Sweet and Lowdown: A Resolvency Process and the Eurozone’s Crisis Management Framework

Abstract

The massive crisis lingering in the Eurozone for almost 4 years now has been confronted by an enhanced integration of fiscal policies and regulations, an increase in the control mechanisms by EU institutions, and by the creation of ex post crisis management instruments to deal with the severe financial trouble of the sovereigns. These ex-post instruments, embodied in the European Stability Mechanism (ESM) and regulated in its Treaty of creation (TESM), constitute a limited solution to the problems posed by the distress of the Eurozone countries. It is the present article’s purpose to examine to which degree, if at all, this mechanism is reconcilable with a more ambitious approach, that includes a more elaborated and structured procedure: the Resolvency Model. Accordingly, we begin by contextualizing the current institutional setting of the Eurozone´s Crisis Management Framework and briefly summarizing the main characteristics of the ESM. Once the description of the current situation shows us where we stand, we purport to explain the Resolvency model in some detail. In this context, we will try to spot the parallelisms and differences between the two approaches in order to examine if there are possibilities to reconcile the two of them. The task is carried out not as a mere intellectual exercise but with an eye on the practical feasibility – in particular with respect to an amalgamation of the two approaches. We believe that the ESM and the Resolvency system are complementary in an important number of tasks and competences. However, we do not consider the current ESM model, as a stand-alone solution, to be fully adequate. We conclude that many of the ESM’s shortcomings would be solved by the introduction of the Resolvency model. One of the main problems of the current ESM system is its excessive exposure to political influence. Be it by means of the adoption of a Resolvency model, or by any other set of amendments, the ESM ought to be transformed into a technical instrument to enhance the efficient development of the Eurozone as a whole, stripped of political influence and the individual interest of countries.