Margarida Vasconcelos: Brussels has used its usual legal tricks – the final draft of the so-called Treaty on Stability, Coordination and Governance in the Economic and Monetary Union

Following the outcome of the informal meeting of the European Council in Brussels on Monday 30 January, the European Foundation updated his previous report – No backsliding at EU summit.

 As expected, on 30 January, the EU leaders agreed on the final wording of the inter-governmental treaty on stability and convergence in the Economic and Monetary Union. Hence, the treaty will be formally signed at the next European Council meeting in March, so each signatory country can ratify it by the end of 2012. According to a Communication by euro area Member States, issued on 30 January “This represents a major step forward towards closer and irrevocable fiscal and economic integration and stronger governance in the euro area.” It also says, “It will significantly bolster the outlook for fiscal sustainability and euro area sovereign debt and enhance growth.” Moreover, Article 1 of the draft treaty states, “By this Treaty, 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, employment, competitiveness and social cohesion.” However, this treaty will do nothing to resolve the present debt crisis, which, in fact, is getting worse. Greece is not far from default, Portugal's sovereign debt situation is escalating, and a huge recession is on the cards for Europe. But the problem is not just the financial markets, but also social unrest. Citizens have been demonstrating against austerity measures and general strikes have been taking place all over Europe.  

According to Angela Merkel the eurozone member states have set themselves on an “irreversible course towards a fiscal union”. Moreover, Angela Merkel said in Davos “We have to become used to the European Commission becoming more and more like a government.” However, the answer is not “more Europe”, in fact as more Europe we have as worse become the situation. The eurozone Member States would no longer be responsible for a great range of domestic economic policies. The so-called “fiscal compact” is the beginning of the end of budgetary sovereignty for eurozone member states. They will lose control over their financial and economic affairs. Member States further surrender of their national sovereignty is a recipe for failure. It remains to be seen how southern countries would be able to cope with Germany’s budget discipline. However, eurozone citizens have not been asked whether they accept a fiscal and political union with an economic policy imposed by Germany. As Martin Callanan MEP, Chairman of the European Conservatives and Reformists group, noted “(…) an electorate's ability to vote for a high spending Keynesian economic policy is effectively being removed from them.” Moreover, he said “This pact is effectively rendering all elections null and void across much of Europe.”

It has been said that the new rules enshrined in the draft treaty do not contradict the EU's existing rules. Article 2 has subjected the draft treaty to EU law, whereby the contracting parties are required to “applied and interpreted” this treaty “in conformity with the Treaties on which the European Union is founded, in particular Article 4(3) of the Treaty on European Union (principle of sincere cooperation), and with European Union law, including procedural law whenever the adoption of secondary legislation is required.” Moreover, Article 2 (2) 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. (…)” David Cameron said, “It is not an EU treaty, because it does not amend EU law; it is not a treaty within all of the treaties of the EU”. He mentioned Article 2 and stressed,  “this treaty is outside EU law (…)” Nevertheless, this does not mean that some provisions of the draft treaty are not inconsistent with the EU treaties.

It is important to note that the eurozone member states can negotiate a treaty regarding an area outside the EU’s exclusive competence but they cannot breach EU law. Further powers over Member States’ budgets cannot be conferred beyond that which is foreseen in the Treaty for the EU institutions. In fact, any intergovernmental agreement changing the rules concerning the powers of the EU institutions requires the agreement of all Member States. The treaty has been drafted in order to give the idea that the EU institutions would only be involved in actions and procedures that they already have under the EU treaties, that they would only act within the framework of the EU Treaties, particularly Articles 121, 126 and 136 TFEU. However, the EU institutions will be used in new procedures and would exercise new powers created by the draft treaty. They have stretched the EU Treaties and pushed to the limit the involvement of the EU's institutions in the operation of the new fiscal compact. Unsurprisingly, Brussels has used its usual legal tricks.

As above-mentioned, being intergovernmental, this treaty must be formed outside the EU's existing Treaties and cannot be part of EU law. It will be legally binding as an international agreement. However, the preamble to the draft treaty includes a reference to the eurozone leaders and of other Member States of the EU to “incorporate the provisions of this Treaty as soon as possible into the Treaties on which the European Union is founded”. Moreover, at the European Parliament request, the draft treaty also includes a provision, which reads “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.” There is, therefore, a clear aim of incorporating this treaty into EU legal framework within five years of its entry into force. In fact, that is a certainty for Angela Merkel and José Manuel Barroso.

