The Council endorsed today the agreement recently reached by the European Parliament and Member States’ representatives on the so-called Economic governance – second package ("Two-pack"), to further deepening surveillance and coordination of economic and budgetary policy in the euro area. It is important to recall that several commitments of the inter-governmental Treaty on Stability and Convergence in the Economic and Monetary Union have been incorporated into these proposals. The two draft regulations: draft 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 and a draft regulation on the strengthening of economic and budgetary surveillance of Member states experiencing or threatened with serious difficulties with respect to their financial stability in the euro area are set to be adopted at first reading as the European Parliament is very likely to approve them. The "two pack", which would be directly applicable under the national law of member states whose currency is the euro, represent another step towards fiscal union. There would be closer co-ordination, and direct supervision of the eurozone member states economic and budgetary policies. In fact, the draft regulations are another step towards the end of budgetary sovereignty for eurozone member states.

The Commission has neither legitimacy nor a democratic mandate to intervene in member states’ matters in this way, yet it would be allowed to interfere with member states’ budget decision making and to control national economic policies.
Under the above-mentioned draft proposals, eurozone member states “should consult the Commission and other Member states whose currency is the euro before the adoption of any major fiscal policy reform plans with potential spillover effects, so as to give the possibility for an assessment of possible impact for the euro area as a whole.” In fact, “They should consider their budgetary plans to be of common concern and submit them to the Commission for monitoring purposes in advance of the plans becoming binding.”
The Eurozone member states would be required to submit annually to the Commission and the Eurogroup their draft budgetary plans for the next year for monitoring purposes before the plans being submitted to national parliaments. The aim is to enable the Commission to examine draft national budgets in order to assess whether they are in line with EU economic guidelines and rules on fiscal discipline before being adopted by national parliaments and recommend changes. The Commission would be allowed to give instructions on spending and taxation to eurozone member states. 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 to recommend changes and to request a revised draft budgetary plan from the Member State concerned.

Under the draft regulation, the Commission will adopt an opinion on the draft budgetary plans, that Member States would be invited to take into account in the process of adopting the budget. Obviously, this opinion would “include an assessment of whether or not the budgetary plans appropriately address the recommendations issued in the context of the European semester in the budgetary area.” Moreover, the eurozone member states that are already subject to an excessive deficit procedure would be monitored more closely.

At the European Parliament request, the European Commission would have to take into account the impact of budget cuts on growth potential while assessing member state’s national budgets.

Under the draft regulation on the strengthening of economic and budgetary surveillance of Member states experiencing or threatened with serious difficulties with respect to their financial stability in the euro area, the European Commission would be allowed to decide whether to subject a member State experiencing severe difficulties with regard to its financial stability to enhanced surveillance. Hence, the Commission will (continue) to carry out, in liaison with the ECB, regular review missions in the member state under surveillance to verify the progress made in the implementation of the measures required. Such missions would take place even if the member state concerned has not requested financial assistance.

It is important to note that the European Parliament proposed the establishment of a European debt redemption fund to mutualise all eurozone member states' debts above 60% of their GDP (around €2.3 trillion), allowing it to be repaid over 25 years at lower interests rates. This would entail partial pooling of eurozone debt, which have been rejected by some member states, particularly Germany. Nevertheless, under the compromise reached, the Commission is required to "set up a group of experts to analyse the possible merits, risks, requirements and obstacles in relation to a partial substitution of national debt issuance by joint issuance in the form of a debt redemption fund and eurobills.” The group of experts is expected to present its conclusions by March 2014 and then the Commission is likely to put forward proposals. However, it is important to mention that such measures, entailing joint issuance of debt in the eurozone, would be a breach of the 'no bail-out clause' included in the Maastricht Treaty and today provided in Article 125 TFEU. This provision prohibits the EU and Member States from assuming and being liable for the debts of another Member State. It is important to note that the German Constitutional Court has already ruled out Eurobonds without a change to the German Constitution and the existing EU treaties. Obviously, in order to set up such debt redemption fund the EU Treaties would have to be amended. The Commission has announced in its Blueprint for a Deep and Genuine EMU, that is planning to set up a redemption fund subject to “strict conditionality,” and “strict monitoring by a special institution (e.g. Court of Justice of the EU);”. In fact, ultimately, the European Commission is planning to create a eurozone sovereign instrument, the so-called eurobills, and noted that the Treaties would have to be amended. In fact, President Barroso and Vice President Rehn recently said, “that, in the medium-term, a redemption fund and eurobills could be possible elements of deep and genuine EMU under certain rigorous conditions.” In an attempt to please Angela Merkel they stressed that “any steps to further mutualisation of risk must go hand-in-hand with greater fiscal discipline and integration.”

In the meantime, the state of economic activity continues to deteriorate, particularly in the eurozone, as it continues, and will continue, to face low growth or no growth, mass unemployment and excessive debt. Recent figures published by the Eurostat, clearly show that the eurozone recession has not gone away. According to the Eurostat, “GDP fell by 0.6% in the euro area (EA17) and by 0.5% in the EU27 during the fourth quarter of 2012, compared with the previous quarter”. It is important to note, that the two largest eurozone economies, Germany and France, shrank by 0.6% and 0.3%, respectively, on the quarter. Moreover, in January 2013, the euro area and EU unemployment rate was 11.9% and 10.8% whereas in January 2012, they were 10.8% and 10.1% respectively. Particularly, youth unemployment has risen to utterly unacceptable levels, 24.2% in the euro area and 23.6% in the EU27. The highest youth unemployment rate was registered in Greece (59.4%) and Spain (55.5%).

The European Commission’s winter economic forecasts have confirmed that the eurozone will remain in recession in 2013. The EU's economy will continue shrinking this year. The GDP will shrink 0.3 percent in 2013 in the eurozone. The unemployment rate also continues to rise, particularly in the Euroarea. The European Commission has estimated an increase of 11.1% in the EU and 12.2% in the euro area.

It is important to mention that Moody downgraded the UK credit rating by one notch, from AAA to AA1. The agency said that it was the consequence of "continuing weakness in the UK's medium-term growth outlook, with a period of sluggish growth which Moody's now expects will extend into the second half of the decade". The EU has also played a great part in Britain’s economic failures. The EU regulations and directives are undermining the ability of the Coalition to promote growth. As Bill Cash has been saying “The main reason for the failure of the European economy is to be found in its lack of growth and competitiveness. EU economic policies so far have been incapable of generating growth and both the Lisbon and 2020 agendas have turned out to be failures.” He noted, “The overburdened single market is not delivering growth for our economy nor the reduction of our deficit, nor is it providing growth for the economies of the European Union.” Hence, as Bill Cash stressed “We cannot reduce our deficit because we cannot grow – and we cannot grow significantly because of EU overregulation.”

Brussels is now focusing its attention on growth, however it has not a clue how to generate it. Last June, the European Council agreed on a package of measures to boost growth and jobs, the so called “Compact for Growth and Jobs", which “constitutes the overall framework for action at national, euro and EU levels, mobilising all levers, instruments and policies”, and this would be done “in the context of the Europe 2020 Strategy.” However, Brussels plan to increase growth entails increasing grants and subsidies, increasing, therefore, EU spending. Yet, the solution does not lie in injecting more money into the public sector and to ventures and projects that, in fact, have failed, according to several reports of the European Court of Auditors. Hence, the growth strategy will be another failure as it fails to recognise that the EU policies and regulations are the problem not the solution. The EU leaders should tackle first the causes of no growth in Europe, namely repealing the EU employment and social laws, which have been strangled the small and medium-sized business in Europe.

The EU economic governance rules require member states to introduce deep public spending cuts and tax rises. Taking into account this year’s economic forecast, one could say that such measures are leading Europe towards an even deeper recession. Unsurprisingly, we have been assisting to massive protests and riots all over Europe. This will get even worse with the creation of the fiscal union because, as Bill Cash said, the Eurozone will not only fail to grow, it will implode.

The last December’s European Council Conclusions stressed that “The immediate priority is to complete and implement the framework for stronger economic governance, including the "six-pack", the Treaty on Stability, Coordination and Governance (TSCG) and the "two-pack"”. Brussels is calling upon member states to implement and obey to the fiscal and economic governance rules, yet it has no credibility. There is a massive issue about the rule of law in Europe, as the EU 'doesn't always practice what it preaches'. The true is that the EU does not subscribe to the rule of law. It is important to recall that in December 2010, Madame Lagarde said, as regards the European financial stability mechanism, “We violated all the rules because we wanted to close ranks and really rescue the euro zone.” The EU makes the law, claims it has a legal framework for the rule of law, and then breaks European rules itself. The EU leaders, Barroso and anybody else in Brussels have turned a blind eye to breaches of the EU Treaties to save the euro.

