The ESM and the proposed EMF: a tabular comparison

STUDY For the attention of the ECON committee The ESM and the proposed EMF: a tabular comparison Euro Area Scrutiny ECONOMIC GOVERNANCE SUPPORT UNIT Authors: Alessandro Gasparotti, Michal Axel Minkina, Alice Zoppè Directorate-General for Internal Policies PE 614.499 - April 2018 EN

DIRECTORATE-GENERAL FOR INTERNAL POLICIES OF THE UNION ECONOMIC GOVERNANCE SUPPORT UNIT The ESM and the proposed EMF: a tabular comparison Abstract This paper presents some aspects of the draft Council Regulation on the establishment of a European Monetary Fund, proposed by the Commission in the context of the Roadmap to deepening Europe s Economic and Monetary Union of December 2017. The paper includes a full comparison between the European Stabilisation Mechanism (ESM) Treaty and the Statute of the proposed EMF. PE 614.499

The ESM and the proposed EMF: a comparison 1. INTRODUCTION The European Stability Mechanism (ESM), set in 2012 as a mechanism aimed at safeguarding the financial stability of the euro area, was established by an intergovernmental treaty outside of the EU framework (see a separate EGOV paper for more information on the ESM). The ESM provides loans to Euro Area Member States facing financial distress, conditionally to the implementation of policy measures. It may lend up to 500 billion euro; this amount can be borrowed on financial markets, and is guaranteed with 700 billion euro capital subscribed by its 19 Member States participants. The European Parliament (EP) reiterated on several occasions that it is in favour of the incorporation of the ESM into the EU legal framework, provided that there is appropriate democratic accountability (e.g. EP resolution in 2013 and EP resolution in 2017). The Commission proposal In December 2017, the Commission presented a proposal for a Council Regulation on the establishment of the European Monetary Fund (for a comparison between ESM and IMF, please see this EGOV paper). The proposal would integrate the EMF into the EU legal framework. The proposed Council Regulation includes, as an Annex, the Statute of the EMF, which looks very similar to the current ESM Treaty. Innovations with respect to the current ESM are introduced both in the text of the Regulation and in the annexed Statute. The legal basis for the Commission proposal is Article 352 of the TFEU, which entails a special legislative procedure, requiring a unanimous vote of all the Member States in the Council and the consent of the European Parliament. The text of the regulation covers aspects concerning the establishment of the EMF and its accountability, notably: The establishment of the EMF and its replacement of the ESM in legal acts of the Union; In order to comply with EU jurisprudence (e.g. the Meroni case), Article 3.1 of the proposed regulation requires that the Council approves a series of decisions taken by the EMF board. In these cases, the Council votes by qualified majority; In accordance with Article 5, the EMF will present annual reports on the execution of its tasks, as well as its annual accounts and financial statements, to the EP, and will have to answer oral and written questions, on top of being heard by the competent committees. Confidential oral discussions behind closed doors are also foreseen (Article 5.5). Moreover, the EP will be consulted on the appointment of the EMF Managing Director by the Council; National parliaments will also receive the annual reports, will be able to ask questions and may invite the Managing Director (Article 6). Such double form of accountability would also increase the transparency of the EMF towards both the EP and national parliaments. The annexed Statute covers other aspects, including a new financial instrument and governance. The table in this document presents a comparison of the ESM Treaty and the proposed EFM Statute. It shows that the main proposed innovations, are as follows: PE 614.499 3

IPOL Economic Governance Support Unit The EMF would serve as a common backstop to the Single Resolution Fund. Importantly, it will be fiscally neutral in the medium term, meaning that public assistance will be recovered by ex post levies on the financial industry; The Commission proposal drops the requirement for the inclusion of Common Action Clauses (CACS) in all euro area government bonds (Article 12, Principles of the ESM Treaty). It substitutes such provision with the right to negotiate, conclude and enforce collective agreements and actions according to national law, in observation of Article 152 TFEU (on role of social partners) and of Article 28 of the Charter of Fundamental Rights (Right of collective bargaining and actions); A new qualified reinforced majority (85% of the votes) is proposed for decisions on stability support, disbursement and the deployment of the backstop (Articles 16 to 18). Nevertheless, unanimity remains for decisions with financial impact on Member States (capital calls); References to cooperation with the IMF are removed from the Statute. The Commission instead gains more competences regarding conditionality: the debt sustainability analysis (DSA) will be conducted by the Commission in liaison with the ECB. Moreover, in case of the granting of stability support, a Memorandum of Understanding (MoU) will be signed by both Commission and EMF, whereas currently the Commission signs it on behalf of the ESM. Reactions so far The Eurogroup (in December 2017 and in March 2018) and the Euro Summit (in December 2017 and in March 2018) discussed ways to enhance the role of the ESM as part of the EMU governance framework. The Euro Summit will continue the discussion at its meeting in June 2018. The ESM Managing Director, Mr Klaus Regling, stated in a speech of April 2018 The model that I prefer - for reasons of the efficacy and independence of the ESM - is that of the EIB, a body that is clearly anchored in the EU Treaty, but with its own protocol, its own capital and accountability to its shareholders... In the meantime, I could imagine an intergovernmental agreement between the European Parliament and the ESM, to formalise my regular appearances at the European Parliament. For a comparison between ESM and EIB see this EGOV paper. The ECB recently published its opinion on the proposed regulation: it emphasizes that further reforms of the ESM will be essential. Furthermore, it affirmed its opposition on the renaming of ESM as European Monetary Fund, because its tasks will concern economic policy, whereas monetary issues are conferred on the ESCB, which is governed by the ECB. 4 PE 614.499

