When is a loan not a commitment?

When it is made by EU member states in contradiction of the EU's own rules. Or so it would appear from the reply made to Lord Pearson's Starred Question yesterday:

To ask Her Majesty's Government what steps they will take under Article 125 of the Treaty on the Functioning of the European Union to ensure that neither the European Union nor any member state shall be liable for or assume commitments of another member state.

Lord Sassoon's reply was:

My Lords, at the emergency ECOFIN meeting on 9 May, EU Finance Ministers agreed that up to €60 billion of emergency finance can be provided to any EU member state in accordance with Article 122(2) of the EU treaty. At the same time, euro-area Finance Ministers agreed a €440-billion package of assistance to be provided through a special purpose vehicle. Both these actions are consistent with Article 125 of the treaty.

Before we go any further, let us sort out what these Articles actually say. They are in the Consolidated Version of the Treaty on the Functioning of the European Union.

Article 125 seems clear on the subject:

The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.

Article 122(2) is equally clear but is not entirely in agreement:

Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken.

Whether the difficulties Greece is experiencing are caused by natural disasters or exceptional occurrences is a moot point but that is the way this is being read and Lord Pearson does have a point when he says that the EU is breaking its own rules.

My Lords, I am grateful to the noble Lord for that reply, which does not square with the Government's Answer of 14 June when they agreed that no member state should be allowed to bail out another. Are not the proposed bailouts yet another example in a long line of examples of Brussels riding roughshod over its own legislation? Going slightly deeper, does not history teach us that trouble lies ahead when a regime feels free to break its own laws with impunity, when it is supported by a puppet court, and when its people are powerless to get rid of it? Is that not exactly what we now have with the European Union?

Ah, says Lord Sassoon, this is not a bail-out, it is a loan.

The one thing I agree with him on is that Article 125 does indeed rule out any bailout. However, no bailout has been proposed or implemented under Article 122(2) or any other article because what have been proposed are loans, which are fully permitted under Article 125.

The trouble is that Article 125 does not talk of bail-outs but of commitments and a loan is a commitment, except, presumably when it is not.