Malta intends to ratify the European Stability Mechanism Treaty by July 1, Finance Minister Tonio Fenech has told The times Business.
Amid increasing speculation that the €500 billion ESM – a permanent bailout fund for the eurozone – will not come into force by the July 1 deadline, as many member states have still not ratified the text, Mr Fenech said that Malta should be able to meet its target as it has already presented the treaty to Parliament.
“Our intention has always been to ratify the treaty before Parliament’s summer recess and that is still our plan,” he said.
The ESM treaty is supposed to come into force at the beginning of July, but so far only four countries – France, Greece, Portugal and Slovenia – have ratified it, representing just 26.1 per cent of its capital base.
To become law, it requires ratification in countries representing at least 90 per cent of its capital base – effectively meaning Germany, Italy and Spain will have to vote in favour. Malta holds only 0.9 per cent of the capital base of the new fund.
Olli Rehn, European Commissioner for Economic and Monetary Affairs has called on member states to step up the ratification process as the ESM is crucial for the stability of the eurozone.
Addressing a meeting of the Economic and Monetary Affairs Committee of the European Parliament, Mr Rehn also expressed his view that the ESM should be allowed to lend directly to banks in order to save taxpayers from funding future bank failures.
“I find the possibility of direct bank recapitalisation as an instrument that should be considered to break the nexus between sovereigns and banks, which is currently creating and reinforcing the negative spiral in the European economy,” he told MEPs.
Commissioner Rehn’s call comes just days after Spain said it would need help from the EU for its weakened banking sector, a loan of up to €100 billion that will be channelled through the state, leaving the government with the full cost of the bailout. According to estimates by credit rating agencies, the capital injection will send government debt skyrocketing from 68.5 per cent of GDP last year to 95 per cent by 2015.
Spain is the first member state to tap the special credit line for banks provided for under the existing European Financial Stability Facility (EFSF), as well as under Article 15 of the ESM Treaty.
Spain had hoped the loan would not add to its debt load if it was funnelled through a special purpose vehicle – the Fund for Orderly Bank Restructuring (FROB). However, eurozone finance ministers insisted that the government assume responsibility for the loan.
A proposal to allow the ESM to directly intervene in the banking sector was shot down when the ESM Treaty was being drawn up last year, largely on the back of German fears that it would take the pressure off governments to reform.
But the Commission is still keen to see the proposal pushed through, a position which is backed by Spain, Ireland and Portugal. Article 19 of the ESM Treaty allows euro finance ministers – voting unanimously – to “review the list of financial assistance instruments provided for in Articles 14 to 18 and decide to make changes to it”.
It is not yet clear which fund – the EFSF or the ESM – will be used to come to Spain’s aid.