The ESM and the proposed EMF: a comparison 2. TABLE: COMPARISON BETWEEN THE ESM TREATY AND EMF PROPOSED STATUTE Highlighted text emphasizes the more substantial differences between the two texts. ESM TREATY EMF STATUTE (Annex to the proposed regulation) ARTICLE 1 Establishment and members 1. By this Treaty, the Contracting Parties establish among themselves an international financial institution, to be named the "European Stability Mechanism" ("ESM"). 2. The Contracting Parties are ESM Members. PART I MEMBERSHIP AND SCOPE Article 1 Legal Status of the EMF The EMF shall have legal personality. It shall enjoy in all the Member States the most extensive legal capacity accorded to legal persons under their laws. It may, in particular, acquire and dispose of movable and immovable property and may be a party to legal proceedings. 5 PE 614.499

IPOL Economic Governance Support Unit ARTICLE 2 New members 1. Membership in the ESM shall be open to the other Member States of the European Union as from the entry into force of the decision of the Council of the European Union taken in accordance with Article 140(2) TFEU to abrogate their derogation from adopting the euro. 2. New ESM Members shall be admitted on the same terms and conditions as existing ESM Members, in accordance with Article 44. Article 2 Membership 1. Members of the EMF shall be the Member States whose currency is the euro. 2. A Member State whose currency is not the euro shall become an EMF Member as from the date of entry into force of the decision of the Council in accordance with Article 140 (2) TFEU abrogating its derogation from adopting the euro. It shall become an EMF Member on the same terms and conditions as existing EMF Members. 3. The exercise by EMF Members of all the rights granted by this Regulation, including voting rights, shall be conditional upon the subscription of their contribution to the authorised capital stock. 3. A new member acceding to the ESM after its establishment shall receive shares in the ESM in exchange for its capital contribution, calculated in accordance with the contribution key provided for in Article 11. 4. A new member of the EMF shall receive shares in the EMF in exchange for its capital contribution, calculated in accordance with the contribution key provided for in Article 14. PE 614.499 6

The ESM and the proposed EMF: a comparison ARTICLE 3 Purpose The purpose of the ESM shall be to mobilise funding and provide stability support under strict conditionality, appropriate to the financial assistance instrument chosen, to the benefit of ESM Members which are experiencing, or are threatened by, severe financing problems, if indispensable to safeguard the financial stability of the euro area as a whole and of its Member States. For this purpose, the ESM shall be entitled to raise funds by issuing financial instruments or by entering into financial or other agreements or arrangements with ESM Members, financial institutions or other third parties. Article 3 Objective and tasks 1. The EMF shall contribute to safeguarding the financial stability of the euro area, as well as the financial stability of the 'participating Member States' within the meaning of Article 2 of Regulation (EU) No 1024/2013. 2. To achieve its objective, the EMF shall: (a) mobilise funding and provide stability support under strict policy conditions, appropriate to the financial assistance instrument chosen, to the benefit of its Members which are experiencing, or are threatened by, severe financing problems, if indispensable to safeguard the financial stability of the euro area as a whole or of its Members; (b) provide credit lines or set guarantees in support of the Single Resolution Board ( the SRB ) established in accordance with Regulation (EU) No 806/2014 for any task assigned to it. 7 PE 614.499

IPOL Economic Governance Support Unit CHAPTER 2 GOVERNANCE ARTICLE 4 Structure and voting rules 1. The ESM shall have a Board of Governors and a Board of Directors, as well as a Managing Director and other dedicated staff as may be considered necessary. PART II ORGANISATION AND DECISION-MAKING Article 4 Structure and voting rules 1. The EMF shall have a Board of Governors and a Board of Directors, as well as a Managing Director and other staff as may be considered necessary. Governors, Directors, and their respective alternates shall perform their duties without remuneration from the EMF. 2. The decisions of the Board of Governors and the Board of Directors shall be taken by mutual agreement, qualified majority or simple majority as specified in this Treaty. In respect of all decisions, a quorum of 2/3 of the members with voting rights representing at least 2/3 of the voting rights must be present. 2. The decisions of the Board of Governors and the Board of Directors shall be taken by unanimity, reinforced qualified majority, qualified majority or simple majority as specified in this Regulation. In respect of all decisions, a quorum of two thirds of the EMF Members with voting rights representing at least two thirds of the voting rights must be present. 3. The adoption of a decision by mutual agreement requires the unanimity of the members participating in the vote. Abstentions do not prevent the adoption of a decision by mutual agreement. 4. By way of derogation from paragraph 3, an emergency voting procedure shall be used where the Commission and the ECB both conclude that a failure to urgently adopt a decision to grant or implement financial assistance, as defined in Articles 13 to 18, would threaten the economic and financial sustainability of the euro area. The adoption of a decision by mutual agreement by the Board of Governors referred to in points (f) and 3. Abstentions by members present in person or represented shall not prevent the adoption of a decision requiring unanimity. 4. The adoption of a decision by reinforced qualified majority requires 85% of the votes cast. PE 614.499 8

