Documents considered by the Committee on 12 January 2011 - European Scrutiny Committee Contents

2 Treaty change


EUCO 33/10

Draft European Council Decision amending Article 136 of the treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro

Legal baseArticle 48(6); consultation; unanimity
Document originated20 December 2010
Deposited in Parliament22 December 2010
DepartmentForeign and Commonwealth Office
Basis of considerationMinister's letter of 22 December 2010 and EM of 10 January 2011
Previous Committee ReportNone
To be discussed in European Council 24-25 March 2011
Committee's assessmentPolitically important
Committee's decisionFor debate on the Floor of the House, but see paragraph 2.11


2.1 In May 2010 the Council adopted a Regulation, under Article 122(2) TFEU, to establish a European Financial Stabilisation Mechanism (EFSM), for giving financial assistance to a Member State in the form of loans or credit lines raised from capital markets or financial institutions guaranteed by the EU Budget. The guarantee would be up to a level of €60 billion (£50.26 billion). Financial assistance would be granted by the ECOFIN Council to a Member State on the basis of a programme of support drawn up by the Commission and the IMF. The need for the EFSM is to be reviewed every six months and is to be discontinued once the exceptional circumstances cited as justification for it no longer exist.

2.2 At the same time, and additionally, a voluntary intergovernmental Special Purpose Vehicle, the European Financial Stabilisation Facility (EFSF), was established by and for eurozone Member States. The EFSF can issue bonds or other debt instruments on the market to raise funds needed to provide loans to eurozone Member States. Bond issues would be backed by guarantees, up to a total of €440 billion (£368.59 billion) given by eurozone Member States in proportion to their share in the paid-up capital of the European Central Bank. Loans would be granted by the Eurogroup (eurozone finance ministers) on the basis of the programme of support drawn up by the Commission and the IMF. The EFSF is to expire in June 2013.[3]

2.3 The European Council of 28-29 October 2010 agreed on the need for Member States to establish a permanent crisis mechanism to safeguard the financial stability of the euro area as a whole.[4]

2.4 Article 48(6) TEU provides for the European Council to amend Part Three TFEU, concerning EU internal policies and activities, under the "simplified revision procedure". Such an amendment cannot increase the competences conferred on the EU. The amendment, once adopted by the European Council, cannot come into force until approved by all the Member States "in accordance with their respective constitutional requirements."

2.5 At the 16-17 December 2010 European Council Member States agreed to amend, in accordance with the simplified revision procedures, Article 136 TFEU in order to allow eurozone Member States to establish the proposed permanent crisis mechanism — a European Stability Mechanism (ESM).[5] The ESM would obviate the need for both the EFSM and the EFSF after June 2013. The European Council Conclusions proposed language for this Treaty amendment.[6]

The document

2.6 This draft Decision is that agreed by the European Council. Article 1 would add a new paragraph to Article 136 TFEU:

"3. The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality."

The only other Article concerns notification by Member States of completion of their respective constitutional requirements for endorsement of the Treaty change and its entry into force on 1 January 2013, or from the first of the month following receipt of the last notification, if after that date. Recitals include references to the Treaty amendment not increasing the competences conferred on the EU and to the emergency mechanism provided for by Article 122(2) TFEU no longer being needed or used to safeguard the financial stability of the euro area as a whole.

The Government's view

2.7 In his letter the Minister for Europe, Foreign and Commonwealth Office (Mr David Lidington) alerts us to the European Council agreement to amend the TFEU in order to allow establishment of the ESM and undertakes to let us have the official text of the draft Decision to make this change, once available, and an Explanatory Memorandum. Meanwhile he explains how the Government intends to seek Parliament's agreement to the UK adopting the Draft Decision at the March 2011 European Council and outlines the Government's case for supporting the proposal. He says that:

  • as the Prime Minister outlined in his statement to the House on 20 December 2010,[7] the Government wants to see financial stability return to the eurozone, since it is clearly in the UK's national interest that it is stable and prosperous;
  • the Government is prepared, therefore, subject to approval by Parliament, to amend the TFEU to make it clear that eurozone Member States can establish a permanent ESM;
  • however, the Government is clear that if the Treaty is to be amended, it must be explicit that this will not have any impact on the UK;
  • it has ensured, therefore, that, in line with the promise made by the Coalition Government, there is no transfer of competence or power from the UK to the EU and the UK is not liable for assisting the eurozone, once the new mechanism to be established by the eurozone Member States is in place;
  • it is clear in the European Council Conclusions and the annexed draft Decision that this will be a "stability mechanism for Member States whose currency is the euro" and clearly a mechanism established by eurozone Member States for eurozone Member States — the UK will not be part of the new mechanism;
  • it is agreed that the ESM will replace the EFSF and the EFSM;
  • both the Conclusions and the recitals to the Draft Decision are clear that Article 122(2) TFEU will no longer be used for safeguarding the financial stability of the euro area as a whole;
  • it is therefore in the UK's national interest that the ESM is in place by the target date of 1 January 2013;
  • Section 6 of the European Union (Amendment) Act 2008 requires that when a decision under Article 48(6) TEU is proposed a Minister must introduce a motion and have it passed by both Houses of Parliament without amendment before the Prime Minister can signal his agreement to the adoption of the draft Decision at a subsequent European Council;
  • the Conclusions set a target date for adoption of the decision as March 2011, that is the European Council on 24-25 March 2011; and
  • the Presidency will consult the European Parliament, European Commission and the European Central Bank on the draft Decision, as required by Article 48(6) TFEU — this correspondence will be deposited for scrutiny.

