The first draft of the international agreement on a reinforced Economic Union circulated for the first time on 16 December. The text of the draft international agreement was based on the eurozone leaders’ statement issued in December 2011. The European Council's legal service has moved at speed of light to put into legal form the political commitments of the eurozone member states.

The negotiations on the draft agreement began last month between representatives of all member states including Britain, which has an observer status, three MEPs and the European Commission. There have been already three draft texts since the start of the negotiations. According to the latest draft, the “international agreement on a reinforced economic union” is now entitled treaty on stability, coordination and governance in the Economic and Monetary Union.

The member states’ representatives, the European Commission and the three MEPs discussed yesterday (12 January) the latest draft of the treaty. According to Eubusiness an “an outline agreement” has been reached. Hence, a fourth draft is likely to be in circulation soon. In fact, the EU officials are expecting to have the text of the treaty finalised by 20 January so it can be presented to the Ecofin on 24 January and then agreed at an extraordinary EU summit that was scheduled to take place on 30 January but, due to a general strike in Belgium, it might be push forward to 29 January. The draft treaty is expect to be signed at the beginning of March, so that each signatory country can ratify it by the end of 2012.

The now called treaty on stability, coordination and governance in the Economic and Monetary Union is an intergovernmental agreement, which must be agreed and implemented outside the EU structures. It must be created outside the EU institutional framework and under the general rules of public international law. It is well known that under Article 48 TEU any amendments to the Treaties must be agreed unanimously and ratified by all Member States. It is important to note that the eurozone member states can negotiate a treaty regarding an area outside the EU’s exclusive competences but they cannot breach EU law. Further powers over Member States’ budgets cannot be conferred beyond of what is foreseen in the Treaty for the EU institutions. In fact, any intergovernmental agreement changing the rules concerning the powers of the EU institutions is not possible without the consent of all Member States to amend the Treaties.

It has been said that the new rules enshrined in the draft treaty do not contradict the EU's existing rules. Article 2 (2) of the draft treaty reads, “The provisions of this Treaty shall apply insofar as they are compatible with the Treaties on which the Union is founded and with European Union law. They shall not encroach upon the competences of the Union to act in the area of the economic union. (…)” The first draft text also read "In accordance with the case law of the Court of Justice of the European Union, EU law has precedence over the provisions of this treaty". However, this sentence has disappeared from the latest draft. The ECJ has confirmed the principle of primacy of EU law over international agreements. Hence, agreements concluded between the Member States are to be set aside by national courts when conflicting with EC law. This intergovernmental treaty is not part of the Community legal order, therefore, it is not legally binding on the European Court of Justice and the other institutions. It is not enforceable because the European Court of Justice has no competence to rule on the compliance of the agreement, but it has competence to consider any potential conflict with the EU treaties. If there is a conflict between the treaties and this agreement obviously the EU Treaties would take precedence. The ECJ doesn’t have direct jurisdiction to interpret, apply or review intergovernmental agreements but it has jurisdiction to control whether the member states when concluding or implementing these agreements act in violation of their obligation under EU law. Patrick Sensburg, German MP, said to Euractiv "Everything is fine as long as the signing parties keep their promises. But if a signing party decides that it does not accept the new stability criteria anymore, you could not accuse it of violating EU law. Nevertheless, this state would still be violating a commonly agreed consensus." Moreover, if the draft treaty is indeed purported to amend the exiting Treaties then an action for infringement can be brought before the ECJ.

As abovementioned, being inter-governmental, this treaty must be formed outside the EU's existing Treaties and under the general rules of public international law. It cannot, therefore, be part of EU law. However, the eurozone leaders stressed the “objective remains to incorporate these provisions into the treaties of the Union as soon as possible”, so it can become part of the Community legal order. As Bill Cash noted “the objective of getting the arrangement stitched up into the new treaty has already been set.