The Economic governance packages have already given substantial powers to the European Commission over national budget decision-making and to control national economic policies. The so called two-pack is a threat to Member states' control of public finances, restricting national sovereignty and undermining democracy. Nevertheless, the European commission wants to be able to further control national budgetary policies, and stressed, in its blue paper, that these proposals “are reaching the limit of what is possible under the current Treaties in terms of coordination and intervention from the EU level in the national budgetary process.” It is well known, that although EU’s history has proved that surrender of member states’ national sovereignty is a recipe for failure, the EU leaders agreed to launch the Eurozone towards greater economic, fiscal and political integration. They have agreed to move forward towards a banking union and the necessary steps to move towards further economic, fiscal and political integration, which has been wrongly considered the only solution to emerge from the crisis.

The European Council met last December to discuss the report on the future of the Economic and Monetary Union, presented by the European Council President, Herman Van Rompuy, in cooperation with the President of the European Commission, Jose Manuel Barroso, the Chair of the Eurogroup, Jean-Claude Juncker, and Mario Draghi, the President of the European Central Bank, which provides a road map for the achievement of “a genuine Economic and Monetary Union". Although the EU leaders have not fully endorsed yet all the proposals put forward by the European Commission and the President of the European Council they agreed on a roadmap for the completion of EMU, “based on deeper integration and reinforced solidarity for the euro area Member States.” The debate on further integration and how to move forward towards a federation of nation states has just started.

The President of the European Council’s report incorporates the European Commission’s recommendations provided in its communication "A Blueprint for a deep and genuine EMU – Launching a European Debate". They have clearly put forward plans for a two tier Europe, having, unsurprisingly, the eurozone at its core, which would have as effect excluding non eurozone member states from decision making.
The President of the European Council as well as the European Commission, proposed a step-by-step approach to achieve a Deep and Genuine EMU, and, accordingly a full banking, economic, fiscal and political union, by transferring national sovereignty to the EU. The European Commission’s blueprint specifically refers to “progressive pooling of sovereignty and thus responsibility as well as solidarity competencies to the European level”.

According to the European Commission in a “deep and genuine EMU” its Member States economic and fiscal policy choices would subject to deeper coordination, endorsement and surveillance at the European level.” Hence, the EU will take over from member states and will be able to dictate economic and fiscal policies, including taxation and employment, in fact, all “policy areas crucial for the functioning of EMU.” The reports propose therefore a “step by step approach” to transfer national sovereignty to the EU, including giving to Brussels powers to rewrite national budgets for eurozone member states, the creation of a treasury office and a central budget.

The Commission as well as the President of the European Council wants to put in place a framework for systematic ex ante coordination among the Member States of national plans for major economic policy reforms, as foreseen in Article 11 of the TSCG. This will entail the Commission as well as the Member States having a say on each other economic policy reforms before the member state in question takes a decision. The European Commission also wants to set up a "convergence and competitiveness instrument" as well as of a procedure for the ex-ante discussion of all major economic policy reforms which would be the following steps towards deeper fiscal and economic policy coordination and the build up of a fiscal capacity.

The European Commission foresees further coordination and surveillance of tax and employment and social policies, in the context of a Treaty change.

Under the President of the European Council and European Commission plans the eurozone member states will progressively lose their economic sovereignty as well as the right to decide their own budget. The European Commission wants to control national budgetary policy. Brussels would be able to force eurozone member states to make changes to their budgets to keep their debt and deficits down, having, therefore, the final say over eurozone countries budgets. Hence, Brussels would acquire powers to veto national budgets. The European Commission is envisaging a Treaty amendment creating a new special legislative procedure, subject to co-decision, to legitimize a new power of requiring a revision of a national budget in line with European commitments. The 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 Commission cannot, without amending the treaties, initiate infringement proceedings against a Member State for having an excessive deficit and then ask the Court of Justice to impose fines on the Member State concerned. Nevertheless, under the TSCG the European Commission is allowed to decide whether a country should be taken to the ECJ. The 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. Thus, the Commission is also planning to amend Article 126 by deleting paragraph 10 extending in this way the competences of the European Court of Justice to infringement procedures in this area (excessive deficit procedures).

The plan is to transfer fiscal policy decisions from national parliaments to Brussels, entailing therefore the end of budgetary sovereignty for eurozone member states and undermining democracy. It would be a step towards an EU superstate.

