The following paper deals with the economic crises and the need to amend the treaty. A short introduction on the origins and the development of the European economic crises will be given, because in order to understand the plans and discussions regarding a treaty amendment and how a treaty amendment can be legally implemented, it is helpful to explain the reasons for such an amendment. Consequently a brief introduction into the development of the economic crises is given. Beside these highly theoretically issues, the paper mainly discusses the question whether there is an acute but mainly a legal need to amend the treaties on the European Union, especially with regard to the current economic situation of the Union and its Member States. Due to the fact that this is a particularly political topic it mainly concentrates on the legal requirements, problems and consequences of a possible treaty amendment. That approach can be justified by the fact that the political matters linked to that topic are almost inexhaustible and would overshadow the legal aspects. But the legal aspects are of great significance, because the planned measures have to comply with EU law and the national laws of the Member States in order to be successfully adopted.
Table of Contents
Introduction
The Economic Crises – basic information
Potential procedures for a treaty amendment
The planned amendment
A legal need to reform the old mechanisms?
The present state of affairs
Conclusion
Objectives and Topics
The primary objective of this paper is to examine whether there is an urgent and, more specifically, a legal necessity to amend the European Union treaties in light of the ongoing economic and financial crisis. It explores the interplay between the international financial crisis, the subsequent sovereign debt crisis in the euro zone, and the legal constraints imposed by existing EU law on potential rescue mechanisms.
- Origins and evolution of the European economic and financial crises.
- Legal procedures for treaty amendment under the Lisbon Treaty.
- Evaluation of the legal basis for proposed amendments, including Article 136 TFEU.
- Assessment of current crisis mechanisms like the EFSM and EFSF.
- The role of the ESM in future euro zone stability and its relation to EU law.
Excerpt from the Book
The Economic Crises – basic information
Following 2001 the Federal Reserve lowered the interest rate to supply the market with liquidity. Since then, many Americans got an ever-higher credit approval, due to rising housing prices and therewith - higher collateral. Most of these were sub-prime debtors, people with a low credit ranking. Banks issued new credits to these sub-prime house owners due to the incremental appreciation of their houses. That worked until the market peaked. After the peak an outselling of Collateralized Debt Obligations (CDOs) by international investors started, because of the default of some of these tranches. CDOs are asset backed securities were banks take the underlying real estate property as collateral and sell the claims to investors. For this reason banks do not need any equity to back these credits, as required for traditional mortgages, and the market got flooded with mortgage contracts. Since many investment banks did not have a deposit-banking service, they were in serious trouble regarding their liquidity. To grasp the overall picture, one could say that long-term illiquid property assets were financed with short-term investments.
This led to liquidity problems of banks, because of the highly internationalized financial industry, investors all over the word sold their investments and searched for the safe heaven – US treasuries or gold. Banks were not able to refinance their on-going business operations, because the market lost trust into these financial institutions. The US government bailed out troubled financial institutions in the first place, such as Bear Stearns, AIG or Fannie Mac. But at one point in time the government was not willing to finance the system with more taxpayers’ money. The result was the international financial crisis, starting with the crash of Lehman Brothers on the 15th of September 2008. The governments all over the world had to support systemic financial institutions with liquidity to circumvent a collapse of the world financial system. That led to even more indebtedness by governments.
Summary of Chapters
Introduction: This chapter outlines the paper's focus on the legal necessity for amending EU treaties due to the current economic situation and summarizes the scope of the analysis.
The Economic Crises – basic information: This section details the origins of the global financial crisis starting in 2008 and its transition into the European sovereign debt crisis.
Potential procedures for a treaty amendment: This chapter provides an overview of the legal amendment procedures introduced or modified by the Lisbon Treaty, distinguishing between ordinary and simplified revision procedures.
The planned amendment: This section discusses the specific proposal to add a new paragraph to Article 136 TFEU to establish the European Stability Mechanism (ESM).
A legal need to reform the old mechanisms?: This chapter evaluates the legal basis and potential shortcomings of existing crisis mechanisms like the EFSM and EFSF, and examines compliance with EU law.
The present state of affairs: This section describes the evolution of the amendment process since the 2010 Deauville Summit and the political momentum behind institutionalizing a permanent crisis mechanism.
Conclusion: This final chapter synthesizes the findings, arguing that a treaty amendment is a necessary step to provide a stable, legally sound framework for future economic crisis management.
Keywords
European Union, EU Law, Treaty Amendment, Economic Crisis, Lisbon Treaty, Article 136 TFEU, Article 125 TFEU, Financial Stability, Euro Zone, EFSM, EFSF, ESM, Sovereign Debt, Intergovernmental Agreement, Monetary Policy.
Frequently Asked Questions
What is the primary subject of this paper?
The paper examines the legal requirement for amending European Union treaties as a response to the ongoing economic crises and the resulting pressure to implement permanent financial rescue mechanisms.
What are the central themes discussed?
The main themes include the development of the economic crisis, the legal procedures for treaty revision, the constitutionality of various crisis mechanisms, and the shift towards intergovernmental solutions within the EU.
What is the research question addressed?
The central research question is whether there is an acute and primarily legal need to amend the EU treaties to accommodate the necessary tools for safeguarding the stability of the euro area.
Which scientific approach does the author use?
The author employs a legal analysis approach, focusing on treaty provisions (TEU and TFEU), official council decisions, and the examination of existing legal barriers to proposed financial measures.
What does the main body of the paper cover?
The main body covers the transition from the 2008 global financial crisis to the European debt crisis, the technicalities of the ordinary and simplified revision procedures, and a detailed examination of the legal obstacles regarding Article 123, 124, and 125 TFEU.
How would you describe the work with key terms?
The work is defined by its focus on European legal integration, financial stability, and the constitutional challenges of reconciling permanent crisis mechanisms with the existing EU legal framework.
How does the author characterize the difference between the EFSM and EFSF?
The paper identifies the EFSM as being established via Council Regulation based on EU law, whereas the EFSF is described as a special purpose vehicle derived from an intergovernmental agreement, which operates outside the formal treaty framework.
Why is the "no-bailout" rule mentioned in the text?
The "no-bailout" rule (Article 125 TFEU) is analyzed because it acts as a significant legal constraint; the author discusses whether providing loans to member states under the current mechanisms conflicts with this prohibition.
What is the significance of the 2010 Deauville Summit?
The summit is identified as a pivotal moment where political leadership, specifically German Chancellor Angela Merkel, successfully convinced partners of the necessity for a treaty amendment to structure a permanent crisis resolution mechanism.
- Quote paper
- Julia Nichtern (Author), 2012, The Economic Crises and the Need to Amend the Treaties, Munich, GRIN Verlag, https://www.grin.com/document/215154
