Finland prevails in ESM decision-making dispute

Compromise reached in Brussels on Monday

Jutta Urpilainen

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Finland and the other countries of the eurozone reached agreement on Monday in a dispute over the establishment of a permanent European Stability Mechanism (ESM) to be set up to rescue troubled euro economies.
      Minister of Finance Jutta Urpilainen (SDP) says that the compromise guarantees that Finnish economic liability cannot be increased against Finland’s will.
      “I am personally satisfied with this outcome. This was no easy run”, Urpilainen said on Monday evening in Brussels.
     
Finland was the lone holdout among eurozone countries in its insistence on consensus when making decisions on how the ESM can be used and on liability for ESM capital in emergencies.
      The other eurozone countries agreed at a summit held in December that in an emergency, decisions could be made with an 85 per cent qualified majority.
      Finland did not agree, and insisted on decision-making by consensus. Approving a qualified majority system would have been the kind of change in Finnish EU policy that would have required a two-thirds majority in the Finnish Parliament.
     
The changes in the text of the ESM that were adopted at Finland’s insistence mean that qualified majority voting will be possible only for emergency loans to countries in crisis and for the use of other mechanisms of the institution. Raising the capital of the ESM will require consensus.
      An emergency in which qualified majority voting would be applicable would be a situation in which the European Commission and the European Central Bank both conclude that failure to make a decision on a loan would endanger the economic sustainability of the eurozone.
      “We are concerned that qualified majority decision-making would become a very common practice. In that connection we managed to get changes to the article that this would be used only in really exceptional situations.”
     
Urpilainen does not believe that the ESM dispute would have eaten away at Finland’s political capital, even though it has been difficult to market the changes to the other countries.
      Finland was also a holdout in the dispute over loan guarantees to Greece.
     
The greatest disagreements in the negotiations concerned the establishment of a separate emergency fund, which would be taken into use if member states give their approval to the implementation of the ESM by qualified majority.
      In such a situation, capital from the financial institution would be transferred to an emergency fund in case the institution suffers losses from extending a loan. The funds could later be returned by unanimous decision of the member states.
      There has been resistance from the other countries, because the transfer of funds reduces the lending capacity of the ESM. Already well before its establishment it has been clear that the ESM will not be strong enough to rescue economies such as those of Italy and Spain.
     
According to the Financial Times, Germany has been ready to consider the possibility of maintaining the current temporary European Financial Stability Facility (EFSF) alongside the ESM. This would increase lending capacity to about EUR 750 billion.
      Germany is agreeing to this in return for a commitment from the EU countries to tighter budget discipline through a new inter-governmental economic treaty.
      One aim would be to tie the ESM to the economic treaty by restricting access to ESM financing to those countries that sign the treaty.
     
A final seal is to be put on the ESM treaty at an EU summit on Monday next week. Before that Finland will have to give its approval.
      “We are hopeful that these changes are found acceptable by the Constitutional Law Committee, in such a way that we would be able to pass the treaty by a simple majority”, Urpilainen said.


Previously in HS International Edition:
  Government and opposition agree: no more Finnish guarantees to EFSF (18.1.2012)
  Solution in sight to European Stability Mechanism dispute (19.1.2012)
  Finland sticks to consensus demand at euro summit (9.12.2011)

See also:
  Finland retains S&P AAA rating (16.1.2012)

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