2.8 The Minister says also the Government reaffirms its commitment that, if the European Council subsequently agrees to this Treaty amendment using the simplified revision procedure, it will, in line with the provisions of the European Union Bill, bring forward a Bill to allow full Parliamentary debate and decision before the UK can finally approve that Treaty change.

2.9 In his Explanatory Memorandum the Minister largely reiterates the facts of the background to the draft Decision and of the Government's intentions as to Parliamentary approval of the draft Decision and the Treaty change itself. But he also comments that:

  • the Government's primary policy objective is to help ensure a stable and prosperous eurozone;
  • it Government believes that financial problems within the eurozone should be primarily resolved by eurozone Member States;
  • it is, however, in the interests of all Member States to support a stable and fully functioning eurozone;
  • the ESM will provide eurozone countries with increased certainty and stability;
  • the Government therefore supports the proposal to amend the TFEU to make clear that the eurozone Member States can establish a permanent ESM;
  • the UK will directly benefit from increased stability of the eurozone brought about by the ESM, without being part of the new mechanism or having any obligations under it;
  • the European Council Conclusions, draft Decision and recitals meet the following Government policy objectives — the existing EFSF and EFSM will be replaced by the ESM, Article 122(2) TFEU will no longer be used to safeguard the financial stability of the eurozone as a whole and establishment of the ESM does not result in any transfer of competence to the EU from the UK, nor any transfer of power as the ESM only applies to eurozone Member States;
  • the Council Conclusions state (as referred to in the recitals of the draft Decision) that "Member States whose currency is not the euro will, if they so wish, be involved in this work. They may decide to participate in operations conducted by the mechanism on an ad hoc basis";
  • this means that that non-eurozone Member States may, if they so wish, work with eurozone countries on the design of the ESM;
  • there are good, practical reasons for doing so, in order to ensure the ESM is as effective as possible, but this would be on an entirely voluntary basis; and
  • the Government will confirm to the President of the Eurogroup that the UK would like to participate in this work on the design of the ESM.

2.10 Turning to the financial implications of the proposal the Minister says that the ESM will have no financial liability for non-eurozone Member States or the EU budget and, therefore, there are no direct financial implications associated with agreeing the draft Decision. He adds that, once in place, the ESM will potentially save the UK money as:

  • there will be no financial obligations on non-eurozone Member States so no effect on UK contributions;
  • the EU budget, to which the UK contributes, will no longer be used to guarantee loans (as is the case with the existing EFSM); and
  • the ESM aims to boost the economies of eurozone Member States, which will indirectly help the UK economy.


2.11 This is the first instance of a proposal to use the simplified procedure under Article 48(6) TEU to amend Part Three of the TFEU and is thus the first such proposal to be subject to the scrutiny process. This is clearly a proposal that needs to be debated on the Floor of the House and we so recommend. However, we presume that debate would be held on the basis of a motion under Section 6 of the European Union (Amendment) Act 2008.

2.12 We add two further comments. First, it strained credibility to say that Article 122(2) TFEU was an appropriate legal base for the European Financial Stabilisation Mechanism (EFSM). Article 122(2) provides for a Member State being given financial assistance when it "is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control". This did not, patently in our view, give the EU power to set up the EFSM.

2.13 Secondly, the Minister says at paragraph 20 of his Explanatory Memorandum that: "under the terms of the recently introduced EU Bill any future proposed transfer of competence or power to the EU would be subject to public approval in a national referendum". The Minister is wrong to say this. Under Clauses 2 and 3 the EU Bill allows for the requirement of a referendum to be waived if a transfer of competence is exempt, and if a transfer of power is either exempt or insignificant. The exemption condition is very broadly drafted, and can include codification of past practice, accession Treaties, and, as in this instance, "any provision that applies only to Member States other than the United Kingdom". Under the many Treaty provisions listed in clauses 7-10, of the Bill, the possibility of a referendum is explicitly excluded. The EU Bill is currently in its committee stage: it is of the highest importance that, particularly at this time, the Government provides Parliament with accurate statements on the effect of this Bill. We ask the Minister to write to us to explain how such an inaccurate paragraph came to be drafted in an Explanatory Memorandum; and we expect to receive the letter before the commencement of the second day of the committee stage of the Bill.

3   (31611) 9606/10: see HC 428-i (2010-11), chapter 7 (8 September 2010). Back

4   See, paragraph 2. Back

5   See, paragraphs 1-2. Back

6   See, Annex I. Back

7   HC Deb, 20 December 2010, cols 1187-1200. Back

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