Herman Van Rompuy recalled that the Schengen and Prüm Conventions were agreed by a group of member states and subsequently incorporated into EU law. The 2005 Prüm Convention was signed among seven member states outside the legal framework of the EU, but it foreseen “Within three years at most following entry into force of this Convention, on the basis of an assessment of experience of its implementation, an initiative shall be submitted, (…), with the aim of incorporating the provisions of this Convention into the legal framework of the European Union.” Then, in 2007, the Council Decision on the stepping up of cross-border cooperation, particularly in combating terrorism and cross-border crime, incorporated in the framework of the European Union the main provisions of the Prum Treaty. Therefore, the Prum Convention has already set an alarming precedent as a group of Member States have reached an agreement between themselves, which subsequently is incorporated in the EU framework. It is important to note that Schengen and Prum, initially, have not provided for the involvement of the EU institutions.

The first draft text of the international agreement included in a recital, the objective of the contracting parties “to incorporate the provisions of this Agreement as soon as possible into the Treaties on which the European Union is founded”. At the European Parliament request the latest draft of the treaty includes a new provision, Article 16, stipulating “Within five years at most following the entry into force of this Treaty, on the basis of an assessment of the experience with its implementation, the necessary steps shall be taken, in compliance with the provisions of the Treaty on the European Union and the Treaty on the Functioning of the European Union, with the aim of incorporating the substance of this Treaty into the legal framework of the European Union.” This provision is very similar to the one included in the Prum Convention abovementioned. It no longer refers to incorporate the treaty into the EU treaties but into the EU legal framework, which might be done trough secondary legislation. There is now a clear aim of incorporating this treaty into EU legal framework within five years of its entry into force. According to Jean-Paul Gauzès MEP "Much of what is proposed in the international treaty can be done through the 'six pack' and these two texts (Commission’s proposals from last November). We should integrate as much of the international treaty elements as possible into these two new texts.” Such proposals are based on Article 136 whereby the eurozone member states are allowed to “strengthen the co-ordination and surveillance of their budgetary discipline.” The draft regulations aiming at strengthening the powers of the Commission in surveillance of national budgets are subject to the ordinary legislative procedure, and QMV is required at the Council, but only eurozone Member states are allowed to vote. It is obvious that the Contracting States are designing the Treaty with the aim of incorporating its provisions into EU law, but this cannot be done in a way aiming at overcoming the UK´s veto. The incorporation of this treaty into the EU legal framework would entail a treaty change, which, accordingly, requires the agreement of all member states, including the UK.

It is important to note that David Cameron took the historic decision to veto changes to the EU Treaties, on the grounds that the deal was not in Britain’s interests, and now Nick Clegg is saying that this is “a temporary arrangement”, he believes “[the new treaty] should, over time, be folded into the existing EU treaties (…)”.

According to a recital of the draft treaty, the European Commission would be able to review and monitor the proposed budgetary commitments, but “will act within the framework of its powers as provided by the Treaty on the functioning of the European Union, in particular Articles 121, 126 and 136 thereof”. It is important to recall that, last December, Barroso said to the MEPs “That intergovernmental treaty does not mean that the European institutions are not going to have a role.” He stressed “The Commission, acting pursuant to the EU Treaties, will monitor how the Member States have been living up to their additional commitments made in this agreement” and for that the Commission will “make full use of Article 136, by proposing to this House all the legislation that will be needed (…)” It seems that Article 136 TFEU is being stretched to the limit. Moreover, according to Herman Van Rompuy moving forward with an intergovernmental agreement “has some handicaps” but, he said “we will try to overcome them, and I think we will need a large interpretation of the role of institutions and others, as we did it in the past.” Unsurprisingly, Brussels is using legal tricks. They are pushing to the limit the involvement of the EU's institutions in the operation of the new fiscal compact.

