EU Confines Bailout Risks to Eurozone Only

(CN) - The European Union on Tuesday added protections to its bailout mechanism to shield nations that don't use the euro from risk if eurozone nations - like Greece - default on their loans.

Tuesday's move by the Council of the EU is part of last month's agreement to bail out Greece to the tune of nearly $7.8 billion and avoid a full-scale economic collapse.

But the bailout - the Hellenic Republic's third since 2010 - left EU member states that don't use the euro queasy, given the risk that the latest round of short-term loans may amount to throwing good money after bad.

So as part of the third Grecian bailout, EU lawmakers agreed to amend the European Financial Stabilization Mechanism to shield the nine member states outside the eurozone from liability if another member state defaults on its loans.

Should a default occur, contributions to a bailout made by nations outside the eurozone will be repaid in full out of the EU's general budget. The amendment applies to all future bailouts made by the EFSM, the council said.

The nine member states that don't use the euro are the United Kingdom, Sweden, Denmark, the Czech Republic, Bulgaria, Croatia, Hungary, Poland and Romania.

Denmark and the U.K. obtained special opt-outs in the 1992 treaty that founded the EU and created the euro.

Although Sweden agreed to begin using the euro when it joined the EU in 1995, voters there said no to the switch in 2003.

In the wake of costly bailouts to ward off collapses in Greece, Portugal and Italy, many in the eurozone - including the Dutch government - have advocated adding a provision to EU law that would force heavily indebted member states to choose between wardship and being kicked out of the eurozone entirely.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit