On 9 December, the Eurozone leaders agreed that “further qualitative moves towards a genuine "fiscal stability union" in the euro area”, are required for “The stability and integrity of the Economic and Monetary Union and of the European Union as a whole.” Aiming at overcoming the current crisis, they agreed on the so-called "fiscal compact" as well as on “significantly stronger coordination of economic policies in areas of common interest.” According to the Eurozone leaders some measures from the fiscal compact could be decided through secondary legislation whereas others should be contained in primary legislation. One can therefore concluded that they are planning to stretch to the limit Article 136 TFEU whereby the eurozone member states are allowed to “strengthen the co-ordination and surveillance of their budgetary discipline.”

Obviously, the aim was to amend the exiting Treaties to include some of the commitments that the eurozone member states made at the December’s European Council. Angela Merkel’s plan A has always been to ensure an agreement among all 27 member states for a treaty change intended to introduce more integration in the eurozone, as, in this way, the EU institutions namely the European Commission and the European Court of Justice could enforce such rules on the eurozone members. It is well know 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, as it did not contain safeguards to protect the single market and the UK financial services. David Cameron rightly has not yield to Brussels, particularly to France and Germany arguments. The Eurozone leaders agreed, therefore, to create the so-called "fiscal compact" through an intergovernmental agreement.

According to the Eurozone statement from last December, Bulgaria, Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania and Sweden indicated the possibility to take part in the intergovernmental agreement after consulting their Parliaments where appropriate. Van Rompuy said “I am optimistic because I know that it is going to be very close to 27. In fact, 26 leaders indicated their interest in this effort.” It seems that four additional countries have agreed to sign up – Latvia, Lithuania, Poland and Romania. However, it is still unclear how many countries will sign up to it. Moreover, the intergovernmental agreement might face difficulties in passing through national parliaments and it might be subject to referenda in several member states, particularly in Ireland. Obviously, the member states outside the eurozone are not willing to commit to a treaty without knowing the legal text. The signing depends therefore on the details of the text. Particularly they wanted to know whether powers over national budgets would be binding upon them or only to eurozone governments. Hungary has shown concerns over the transfer of budgetary powers as well as Finland and Sweden. The Swedish Finance Minister, Anders Borg, said “(…) Sweden will not enter this cooperation on the same terms as euro-zone members…[it will have] another role.” Sweden, Hungary, Czech Republic and Denmark will decide whether to sign up when they see the final text of the treaty and after consulting national parliaments. The Prime Ministers of Hungary and Czech Republic have already made clear that they would not sign any treaty if it includes tax harmonisation. In the other hand, the socialist candidate for the French presidency, François Hollande said he would “renegotiate this deal” if elected next year.

Hence, the UK is not isolated, as it has been said. In the end of the day, there is a eurozone statement but the other nine member states have not signed up to it yet. One could say that now, during the negotiations of the intergovernmental agreement, it would be a good opportunity for David Cameron to present new arrangements for a free trade area. Britain could try to agree with other Member States new treaty arrangements entailing the creation of a European Free Trade Association-plus.

The non-eurozone member states are therefore waiting to know the details of the text of the draft agreement before deciding whether or not to sign it. Hence, the first draft of the international agreement on a reinforced Economic Union aiming at deepening economic integration and tightening fiscal rules for the eurozone circulated for the first time on 16 December. 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. A EU official said "We put into the legal form the elements of substance that were contained in the statement of the 9 December (EU summit). We did nothing more. We did nothing less".

The text of the draft international agreement on a reinforced economic union is therefore base on the eurozone leaders statement issued on December 2011. Herman Van Rompuy said, at the European Parliament on 13 December, that an intergovernmental agreement “will make the Fiscal Compact binding” but he recognised that there were technical obstacles to be overcome before the text could be completed. He said “It will not be easy…legally speaking,” but “I count on everybody to be constructive, bearing in mind what is at stake.”

The negotiations on the draft agreement began last month between representatives of all member states including Britain, which has an observer status. The European Parliament has not wasted time nominating the MEPs who represent the European Parliament in the drafting of the new intergovernmental agreement. Elmar Brok, who has been represented the Parliament in most EU Treaty negotiations said he would try to ensure the "community method". The European Central Bank and the European Commission also have a place at the negotiations table.

The EU officials are expecting to have the text of the new inter-governmental agreement finalised by 20 January so it can then be discussed at an extraordinary EU summit that will take place on 30 January. The international agreement on a reinforced Economic Union is expect to be signed at the beginning of March, so that each signatory country can ratify it by the end of 2012.