In fact, under the Commission's plans, in the long term (beyond 5 years), there would be a major transfer of sovereignty from the member states to Brussels. There would be a full fiscal and economic union, which will be the final stage in EMU. There would be a new taxation power at the EU level, a central budget providing for a fiscal capacity for the EMU with the capacity to borrow and issue bonds and “a means of imposing budgetary and economic decisions on its members, under specific and well-defined circumstances.” Moreover, a eurozone finance minister would take over from national finance ministers on the drafting of budgets, taxation and economic policies. According to the European Commission’s plans the “Treasury would embody the new budgetary authority and manage the joint resources”, and it would be “headed by a senior member of the Commission such as the Vice President responsible for Economic and Monetary Affairs and the euro, in appropriate coordination with the Budget Commissioner”. It is important to recall that Angela Merkel said "In the course a long process, we will transfer more powers to the Commission, which will then work as a European government for European competencies".

By failing to respond to the need for reform, moving towards greater integration, and by refusing the results of referendums, the EU has created this implosion. The EU once again disregarded democracy and member states’ sovereignty by forcing the Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union onto citizens without giving them a say. The Treaty represents German’s attempt to impose its domestic economic model on other member states. This Treaty as well as the Economic Governance Packages entail more centralised controls over the domestic economies of member states, particularly control over national budgets. They are aiming at deepening economic integration and tightening fiscal rules for the Eurozone. These measures have been forced onto citizens, however they were not allowed to have a say on such important matter affecting them. One could wonder whether eurozone citizens are willing to accept more national sovereignty being given away. People around Europe not only feel disconnected from the EU but they are also losing faith in their political representatives.

The austerity measures imposed by Brussels, particularly on the bailout countries, are not working and social conditions and living standards are getting worse. The Eurozone, particularly Greece, Portugal, Ireland, Italy and Spain, just have more debt, more unemployment and more recession. As Iain Martin pointed out “The euro is doing this. Countries which should have their own currencies, and be able to devalue in order to begin the process of recovery, are straitjacketed by a one-size fits all policy.” These countries face a long period of stagnation, high unemployment, and painful structural reform. They are being sacrificed to save the euro and democracy is being undermined.

The financial crisis and the austerity measures have lead to further democratic deficit and lack of legitimacy not only at Europe but also national level. We are facing a democratic crisis, which must be addressed. However, the EU leaders have failed so far to address the fundamental democratic flaws within the EU. It is important to recall that last July, David Cameron said, in the Liaison Committee, that the eurozone member states “are going to have make very difficult decisions about giving up areas of sovereignty and,…, restricting elements of their democracy.” He then conceded, “That clearly has implications for their democracy.” William Hague, in his speech at Körber Foundation Conference, also conceded “The choices faced by Eurozone countries are not easy. Some proposals would severely curtail national democracy – issues like national budgets – forever.” The situation is therefore set to get worse with serious consequences to democracy in Europe. As Bill Cash stressed, member states “are moving into a position where they will cease to have democratic control over their decisions.” In fact, voters would no longer be able to change important decisions about economic and fiscal policies that massively affect them, at the ballot box.

In the meantime, there have been demonstrations against the austerity measures all over Europe. The outcome of the Italian general elections shows how citizens are having enough of public spending cuts and tax increases imposed by Brussels in order to get the budget deficit down. The Italians rejected the economic reforms imposed by Brussels. Moreover, there were hundreds of thousands of people demonstrating all over Portugal this weekend against the government economic policy, the bailout program and austerity measures. They are calling for the resignation of Prime Minister, Pedro Passos Coelho, and for the Government to be dissolved. However, the current Government was already bound by the bailout programme even before being elected. It is important to recall that in June 2011, Jürgen Kröger, Head of European Commission Mission said, “In the present election campaign, it should be clear that the next government has to take responsibility for the programme and implement the measures.” By accepting the bailout Portugal has lost sovereignty over economic and financial policy. The Government is doing what it has been told by Brussels, so much for democracy.

The Commission has noted “This progressive further integration of the euro area towards a full banking, fiscal and economic union will require parallel steps towards a political union with a reinforced democratic legitimacy and accountability.” The European Council also “stressed the need for strong mechanisms for democratic legitimacy and accountability.” Brussels says that it wants to increase democratic legitimacy of the EU institutions.  However, the issue of lack of democratic legitimacy of the EU institutions has been and it would continue to be addressed by increasing the role of the European Parliament, by increasing substantially the policy areas subject to co-decision and by introducing more QMV decision-making. The codecision procedure has not strengthened democratic legitimacy, as it is undemocratic and has harmful consequences for transparency and accountability.

