From ‘No Bailout’ to the European Stability Mechanism

This article traces the history of the fiscal stability features of the Eurozone, following the European Union's movement from a firm ‘no bailout' policy, through the eventual financial rescue of several troubled Eurozone member states during the Euro crisis, and then on to the 2012 establishment of the European Stability Mechanism. It also describes the parallel history of the European Union's Stability and Growth Pact, from its origins in the convergence criteria stipulated by the Maastricht Treaty in the run-up to the launch of the Euro, to the first generation of the Stability and Growth Pact and its breakdown and subsequent 2005 reforms, and onto the post-crisis Treaty on Stability, Coordination, and Governance (“Fiscal Compact”). The Stability and Growth Pact, as reformed and enhanced by the Fiscal Compact, continues to address fiscal stability in ordinary times. The European Stability Mechanism will address an eventual return of member state fiscal catastrophe; the European Stability Mechanism will serve to bailout an imperiled Eurozone member state. Together, these streams of institutional development signal an increasing, though reluctant, commitment among the EU member states, and in particular the Eurozone member states, to concede fiscal assistances in dire circumstances. There continues substantive agreement on the bindingness of budgetary discipline and the wisdom of austerity policies