It is important to recall that the 2005 Prüm Convention, agreed by a group of EU member states outside the EU framework, contained a clause stipulating “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 EU the main provisions of the Prüm Treaty. The clause contained in the draft treaty above-mentioned, is very similar to the one included in the Prum Convention. There is no reference to incorporate the treaty into the EU treaties but into the EU legal framework, which would be done trough secondary legislation, as happened with the Prüm Convention.

The incorporation of this treaty into the EU treaties would, obviously, entail a treaty change, which, accordingly, requires the agreement of all member states, including the UK. Bill Cash asked the Prime Minister “Will he give us his assurance that never, while he is Prime Minister, will we fold this non-EU treaty into the treaties as a whole?” David Cameron replied saying “(…) this treaty cannot be folded back into the EU without the agreement of every EU member state. We did not sign this treaty, because we did not get the safeguards that we wanted, and that position absolutely remains.” The Government would not change its position by agreeing to the incorporation of the new treaty into the EU Treaties. However, the aim is to integrate provisions of the draft treaty into the EU legal framework via secondary legislation, particularly through the Commission’s proposals from last November aiming at strengthening the powers of the Commission in surveillance of national budgets, based on Article 136 TFEU and subject to the ordinary legislative procedure and QMV. This would be, therefore, an attempt to bypass the UK veto.

According to David Cameron “(…) the treaty itself is clear that it has to be in line with EU law; it cannot override it, and it cannot get into areas such as the single market.” The negotiators have attempted to align as much as possible the draft treaty provisions with those provided in EU law.

The draft treaty has been cautiously drafted so as to involve the EU institutions only in procedures and activities they already have under the EU Treaties. Nevertheless, the contracting parties have accepted obligations, which contradict their obligations under the EU Treaties, and there are provisions in the text, which confer new powers for the EU institutions. Consequently, those provisions breach EU law.

The treaty is aiming forcing eurozone countries with high debt levels to bring their budget deficits down. 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”. However, the balanced budget rule goes beyond what is provided under the EU Treaties. Under Article 3 (1), “The budgetary position of the general government shall be balanced or in surplus.” Such rule, under the last draft, “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 with a lower limit of a structural deficit of 0.5 % of the gross domestic product at market prices.” This target is more stringent than the 1% deficit rule foreseen in the existing EU legislation. Moreover, under the draft treaty “The Contracting Parties shall ensure rapid convergence towards their respective medium-term objective.” Furthermore, article 3 (1) (b) states “The time frame for such convergence will be proposed by the Commission taking into consideration country-specific sustainability risks.”

Under the draft treaty, in case of deviation from the balanced budget rule, a correction mechanism would be triggered automatically. Article 3 (1) (e) stipulates, “In the event of significant observed deviations from the medium-term objective or the adjustment path towards it, a correction mechanism shall be triggered automatically.”  Moreover, under Article 3 (2) the contracting parties will have to “put in place a correction mechanism to be triggered automatically in the event of significant deviations from the reference value or the adjustment path towards it” which would be defined at national level, on the basis of “common principles to be proposed by the European Commission”. It is important to note that the balanced budget rule is not provided for in the EU treaties. Hence, one could say that the contracting parties, under such provision, are making use of the European Commission for purposes not provided in the EU Treaties.

Originally the contracting parties would have been obliged to enshrine the "debt brake" in their constitutions. However, several countries, including Denmark and Ireland have indicated that they would have to hold referenda in order to change their constitutions to include the so-called golden rule on balanced budgets. This provision has been, therefore, watered down. Under the last draft, although it is recommended, it is no longer a requirement that this rule on balanced budgets be introduced into the constitutions of the contracting parties. Hence, Article 3 (2) now reads “The rules mentioned under paragraph 1 shall take effect in the national law of the Contracting Parties at the latest one year after the entry into force of this Treaty through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes.” 

