets. The Member States of the eurozone provide backing by advancing guarantees. Since only the guarantee commitments made by the eurozone Member States that hold the highest rating, what is known as triple-A status, count towards and are factored into the assessments carried out by the rating agencies, we need the Financial Stability Facility to be overcollateralised. […]"

"That is how we arrive at this complicated figure. In order to lend €440 billion, we need a guarantee volume of about €750 billion. Germany – in line with its share of the eurozone’s total economic output – will have to shoulder a share of about 28 per cent of this sum.

[…] Especially in view of the worrying news from the eurozone, it is very important that the Financial Stability Facility is capable of making funds available to countries at short notice for the capitalisation of their banks when this is necessary. If we were to see an escalation of the crisis – we want to avoid this, we are working to avoid it, but we also have to think about less pleasant developments –, it would be important for us to be capable of combating the dangers of contagion in the banking sector by providing additional capital. In amending the Framework Agreement, we are giving the Financial Stability Facility the options it needs.

Finally, we want to agree an adjustment programme. Subject to strict preconditions – taking into consideration the threat to the stability of the eurozone as a whole posed by the dangers of contagion; and this will, furthermore, have to be confirmed expressly once again by the European Central Bank –, it should be possible to operate on the European secondary markets.

[…] We must deal with the present difficulties on the basis of the agreements that are currently in place – we do not have any other basis. That is what we can do. In view of the debate about the participation of private creditors, I wish to point out – people need to know this – what the participation of private creditors would mean under the current agreements. This relates, in particular, to the current agreements about bonds that are on the market. If we wish to prevent a default, that is to say an insolvency that would trigger payouts on all the credit default swaps, the only way of getting creditors to participate is by way of agreement."

"We have had to follow the path of consensus with the financial institutions because anything else would have been contrary to the agreements that have been concluded, and we cannot get ourselves into a position in Europe where we no longer uphold agreements that have been concluded. In consequence, the Treaty Establishing the European Stability Mechanism (ESM) provides for us to incorporate the Stability Mechanism expressly into the regulatory framework as of 2013, and all bonds that are issued by eurozone Member States from 2013 on, in the future that is, will include a clause that provides for adjustments to be made if a country’s debts are unsustainable. This means we will have more options in future. For the moment, however, we have to cope with the instruments we have to hand."

"I would like to add one further remark: The difficulties we have had calming down the markets under the current agreements and in the light of the current legal situation have demonstrated that the markets expect us to create a structure for Europe, expect us to put in place better institutional arrangements for our common currency. This will be a long path. It is the direction in which we must move. We will have to work to do this, but we must defend our common currency, today and tomorrow, with the means at our disposal – this is in our common interest and consistent with our responsibilities.

I urge you to give this bill your consent."

Further translated extracts from speech

© Bundesfinanzministerium