According to Herman Van Rompuy “democratic control and accountability should occur at the level at which the decisions are taken” which “implies the involvement of the European Parliament as regards accountability for decisions taken at the European level, while maintaining the pivotal role of national parliaments, as appropriate.” His report points out, “Decisions on national budgets are at the heart of Member States' parliamentary democracies” however it reads “national parliaments are not in the best position to take it into account fully.” In fact, unsurprisingly it stresses “This implies that further integration of policy making and a greater pooling of competences at the European level should first and foremost be accompanied with a commensurate involvement of the European Parliament in the integrated frameworks for a genuine EMU.” The Commission's Blue Print also reiterates the idea that the role of the European Parliament is essential to increase democratic legitimacy and accountability. In fact, it states that “…democratic legitimacy for EU decisions…. requires a parliamentary assembly representatively composed in which votes can be taken.” Then, it stresses, “The European Parliament, and only it, is that assembly for the EU and hence for the euro.” As Bill Cash noted, “this amounts to is a challenge to the United Kingdom Parliament and its primacy in relation to the United Kingdom, its electorate and the legislation which affects their daily lives, including the single market.” The European Council conclusions also stressed, “Further integration of policy making and greater pooling of competences must be accompanied by a commensurate involvement of the European Parliament.” This clearly shows that further powers would be taken from national parliaments and transfer, particularly to the European Parliament. However, they could not be more wrong in thinking that by giving more powers to the European Parliament would turn Brussels more accountable to EU voters. As David Cameron said, “it is the national parliaments that provide the real democratic legitimacy within the European Union.”

The Eurozone should accept once and for all that the Euro does not work. However, they want to move towards a fiscal and political union in order to save it. The eurozone member states are already in a straightjacket, but the situation is set to get worse, as their sovereignty would be further reduced. They will lose control over their financial and economic affairs. The Commission's Blue Print stresses, “As a final destination it would involve a political union with a central budget as its own fiscal capacity and a means of imposing budgetary and economic decisions on its members.” The Italians, the Portuguese, the Spanish, the Greeks, are extremely unhappy with the EU’s austerity measures and with the lack of democratic legitimacy. One could wonder whether eurozone citizens are willing to accept more national sovereignty being given away. In fact, they would say NO to a fiscal and political union with an economic policy imposed by Germany. However, they have not been asked whether they would accept it. People have been treated with contempt. It is about time Brussels start listening to people democratic wishes. As Martin Callanan MEP rightly pointed out, “… if we remove voters’ ability to determine their own economic destiny then we start the countdown to social unrest.”

The only hope for a stable Europe is if it is based on national democracy and accountable government. Hence, the answer to Europe is to consolidate democracy in each of Europe‘s nation states. 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. It is well known that Barroso’s plan entails to create a federation of nation states, as he believes that a creation of a federal Europe is the only possible way to address the causes of the sovereign debt crisis. In a joint statement, issued after the trilogue agreement on the Two-Pack legislation on the economic governance in the euro area, President Barroso and Vice President Rehn reiterated, “the Commission is committed to put forward explicit ideas for Treaty changes in time for a debate before the next European Parliament elections in 2014…”. Barroso wants to use the European elections campaign to debate the future of Europe and promote a new treaty to create a federal union. Barroso has made very clear what Brussels is heading to “This is our project. A project which is step by step but with a big ambition for the future with a Federation as our horizon for Europe.” David Cameron announced in his big speech “The next Conservative Manifesto in 2015 will ask for a mandate from the British people for a Conservative Government to negotiate a new settlement with our European partners in the next Parliament” and then he promised to give the British people a referendum “with a very simple in or out choice. To stay in the EU on these new terms; or come out altogether.” The eurozone crisis is undermining the UK's economy and bit-by-bit is destroying UK's democracy. Hence,  as soon as David Cameron renegotiates the whole UK relationship with the EU the better, as Brussels is moving fast towards a federalised system. As Bill Cash has been saying, “This accumulated trend is the key reason why we need a referendum, and ahead of the European elections in 2014, because of the speed with which these matters are being taken forward within the EU.”