The ESM and the proposed EMF: a comparison (g) of Article 5(6) and the Board of Directors under that emergency procedure requires a qualified majority of 85% of the votes cast. Where the emergency procedure referred to in the first subparagraph is used, a transfer from the reserve fund and/or the paid-in capital to an emergency reserve fund is made in order to constitute a dedicated buffer to cover the risks arising from the financial support granted under that emergency procedure. The Board of Governors may decide to cancel the emergency reserve fund and transfer its content back to the reserve fund and/or paid-in capital. 5. The adoption of a decision by qualified majority requires 80 % of the votes cast. 6. The adoption of a decision by simple majority requires a majority of the votes cast. 7. The voting rights of each ESM Member, as exercised by its appointee or by the latter's representative on the Board of Governors or Board of Directors, shall be equal to the number of shares allocated to it in the authorised capital stock of the ESM as set out in Annex II. 8. If any ESM Member fails to pay any part of the amount due in respect of its obligations in relation to paid-in shares or calls of capital under Articles 8, 9 and 10, or in relation to the reimbursement of the financial assistance under Article 16 or 17, such ESM Member shall be unable, for so long as such failure continues, to exercise any of its voting rights. The voting thresholds shall be recalculated accordingly. 5. The adoption of a decision by qualified majority requires 80 % of the votes cast. 6. The adoption of a decision by simple majority requires a majority of the votes cast. 7. The voting rights of each EMF Member, as exercised by its representative on the Board of Governors or Board of Directors, shall be equal to the number of shares allocated to it in the authorised capital stock of the EMF. 8. If any EMF Member fails to pay any part of the amount due in respect of its obligations in relation to paid-in shares or calls of capital under Articles 8, 9 and 10 of this Statute, or in relation to the reimbursement of the financial assistance under Article 16 or 17 of this Statute, the voting rights of that EMF Member shall be suspended for so long as such failure continues. The voting thresholds shall be recalculated accordingly 9 PE 614.499

IPOL Economic Governance Support Unit ARTICLE 5 Board of Governors 1. Each ESM Member shall appoint a Governor and an alternate Governor. Such appointments are revocable at any time. The Governor shall be a member of the government of that ESM Member who has responsibility for finance. The alternate Governor shall have full power to act on behalf of the Governor when the latter is not present. 2. The Board of Governors shall decide either to be chaired by the President of the Euro Group, as referred to in Protocol (No 14) on the Euro Group annexed to the Treaty on the European Union and to the TFEU or to elect a Chairperson and a Vice-Chairperson from among its members for a term of two years. The Chairperson and the Vice-Chairperson may be re-elected. A new election shall be organised without delay if the incumbent no longer holds the function needed for being designated Governor. 3. The Member of the European Commission in charge of economic and monetary affairs and the President of the ECB, as well as the President of the Euro Group (if he or she is not the Chairperson or a Governor) may participate in the meetings of the Board of Governors as observers. 4. Representatives of non-euro area Member States participating on an ad hoc basis alongside the ESM in a stability support operation for a euro area Member State shall also be invited to participate, as observers, in the meetings of the Board of Governors when this stability support and its monitoring will be discussed. Article 5 Board of Governors 1. Each EMF Member shall appoint a Governor and an alternate Governor. Such appointments shall be revocable at any time. The Governor shall be a member of the government of that EMF Member who has responsibility for financial affairs. The alternate Governor shall have full power to act on behalf of the Governor when the latter is not present. 2. The Chairperson of the Board of Governors ( the Chairperson ) shall be the President of the Euro Group, as referred to in Protocol No 14 on the Euro Group annexed to the TEU and to the TFEU. The Board of Governors shall elect a Vice-Chairperson from among its members for a term of two years. The Vice-Chairperson may be re-elected. A new election shall be organised without delay if the incumbent no longer meets the requirement laid down in paragraph 1. 3. A Member of the Commission and the President of the European Central Bank ( ECB ) shall participate in the meetings of the Board of Governors as non-voting members. 4. Representatives of Member States whose currency is not the euro participating on an ad hoc basis alongside the EMF in a stability support operation for a Member State whose currency is the euro shall also be invited to participate, as observers, in the meetings of the Board of Governors where that stability support and its monitoring are to be discussed. PE 614.499 10