Under Article 5 of the draft treaty, those contracting parties that are subject to an excessive deficit procedure would have to submit to the European Commission and the Council “a budgetary and economic partnership programme including a detailed description of the structural reforms which must be put in place and implemented to ensure an effective and durable correction of their excessive deficits.” The drafters of the treaty have sought to align this provision with EU law so the involvement of the EU institutions concerns to activities and procedures that they already pursue under the EU Treaties. Hence, the draft treaty 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.” It seems that existing EU law would apply to the endorsement and monitoring of the so-called budgetary and economic partnership programmes. Nevertheless, it remains to be seen what the term “endorsement” would entail. Moreover, Article 5 (2) reads “The implementation of the programme, and the yearly budgetary plans consistent with it, will be monitored by the Commission and by the Council.” There is no reference to EU legislation providing for such role to the European Commission and the Council. It is, therefore, possible to conclude that this provision confers a new role upon these EU institutions.

It is important to recall that, 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. The Commission would be empowered to request a revised draft budgetary plan from Member States that have failed to comply with the obligations laid down in the Stability and Growth Pact. The Commission has not legitimacy to intervene in member states’ matters in this way, nevertheless the Eurozone leaders called for a speedy approval by the Council and the European Parliament of the Commission proposal.

Moreover, the draft treaty provides in Article 6 "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 above-mentioned. Nevertheless, 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.

Under the draft treaty, the eurozone contracting parties “commit to support the proposals or recommendations submitted by the European Commission where it considers that a Member State of the European Union whose currency is the euro is in breach of the deficit criterion in the framework of an excessive deficit procedure.” In the first draft the word used was “undertake”, they decided, therefore, to use a stronger wording under the last draft, suggesting a clear and binding commitment. Hence, the contracting parties have committed to automatically accept Commission recommendations. They can only reject the Commission proposal to place deficit countries under the excessive deficit procedure, when a qualified majority of eurozone contracting parties, “calculated by analogy with the relevant provisions of the European Union Treaties”, without taking into account the position of the state concerned, is opposed to it. The EU Treaties required qualified majority to support sanctions but not a qualified majority to stop them. This provision also goes beyond what is presently required under the so-called six-pack on economic governance, as reverse qualified majority voting is extended to all Excessive Deficit Procedure, including the preventive arm.

The European Court of Justice 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 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. The main issue, during the negotiations, has been whether the contracting parties are allowed to use the EU institutions to implement, monitor and enforce compliance with the draft treaty’s rules. 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. The ECJ has ruled that Member States can act collectively outside the framework of the EU Treaties and that they can confer powers upon the EU institutions. However, these joined cases C-181/91 and C-248/91 involve “collective action”, there was, therefore, a unanimous decision of all member states in this regard. Therefore, it is possible to conclude that a group of member states cannot confer any role or further powers to the EU institutions, through an intergovernmental treaty, outside the EU framework, without the approval of all EU member states.

The Treaty establishing the European Stability Mechanism (ESM) also employs the European Commission and the European Central Bank to monitor the memoranda of understanding, however, it is important to note that there was an agreement among all EU member states to involve the EU institutions. 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.”

According to the Preamble to the draft treaty “the obligation to transpose the "Balanced Budget Rule" into national legal systems through biding and permanent provisions, preferably constitutional, should be subject to the jurisdiction of the Court of Justice of the European Union, in accordance with Article 273 of the Treaty on the Function of the European Union.” Hence, the legal basis used by the drafters to give jurisdiction to the Court under the draft treaty to verify the contracting parties compliance with their obligation to give effect to the balanced budget rule is 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 negotiators are making an extensive interpretation of this provision. Article 8 goes far beyond as a clause that intends to settle disputes between contracting parties, as foreseen in article 273. Article 8 of the draft treaty, by conferring jurisdiction upon the Commission and the ECJ as regards the obligation of the contracting parties to enshrine the balanced budget rule into national law, involves the use of the EU institutions in a way that breaches the EU Treaties.

Under the draft treaty, 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. It is important to note that the obligation to give effect in national law to the balanced budget rule is not an obligation under EU law.

