The so-called Hanseatic League of EU countries has called for a “strict conditionality” and more powers for the European Stability Mechanism over those countries requesting assistance to avert a full-blown crisis.
The 10-member group issued a paper on Thursday (1 November) supporting a stronger ESM. The paper was signed by the finance ministers of Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, Sweden and the Netherlands.
Slovakia and the Czech Republic also became part of the alliance forged last March.
In the paper, seen by EURACTIV.com, the group said it is committed to ensuring that the ESM is “properly equipped to respond to all future challenges”.
“Countries have a responsibility to comply with European agreements on budget deficits and national debts,” Dutch Finance Minister Wopke Hoekstra told this website.
“But if things do go wrong, it is important to deal with the crisis as well as possible. Acting quickly and adequately will limit the impact. That is why we need to further strengthen the crisis structure in Europe,” he added.
But the group of hardliners on the euro area reform process want to toughen the access to the €500-billion pot.
In their view, the EU’s anti-crisis fund should only provide support “when indispensable to the financial stability of the euro area as a whole and its member states”.
If a country requests financial assistance, “strict conditionality“ should be imposed, they argue.
The mechanism “must be given a greater role” in cuts and reforms of euro countries asking for aid, an official of one of these countries said.
In order to assess the repayment capacity of member states, and in order to be prepared for the worst, the paper also requested “full access” to information of the economic and financial situation in normal times.
Accordingly, the Commission, part of the institutional framework to bailout countries, would not be the only body looking into the public accounts and the macroeconomic situation of the countries.
This could lead to different conclusions about the health and sustainability of national economies, as it happened during the Greek crisis between the Commission and the IMF.
The league argued that the goal would be the “early identification of risks and vulnerabilities and contingency planning to ensure timeliness of actions”.
The Hanseatic alliance also wants to reaffirm the principle of the private sector involvement in the ESM treaty before the assistance is provided to an economy whose debt is not sustainable.
Their ideas contrast with other proposals on the table to facilitate access to the ESM, in particular to its precautionary instruments to support countries experiencing economic turbulences and to avert a full crisis.
A senior official of the Spanish economy ministry said that the issue would be to access preventive funding without being “stigmatised” in the eyes of investors.
The stricter conditionality and bigger powers to impose spending cuts or reforms on national economies would also scare away countries that could consider precautionary financial assistance.
Currently, member states seeking this type of assistance with a “fundamentally sound” financial situation don’t need to sign an adjustment programme, as long as their debt is sustainable, they respect the EU’s fiscal rules, and their banks don’t pose a systemic threat.
Only enhanced credit lines force countries to adopt “corrective measures” to ensure their public accounts are balanced and their banks are sound.
The document was published just before the eurozone’s finance ministers (the Eurogroup) are due to discuss on Monday how to bolster the ESM.
Private creditors’ losses
The other big topic of the Eurogroup agenda will be Italy, whose government has breached the EU’s fiscal rules in an “unprecedented manner” and risks being sanctioned.
Rome has also been the main opponent of the idea to bolster the framework to impose losses on private investors before ESM funds flow to an ailing economy.
The Italian government fears that clearer involvement of private creditors would increase their borrowing costs, at a time when markets are increasingly uneasy about Italian debt due to its budgetary dispute with the European Commission.
The Hanseatic league said that “in cooperation with existing creditors”, measures should be taken to improve the debt sustainability of the country in need.
In this regard, they point to the introduction of single limb collective action clauses.
In line with the IMF rulebook, this would allow for restructuring bonds on the basis of a single decision and would limit holdouts.
The Europeans want to avoid an Argentinian case. The Latin American country became a pariah for the international markets because ‘vulture’ funds holding 7% of its debt rejected the agreed debt restructuring of 2004 and 2010. Buenos Aires finally accepted paying the $9.3 billion requested by the funds.
Clearer rules for private sector involvement have been controversial in Europe since German Chancellor Angela Merkel and former French president Nicolas Sarkozy discussed ways to improve sovereign debt restructuring in October 2010 at a bilateral summit in Deauville (France).
However, senior eurozone officials said that ministers are not considering imposing haircuts or renegotiating debt terms, as Merkel’s former finance minister Wolfgang Schäuble once did.