Did you know that there is an explicit bailout clause in the Maastricht Treaty?

The Maastricht Treaty’s no bailout rule is a bad rule because most of the time it is irrelevant, and the minute it become relevant, it is unenforcable. Luckily this poses no problem from a legal perspective, which is another reason why the no bailout rule is a bad rule: The minute the bailout rule becomes relevant, another rule takes precedence. It is contained in Article 100 of the Consolidated Treaty. We call it the Bailout rule.

Let us start with Article 103, section 1, the famous No bailout rule. It says that the community shall not be liable for the debt of governments. (We have a Consolidated Treaty attached to this article) Here it is in full:

But when a government gets into acute difficulties Article 100 of the consolidated Treaty takes over.  [Note that in an earlier version we erroneously cited Art. 119, which is the bailout article for EU countries outside the eurozone. Thanks to Daniela Schwarzer who pointed out this important error. See her post on Eurozone Watch.]

Art 100, section 2, says that in case of exceptional occurrences beyond a member states control, the European Commission first makes some recommendations on which the Council can decide financial assistance, acting on qualified majority. This is laid down in Article 100, section 2:

There you have it, Article 100, section 2 is the Bailout Clause. Nobody needs to circumvent any laws. If, or rather when, Ireland evokes exceptional circumstances beyond its control, there will be a meeting of finance ministers, which by a qualified majority will decide on a bail out Ireland – in the form of a loan, perhaps together with the International Monetary Fund. Of course, such a bailout is voluntary from the perspective of the donors. If country X does not want to bail out, and gets outvoted on QMV, it cannot be forced to put up any money. We do not see a situation arising in case of Ireland, as even the German finance minister Peer Steinbruck now sees the need for such action. Our interpretation of this departure from Germany’s official “Everybody is doing their own shit” policy (according to Sarkozy) is quite simple: Steinbruck probably expects a default to happen, and is afraid that it might spread fast and get really expensive. So he wants nib in the bud. Another misjudgement probably, but then who is surprised? 

In any case, you can safely forget the No Bailout clause. It is a total irrelevance from a political, economic and also from a legal perspective.