The ESM and the proposed EMF: a comparison 5. Other persons, including representatives of institutions or organisations, such as the IMF, may be invited by the Board of Governors to attend meetings as observers on an ad hoc basis. 6. The Board of Governors shall take the following decisions by mutual agreement: (a) to cancel the emergency reserve fund and transfer its content back to the reserve fund and/or paid-in capital, in accordance with Article 4(4); (b) to issue new shares on terms other than at par, in accordance with Article 8(2); (c) to make the capital calls, in accordance with Article 9(1); (d) to change the authorised capital stock and adapt the maximum lending volume of the ESM, in accordance with Article 10(1); (e) to take into account a possible update of the key for the subscription of the ECB capital, in accordance with Article 11(3), and the changes to be made to Annex I in accordance with Article 11(6); (f) to provide stability support by the ESM, including the economic policy conditionality as stated in the memorandum of understanding referred to in Article 13(3), and to establish the choice of instruments and the financial terms and conditions, in accordance with Articles 12 to 18; (g) to give a mandate to the European Commission to negotiate, in liaison with the ECB, the economic policy conditionality attached to each financial assistance, in accordance with Article 13(3); (h) to change the pricing policy and pricing guideline for financial assistance, in accordance with Article 20; (i) to change the list of financial assistance instruments that may be used by the ESM, in accordance with Article 19; (j) to establish the modalities of the transfer of EFSF support to the ESM, in accordance with Article 40; 5. Other persons, including representatives of Member States whose currency is not the euro for purposes other than those referred to in paragraph 4, institutions or organisations may be invited by the Board of Governors to attend meetings as observers on an ad hoc basis. 6. The Board of Governors shall take the following decisions provided for in this Statute by unanimity: (a) increase or decrease the minimum lending capacity in accordance with Article 8(6). (b) make capital calls, in accordance with Article 9(1); (c) increase the authorised capital stock in accordance with Article 10(1); (d) take into account a possible update of the key for the subscription of the ECB capital and the changes to be made to the contribution key for the subscription of the EMF authorised capital stock in accordance with Article 11(4); (e) approve changes to be made to the distribution of capital among EMF Members and the calculation of such a distribution as a direct consequence of a Member State becoming a new EMF Member, in accordance with Article 11(3); (f) confirm or revise the terms and conditions for the provision of credit lines or the setting of guarantees in support of the SRB and decide to increase the ceiling for support to the SRB, in accordance with Article 22(5); (g) adopt the financial terms and conditions for the provision of credit lines or the setting of a ceiling for guarantees in support of the SRB, in accordance with Articles 22(5) and 23(1). 11 PE 614.499

IPOL Economic Governance Support Unit (k) to approve the application for membership of the ESM by new members, referred to in Article 44; (l) to make adaptations to this Treaty as a direct consequence of the accession of new members, including changes to be made to the distribution of capital among ESM Members and the calculation of such a distribution as a direct consequence of the accession of a new member to the ESM, in accordance with Article 44; and (m) to delegate to the Board of Directors the tasks listed in this Article. 7. The Board of Governors shall take the following decisions by qualified majority: (a) to set out the detailed technical terms of accession of a new member to the ESM, in accordance with Article 44; (b) whether to be chaired by the President of the Euro Group or to elect, by qualified majority, the Chairperson and Vice-Chairperson of the Board of Governors, in accordance with paragraph 2; (c) to set out by-laws of the ESM and the rules of procedure applicable to the Board of Governors and Board of Directors (including the right to establish committees and subsidiary bodies), in accordance with paragraph 9; (d) to determine the list of activities incompatible with the duties of a Director or an alternate Director, in accordance with Article 6(8); (e) to appoint and to end the term of office of the Managing Director, in accordance with Article 7; (f) to establish other funds, in accordance with Article 24; (g) on the actions to be taken for recovering a debt from an ESM Member, in accordance with Article 25(2) and (3); (h) to approve the annual accounts of the ESM, in accordance with Article 27(1); 7. The Board of Governors shall take the following decisions provided for in this Statute by reinforced qualified majority: (a) provide stability support to EMF Members, including the policy conditions as stated in the memorandum of understanding referred to in Article 13(3), and to establish the choice of instruments and the financial terms and conditions, in accordance with Articles 14 to 18; (b) request the Commission to negotiate, in liaison with the ECB, the economic policy conditions attached to each financial assistance, in accordance with Article 13(3); (c) change the pricing policy and pricing guideline for financial assistance, in accordance with Article 20; 8. The Board of Governors shall take the following decisions provided for in this Statute by qualified majority: (a) set out the detailed technical terms when a Member State becomes a EMF Member; (b) elect its Vice-Chairperson, in accordance with paragraph 2 of this Article; (c) determine the list of activities incompatible with the duties of a Director or an alternate Director, in accordance with Article 6(8); PE 614.499 12

The ESM and the proposed EMF: a comparison (i) to appoint the members of the Board of Auditors, in accordance with Article 30(1); (j) to approve the external auditors, in accordance with Article 29; (k) to waive the immunity of the Chairperson of the Board of Governors, a Governor, alternate Governor, Director, alternate Director or the Managing Director, in accordance with Article 35(2); (l) to determine the taxation regime applicable to the ESM staff, in accordance with Article 36(5); (m) on a dispute, in accordance with Article 37(2); and (n) any other necessary decision not explicitly provided for by this Treaty. 8. The Chairperson shall convene and preside over the meetings of the Board of Governors. The Vice -Chairperson shall preside over these meetings when the Chairperson is unable to participate. (d) adopt the shortlist of candidates for the position of the Managing Director and request the Court of Justice for the removal of the latter, in accordance with Article 7; (e) set out the rules of procedure of the EMF; (f) establish other funds, in accordance with Article 27; (g) decide on the actions to be taken for recovering a debt from an EMF Member, in accordance with Article 28 (2) and (3); (h) approve the annual accounts and annual report of the EMF, in accordance with Articles 31 and 32, respectively; (i) approve the external auditors, in accordance with Article 34; (j) appoint the members of the Board of Auditors, in accordance with Article 35(1); (k) decide on the working language of the EMF in accordance with Article 47. 9. The Chairperson shall convene and preside over the meetings of the Board of Governors. The Vice -Chairperson shall preside over those meetings when the Chairperson is unable to participate. 9. The Board of Governors shall adopt their rules of procedure and the bylaws of the ESM. 13 PE 614.499