The Eurozone leaders decided to go through the route of an intergovernmental agreement consequently the fiscal compact would have to be agreed and implemented outside the EU structures. The intergovernmental agreement was supposed to 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. The ECJ, in Defrenne II case, has ruled that the Treaties can only be amended by means of the amendment procedure carried out in observance of Article 48. Hence, amendments to the treaties cannot be made without the consent of all member states, including the UK. It is important to note that the eurozone member states cannot amend or agree to something against the current EU Treaties. They 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 of the international agreement on a reinforced Economic Union does not contradict the EU's existing rules. Article 2 of the draft agreement reads “This Agreement shall be applied by the Contracting Parties in conformity with the Treaties on which the European Union is founded (…)” Moreover, it says “The provisions of this Agreement 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 ECJ has confirmed the principle of primacy of EU law over international agreements. Under the principle of primacy of Community law, agreements concluded between the Member States are to be set aside by national courts when conflicting with EC law. This intergovernmental agreement is not part of the Community legal order, therefore it is not legally binding on the European Court of Justice and the other institutions. This international agreement is not enforceable because the European Court of Justice could not rule on the compliance of the agreement, but it has competence to consider the 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 community 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 international agreement is indeed purported to amend the exiting Treaties then an action for infringement can be brought before the ECJ.

As abovementioned, being an inter-governmental agreement it must be formed outside the EU's existing Treaties and under the general rules of public international law. This agreement cannot 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. Herman Van Rompuy recalled that this is not the first time some EU members have moved ahead with an intergovernmental agreement that later turned into EU law. The Schengen and Prüm treaties 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 EU treaty and 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, in consultation with or on a proposal from the European Commission, in compliance with the provisions of the Treaty on European Union and the Treaty establishing the European Community, with the aim of incorporating the provisions of this Convention into the legal framework of the European Union.” Then, in 2007, it has been incorporated into EU law. Therefore, this Treaty 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 draft text of the international agreement on a reinforced economic union provides, as expected, “that the objective of the Heads of State or Government of the euro area Member States and of other Member States of the European Union remains to incorporate the provisions of this Agreement as soon as possible into the Treaties on which the European Union is founded”. It is therefore, reflected in the text, a clear commitment to fully integrate the agreement into EU law as soon as possible. As Bill Cash noted “the objective of getting the arrangement stitched up into the new treaty has already been set.” Moreover he said “In addition, the EU treaties require unanimity, so in order to make such a change unanimity would be required—unanimity that would have to include the United Kingdom. That would lead to a great deal of trouble for the Government if they were to attempt to achieve a stitch-up.” It is important to mention that the European Parliament's three-MEP delegation and the European Commission are calling for the draft text to be changed so it includes a 'sunset clause’ stipulating that the member states will bring the agreement under primary EU law after five years of its entry into force. The MEPs are also calling for the agreement to become obsolete after seven years. However, the incorporation of the agreement into the EU Treaties would entail a treaty change, which, accordingly, required the agreement of all member states, including the UK.

Under the terms of the draft agreement, the Contracting Parties would “agree to strengthen their budgetary discipline and to reinforce their economic policy coordination and governance.” The text says that the development of closer coordination of economic policies would be done within the euro area. Recalling that for safeguarding the stability of the euro member states need to prevent government deficits and ensure that their deficits is below 3 % and that their government debt is below 60 %of the GDP the contracting parties would agreed to introduce specific rules to address this need. The agreement is intended to bind euro zone countries into stricter rules, namely the need of retaining their budget deficits below 3% and their debt levels below 60% of GDP. Under the draft agreement, 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 Barroso said to the MEPs last December “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 (…)” 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. They are stretching beyond the limits of the EU treaties.

Article 3 of the Draft Agreement 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, but add to them.

The draft agreement provides, as agreed at the December’s European Council, that “Revenues and expenditures of the general government budgets shall be balanced or in surplus.” Such rule “shall be deemed to be respected if the annual structural deficit of the general government does not exceed a country-specific reference value,” which “As a rule, (…) shall not exceed 0.5 % of nominal GDP.” The contracting parties would have to maintain a primary deficit of less than 0.5% during the economic cycle. They would be obliged to enshrine such rule in their constitutions. The obligation of national governments to cut deficits to 0.5% of GDP is likely to be an issue to several member states.

Moreover, the contracting parties would 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 commonly agreed principles”, including “the obligation of the Contracting Parties to present a programme to correct the deviations over a defined period of time.”

Under the draft 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 is not included in the draft agreement. Obviously, the draft international agreement could not expressly confer specific tasks on the EU institutions. Therefore, it remains to be seen what the Commission and Council will do with the abovementioned budgetary and economic partnership programmes. It seems another cover up. 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 the draft agreement, 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.” 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. 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.

