ESM loans: Bank assistance without treaty change?

Already, euro countries may apply for loans at ESM in order to recapitalize their banks. This assistance they need but to repay the ESM, which increases its national debt.

From today can Euros States in ESM to apply for loans in order to recapitalize their banks. This assistance they need but to repay the ESM, which increases its national debt. As heavily indebted countries want to avoid this consequence like the euro finance ministers are now planning to introduce the direct bank bailout. For the repayment of financial assistance to banks in future no longer the crisis state itself, but directly the bank should be responsible, which has received financial assistance in order “to break the vicious circle between banks and sovereigns” the. The Euro finance ministers plan to introduce direct bank rescue by a decision in accordance with Article 19 of the ESM Treaty. Such a decision allows the Finance Ministers to amend existing ESM rescue instruments. German Finance Minister must obtain advance approval of the Bundestag for this.

is questionable even with parliamentary approval, whether the direct bank aid must be ever introduced by mere Finance decision. The underlying principle of the ESM Treaty is that the community of the euro states to a member against lent financial obligations and that member interest the loan and then return. If in future no longer states but over-indebted private law companies – can file for bankruptcy at any time – are responsible for the repatriation of financial assistance, this could be more than just a change of Auszahlungsmodalit├Ąt for an existing rescue tool. Rather, it could be a fundamental change in the ESM Treaty set principles and in Articles 12 and 13 of the method of the ESM. Such a change could only be done by changing the ESM Treaty, which would have to be ratified by all euro countries.

Bonds of the ESM should be covered, according to ESM treaty in the first five years by at least 15 percent of capital. If the ESM and banks to save directly in the future, such funding would no longer be sufficient to maintain the AAA credit rating of the ESM. The default risk on the acquisition of shares in crisis banks or in the granting of loans would namely significantly higher than in the granting of financial assistance to States which can always generate revenue. The direct bank bailout could therefore also lead to capital calls over 21.7 billion euros out of Germany.

With the direct bank would help the existing basic principle of the ESM that a State which lent assistance sought is also obliged to repay the aid to be lifted. Simultaneously, the likelihood of repayment of assistance would decrease rapidly, which should lead to significantly higher capital calls in the euro countries.

Also the Bundestag assumes that the basic principle of the contract, the repayment by the crisis state: In ESM-finance law, MEPs specified that must be guaranteed in the context of financial assistance for the banking sector, that no direct banking risks are taken and that the repayment is secured by a guarantee from the crisis state.
Thus, there is evidence that it is in the direct bank assistance not only to the change in a financial assistance instrument, but also a change that can not be brought about by a mere decision of the Minister of Finance but requires a change to the ESM Treaty, the basic contract principles.