Reforming the European Stability Mechanism: Too Much but Never Enough

On 27 January 2021 the member governments of the European Stability Mechanism (ESM) signed the Agreement Amending the ESM Treaty, instituting long-awaited reforms to the EU’s crisis management and financial-aid mechanism. This paper finds that the ESM Reform Treaty not only fails to address the outstanding issues in the original ESM framework, but exacerbates the status quo by further empowering the Mechanism outside the legal framework of the EU treaties. The ESM’s ‘peacetime powers’ represent a consequential novelty in this regard. These ‘powers’ are in fact the ESM’s own analytical capabilities, which have been extended beyond its financial-aid function and are now applicable within the bounds of the European Semester for economic governance. Perhaps worst of all, the ESM remains an extremely limited instrument, legally designed to imagine the single scenario of a sovereign debt crisis which requires disciplinary conditionality in exchange for financial aid. Future reforms are not just advisable, they are a functional necessity. It will become increasingly difficult for the ESM to exercise its new powers or provide suitable crisis management without the efficiency and legitimacy which these adjustments could confer. A compromise solution could see the ESM become its own independent technocratic institution, equally removed from the political influence of governments and the reach of the Commission. Introducing flexibility in its strict conditionality could be a matter of reinterpreting the meaning of ‘sound budgetary policy’ from the Court of Justice of the European Union’s ruling in Pringle. Lastly, in matters of justiciability and the protection of fundamental rights, nothing prevents ESM governments from committing the activities of the Mechanism to the European Charter on Fundamental Rights or the authority of the European courts, should they wish to do so.