Article 3 of the draft treaty provides that “The Contracting Parties shall apply the following rules, in addition to and without prejudice to the obligations derived from Union Law”. This provision is intended to give the deceitful idea that the rules in the agreement do not amend the obligations imposed by EU law. The draft treaty provides, as agreed at the December’s European Council, that “The budgetary position of the general government shall be balanced or in surplus.” Such rule “shall be deemed to be respected if the annual structural balance of the general government is at its country-specific medium-term objective as defined in the revised Stability and Growth Pact (Regulation (EU) No. 1175/2011) with a deficit not exceeding 0.5 % of the gross domestic product at market prices.” The expression used on the first draft "structural deficit" has now been replaced by "structural balance". Under the first draft, the contracting parties would be obliged to enshrine such rule in their constitutions, but the latest draft has watered down this requirement. Several countries, including Denmark, Ireland, Finland and Romania have indicated that they would have to hold referendums in order to change their constitutions to include the so-called golden rule on balanced budgets. Consequently, under the latest draft, although it is recommended, it is no longer a requirement that this golden rule on balanced budgets be introduced into the constitutions of the contracting parties. Article 3 (2) provides “The rules mentioned under paragraph 1 shall take effect in the national law of the Contracting Parties within one year of the entry into force of this Treaty through provisions of binding force and permanent character, preferably constitutional, that are guaranteed to be respected throughout the national budgetary processes.

Under Article 5 of the first draft of the intergovernmental agreement, those contracting parties that are subject to an excessive deficit procedure, under the EU Treaties, would have to submit to the European Commission and the Council “a budgetary and economic partnership programme with binding value including a detailed description of the structural reforms necessary to ensure an effectively durable correction of their excessive deficits.” It is important to mention that the Eurozone leaders agreed on such provision at the European Council in December 2011. However, the Eurozone leaders’ statement provided that the Commission and the Council would endorse and monitor the implementation of such programme, and “the yearly budgetary plans consistent with it”, but this reference was not included in the first draft. There was an initial concern to not expressly confer specific tasks on the EU institutions. However, the latest draft provides “The content and format of these programmes shall be defined in the law of the Union. Their submission to the European Commission and the Council for endorsement and their monitoring will take place within the context of the existing surveillance procedures of the Stability and Growth Pact.” Moreover, it reads “The implementation of the programme, and the yearly budgetary plans consistent with it, will be monitored by the Commission and by the Council.” Nevertheless, last November, the European Commission put forward a proposal for a regulation on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member states in the euro area which provides for similar rules. Under this proposal, eurozone member states would be required to submit annually to the Commission and the Eurogroup their draft budgetary plans for the forthcoming year for monitoring purposes before the plans being submitted to national parliaments. If the Commission believes that a member state is not complying with the Stability and Growth Pact’s budgetary policy obligations, it would be empowered, under the draft proposal, to request a revised draft budgetary plan from the Member State concerned. The Commission may request an alternative draft budgetary plan if it identifies particularly serious non-compliance with the obligations laid down in the Stability and Growth Pact. The proposal does not give the Commission the power to veto draft budgets, the treaties would have to be amended to confer such power upon the Commission and the ECJ. However, one could wonder whether the Commission has legitimacy to intervene in member states’ matters in this way. It remains to be seen what the term “endorsement” included in the draft treaty, as mentioned-above, would entail.

Under the first draft, the contracting parties would have to “improve the reporting of their national debt issuance” namely, “they shall report ex-ante on their national debt issuance plans to the European Commission and the Council.” The European Commission is already planning to put forward legislative proposals within the EU Treaties framework, regarding a mechanism of ex ante reporting of debt issuance plans of the EU Member States. This provision has been amended at Italy request, it now reads "With a view to better coordinating the planning of their national debt issuance, the Contracting Parties shall report ex-ante on their public debt issuance plans to the European Commission and to the Council.” It is important to stress that the international agreement cannot bind the EU institutions therefore it remains to be seen what the Commission and the Council will be required to do with the information abovementioned.

According to the Eurozone statement from last December, as soon as the Commission deems that a Member State is in breach with the 3% ceiling, there will be automatic consequences unless euro area Member States, acting by qualified majority, are opposed. Under the so-called six-pack on economic governance, approved by all 27 Member States and the European Parliament in October, which entered into force on 13 December, the Commission first warning to the member state which failed to respect the Stability and Growth pact principles (preventive arm of the Stability and Growth Pact) has to be adopted by a qualified majority of eurozone member states. If a member state deviates from the adjustment path toward its medium term budgetary objective, on the basis of a Commission’s recommendation, the Council will decide by qualified majority voting, on non-compliance by a member state. However, if the Council does not take this decision, and if the noncompliance continues, after one month the Commission can recommend, again, to the Council to decide on non-compliance, but this time such decision is taken by reverse qualify majority. Hence, it is considered adopted by the Council if not rejected by qualified majority. Under the corrective arm of the pact (excessive deficit procedure), the Commission's proposal for imposing sanctions related to non-compliance with the SGP will be deemed adopted by the Council unless it decides, by qualified majority, to reject the proposal. The ‘six-pack’ already provides for a ‘reverse qualified majority voting’ in the Council although there is no legal basis on the EU Treaties.