IPOL Economic Governance Support Unit ARTICLE 6 Board of Directors 1. Each Governor shall appoint one Director and one alternate Director from among people of high competence in economic and financial matters. Such appointments shall be revocable at any time. The alternate Directors shall have full power to act on behalf of the Director when the latter is not present. 2. The Member of the European Commission in charge of economic and monetary affairs and the President of the ECB may appoint one observer each. 3. Representatives of non-euro area Member States participating on an ad hoc basis alongside the ESM in a financial assistance operation for a euro area Member State shall also be invited to participate, as observers, in the meetings of the Board of Directors when this financial assistance and its monitoring will be discussed. 4. Other persons, including representatives of institutions or organisations, may be invited by the Board of Governors to attend meetings as observers on an ad hoc basis. 5. The Board of Directors shall take decisions by qualified majority, unless otherwise stated in this Treaty. Decisions to be taken on the basis of powers delegated by the Board of Governors shall be adopted in accordance with the relevant voting rules set in Article 5(6) and (7). 6. Without prejudice to the powers of the Board of Governors as set out in Article 5, the Board of Directors shall ensure that the ESM is run in ARTICLE 6 Board of Directors 1. Each Governor shall appoint one Director and one alternate Director from among people of high competence in economic and financial matters. Such appointments shall be revocable at any time. The alternate Directors shall have full power to act on behalf of the Director when the latter is not present. 2. The Member of the European Commission in charge of economic and monetary affairs and the President of the ECB may appoint one observer each. 3. Representatives of non-euro area Member States participating on an ad hoc basis alongside the ESM in a financial assistance operation for a euro area Member State shall also be invited to participate, as observers, in the meetings of the Board of Directors when this financial assistance and its monitoring will be discussed. 4. Other persons, including representatives of institutions or organisations, may be invited by the Board of Governors to attend meetings as observers on an ad hoc basis. 5. The Board of Directors shall take decisions by qualified majority, unless otherwise stated in this Treaty. Decisions to be taken on the basis of powers delegated by the Board of Governors shall be adopted in accordance with the relevant voting rules set in Article 5(6) and (7). 6. Without prejudice to the powers of the Board of Governors as set out in Article 5, the Board of Directors shall ensure that the ESM is run in PE 614.499 14

The ESM and the proposed EMF: a comparison accordance with this Treaty and the by-laws of the ESM adopted by the Board of Governors. It shall take decisions as provided for in this Treaty or which are delegated to it by the Board of Governors. 7. Any vacancy in the Board of Directors shall be immediately filled in accordance with paragraph 1. 8. The Board of Governors shall lay down what activities are incompatible with the duties of a Director or an alternate Director, the by-laws of the ESM and rules of procedure of the Board of Directors. accordance with this Treaty and the by-laws of the ESM adopted by the Board of Governors. It shall take decisions as provided for in this Treaty or which are delegated to it by the Board of Governors. 7. Any vacancy in the Board of Directors shall be immediately filled in accordance with paragraph 1. 8. The Board of Governors shall lay down what activities are incompatible with the duties of a Director or an alternate Director, the by-laws of the ESM and rules of procedure of the Board of Directors. 15 PE 614.499

IPOL Economic Governance Support Unit ARTICLE 7 Managing Director 1. The Managing Director shall be appointed by the Board of Governors from among candidates having the nationality of an ESM Member, relevant international experience and a high level of competence in economic and financial matters. Whilst holding office, the Managing Director may not be a Governor or Director or an alternate of either. 2. The term of office of the Managing Director shall be five years. He or she may be re-appointed once. The Managing Director shall, however, cease to hold office when the Board of Governors so decides. 3. The Managing Director shall chair the meetings of the Board of Directors and shall participate in the meetings of the Board of Governors. Article 7 Managing Director 1. The Managing Director shall be appointed by the Council on the basis of merit from among candidates having the nationality of an EMF Member, relevant international experience and a high level of skills, knowledge and competence in economic and financial matters. The Board of Governors shall draw up a shortlist of candidates for the position of Managing Director. It shall strive to respect the principle of gender balance. The Council, after consulting the European Parliament, shall appoint the Managing Director. The Council shall act by qualified majority. Only members of the Council representing Member States whose currency is the euro shall vote. The Managing Director shall be a full time position. In addition, he or she may exercise the role of Chief Executive Officer of the European Financial Stability Facility (EFSF). The Managing Director shall not hold another office at national, Union or international level and may not be a Governor or Director or an alternate of either. 2. The term of office of the Managing Director shall be five years. He or she may be re-appointed once. The Managing Director shall remain in office until his or her successor is appointed. If the Managing Director no longer fulfils the conditions required for the performance of his or her duties or has been found guilty of serious misconduct, the Court of Justice may, upon the request of the Board of Governors and after informing the European Parliament, adopt a decision to remove him or her from office. 3. The Managing Director shall chair the meetings of the Board of Directors and shall participate in the meetings of the Board of Governors. PE 614.499 16

