03 August 2012

Steffen Kampeter: German liability for ESM will remain limited

Translated from the original German

The public debate on the European Stability Mechanism (ESM) is suffering from misunderstandings and misinterpretations of the text. The amount of Germany's contribution to the ESM and the extent of liability seem to be particularly unclear. The impression seems to have been given in public discussion that the real risk of liability has been covered up and the deprivation of the Bundestag's power encouraged. I must take issue with this, as the opposite is true.

The ESM is in Germany's national interest

Stability must be protected. The ESM is designed as a stability and protective mechanism of the Economic and Monetary Union. We need it. Even with the best prevention, a European institution with the necessary funds, legitimised by national parliaments, is necessary to assist Member States with funding problems in the capital market, to prevent panic runs, and to reduce risks of infection to other euro area countries. The euro States have created the ESM contract to do this. The ESM is in Germany's national interest.

Nevertheless, I read claims that the ESM contract allows an expenditure of the share capital at an arbitrarily high value, and that Germany's liability could rise almost immeasurably. A quick look at the treaty text helps here: Germany's liability is limited under all circumstances to its share of the capital stock at the issue price. This is clearly written in Article 8, paragraph 5 of the ESM Treaty. Germany's liability is limited to €190 billion. There is no automatic unlimited liability procedure, and also no possibility of changing anything to do with the maximum amount of liability, without involving the German Bundestag.

The ESM does not award "eurobonds"

Even the discussion of the allegedly already existing "banking licence" is misleading: The ESM is designed as an international financial institution. It may grant loans and issue bonds on the capital market. However, since the ESM is not a bank, it cannot refinance itself at the European Central Bank. As an international institution, the ESM is subject neither to national banking laws nor to banking supervision.

Is also incorrect to say that due to the ESM's refinancing possibilities on the capital markets, "eurobonds" have already been introduced. The ESM grants financial assistance under strict conditions to programme States. Germany is liable for the ESM with a set share of 27.1 per cent, not severally for the full amount. This all has nothing to do with "eurobonds" as it would lead to a complete pooling of debt with nothing in return. We therefore reject this as well.

No liability without control

Finally, sometimes the impression is given that the ESM can give money directly to banks and that bank recapitalisation is possible by the German Bundestag. This is not true. A direct bank recapitalisation is not possible under the current rules. The federal government has made it clear that we adhere to this principle: no liability without control. It was also made clear at the June summit. The introduction of a European banking supervision is a necessary prerequisite for a direct bank recapitalisation. The German parliament would have to create a legal basis for this first.

What we should be looking at is the stability of the euro, not the observations of a few professors. Those who do not want European integration should express this openly and not hide behind incorrect claims.

Full article (German only)

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