Under the latest draft of the treaty, the eurozone contracting parties “commit to support the proposals or recommendations submitted by the European Commission where a Member State whose currency is the euro is considered by the European Commission to be in breach of the deficit criterion in the framework of an excessive deficit procedure.” They used stronger wording on the latest draft, as under the first draft the word used was “undertake”, suggesting, therefore, a clear and binding commitment. Moreover, article 7 reads “This obligation shall not apply where it is apparent among the Contracting Parties whose currency is the euro that a qualified majority of them, calculated by analogy with the relevant provisions of the European Union Treaties without taking into account the position of the Contracting Party concerned, is of another view.” Last December Barroso said, “In future, the euro area member states will commit to accept true automaticity for triggering the deficit procedure from the moment when a member state breaches its commitment to reduce deficits. The same automaticity will apply throughout the whole procedure for any ensuing steps proposed by the Commission, including the preventive arm. Only a qualified majority against the Commission proposal, would be able to stop the process.” In fact, under the draft treaty reverse qualified majority voting would be extended to all Excessive Deficit Procedure, “including the preventive arm.” One could say that the above-mentioned provision would affect the role of Council as well as conflicts with the Treaty, as it is presently required qualified majority to support sanctions but not a qualified majority to stop them. It is important to note that, within the eurozone, France and Germany have a ‘blocking minority’. Therefore, in the end of the day, the Commission proposals would be always adopted if they have the backing of France and Germany.

The main issue has been whether the eurozone club is allowed to use the EU institutions under the international treaty. One of the legal grounds for the use of the EU institutions outside the EU legal framework is based on a European Court of Justice ruling from 1993 on humanitarian aid to Bangladesh. In Joined Cases C-181/91 and C-248/91 the ECJ ruled that the Member States might exercise their competence “collectively” outside the Council. The ECJ has held that Article 211 TFEU does not prevent the Member States from entrusting the Commission with the task of coordinating a collective action undertaken by them on the basis of an act of their representatives meeting in the Council. However, this case refers to “collective action”, there was, therefore, a unanimous decision of all member states in this regard. According to Euractiv EU officials “pointed out that the Commission’s memorandums of understanding relating to Greece and Portugal – negotiated in the context of the eurozone crisis – offered precedents for the institutions working along similar lines.” The Treaty establishing the European Stability Mechanism reads “On 20 June 2011, the representatives of the Governments of the Member States of the European Union authorised the Contracting Parties of this Treaty to request the European Commission and the European Central Bank ("ECB") to perform the tasks provided for in this Treaty.” The European Commission has therefore been allowed to carry surveillance tasks. The EFSF Framework Agreement also provides “By a decision of the representatives of the governments of the 16 euro-area Member States dated 7 June 2010, acting on the basis of the conclusions of the 27 European Union Member States of 9 May 2010, the Commission was tasked with carrying out certain duties and functions as contemplated by the terms of this Agreement.” EU Officials said that the ESM treaty employs the European Commission and the European Central Bank to monitor the memoranda of understanding. Hence, the same logic for using EU institutions for this intergovernmental agreement would be the same as applied to the European Stability Mechanism (ESM) treaty. It is important to note that in both cases there was an agreement among all EU member states to involve the EU institutions. The EU institutions without Britain’s consent cannot enforce the measures on the fiscal compact.

