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EU Dismisses Czech Republic’s Threat to Block ESM Bailout Fund

The European Union dismissed threats from Czech Republic President Vaclav Klaus to block the euro area’s permanent bailout fund, saying he does not have a veto over the move.

Klaus’s refusal to sign an amendment to the bloc’s treaties linked to the establishment of the European Stability Mechanism will have “no consequences for the functioning of the ESM,” Simon O’Connor, spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn, told reporters today in Brussels.

The treaty amendment “was conceived to clarify the legal base in the EU treaties for the ESM,” O’Connor said. “However, this is not a requirement for the ESM treaty to enter into force. It has entered into force and is fully operational.”

EU leaders approved the amendment in March 2011 as part of their efforts to overhaul governance of monetary union and equip the euro area with the institutions and policies necessary to tackle the fiscal crisis. The change must be ratified by all 27 EU nations to take effect.

The draft amendment states that euro-area nations “may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole.”

The existing treaties already give the euro area the necessary legal authorizations to set up the ESM, O’Connor said.

The need for the amendment has been reduced by rulings from Germany’s constitutional court and the European Court of Justice that make it clear the ESM is legal under the bloc’s current treaties, said an EU official.

Klaus today told the CTK new service that he won’t sign the amendment to Europe’s Lisbon treaty because he opposes the ESM.

“I consider these mechanisms to be monstrous, meaningless and absurd,” CTK quoted Klaus as saying when asked about the ESM rescue fund at a business seminar in Prague today. “I will certainly not sign them.”

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net; Jonathan Stearns in Brussels at jstearns2@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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