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. The statement reads “Steps and sanctions proposed or recommended by the Commission will be adopted unless a qualified majority of the euro area Member States is 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. This, obviously, entails further transfer of powers from member states to the European Commission. The ‘six-pack’ already provides for a ‘reverse qualified majority voting’ in the Council although there is no legal basis on the Treaty. 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 Treaty would have to be amended to provide for automatic sanction to be imposed by EU institutions against member states that break the rules on excessive deficits, and all 27-member states have to agree to it. In fact, Rehn said “If you want to introduce and implement automatic sanctions, to which there is a reference in the new fiscal compact, it may be that you may require a treaty change for that,” According to Barroso “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.” He noted that this commitment “will add to the Six-Pack automaticity”.

Under the draft agreement, the eurozone contracting parties would “undertake to support proposals or recommendations put forward by the European Commission where a Member State whose currency is the euro is recognised by the European Commission to be in breach of the 3 % ceiling in the framework of an excessive deficit procedure, unless a qualified majority of them is of another view.” The word used, “undertake”, is extremely vague, one could say that the contracting parties are not legally biding by it but politically commit to it. It seems the eurozone member states will be placed in the excessive deficit procedure unless a qualified majority of other member states decides otherwise. The draft agreement also provides that “A qualified majority shall be defined by analogy with Article 238(3)(a) TFEU and with Article 3 of Protocol N° 36 to the EU Treaties on transitional provisions and without taking into account the position of the Contracting Party concerned.” One could say this 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.

The main issue has been whether the eurozone club is allowed to use the EU institutions under the international agreement. 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 agreement.

The EU institutions are governed by the EU Treaties, and the new inter-governmental agreement falls outside that framework. The fiscal compact cannot be enforced by the Commission or the ECJ as it’s not within their mandate. Such intergovernmental agreement cannot be subject to EU legislative procedures or to the EU institutions legislative control. 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.

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. It has set a legal precedent that the EU institutions can be used by a group of member states, but there must be a unanimous decision of all member states in this regard. 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. Under article 211 TFEU “In order to ensure the proper functioning and development of the common market, the Commission shall: ensure that the provisions of this Treaty and the measures taken by the institutions pursuant thereto are applied, exercise the powers conferred on it by the Council for the implementation of the rules laid down by the latter.” The ECJ has held that Article 211 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, it is important to mention that this case refers to “collective action” of member states in deciding to co-operate in the Council, but not as the Council, and assign co-ordination to the Commission, but staying entirely outside the EU Treaties.

Under the draft agreement (Article 8) “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.” They said that the obligation to transpose this into national law would be subject to the jurisdiction of the ECJ, in accordance with Article 273 TFEU. It seems the Court would have competence to verify whether the contracting parties have put in place provisions complying with Article 3(1), whether they are biding and of a constitutional nature and if there is a ‘correction mechanism”. The European Court of Justice, without amending the treaties, cannot strike down national laws that conflict with such rule.

Under the original draft agreement contracting parties, but not the Commission, can take each other to the ECJ if they believe that they have not transposed the balanced budget rule into national law. However, according to the Euobserver the latest version of the draft provides that “the European Commission may, on behalf of contracting parties, bring an action for an alleged infringement…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”. 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.

The draft text 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. This 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 agreement, 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 draft text also provides 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.”

Article 8 is, therefore, not compatible with the EU Treaties. According to the Council’s Legal Service the Court of Justice is able to play a role in the transposition of the ‘golden rule’ for a balanced budget into contracting parties’ national law, under Article 273 TFEU. The EU officials are making an extensive interpretation of this provision. 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. Article 273 TFEU reads “The Court of Justice shall have jurisdiction in any dispute between Member States which relates to the subject matter of the Treaties if the dispute is submitted to it under a special agreement between the parties.” Consequently, the signatory member states would be able to challenge each other with regard to the implementation of the balanced budget rule having this written into the intergovernmental agreement between them. 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. Moreover, it reads “Disputes concerning the interpretation and application of this Treaty arising between the Contracting Parties or between the Contracting Parties and the ESM should be submitted to the jurisdiction of the Court of Justice of the European Union, in accordance with Article 273 of the Treaty on the Functioning of the European Union ("TFEU").” It refers to disputes concerning the interpretation or application of the Treaties. But, it seems that the Court cannot impose fines if member states do not comply with it. 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.” Moreover, “Any dispute arising from or in the context of this Agreement shall be settled amicably. In the absence of such amicable agreement, the euro-area Member States agree that to the extent it constitutes a dispute between them only, it shall be submitted to the exclusive jurisdiction of the Court of Justice of the European Union.” 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 the international agreement on a reinforced Economic Union would be the same as applied to the European Stability Mechanism (ESM) treaty. It is important to note that in both cases there was a unanimous 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.

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. It is also important to note even if those member states are allowed to use the EU institutions they cannot act against the treaties. For instance, 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 who 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.