Under Article 8 (1) of the draft treaty “The European Commission is invited to present in due time to the Contracting Parties a report on the provisions adopted by each of them in compliance with Article 3(2). If the European Commission, after having given the Contracting Party concerned the opportunity to submit its observations, concludes in its report that a Contracting Party has failed to comply with Article 3(2), the matter will be brought to the Court of Justice of the European Union by one or more of the Contracting Parties.” Moreover, “(…) where a Contracting Party considers, independently of the Commission's report, that another Contracting Party has failed to comply with Article 3 (2), it may also bring the matter to the Court of Justice.” 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 last draft has conferred therefore even more powers on the European Commission. The referral to the ECJ is no longer reserved to the contracting parties as foreseen on the first draft, but it has been indirectly extended to the Commission. The Commission no longer needs to be invited by contracting parties but is authorized, under the last draft, to issue a report on the provisions adopted by each contracting party in compliance with Article 3(2). The European Commission would be allowed to assess whether the contracting parties have properly implemented the balanced budget rule and to ask a country that has incorrectly incorporated such rule into its national law to give an explanation. Then, if the Commission is not satisfied, the other contracting parties are obliged to refer the case to the ECJ. The contracting parties accepted therefore an obligation to bring the matter to the ECJ when the Commission finds that another contracting party has failed to comply with the article 3 (2) of the draft treaty.

The Commission cannot take the contracting parties to the ECJ if they don’t comply with Article 3 (2) of the draft treaty. It is important to note that Article 273 TFEU does not foresees other forms of jurisdiction of the Court, namely infringement procedures brought by the Commission. Under Article 273 the ECJ has jurisdiction for settle disputes between member states, but no role is foreseen to the European Commission. The draft treaty does not allow the European Commission to directly take contracting parties to the ECJ as this would be a clear breach of the EU treaties, but it still plays a considerable role. The European Commission would be allowed to decide whether a country should be taken to the ECJ. 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. Under Article 273 only a Member State may be an applicant before the Court of Justice, having the Commission involved is incompatible with Article 273TFEU. Article 8 (1) of the draft treaty, confers additional powers upon the Commission, which would be allowed to participate in proceedings that go beyond those which already exist under the EU Treaties. In this way the contracting parties would be allowed to make use of the Commission for purposes, which are outside the scope of EU treaties, breaching, therefore, EU law. Further powers given to the Commission by an international agreement require the approval of all the Member States.

The draft treaty 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.” Hence, 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. The ECJ cannot fine countries if they do not comply with such judgments, as foreseen in the EU Treaties. However, according to the Preamble to the draft treaty “Article 260 of the Treaty on the Functioning of the European Union empowers the Court of Justice of the European Union to impose the payment of a lump sum or penalty on a Member State of the European Union having failed to comply with one of its judgments.” Moreover, Article 8 (2) provides, “If, on the basis of its own assessment or of an assessment by the European Commission, a Contracting Party considers that another Contracting Party has not taken the necessary measures to comply with the judgment of the Court of Justice referred to in paragraph 1, it may bring the case before the Court of Justice.” The last draft has added to this provision “and request the imposition of financial sanctions following criteria established by the Commission in the framework of Article 260 of the Treaty on the Functioning of the European Union.” According to the Legal Counsel opinion “The analogy between this Article and draft Article 8(2) could be further guaranteed by adding a mention, both in the recital and in the Article of the draft, to the criteria established by the Commission for the determination of the lump sum or the penalty to be paid in the framework of Article 260 TFEU.” It noted, “This would ensure that the request compares with what the Commission would do in a similar situation, and that an identical methodology is followed,” This advice has therefore been followed. However, this is another legal trick, as under article 273 TFEU the European Commission cannot seek to impose upon contracting party penalties in accordance with Article 260 TFEU.

At Germany request, under Article 8 (2), “If the Court finds that the Contracting Party concerned has not complied with its judgment, it may impose on it a lump sum or a penalty payment appropriate in the circumstances and that shall not exceed 0,1 % of its gross domestic product.”  The draft treaty confers, therefore, on the ECJ the power to impose fines on countries, which have failed to transpose or correctly incorporate the balanced budget rule into national law. Under the draft treaty the penalty must not be higher than 0.1% of a country’s GDP.  Furthermore, article 8 provided “The amounts imposed shall be payable to the European Stability Mechanism.” This provision has been amended, in order to persuade Denmark to sign up to the treaty, and it now reads “The amounts imposed on a Contracting Party whose currency is the euro shall be payable to the European Stability Mechanism. In other cases, payments shall be made to the general budget of the European Union.” Hence, the fines imposed by the ECJ on eurozone contracting parties would be paid into the ESM whilst fines impose on non eurozone contracting parties would go to the EU budget.

