The Significance of Article 122 (II) TFEU in State Debt Crisis in Europe

Abstract

It was only a few weeks after the Lisbon Treaty had entered into force that the first signs of the current debt crisis became apparent. Significant macroeconomic imbalances and divergent competitiveness have been observed in the euro area during its ten years in operation. This was the first time that EMU has been called upon to manage a crisis. The response was delayed considerably for several reasons, including the absence of institutionalized crisis management mechanisms, the existence of a no-bailout clause in the Treaty, the fear of creating a precedent and the reaction of citizens in some member states. The existing legal construction of the EMU, following the Maastricht Treaty and the SGP, was one of strict stability which did not allow for emergency intervention because the prospect of such intervention would jeopardise the incentives to perform a solid budgetary and financial policy in the Member States. In this context, the provision of Art. 122 (II) constitute a crucial rule regarding the possibility of enhancing a Member State in need by EU or other Member States. According to the text of Art. 122 (II) TFEU, there are three conditions for the granting of financial assistance. Specifically, to that effect, it must be met the following conditions: a) the Member State should be in difficulties or should be seriously threatened with severe difficulties, b) these difficulties should be caused by natural disasters or exceptional occurrences and, c) these causes must be beyond the control of the Member State. The main prerequisite for granting financial assistance is the existence of threat with severe difficulties for the country in need caused by natural disasters or exceptional occurrences beyond its control. Consequently, crucial for the implementation of this provision is the question, whether the occurrence of economic downturn stemming from financial crisis, may fall within the definition of “exceptional occurrences”, under Article 122 (II) TFEU, so that it applies not only to cases of acute social problems, of engaging in foreign or military policy issues, but also in the matter of an excessive government deficit, and fiscal liquidity shortage. To some, as “exceptional occurrences” are taken to be meant economic shocks, such as serious social difficulties, unrest, foreign policy or military entanglements. It is submitted that while an excessive deficit would not per se qualify as an exceptional occurrence within the meaning of Art. 122 (II) TFEU, its transformation into a threat to sovereign solvency would not be the primary law description, since the choice for the Member State concerned would no longer be between an immediate return to budgetary rectitude or continued market lending at higher (punitive) risk premia but, rather, between borrowing at sustainable conditions and outright default.