MercoPress. South Atlantic News Agency

UK decouples from European bailout agreement to protect the single currency

Lord Howell said that under the amendment UK will not be liable through the EU budget for any future Euro-zone bailouts

The UK will be exempt from a new European bailout agreement between Euro-zone countries according to a EU Treaty Amendment Bill introduced to the House of Lords this week by Foreign office minister Lord Howell.

The decision was confirmed in the Queen’s speech and basically means the UK wants to ensure it is not liable if Euro zone states default, since EU countries have signed to protect the stability of the single currency.

Foreign Office Minister Lord Howell said that the treaty change will help Euro zone countries take forward a key aspect of their plan to resolve the crisis and secure financial stability.

”A stable and healthy Euro-zone is important for the UK’s long-term growth and prosperity. This treaty change is firmly in the UK’s national interest, since it makes explicit the ability of Euro zone countries to set up a permanent European Stability Mechanism to support other Euro-zone countries in financial trouble. This will be a fund by the Euro-zone, for the Euro-zone, and, unlike the situation this Government inherited, the UK will not be liable through the EU budget for any future Euro-zone bailouts. This treaty change will help Euro-zone countries take forward a key aspect of their plan to resolve the crisis and secure financial stability.”

The Treaty amendment will add the following new paragraph to Article 136 of the Treaty on the Functioning of the European Union (TFEU):

”3. The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”

This Treaty change was agreed by EU leaders at the December 2010 European Council. The draft Treaty change Decision was then examined by the UK Parliament in March 2011, under the provisions of previous legislation. Both Houses gave their approval. The Decision was then adopted by the March European Council in Brussels.

By agreeing to the Article 136 Treaty change, Prime Minister David Cameron secured agreement that the ESM will remove any UK liabilities for future Euro area programs of financial assistance under the EU Budget.

As the preamble to the Decision states, “the European Council agreed that, as this mechanism is designed to safeguard the financial stability of the Euro area as whole, Article 122(2) of the TFEU will no longer be needed for such purposes. The Heads of State or Government therefore agreed that it should not be used for such purposes.”

The ESM will replace both the European Financial Stability Facility and the European Financial Stabilisation Mechanism.

This Bill is a result of the commitment this Government has made to stricter public and Parliamentary controls on EU Treaty changes.

The EU Act 2011 enshrined in law that that approval of EU Treaty changes such as this require a Parliamentary statement to be laid by a Minister, followed by an Act of Parliament. The statement was laid by the Foreign Secretary on 13 October 2011 and confirms that as this Treaty change only applies to Euro-zone Member States, it does not fall within section 4 of the EU Act and consequently, no referendum is required.

The provisions in Article 136 TFEU only apply to Euro-zone Member States and do not apply to the UK. However, any changes to the EU Treaties must be ratified by the UK and all other EU Member States before they can enter into force.