The ESM and the proposed EMF: a comparison 4. The Managing Director shall be chief of the staff of the ESM. He or she shall be responsible for organising, appointing and dismissing staff in accordance with staff rules to be adopted by the Board of Directors. 5. The Managing Director shall be the legal representative of the ESM and shall conduct, under the direction of the Board of Directors, the current business of the ESM. 4. The Managing Director shall be chief of the staff of the EMF and shall be responsible for organising, appointing and dismissing staff in accordance with Article 39 of this Statute. 5. The Managing Director shall be the legal representative of the EMF. Without prejudice to Article 13(4), Article 14(3), Article 15(3), Article 16(3), Article 17(3), Article 18(4) and Article 23(2) of this Statute, the EMF shall be validly represented in dealings with third parties as follows: (a) by the Managing Director or, in his or her absence, by any two members of the management board acting jointly, and (b) by any person acting within the limits of specific powers delegated by the Managing Director. 6. The Managing Director shall conduct, under the direction of the Board of Directors, the current business of the EMF and shall be assisted by a management board. The management board shall consist of the Managing Director, who shall chair it, and such other members of the EMF's staff as the Managing Director shall designate from time to time. 17 PE 614.499

IPOL Economic Governance Support Unit CHAPTER 3 CAPITAL ARTICLE 8 Authorised capital stock 1. The authorised capital stock shall be EUR 704 798.7 million. It shall be divided into seven million forty-seven thousand nine hundred and eightyseven shares, having a nominal value of EUR 100 000 each, which shall be available for subscription according to the initial contribution key provided for in Article 11 and calculated in Annex I. 2. The authorised capital stock shall be divided into paid-in shares and callable shares. The initial total aggregate nominal value of paid-in shares shall be EUR 80 548.4 million. Shares of authorised capital stock initially subscribed shall be issued at par. Other shares shall be issued at par, unless the Board of Governors decides to issue them in special circumstances on other terms. 3. Shares of authorised capital stock shall not be encumbered or pledged in any manner whatsoever and they shall not be transferable, with the exception of transfers for the purposes of implementing adjustments of the contribution key provided for in Article 11 to the extent necessary to ensure that the distribution of shares corresponds to the adjusted key. PART III CAPITAL AND LENDING CAPACITY Article 8 Initial authorised capital stock and lending capacity 1. The initial authorised capital stock of the EMF shall be EUR 704 798.7 million. It shall be divided into seven million forty-seven thousand nine hundred and eighty-seven shares, having a nominal value of EUR 100 000 each, which shall be available for subscription through transfer of the capital of the ESM according to the initial contribution key provided for in table I and calculated in accordance with Article 11 of this Statute. The subscriptions to the initial authorised capital stock are set out in table II. 2. The initial authorised capital stock of the EMF shall be divided into paidin shares and callable shares. The initial total aggregate nominal value of paid-in shares shall be EUR 80 548.4 million. Shares of authorised capital stock initially subscribed shall be issued at par. Other shares shall be issued at par. 3. Shares of authorised capital stock shall not be encumbered or pledged in any manner whatsoever and they shall not be transferable, with the exception of transfers for the purposes of implementing adjustments of the contribution key provided for in Article 11(5) of this Statute to the extent necessary to ensure that the distribution of shares corresponds to the adjusted key. 4. ESM Members hereby irrevocably and unconditionally undertake to provide their contribution to the authorised capital stock, in accordance PE 614.499 18

The ESM and the proposed EMF: a comparison with their contribution key in Annex I. They shall meet all capital calls on a timely basis in accordance with the terms set out in this Treaty. 5. The liability of each ESM Member shall be limited, in all circumstances, to its portion of the authorised capital stock at its issue price. No ESM Member shall be liable, by reason of its membership, for obligations of the ESM. The obligations of ESM Members to contribute to the authorised capital stock in accordance with this Treaty are not affected if any such ESM Member becomes eligible for, or is receiving, financial assistance from the ESM. 4. The liability of each EMF Member shall be limited, in all circumstances, to its portion of the authorised capital stock at its issue price. No EMF Member shall be liable, by reason of its membership, for obligations of the EMF. The obligations of EMF Members to contribute to the authorised capital stock in accordance with this Regulation shall not be affected if any such EMF Member becomes eligible for, or is receiving, financial assistance from the EMF. 5. The Union budget shall not be held liable for the expenses or losses of the EMF. 6. The initial lending capacity of the EMF shall be no less than EUR 500 000 million. The sum of all financial commitments of the EMF shall not exceed the minimum lending capacity at any point in time. The Board of Governors may decide to increase the lending capacity. In duly justified exceptional cases, the Board of Governors may also provisionally decrease the lending capacity if this is needed to ensure the ability of the EMF to fulfil its functions. 19 PE 614.499