The eurozone leaders are forging an important role for the Commission and the European Court of Justice in the implementation of the new fiscal compact. Whereas the Commission is tasked with supervising the excessive deficit procedure, scrutinising the budgetary plans of the member states and launch quasi-automatic sanctions in the case of a breach of the 3% deficit ceiling and the European Court Justice will monitor the transposition of the principle of budgetary balance by member states. They want therefore to use the EU institutions to monitor and enforce compliance with any new rules from the new treaty. The Commission or the ECJ cannot enforce the treaty on stability, coordination and governance in the Economic and Monetary Union, as it’s not within their mandate. The ECJ has made clear that an international agreement cannot affect the allocation of responsibilities defined in the Treaties and, consequently, the autonomy of the Community legal order. The EU institutions legally cannot have a formal role in any agreement outside the EU treaties. The EU institutions were created by the EU treaties, which conferred upon them powers and duties. Cameron rightly said, “The institutions of the European Union are the European Union, the 27. They are there to do the things that are in treaties that we have all signed up to over the years. That is an important protection for Britain." The role of the EU institutions is not only defined by the European Treaties but is limited by those Treaties and it would be unlawful for an institution to operate beyond the powers granted to it by the Treaties.

Under Article 8 of the first draft of the agreement “Any Contracting Party which considers that another Contracting Party has failed to comply with Article 3(2) may bring the matter before the Court of Justice of the European Union.” According to a recital, the obligation to transpose the "Balanced Budget Rule" into national legal systems would be subject to the jurisdiction of the ECJ, in accordance with Article 273 TFEU. Under Article 273 TFEU Member States are allowed to give powers to the ECJ to settle dispute between them in a special agreement relating to the subject-matter of the EU Treaties. However, the EU officials are making an extensive interpretation of this provision. 

Under the draft treaty, it seems the Court would have competence to verify whether the contracting parties have put in place provisions complying with Article 3(2), whether they are biding and if there is a ‘correction mechanism”. It is important to note that the European Court of Justice, without amending the treaties, cannot strike down national laws that conflict with such rule.

Under the first draft, contracting parties, but not the Commission, could take each other to the ECJ if they believe that they have not transposed the balanced budget rule into national law. However, this provision has been changed, providing “The European Commission may, on behalf of Contracting Parties, bring an action for an alleged infringement of Title III before the Court of Justice of the European Union.” A EU diplomat said to the EUObserver “The legal trick to get around the issue could be mandating the commission to act "on behalf" of member states”. It is important to note that Article 237 TFEU does not foresees other forms of jurisdiction of the Court, namely infringement procedures brought by the Commission. The Commission cannot take the contracting parties to the ECJ if they breach the above-mentioned rules. This would conflict with the infringement procedures provided for in the TFEU. Under Article 273 the ECJ has jurisdiction for settle disputes between member states, but the European Commission cannot take states that fail to comply with the terms of the intergovernmental agreement to the European Court of Justice.

Furthermore, under the second draft “Any Contracting Party which considers that another Contracting Party has failed to comply with Title III may bring the matter before the Court of Justice of the European Union.” The ECJ’s jurisdiction would have been extended to other provisions of the draft treaty. In this way, they would have conferred on the ECJ the power to rule on excessive deficit breaches, which would conflict with Article 126 (10) TFEU. The EU Treaties provide that the Court of Justice has no jurisdiction over the excessive deficit procedure. Article 126 (10) specifically excludes the launch of infringement procedures against member states that fail to comply with decisions taken under the excessive deficit procedure.

The third draft of the treaty reduces the role of the European Commission and the Court of Justice. Under the latest draft, Article 8 now reads “Any Contracting Party which considers that another Contracting Party has failed to comply with Article 3(2) may bring the matter before the Court of Justice of the European Union or invite the European Commission to issue a report on the matter.” The ECJ’s role is the same as foreseen in the first draft. Under the latest draft, although reduced, the Commission still has a role. The text now provides the Commission might be invited by any contracting party that considers that another party has failed to comply with Article 3 (2) to issue a report on the matter. In this case, “if the European Commission, after having given the Contracting Party concerned the opportunity to submit its observations, confirms non compliance in its report, the matter will be brought to the Court of Justice by the Contracting Parties.” This is another legal trick to overcome the EU treaties and provide the European Commission with a role on this matter – whether to take contracting parties to the ECJ. This provision is similar to Article 259 TFEU whereby “A Member State which considers that another Member State has failed to fulfil an obligation under the Treaties may bring the matter before the Court of Justice of the European Union”, but “(…) it shall bring the matter before the Commission” which “shall deliver a reasoned opinion.” Moreover, under this provision Member States are not prevented from bringing the matter before the Court “if the Commission has not delivered an opinion within three months”. The provision on the draft treaty confers upon the Commission a new role that is not foreseen in the EU Treaties, particularly in article 273 TFEU, and conflicts with article 259 TFEU.

