Collective Action Clauses in the Euro area

Euro area Model CAC 2012 ("double-limb CAC")

In accordance with the ESM Treaty (Paragraph 3 of Article 12) the model CAC will become mandatory in all new euro area government securities with maturity above one year issued on or after 1 January 2013, and not 1 July 2013, as previously contemplated.

Its introduction will not affect any euro area government securities issued prior to that date unless those securities include a collective action clause that allows for their modification on a cross-series basis on the terms contemplated in the model CAC. As a result and except as just noted, euro area government securities issued prior to 1 January 2013 will not be subject to modification as part of a cross-series modification pursuant to the model CAC.

Prior to the decision to introduce EA model Collective Action Clauses, CACs had already been introduced in some EU Member states' international issuance, following developments in G10 context.

“Single-limb” CAC

On 4 December 2018, euro area finance ministers announced the reform of the euro area model collective action clause (CAC), which was later confirmed by the Euro Summit held on 14 December 2018. The main purpose of the new euro area model CAC is to introduce a “single-limb” voting mechanism.

Under a “single-limb” voting mechanism, a proposed “cross-series” modification (which is a modification affecting more than one series of euro area government debt securities issued by a Member State) is binding on all holders of series of debt securities aggregated in one voting group if the proposed modification is approved by holders of a majority of all securities aggregated in the voting group. This reform intends to further improve the process of orderly debt restructuring in the euro area.

On 4 December 2019, the Eurogroup in inclusive format reached an agreement in principle on the terms of reference and explanatory note of the “single-limb” CAC as part of the ESM reform package. The terms of reference set the modalities for sub-aggregating series of bonds for voting purposes.

On 30 November 2021, the ESM Members within the Economic and Financial Committee have agreed to introduce the single-limb Collective Action Clauses on the first day of the second month following the entry into force of the Agreement amending the ESM Treaty. This decision will not have retroactive effect and does not entail reopening the amendment to the ESM Treaty, nor does it have any impact on the ratification procedures of the revised ESM Treaty. The terms of any debt incurred by an ESM Member State prior to the date on which the single-limb CACs are introduced is not amended as a result of this decision. 

The schedule to phase out Double-Limb CAC (and no-CAC) issuance is also delayed (see below). 

The explanatory note and the supplementary provisions provide additional guidance on the key provisions of the single-limb CAC but are not part of the terms of reference. The single-limb CAC is included in new euro area government securities with maturity above one year, which are issued following the introduction of single-limb CACs by all ESM members. The single-limb CAC will not apply retroactively to bonds issued prior to that date.

To preserve market liquidity, Euro area Member States are allowed under agreed conditions to reopen ("tap") bonds launched before the mandatory introduction of single-limb CAC. Liquidity requires that different tranches of the same bond are fungible: new tranches of and old bond must share the same conditions as the first and oldest tranche issued of that security. Depending on their original date of issuance, bonds may thus contain the model “double limb” CAC or no CAC.

All Euro area Member States have agreed to phase in bonds with single-limb CAC gradually but irreversibly. Therefore, a Member State’s central government aggregate nominal issuance of bonds without single-limb CAC should not exceed a stated percentage of that Member State’s total issuance for that year.

The table below lists, for each year, the maximum percentage of annual central government debt issuance that a Member State should issue without single-limb CAC. Issuance of central government debt securities with an original maturity of less than one year, which will not include CACs even if launched after after the introduction of single-limb CACs, will not be taken into account for the purpose of calculating such a percentage.

¹ These percentages were endorsed by the ESDM on 13 June 2023, and by the EFC on 4 July 2023.

² This target includes the sum of issuance of "double-limb CAC" and “No CAC” bonds

These percentages may be revisited by the Committee if required by market conditions. The Committee will monitor Member States’ tapping of pre- “single-limb CAC” issuances, based on the information periodically supplied by Member States. Any exceedance from these target levels must be explained by the respective Member State and will be discussed by the Committee. The aim will be to ensure a smooth and irreversible phasing-in of bonds with “single-limb CAC”.