2 Treaty change
| (32366)
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 base | Article 48(6); consultation; unanimity
|
| Document originated | 20 December 2010
|
| Deposited in Parliament | 22 December 2010
|
| Department | Foreign and Commonwealth Office
|
| Basis of consideration | Minister's letter of 22 December 2010 and EM of 10 January 2011
|
| Previous Committee Report | None
|
| To be discussed in European Council |
24-25 March 2011 |
| Committee's assessment | Politically important
|
| Committee's decision | For debate on the Floor of the House, but see paragraph 2.11
|
Background
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.
Conclusion
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 http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/117496.pdf,
paragraph 2. Back
5
See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/118578.pdf,
paragraphs 1-2. Back
6
See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/118578.pdf,
Annex I. Back
7
HC Deb, 20 December 2010,
cols 1187-1200. Back
|