One could say that Article 273 TFEU mainly refers to disputes concerning the interpretation or application of agreements, excluding the ECJ’s competence to impose penalties. Under Article 260 TFEU the Court has competence to impose penalties on Member States, which have not taken the necessary measures to comply with its judgments for violations of EU law, however Article 8(2) does not concern violation of EU law. The ECJ has no powers to impose fines on countries that failed to bring their national laws into line with article 3 (2).

According to the Legal Counsel of the Council, Article 8 of the draft is compatible with the choice of Article 273 TFEU as the legal basis for the jurisdiction of the Court. However, it is important to note that the Legal Counsel said, “that the substance of the draft Treaty is intended to be incorporated into the law of the Union” and “When this happens, Article 260 TFEU will be directly applicable to the norm concerned.” Consequently, according to the Legal Counsel “The construction of Article 8, including its paragraph 2, thus broadly anticipates the framework that will apply to the norm when it becomes an EU one, while being entirely compatible with the legal basis of Article 273 TFEU that has to be used before that date.” Nonetheless, if the contracting parties could use the EU institutions to enforce this treaty there would be no need to incorporate it into EU law.

Moreover, Article 8 (3) of the draft treaty also stipulates, “This Article constitutes a special agreement between the Contracting Parties within the meaning of Article 273 of the Treaty on the Functioning of the European Union”. This provision deceitfully gives the idea that the use of the ECJ and the European Commission by the contracting parties is legal under the EU treaties. 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 Court of Justice has allowed Member States to use the EU institutions in procedures established outside the framework of the Treaties, but there was a unanimous agreement. Consequently, all EU Member States must agree on the use of the EU institutions outside the framework of the EU Treaties. Under the present draft treaty, the EU institutions would be exercising functions beyond those given to them under the EU Treaties, which breaches EU law. However, the drafters of the treaty are not particularly concerned with its legality, the main aim is to save the euro. Therefore, they have turned a blind eye to potential breaches of the EU Treaties.

A group of Member States without unanimous approval of the other member states cannot confer any new powers to the EU institutions outside the EU legal framework. The Commission or the ECJ cannot enforce the draft treaty on stability, coordination and governance in the Economic and Monetary Union, as it’s not within their mandate. However, according to a Communication by euro area Member States when the treaty is signed in March “an arrangement will be decided about the procedure to be followed to bring to the Court of Justice a case of noncompliance with the Treaty.” In this way, they would confer on the ECJ the power to rule on excessive deficit breaches, which would conflict with Article 126 (10) TFEU. This provision specifically excludes the launch of infringement procedures against member states that fail to comply with decisions taken under the excessive deficit procedure. The ECJ has no powers to issue judgments and impose fines on countries that failed to comply with the treaty's provisions. 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 EU treaties and this intergovernmental treaty obviously the EU Treaties would take precedence. 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."

David Cameron has been arguing that contracting parties to this treaty cannot use the EU institutions to enforce this treaty. However, David Cameron has not 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, for purposes outside the EU framework. On 31 January, the Prime Minister made a statement at the House of Commons, on last Monday’s Informal European Council, he said “there are uses of the EU institutions set out in previous treaties― mostly put through this House by the Labour Government― but this treaty outside the EU goes further than that, and that raises legal issues.” Hence, David Cameron acknowledged that the contracting parties are illegally using the EU institutions. He said the UK would take legal action if the new treaty undermines British interests, "There are a number of legal concerns about this treaty. That's why I reserved the UK position on it. We will only take action if our national interests are threatened." Ultimately, it would be for the ECJ to decide on this mater, which favours further EU integration.

The draft treaty explicitly states that “the Contracting Parties stand ready to make active use, whenever appropriate and necessary, of 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 of 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 this treaty. Under Article 326 TFEU the use of enhanced cooperation must respect the EU Treaties. It is important to note that enhanced cooperation measures must be based on a Commission proposal, which is then blocked in the Council, consequently the decision to enter into enhanced cooperation is “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. However, the draft treaty refers to “whenever appropriate and necessary” bypassing the treaty requirement that it should solely be used as “a last resort.” As Bill Cash pointed out “This could cause serious damage to British national interests in relation to the internal market.” Under Article 326 TFEU enhanced 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.” It is important to recall that according to the Commission it is necessary to introduce the financial transaction tax to ensure the proper functioning of the internal market. However, one could say if enhanced cooperation is used to adopt this tax, it could no longer be justified to avoid fragmentation in the internal market for financial services. Furthermore, enhanced cooperation shall be open to all Member States, consequently it cannot be address just to eurozone States, or the contracting parties to this treaty. 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. If these criteria are not complied with the use of enhanced cooperation could be challenged at the ECJ.

