ESTONIA: Supreme court greenlights Estonia's participation in ESM

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The Estonian supreme court Riigikohus decided that the treaty establishing the European Stability Mechanisme (ESM) is not conflicting with the Estonian constitution, thus giving a green light to the country's parliament Riigikogu to ratify the treaty.

Indrek Teder, the Chancellor of Justice of Estonia, challenged the ESM founding treaty in the Estonian supreme court in March, claiming that the so-called emergency voting procedure is contrary to the Estonian constitution.

Namely, the treaty states that in exceptional circumstances, when the economic and financial sustainability of the euro area are threatened, a state or states could receive financial assistance under an emergency procedure which requires a qualified majority of 85% of the votes cast. Estonia's share of total votes is equal to the country's contribution to the ESM's authorised capital stock, that is, 0.186%. Thus, "the emergency voting procedure might create a situation where Estonia must financially contribute to the ESM, but cannot influence the granting of aid, nor the terms under which financial assistance is provided," argued Teder in the note sent to the media on 12 March.

In general, Riigikohus agreed with Teder that the contested article 4 in the treaty restricts the financial competence of Riigikogu, the principle of rule of law and the sovereignty of Estonia. However, the supreme court found that the restriction is justified, as the article's purpose is to ensure an efficient decision-making procedure in case of a threat to the financial stability of the euro area, including Estonia.

"The economically and financially unstable euro area would pose a threat to the financial and economic stability of Estonia," Riigikohus argued in its decision revealed to the public on 12 July. "Stability is necessary in order for Estonia to be able to perform its obligations arising from the constitution, including ensuring the fundamental rights of people."

"The ratification of the treaty shall narrow the options of Riigikogu to make other costly choices upon organising state matters in the future. On the other hand, a stable economic environment expected to be ensured by article 4 of the ESM Treaty is essential for ensuring constitutional values and fundamental rights," argues Riigikohus.

To put it simply: yes, the ESM establishing treaty is in conflict with Estonian constitution, but as its purpose is to provide stability which helps Estonian rulers to perform tasks arising from the very same constitution, overruling the constitution under certain circumstances is justified.

Riigikohus noted that it took into account the fact that even in the emergency procedure financial assistance shall be granted in stringent terms which also include respective decisions of the European Central Bank and of the European Commission.

At the same time, the supreme court indicated that the problem of unconstitutionality may not only arise upon ratification of the treaty but also upon performance of the tasks provided for in the ESM Treaty. "For example, Riigikogu needs to decide how to finance the performance of the Treaty," it stated in the decision.

Estonia signed the ESM establishing treaty in the beginning of the year, but the treaty was not yet ratified up until now, due to the on-going challenge in the supreme court. It is not yet known, when the parliament, which is currently on summer vacation, convenes in order to ratify the treaty.