IPOL Economic Governance Support Unit ARTICLE 9 Capital calls 1. The Board of Governors may call in authorised unpaid capital at any time and set an appropriate period of time for its payment by the ESM Members. 2. The Board of Directors may call in authorised unpaid capital by simple majority decision to restore the level of paid-in capital if the amount of the latter is reduced by the absorption of losses below the level established in Article 8(2), as may be amended by the Board of Governors following the procedure provided for in Article 10, and set an appropriate period of time for its payment by the ESM Members. 3. The Managing Director shall call authorised unpaid capital in a timely manner if needed to avoid the ESM being in default of any scheduled or other payment obligation due to ESM creditors. The Managing Director shall inform the Board of Directors and the Board of Governors of any such call. When a potential shortfall in ESM funds is detected, the Managing Director shall make such capital call(s) as soon as possible with a view to ensuring that the ESM shall have sufficient funds to meet payments due to creditors in full on their due date. ESM Members hereby irrevocably and unconditionally undertake to pay on demand any capital call made on them by the Managing Director pursuant to this paragraph, such demand to be paid within seven days of receipt. Article 9 Capital calls 1. The Board of Governors may call in authorised unpaid capital at any time and set an appropriate period of time for its payment by the EMF Members. 2. The Board of Directors may call in authorised unpaid capital by simple majority decision to restore the level of paid-in capital if the amount of the latter is reduced by the absorption of losses below the level established in Article 8(2) of this Statute, as may be amended by the Board of Governors following the procedure provided for in Article 10 of this Statute, and set an appropriate period of time for its payment by the EMF Members. 3. The Managing Director shall call authorised unpaid capital in a timely manner if needed to avoid the EMF being in default of any scheduled or other payment obligation due to EMF creditors. The Managing Director shall inform the Board of Directors and the Board of Governors of any such call. When a potential shortfall in EMF funds is detected, the Managing Director shall make such capital call or calls as soon as possible with a view to ensuring that the EMF has sufficient funds to meet payments due to creditors in full on their due date. EMF Members shall irrevocably and unconditionally undertake to pay on demand any capital call made on them by the Managing Director pursuant to this paragraph, such demand to be paid within seven days of receipt. 4. The EMF Members shall meet all capital calls on a timely basis. 4. The Board of Directors shall adopt the detailed terms and conditions which shall apply to calls on capital pursuant to this Article. 5. The Board of Directors shall adopt the detailed terms and conditions which shall apply to capital calls pursuant to this Article. PE 614.499 20

The ESM and the proposed EMF: a comparison ARTICLE 10 Changes in authorised capital stock 1. The Board of Governors shall review regularly and at least every five years the maximum lending volume and the adequacy of the authorised capital stock of the ESM. It may decide to change the authorised capital stock and amend Article 8 and Annex II accordingly. Such decision shall enter into force after the ESM Members have notified the Depositary of the completion of their applicable national procedures. The new shares shall be allocated to the ESM Members according to the contribution key provided for in Article 11 and in Annex I. Article 10 Capital increases 1. The Board of Governors may decide to increase the authorised capital stock of the EMF provided for in Article 11. The new shares shall be allocated to the EMF Members according to the contribution key provided for in Article 11. 2. The Board of Directors shall adopt the detailed terms and conditions which shall apply to all or any capital changes made under paragraph 1. 3. Upon a Member State of the European Union becoming a new ESM Member, the authorised capital stock of the ESM shall be automatically increased by multiplying the respective amounts then prevailing by the ratio, within the adjusted contribution key provided for in Article 11, between the weighting of the new ESM Member and the weighting of the existing ESM Members. 2. Upon a Member State becoming a new EMF Member, the authorised capital stock of the EMF shall be automatically increased by multiplying the respective amounts then prevailing by the ratio, within the adjusted contribution key provided for in Article 11 of this Statute, between the weighting of the new EMF Member and the weighting of the existing EMF Members. 21 PE 614.499

IPOL Economic Governance Support Unit ARTICLE 11 Contribution key 1. The contribution key for subscribing to ESM authorised capital stock shall, subject to paragraphs 2 and 3, be based on the key for subscription, by the national central banks of ESM Members, of the ECB's capital pursuant to Article 29 of Protocol (No 4) on the Statute of the European System of Central Banks and of the European Central Bank (the "ESCB Statute") annexed to the Treaty on European Union and to the TFEU. 2. The contribution key for the subscription of the ESM authorised capital stock is specified in Annex I. 3. The contribution key for the subscription of the ESM authorised capital stock shall be adjusted when: (a) a Member State of the European Union becomes a new ESM Member and the ESM's authorised capital stock automatically increases, as specified in Article 10(3); or (b) the twelve year temporary correction applicable to an ESM Member established in accordance with Article 42 ends. 4. The Board of Governors may decide to take into account possible updates to the key for the subscription of the ECB's capital referred to in paragraph 1 when the contribution key is adjusted in accordance with paragraph 3 or when there is a change in the authorised capital stock, as specified in Article 10(1). 5. When the contribution key for the subscription of the ESM authorised capital stock is adjusted, the ESM Members shall transfer among themselves Article 11 Contribution key 1. The contribution key for subscribing to EMF authorised capital stock by EMF Members which are Member States whose currency is the euro shall, subject to paragraphs 2 and 3, be based on the key for subscription, by the national central banks of EMF Members, of the ECB's capital pursuant to Article 29 of Protocol No 4 on the Statute of the European System of Central Banks and of the European Central Bank ( the ESCB Statute ) annexed to the TEU and TFEU. 2. The initial contribution key for the subscription of the EMF authorised capital stock is set out in table I attached to this Statute. 3. The contribution key for the subscription of the EMF authorised capital stock shall be adjusted when: (a) a Member State becomes a new EMF Member and the EMF's authorised capital stock automatically increases; or (b) the twelve-year temporary correction applicable to an EMF Member established in accordance with Article 44 ends. 4. The Board of Governors may decide to take into account possible updates to the key for the subscription of the ECB's capital referred to in paragraph 1 when the contribution key is adjusted in accordance with paragraph 3. 5. When the contribution key for the subscription of the EMF authorised capital stock is adjusted, the EMF Members shall transfer among PE 614.499 22