Article 12 (1) of the draft treaty, confirms what the Eurozone leaders agreed at the Euro Summit of 26 October, that the eurozone Heads of State or Government and the President of the European Commission will meet informally in Euro Summit meetings. The appointment of the President of the Euro Summit by the eurozone leaders by simple majority was also enshrined in the draft treaty. There is no legal basis in the TFEU to this new EU institution and the new post of president of the Euro summit. Consequently, if they want to formally institutionalise the Euro summits, the EU Treaties would have to be amended.

The draft treaty 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 which the Contracting Parties whose currency is the euro share with regard to the single currency, other issues concerning the governance of the euro area and the rules that apply to it, and strategic orientations for the conduct of economic policies to increase convergence in the euro area.” According to the European Council and Euro summit President, Herman Van Rompuy, such meeting would be, in principle, held after meetings of the European Council. 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. Article 12 (5) provides “The President of the Euro Summit shall keep the Contracting Parties whose currency is not the euro and the other Member States of the European Union closely informed of the preparation and outcome of the Euro Summit meetings.”

Poland has threatened not to sign the draft treaty unless it is allowed to take part in future eurozone summits. There has been an attempt to please Poland, whereby non-euro countries will be solely invited if they have ratified the treaty as well as accept to be bound by some provisions of it, namely the so-called golden rule and provisions concerning “economic policy coordination and convergence.” However, Polish Prime Minister Donald Tusk said “Poland is ready to take co-responsibility for this fiscal compact under one condition: that the country will participate in the decision making process on how the treaty is implemented.” Consequently, in order to convince Poland to sign up to this treaty, Article 12 (6) has been amended, stipulating “The Heads of State or Government of the Contracting Parties, other than those whose currency is the euro, who have ratified this Treaty shall participate in discussions of Euro Summit meetings concerning competitiveness for the Contracting Parties, the modification of the global architecture of the euro area and the fundamental rules that will apply to it in the future, as well as, when appropriate and at least once a year, in discussions on specific issues of implementation of this Treaty on Stability, Coordination and Governance in the Economic and Monetary Union.” Hence, non-eurozone contracting parties will no longer need to declare “their intention to be bound by some of its provisions in accordance with Article 14(5) to a meeting of the Euro Summit” in order to be invited to eurozone summits. Whereas under the previous draft the non-eurozone countries would be invited to the eurozone summits “to discuss specific issues concerning the implementation of this Treaty”, under the last draft they will be invited to meetings “concerning competitiveness for the Contracting Parties, the modification of the global architecture of the euro area and the fundamental rules that will apply to it in the future, as well as, when appropriate and at least once a year, in discussions on specific issues of implementation of this Treaty on Stability, Coordination and Governance in the Economic and Monetary Union”. It would be like a European Council meeting without the UK and Czech Republic.

David Cameron was aware of the risk of fiscal union and economic government, hence he decided to use his veto. In fact, 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…" However, Cameron by using his veto prevented the situation from getting worse but the status quo has not changed. The City of London continues to be subject to further EU regulations. It is important to recall that the single market, including financial regulations, is governed by qualified majority voting. From November 2014, QM will be calculated according to double majority: 55% of EU Member States (15 Member States) and 65% of the EU’s population.  Hence, by 2014 the eurozone will have a qualified majority. The eurozone leaders well as other contracting parties to this treaty by having their own meetings, they will be able to agree positions on financial and economic issues, which they would then impose on the other member states, if unanimity is not required. Although they say that the Euro summits will just discuss eurozone issues, one can just expect that matters affecting British interests would be also discussed. The eurozone member states can use their voting power at EU level, and they will also have the support of the non-eurozone contracting parties to this treaty, to force through measures in detriment of the UK’s national interest. They will vote together outvoting the UK.

