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On the 9 May 2010, European governments agreed to set up bilateral loans mechanisms despite a strict prohibition in the Maastricht treaty against eurozone countries offering each other bail-outs.

Finance ministers and the Commission have got round this ‘no bail-out’ rule by agreeing the €60bn mechanism using article 122.2 of the EU’s Lisbon treaty, which allows for financial support to member states in difficulties caused by “exceptional circumstances” beyond their control. The SPV mechanism has been set up outside the scope of EU law, through an intergovernmental agreement, so article 122.2 did not need to be formally used. Governments would, however, cite the article in defence of the SPV mechanism should it be challenged in court.

Governments argue that they have stayed strictly within the spirit of article 122.2 by keeping the mechanisms temporary. The €60bn mechanism will stay in place only “as long as needed to safeguard financial stability”. The SPV mechanism will expire after three years. Opponents, however, are likely to argue that the article was conceived for events such as natural disasters or terrorist attacks, rather than economic contagion arising from weak public finances, which are not beyond States’ control.

Source: European Voice

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