Earlier we posted something from Citi’s Willem Buiter, who argued that even if countries like Finland and Slovenia were intransigent, Europe could still use something called “Enhanced Cooperation” to expand the EFSF.Not so fast according to Raoul Ruparel of the think tank Open Europe.
He writes to us:
The EFSF is not part of the EU Treaties and is a separate special purpose vehicle; therefore enhanced cooperation cannot apply to it. Since it is not technically an EU institution it does not fall into the jurisdiction of rules or procedures such as enhanced cooperation. The articles of incorporation for the EFSF highlight that it is a “public limited liability company” based in Luxembourg, not a formal EU body or institution.
This was an intentional move by eurozone countries to avoid a treaty renegotiation when setting up the EFSF, which would have been massively time consuming and may have failed to be approved. The EFSF grew from the intergovernmental loans given to Greece under the first bailout (although the two are still separate), therefore its basis has always been intergovernmental and not part of the EU Treaties.
The first part of the preamble to the EFSF Framework distinguishes between the change to EU Treaties required to establish the EFSM (the other €60bn temporary fund) and the setup of the EFSF, which did not require EU treaty change
In addition, the UK didn’t have to approve the creation of the EFSF, since it was not inside the EU treaties. However, the European Stability Mechanism (ESM), the permanent bailout fund, is inside the Treaties and its creation does require UK approval (see here) and the UK also had a vote on the EFSM. It is clearly confusing since both the EFSM and the ESM are part of EU Treaties but the EFSF is not; but the distinction is clear.
It also seems fairly clear in the framework of the EFSF (Article 10, part 5, page 17) that any decisions on disbursing funds or adjusting the mechanism must be made unanimously. The only way around this would be for all the members of the EFSF to unanimously agree to allow Finland to step out of its share of guarantees but, as the current debate shows, the likes of Austria, the Netherlands and Germany would not let Finland excuse itself while they have to take on a new burden for political reasons.
All in all it seems clear that this enhanced cooperation way out is not plausible for the expansion of the EFSF or for the release of the second Greek bailout.
That sounds compelling, and makes the potential rejection by Slovenia (far from confirmed yet) much more serious.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.