The ESM and the proposed EMF: a comparison authorised capital stock to the extent necessary to ensure that the distribution of authorised capital stock corresponds to the adjusted key. 6. Annex I shall be amended upon decision by the Board of Governors upon any adjustment referred to in this Article. themselves authorised capital stock to the extent necessary to ensure that the distribution of authorised capital stock corresponds to the adjusted key. 7. The Board of Directors shall take all other measures necessary for the application of this Article. 6. The Board of Directors shall take all other measures necessary to ensure the application of the provisions of this Article. 23 PE 614.499

IPOL Economic Governance Support Unit CHAPTER 4 OPERATIONS ARTICLE 12 Principles PART IV STABILITY SUPPORT OPERATIONS OF THE EMF Title I Principles underlying stability operations of the EMF Article 12 Principles 1. If indispensable to safeguard the financial stability of the euro area as a whole and of its Member States, the ESM may provide stability support to an ESM Member subject to strict conditionality, appropriate to the financial assistance instrument chosen. Such conditionality may range from a macroeconomic adjustment programme to continuous respect of pre-established eligibility conditions. 2. Without prejudice to Article 19, ESM stability support may be granted through the instruments provided for in Articles 14 to 18. 3. Collective action clauses shall be included, as of 1 January 2013, in all new euro area government securities, with maturity above one year, in a way which ensures that their legal impact is identical. 1. If indispensable to safeguard the financial stability of the euro area or of its Member States, the EMF may provide stability support through the instruments provided for in Articles 14 to 19 to an EMF Member subject to strict policy conditions, appropriate to the financial assistance instrument chosen. Such policy conditions may range from a macroeconomic adjustment programme pursuant to Regulation (EU) No 472/2013 of the European Parliament and of the Council to continuous respect of pre-established eligibility conditions. 2. The EMF, the Council, the Commission and the Member States shall fully observe Article 152 TFEU and shall take into account national rules and practice and Article 28 of the Charter of Fundamental Rights of the European Union. Accordingly, the application of this Regulation does not affect the right to negotiate, conclude and enforce collective agreements or to take collective action in accordance with national law. PE 614.499 24

The ESM and the proposed EMF: a comparison ARTICLE 13 Procedure for granting stability support 1. An ESM Member may address a request for stability support to the Chairperson of the Board of Governors. Such a request shall indicate the financial assistance instrument(s) to be considered. On receipt of such a request, the Chairperson of the Board of Governors shall entrust the European Commission, in liaison with the ECB, with the following tasks: (a) to assess the existence of a risk to the financial stability of the euro area as a whole or of its Member States, unless the ECB has already submitted an analysis under Article 18(2); (b) to assess whether public debt is sustainable. Wherever appropriate and possible, such an assessment is expected to be conducted together with the IMF; (c) to assess the actual or potential financing needs of the ESM Member concerned. 2. On the basis of the request of the ESM Member and the assessment referred to in paragraph 1, the Board of Governors may decide to grant, in principle, stability support to the ESM Member concerned in the form of a financial assistance facility. 3. If a decision pursuant to paragraph 2 is adopted, the Board of Governors shall entrust the European Commission in liaison with the ECB and, wherever possible, together with the IMF with the task of negotiating, with the ESM Member concerned, a memorandum of understanding (an "MoU") detailing the conditionality attached to the financial assistance facility. The content of the MoU shall reflect the severity of the weaknesses to be addressed and the financial assistance instrument chosen. In parallel, the Title II Financial stability support to EMF Members Article 13 Procedure for granting stability support to EMF Members 1. An EMF Member may address a request for stability support to the Chairperson of the Board of Governors. Such a request shall indicate the financial assistance instrument or instruments to be considered. On receipt of such a request, the Chairperson of the Board of Governors shall request the Commission in liaison with the ECB, to carry out the following tasks: (a) to assess the existence of a risk to the financial stability of the euro area as a whole or of its Member States, unless the ECB has already submitted an analysis under Article 18(2) of this Statute; (b) to assess whether public debt is sustainable; (c) to assess the actual or potential financing needs of the EMF Member concerned. 2. On the basis of the request of the EMF Member and the assessment referred to in paragraph 1, the Board of Governors may decide to grant, in principle, stability support to the EMF Member concerned in the form of a financial assistance facility. 3. If a decision pursuant to paragraph 2 is adopted, the Board of Governors shall request the Commission, in liaison with the ECB, and in cooperation with the EMF, to negotiate, with the EMF Member concerned, a memorandum of understanding ( MoU ) detailing the policy conditions attached to the financial assistance facility. The content of the MoU shall reflect the severity of the weaknesses to be addressed and the financial assistance instrument chosen. In parallel, the Managing Director shall 25 PE 614.499