FT Alphaville " It's an ESMergency There's nothing FT Alphaville likes doing more on a New York morning than rooting around the ESM Treaty. So when you see headlines like this (via Reuters) Finland to block ESM secondary market bond buying ...ESM bond buying on the open market would require unanimous approval from the 17 euro countries and that seems unlikely because Finland and the Netherlands are against it, the Finnish government said a report to a parliamentary committee. Know that the unanimous approval they're referring to is this The adoption of a decision by mutual agreement requires the unanimity of the members participating in the vote. Abstentions do not prevent the adoption of a decision by mutual agreement But also that the ESM Treaty contains this By way of derogation from paragraph 3, an emergency voting procedure shall be used where the Commission and the ECB both conclude that a failure to urgently adopt a decision to grant or implement financial assistance, as defined in Articles 13 to 18, would threaten the economic and financial sustainability of the euro area. The adoption of a decision by mutual agreement by the Board of Governors referred to in points (f) and (g) of Article 5 (6) and the Board of Directors under that emergency procedure requires a qualified majority of 85% of the votes cast And also this The voting rights of each ESM Member, as exercised by its appointee or by the latter's representative on the Board of Governors or Board of Directors, shall be equal to the number of shares allocated to it in the authorised capital stock of the ESM as set out in Annex II. Finland and the Netherlands own around 1.8 per cent and 5.7 per cent of shares in the ESM according to Annex II. It isn't close to the more than 15 per cent stake which they'd need to block "emergency" bond-buying. Hat-tip to Charles Forelle on this Though maybe it doesn't quite end at the terms of the treaty. Ultimately it depends on which ESM measures it would be judged politic to push through under an emergency procedure - under which the required agreement is 85% rather than unanimous. There are lots of flaws in the concept of the ESM buying bonds over a long period (seniority over private holders; marginal effects on yields) that it's possible it would only activate in an "emergency" such as an Italian bond market meltdown. But equally an emergency could be broadly defined by the ECB and Commission. In any case, do you want to be seen to override core eurozone governments in an emergency of that kind? Maybe you do, maybe you don't. It isn't all bond-buying though. Also spotted in ESM Treaty interpretations on Monday - the European Commission pointing to Article 19 in support of direct ESM bank recaps. Review of the list of financial assistance instruments The Board of Governors may review the list of financial assistance instruments provided for in Articles 14 to 18 and decide to make changes to it Which (you guessed it) also requires the "mutual agreement" described above. Related link: Recaps, so retro - FT Alphaville This entry was posted by Joseph Cotterill on Monday, July 2nd, 2012 at 14:11 and is filed under Capital markets. Tagged with ESM, eurozone, Finland, Sovereign debt.