The Government has welcomed the latest draft treaty, describing it as “real progress”. But, David Cameron must kept his pledge to do "everything possible" to stop the contracting parties of a new treaty from using the European Commission and the European Court of Justice.

The draft text also reads, “The judgment of the Court of Justice of the European Union shall be binding on the parties in the procedure, which shall take the necessary measures to comply with the judgment within a period to be decided by said Court.” This is not provided in Article 273, but the Court’s jurisprudence makes clear that its rulings must always be binding. Under Article 260 “If the Court of Justice of the European Union finds that a Member State has failed to fulfil an obligation under the Treaties, the State shall be required to take the necessary measures to comply with the judgment of the Court.” If a member state does not comply with a judgment of the Court, the Commission may bring the case before the Court. If the Court finds that the Member State concerned has not complied with its judgment it may impose a lump sum or penalty payment on it. The draft treaty provision is similar to Article 260 TFEU whereby the member states are required to comply with the ECJ judgments but if a Member State fails to comply with an ECJ’s ruling pursuant to Article 8 of the draft treaty, the Commission cannot bring the matter before the Court and ask for fines to be imposed as foreseen in Article 260 (2) TFEU. The ECJ cannot fine countries if they do not comply with such judgments, as foreseen in the EU Treaties.

The first draft text also provided that “The implementation of the rules put in place by the Contracting Parties to comply with Article 3(2) will be subject to the review of the national Courts of the Contracting Parties.” However, this provision has disappeared from the latest draft. One could wonder whether this is an attempt to confer more powers upon the ECJ.

Article 8 of the draft treaty is not compatible with the EU Treaties. The European Commission and European Court of Justice cannot enforce the draft treaty provisions.

The Contracting Parties also “undertake to work jointly towards an economic policy fostering growth through enhanced convergence and competitiveness and improving the functioning of the Economic and Monetary Union.” In order to achieve this objective, they agreed to “take the necessary actions and measures in all the domains which are essential to the good functioning of the euro area, as mentioned in the Euro Plus Pact.” It is well known that Germany and France want to have a say on how the other Member States run their economies. As proposed by Sarkozy and Merkel, the Eurozone leaders, in their statement, stressed, “Alongside the single currency, a strong economic pillar is indispensable.” They said that they want to “foster fiscal discipline and deeper integration in the internal market as well as stronger growth, enhanced competitiveness and social cohesion.” The Eurozone leaders commit “to working towards a common economic policy.” They said “A procedure will be established to ensure that all major economic policy reforms planned by euro area Member States will be discussed and coordinated at the level of the euro area”. It is important to mention that Sarkozy and Merkel in a letter informing Van Rompuy of their proposals to move towards a fiscal union and overcome the euro crisis, said, “We need to foster growth through greater competitiveness as well as greater convergence of economic policies at least amongst Euro Area Member States.” They believe that “a new common legal framework” based “on Article 136 and/or on enhanced cooperation” should be created “to allowing for faster progress in specific areas such as: Financial regulation; Labor markets; Convergence and harmonisation of corporate tax base and creation of a financial transaction tax; Growth supporting policies and more efficient use of European funds in the euro area.” In fact, David Cameron mentioned that Angela Merkel and Nicolas Sarkozy´s letter shows that “they specifically wanted the 17 to look at issues such as financial services and the market within that treaty.” 