Under Article 273 the ECJ has jurisdiction for settle disputes between member states, but the European Commission cannot take a member state to court, under the intergovernmental agreement. Hence, states failing to comply with the terms of the intergovernmental agreement cannot be taken by the Commission to the European Court of Justice. Under Article 258 TFEU “the Commission may bring a member state before the Court of Justice if it considers that a Member State has failed to fulfil an obligation under the Treaties” and under Article 259 “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.” Moreover, 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 Court cannot fine countries that break budget stability rules. The ECJ might be able to monitor but it cannot enforce the intergovernmental agreement. Under the terms of the EU's treaties, the European Commission will be unable to take member states to the European Court of Justice if they violate the rules of an inter-governmental treaty.

The European Commission and European Court of Justice cannot enforce the international agreement provisions. The drafters of the international agreement are not particularly concerned with its legality the main aim is to save the euro, therefore, as it is well know illegal actions are allowed in order to reach this aim.

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 all necessary actions, including through the Euro Plus Pact.” This reference to further economic convergence is also vague. One could wonder if this includes tax harmonisation, although there is no specific reference to it in order to address Hungary and Czech Republic concerns.

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” According to the European Council conclusions, the Heads of State or Government of the Member States taking part in the Euro Plus Pact welcome "structured discussions on the co-ordination of tax policy issues" and that "particular attention should be paid to how tax policy can support economic policy co-ordination and contribute to fiscal consolidation and growth." 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.” He stressed that “Without safeguards, a treaty within a treaty would have been far more dangerous than a treaty outside the EU.”

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 agreement explicitly states that “While fully respecting the procedural requirements of the Union Treaties, the Contracting Parties undertake to make recourse, whenever appropriate and necessary, to the enhanced cooperation on matters that are essential for the smooth functioning of the euro area, without undermining the internal market.” This is clearly a false attempt to address the British concerns.

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.

The contracting parties will also commit to discuss and coordinate among themselves all major economic policy reforms that they plan to undertake, and 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. The 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. The UK would see herself in the position of having no choice but to accept legislation without having the chance of negotiate it. 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.

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 agreement will apply to the eurozone member states as well as other contracting Parties, under specific conditions. The contracting parties, according to their constitutional requirements, through parliaments or possibly some referendums, will ratify the agreement. Whereas under the EU amending treaty process a treaty must be ratified by all member states to enter into force, this will not be required for an intergovernmental agreement. Under the original draft, the agreement would enter into force following the deposit of the ninth instrument of ratification by a eurozone contracting party. Consequently, it will still enter into force even if some countries national parliaments reject it or it is not approved in referenda. According to the EuObserver, the original draft has been changed increasing the threshold of countries necessary to ratify the agreement from nine to fifteen. In fact, Germany wants to raise this threshold in order to have as many eurozone member states as possible on board.

The agreement will apply as from the day of coming into force amongst the eurozone contracting parties, which have ratified it. It will only be biding on the eurozone contracting parties that 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 agreement 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. In the other hand, the eurozone member states might not be willing to accept a new member state that had not ratify this agreement. Although all Member States are required to vote by QMV on enlargement of the eurozone, the eurozone member States have a blocking minority.

Without unanimous agreement, the EU institutions cannot be involved in the intergovernmental agreement hence there is no legal mechanism to enforce it. David Cameron noted that the EU institutions are there to serve equally the interests of all member states. Cameron is obviously worried that if the other member states go ahead and are allowed to use the EU institutions they will be able to push through policies which are against Britain's interests, and being the UK outside the eurozone club there is no way of preventing such measures. It is important to recall that David Cameron veto 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. It would be a greater danger to allow a treaty of 17 to go ahead within the EU, with all the additional powers, bureaucracy and everything else that involves, unless, of course, you can get the safeguards I was seeking.” When Cameron took the decision to veto the treaty amendment this had as a consequence that there would be no longer a EU treaty and no use of the EU institutions. The use of the EU institutions by the euro club is the outcome of stretching the EU treaties. David Cameron has to put his foot down, as EU institutions cannot be used to enforce the international agreement, outside the EU legal framework, without the agreement of all member states. He 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, David Cameron seems to have backed down from blocking the eurozone member states from using the EU institutions to implement and enforce the draft agreement on reinforced economic union. On 6 January, David Cameron said to the BBC’s Today programme that “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 remains to be seen what will come out from the negotiations of the international agreement on a reinforced economic union. Nevertheless, Cameron by vetoed the treaty amendment has created a situation where there is no going back. The status quo is no longer sustainable. The Prime Minister has been calling for fundamental reform in the European Union. However, as Bill Cash said “What we have to have is a fundamental change in the relationship between the United Kingdom and the European Union, because it is a failed project.”