Estonia Supreme Court rules Europe bailout fund constitutional

[JURIST] The Supreme Court of Estonia [official website; press release] ruled Thursday that the treaty to establish the euro area's permanent rescue fund does not offend the Estonian constitution. The court, sitting en banc, held that a restriction on the financial authority on the Riigikogu [official website], Estonia's parliament, imposed by the Treaty Establishing the European Stability Mechanism (ESM Treaty) [text, PDF] is a justified encumbrance on Estonian sovereignty. Specifically the court examined Article 4 (4) of the ESM Treaty, which states that in exceptional circumstances where "a failure to urgently adopt a decision to grant or implement financial assistance ... would threaten the economic and financial sustainability of the euro area" a grant of financial assistance may be made under a non-unanimous emergency voting procedure by which an 85 percent vote could grant a member nation financial assistance regardless of that country's opposition to the action. Under his constitutionally prescribed duty to review legislation for conformity with the Estonian Constitution, Chancellor of Justice Indrek Teder brought a constitutional challenge to Article 4 (4) in March, asking the court to reject the measure as a violative decrease of the power of the Riigikogu to decide the use of public finances. The court weighed the Article 4 (4) restriction against the provision's underlying purpose of ensuring an efficient decision-making procedure in case of a threat to the financial stability of the euro area, including Estonia. Finding that national financial and economic stability is necessary in order for Estonia to be able to perform its constitutional obligations, the court dismissed the chancellor's application to declare Article 4 (4) unconstitutional, clearing the way for the Riigikogu to ratify the treaty and join the ESM. The rescue fund will provide long-term credit guarantees to ensure the functioning of a member state in the event of a national crisis.

Europe's permanent bailout fund will succeed the temporary European Financial Stability Facility [Bloomberg report], which was used to provide emergency loans to Ireland and Portugal and a second bailout to Greece. This week German Finance Minister Wolfgang Schaeuble [official profile, in German] defended the €500 billion (US $632 billion) ESM [materials, PDF] before the country's Federal Constitutional Court [official website, in German], warning [JURIST report] that a court decision postponing signing the pact could lead to significant loss of confidence in the euro area and larger financial instability beyond German markets. The court announced last week that it would hear the challenge to the ESM [JURIST report], at the same time advising German President Joachim Gauck [BBC profile] to refrain from signing the legislation until the challenge to the ESM is reviewed and decided.

 

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