On 30 January, twenty-five EU member states have decided to sign up to the treaty. The Czech Republic has decided to join the UK and stay out of it. The draft treaty will be formally signed on 1 March. The contracting parties, according to their constitutional requirements, through national parliaments or possibly some referendums, will ratify the agreement. Amid concerns that some countries might face difficulties in passing the treaty through national parliaments or it might be subject to referenda, under the last draft, the threshold of countries necessary to ratify the agreement is twelve. Consequently, it will still enter into force even if some countries national parliaments reject it or it is not approved in referenda. It 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 remains to be seen what would happen if less than twelve eurozone states fail to ratify the treaty before 1 January 2013. The draft treaty might be subject to referendum in Ireland as the Irish government is seeking legal advice from Attorney General on whether a referendum would be required to ratify this treaty, and Denmark. In the other hand, Nicolas Sarkozy has recently said that France might not be able to ratify the treaty before the presidential elections, in April and May. It is important to note that the socialist candidate for the French presidency, François Hollande said he would “renegotiate this deal” if elected in the upcoming presidential elections.

The draft treaty will apply as from the day of coming into force amongst the eurozone contracting parties, which have ratified it, but 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 policy coordination and convergence) of the agreement.

At Germany request, the preamble to the draft treaty provides that “the granting of assistance in the framework of new programmes under the European Stability Mechanism will be conditional, as of 1 March 2013, on the ratification of this Treaty by the Contracting Party concerned and, as soon as the transposition period mentioned in Article 3(2) has expired, on compliance with the requirements of this Article,” Hence, in order to an eurozone member state to be granted assistance within the framework of the ESM, which is expected to come into force in July 2012, it must ratify this treaty and comply and implement the so called balanced budget rule provided in Article 3 (2) within one year of entry into force of the intergovernmental treaty.

The draft treaty also includes a provision, Article 15, 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." This provision is particularly addressed to the UK, but it also includes all states that initially signed up for this treaty but then have not become contracting parties. This provision has been amended in the last draft so it is no longer required the approval by “common agreement” by the contracting parties. Under the last draft “This Treaty shall be open to accession by Member States of the European Union other than the Contracting Parties. Accession shall be effective upon the deposit of the instruments of accession with the Depositary, who shall notify the other Contracting Parties thereof.”

We must congratulate David Cameron for not yielding to Brussels, particularly to France and Germany arguments, and having refused to sign this treaty. In his statement at the House of Commons, on the Informal European Council, David Cameron said, “(…) this is a treaty outside the EU. We are not signing it, we are not ratifying it, we are not part of it and it places no obligations on the UK. (…) That is the fundamental protection that we secured with our veto in December, and that protection remains.” However, 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 draft treaty contracting parties is the outcome of stretching the EU treaties. David Cameron has decided to soften his opposition and has backed own on his pledged to block the use of the EU institutions by the contracting parties to this new non-EU treaty. David Cameron said, “(…) it is in Britain’s interests that the eurozone sorts out its problems. It is also in our interests that the new agreement outside the EU is restricted to issues of fiscal union and does not encroach on the single market.” According to David Cameron “The new intergovernmental agreement is absolutely explicit and clear that it cannot encroach on the competencies of the European Union and that measures must not be taken that in any way undermine the EU single market.” Nevertheless, it is far from certain that this won’t undermine the single market. But, the Prime Minister also said, "There are a number of legal concerns about this treaty”, stressing that “we will watch this matter closely and that, if necessary, we will take action, including legal action, if our national interests are threatened by the misuse of the institutions.”

David Cameron believes “we have the ability to exercise leverage to ensure that they stick to fiscal union, rather than getting into the single market, which is what we want to protect.” One could wonder whether the UK will ever bring a legal action before the ECJ. It is important to mention that 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.” It is undeniable that the ECJ has been the motor of the European integration.

As Bill Cash said if the UK as well as other member States want to regain their democracy and economic stability they must return to an EFTA-plus arrangement. The Prime Minister has accepted that the only possible way to protect British interests was for the Government to veto changes to the EU Treaties. However, David Cameron must accept that the only possible way to continue protecting British interests is for the Government to initiate the renegotiation process of all EU treaties, by taking the lead in creating an association of nation states – an EFTA-plus, as Bill Cash argued in “It’s the EU Stupid”. Bill Cash has proposed, in his pamphlet, a framework for renegotiation, which must follow from a Referendum. (Please refer to p.2, 8, 14 -16, 35, 73 -78) The time has come for David Cameron to define the terms of a fundamental renegotiation in the relationship between the UK and the EU.