Unsurprisingly, at France request, the second draft of the treaty included references to the internal market, Article 1 has been amended referring to “enhanced governance” that will “foster fiscal discipline and deeper integration in the internal market as well as stronger growth, enhanced competitiveness and social cohesion”. Obviously, such provision has raised concerns in the UK, as, in this way, single market matters would be discussed among the contracting parties to the treaty, excluding the UK. Being considered an important concession to the UK, the third draft of the treaty has removed the reference to “deeper integration in the internal market” from Article 1, which now reads that the Contracting Parties “agree, as Member States of the European Union, to strengthen the economic pillar of the Economic and Monetary Union by adopting a set of rules intended to foster budgetary discipline through a fiscal compact, to strengthen the coordination of economic policies and to improve the governance of the euro area, thereby supporting the achievement of the European Union's objectives for sustainable growth and employment.

The Eurozone leaders also reached an agreement on making “more active use of enhanced cooperation on matters which are essential for the smooth functioning of the euro area, without undermining the internal market.” Hence, the draft treaty explicitly states that “the Contracting Parties undertake to make recourse, whenever appropriate and necessary, to measures specific to those Member States whose currency is the euro as provided for in Article 136 of the Treaty on the Functioning of the European Union and to the enhanced cooperation as provided for in Article 20 of the Treaty on European Union and in Articles 326 to 334 of the treaty on the Functioning of the European Union on matters that are essential for the smooth functioning of the euro area, without undermining the internal market.” They are referring to the possibility of using the general rules on enhanced cooperation within the current EU Treaties, to adopt EU measures that will apply solely to the member states that participate in the intergovernmental agreement.

It is important to note that not all measures can be decided by enhanced cooperation between Member States within the EU legal system. Under Article 20 TEU enhanced cooperation is reserved for areas of the “Union’s non exclusive competence.” Moreover, enhanced cooperation measures must be based on a Commission proposal, which is then blocked in the Council, the decision to enter into enhanced cooperation is therefore “a last resort.” Following a request by the Member States that wish to establish enhanced cooperation, the Commission may submit a proposal to the Council to that effect. The Council will grant authorisation to proceed with the enhanced cooperation by a qualified majority of all Member States in the Council and after obtaining the consent of the European Parliament. Under Article 326 TFEU “Any enhanced cooperation shall comply with the Treaties and Union law.” The use of enhanced cooperation must respect the Treaties, consequently, it is impossible to amend the EU’s primary law. Moreover, “Such cooperation shall not undermine the internal market or economic, social and territorial cohesion. It shall not constitute a barrier to or discrimination in trade between Member States, nor shall it distort competition between them.” Furthermore, enhanced cooperation shall be open to all Member States, consequently it cannot be address just to eurozone States. Under Articles 20 TEU and 329 and 331 TFEU, it is required a minimum of nine participants, moreover, only willing Member States participate and any Member States can participate. Hence, if these criteria are not complied with the use of enhanced cooperation could be challenged at the ECJ.

Under article 11, with a view to working towards a common economic policy, the contracting parties would ensure “that all major economic policy reforms that they plan to undertake will be discussed ex-ante and, where appropriate, coordinated among themselves.” Such coordination will “involve the institutions of the European Union as required by the law of the Union.” One could say that such provision not only refers to EU law but also amends or even supplement EU law in this area, particularly as regards the role of the EU institutions.

The Eurozone leaders reiterated that the “Euro area governance will be reinforced as agreed at the Euro Summit of 26 October”, particularly by “regular Euro Summits will be held at least twice a year.” The eurozone leaders also decided to create a new post "president of the Euro summit”, who is now Herman Van Rompuy. Hence, under the draft agreement the eurozone Heads of State or Government and the president of the European Commission will meet informally in Euro Summit meetings. They also enshrined in the draft agreement the appointment of the President of the Euro Summit by the euro area Heads of State or Government by simple majority.

It is important to mention that the Lisbon Treaty formally recognises the Eurogroup, it recognizes the European Council as a EU’s institution and provides for the post of president of the European Council but there is no reference in the Treaties for the establishment of this new EU institution and for the new post of president of the Euro summit. Hence, there is no legal basis. If they want to formally institutionalise the Euro summits, the Treaties would have to be amended. One could wonder where the money for the budget to be allocated to eurozone summits would come from.

The darft text also provides that “Euro Summit meetings shall take place, when necessary, and at least twice a year, to discuss questions related to the specific responsibilities those Member States share with regard to the single currency, other issues concerning the governance of the euro area and the rules that apply to it, and in particular strategic orientations for the conduct of economic policies and for improved competitiveness and increased convergence in the euro area.” Moreover, as it has already been agreed at the October’s summit, the other member states would be merely informed by the President of the Euro Summit of the preparation and outcome of the Euro Summit meetings. Hence, the Government will have no say but would be “informed” of measures, which might have a terrible impact on British economy. David Cameron is aware of the risk of fiscal union and economic government, hence he decided to veto the treaty. Indeed, fiscal union within the eurozone would mean solidarity between eurozone member states, and the UK would be outvoted by 213 votes to 132. The eurozone leaders by having their own meetings, they would agree a position on financial and economic issues, which they would then impose on the other member states, if unanimity is not required. As William Hague said "We are, by preventing a new Treaty or amendments to the Treaties of the European Union, ensuring that the key decisions that affect us, such as to do with the single market, are still made by the 27 nations including us…" Cameron by using his veto prevented the situation from getting worse but the status quo has not changed.

The draft treaty would apply to the eurozone member states as well as other contracting parties, under specific conditions. The contracting parties, according to their constitutional requirements, through national parliaments or possibly some referendums, will ratify the agreement. Under the first draft, the agreement would enter into force following the deposit of the ninth instrument of ratification by a eurozone contracting party. Consequently, it would still enter into force even if some countries national parliaments reject it or it is not approved in referenda. The second draft has increased the threshold of countries necessary to ratify the agreement from nine to fifteen. In fact, Germany wanted to raise this threshold in order to have as many eurozone member states as possible on board. However, amid concerns that some countries might face difficulties in passing the treaty through national parliaments or it might be subject to referenda, under the latest draft the threshold of countries needed to ratify the draft treaty for it to come into force has been reduced from 15 to 12. The third draft of the treaty also specifically provides that “This Treaty shall enter into force on 1 January 2013, provided that [twelve] Contracting Parties whose currency is the euro” have ratified it. It is still unclear how many countries will sign up to it. Obviously, the member states outside the eurozone are not willing to commit to a treaty without knowing the final legal text.

The treaty would apply as from the day of coming into force amongst the eurozone contracting parties, which have ratified it. According to the draft text, the provisions related to the Euro summit meetings will apply to all eurozone-contracting parties from the date of the entry into force of the agreement. In order to address several non eurozone member states concerns and convince them to sign up, under the draft treaty non-eurozone contracting parties will be bound by it when they join the single currency, unless they decide to be bound at an earlier date, by all or part of the provisions in titles III (budgetary discipline) and IV (economic convergence) of the agreement. On the other hand, the eurozone member states might not be willing to accept a new member state that had not ratify this agreement.

The latest draft of the treaty includes a new provision, which states, “This Treaty shall be open to accession by Member States of the European Union other than the Contracting Parties upon application that any such Member State may file with the Depositary." Moreover, it reads “The Contracting Parties shall approve the application by common agreement". Such provision is particularly addressed to the UK, which has probably pleased Nick Clegg.

It remains to be seen what will come out from the negotiations on the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. It is important to recall that David Cameron vetoed the EU treaty amendment to avoid having the eurozone club pursuing its interests using the EU institutions. He said, “the fact is that an organisation outside the EU treaties is not allowed to cut across those treaties or the legislation under those treaties.” The use of the EU institutions by the euro club is the outcome of stretching the EU treaties. David Cameron may challenge the legality of using EU institutions such as the Commission or the European Court of Justice and their staff and buildings under the inter-governmental treaty. However, on 6 January, David Cameron said to the BBC’s Today programme “There are legal difficulties over this. One of the problems is that the European Court of Justice, we all think it is great independent arbiter, but the European Court of Justice tends to come down on the side of whatever more Europe involves.” David Cameron has to put his foot down, as EU institutions cannot be used to enforce the intergovernmental treaty, outside the EU legal framework, without the agreement of all member states.