Documents considered by the Committee on 26 January 2011 - European Scrutiny Committee Contents


1   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 baseArticle 48(6); consultation; unanimity
DepartmentForeign and Commonwealth Office
Basis of considerationMinister's letter of 18 January 2011
Previous Committee ReportHC 428-xii (2010-11), chapter 2 (12 January 2011)
To be discussed in European Council 24-25 March 2011
Committee's assessmentPolitically important
Committee's decisionFor debate on the Floor of the House (decision reported on 12 January 2011)

Background

1.1  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 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. 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. The EFSF is to expire in June 2013.[1]

1.2  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.[2] At the 16-17 December 2010 European Council Member States agreed to amend, in accordance with the simplified revision procedure under Article 48(6) TEU, Article 136 TFEU in order to allow eurozone Member States to establish the proposed permanent crisis mechanism — a European Stability Mechanism (ESM).[3] 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.[4] 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."

1.3  When we considered the draft Decision earlier this month we recommended in for debate on the Floor of the House and said we presumed that debate would be held on the basis of a motion under Section 6 of the European Union (Amendment) Act 2008. And we added two further comments. We said, first, that 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. Secondly, we noted that the Government had asserted, at paragraph 20 of its Explanatory Memorandum on the draft Decision, 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" and we said that it was wrong to say this.[5]

The Minister's letter

1.4  In his letter the Minister for Europe, Foreign and Commonwealth Office (Mr David Lidington) first comments that the Government welcomes the opportunity to debate the draft Decision on the Floor of the House. Turning to our comment about use of Article 122(2) TFEU as the basis for establishing the EFSM the Minister:

  • notes that the EFSM was created following agreement by a qualified majority of Member States;
  • reminds us that the terms of the EFSM are set out in Council Regulation No. 407/2010; and
  • says that it is compatible with the TFEU.

He then quotes Article 122(2) TFEU — "Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, acting by a qualified majority on a proposal from the Commission, may grant, under certain conditions, Community financial assistance to the Member State concerned." — and comments further that the Council decided, in the circumstances, that these criteria applied. The Minister adds that it is worth noting again that both the Council Conclusions and the recitals to the draft Decision confirm that, once the ESM mechanism is established to safeguard the financial stability of the eurozone as a whole, Article 122(2) TFEU will no longer be needed for such purposes.

1.5  The Minister then addresses our concerns about paragraph 20 of the Explanatory Memorandum, which stated 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". We said this was incorrect because the EU Bill allows for the referendum requirement to be waived "if a transfer of competence is exempt, and if a transfer of power is either exempt or insignificant". The Minister responds:

"I disagree that this is incorrect or misleading, particularly when read in conjunction with paragraph 21 which goes on to explain that the proposed Treaty change set out in the draft decision does not involve any transfer of competence from the UK to the EU. As the Prime Minister has made clear, if the draft decision is agreed by all Member States then its ratification by the UK will be subject to the terms of the EU Bill, which is still subject to debate. I agree fully that under the provisions of the EU Bill there are a number of scenarios where a future Treaty change would not require a referendum to be held; an example of this is the Treaty change under consideration. However, the EU Bill provides that any Treaty change that would transfer any competence or power from the UK to the EU would indeed require a referendum to be held; and any Treaty change under the Ordinary Revision Procedure that would constitute a transfer of power as provided for in the Bill would also require a referendum. A Treaty change to codify past practice in accordance with existing EU competence, to permit exclusively the accession of a new Member State, or which would apply to Member States other than the United Kingdom, would not constitute a transfer of power or competence from the UK to the EU.

"The 'significance condition' in clause 3 would permit a Minister to lay a statement to Parliament making clear that he thought a proposal to use the Simplified Revision Procedure to confer on an EU institution or body the power to impose a requirement, obligation or sanction on the UK would be insignificant. However, any Treaty change which also fulfilled any other of the criteria set out in clause 4 would automatically require a referendum. As I have also made clear to the House, this would be followed by the introduction of primary legislation, where Parliament would be able to consider the Minister's reasoning in detail in deciding whether to approve the Treaty change.

"Furthermore, I do not accept that any of the provisions covered by clauses 7-10 of the EU Bill would transfer power or competence from the UK to the EU. These are all decisions which would clearly be taken on the basis of areas of policy already within the EU's existing competence, and on the basis of decisions provided for under the existing EU Treaties, which have previously been approved by Parliament. We have, however, provided in the EU Bill to ensure that any of these decisions would require an additional level of Parliamentary control before the Government can agree to their use."

Conclusion

1.6  The Minister's comments on the use of Article 122 TFEU as the legal base for the European Financial Stabilisation Mechanism, at paragraph 1.4 above, do not appear to countenance any doubt about the lawfulness of the legal base; indeed, he says the EFSM is compatible with the TFEU. This seems to us surprising, for Article 122 TFEU is intended to give financial assistance to a Member State which "is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control". We do wonder if this was really intended to establish a bail-out mechanism for the eurozone, however temporary; and if it were, why there is a need to amend Article 136 TFEU by the simplified revision procedure to set up a permanent bail-out mechanism.

1.7  It seems we are not alone in this view. In the debate on the Prime Minister's statement on the December European Council, he said in answer to a question from the Chairman of this Committee:

"He may have a good point. Article 122 of the treaty refers to help in the case of natural disasters and other emergencies. There are some people who question whether it should have been used in this way to support eurozone countries.

"That argument was had and was conceded under the previous Government in two ways. First, they agreed the establishment of the mechanism. Secondly, if we go back to the Nice treaty, it was the then Europe Minister, the right hon. Member for Leicester East (Keith Vaz), who is in his place, who argued from the Dispatch Box that it was perfectly okay for article 122 to go to qualified majority voting, which is where we are today. So in two ways the previous Government made a bad mistake. As I say, we are clearing up the mess and we will certainly do that from 2013, but the mechanism remains in place till then."[6]

1.8  According to the Prime Minister, then, agreeing to the mechanism on the basis of Article 122 TFEU was a "bad mistake". We would have been more grateful to the Minister if his letter had reflected at least some of the genuine doubt there is about the lawfulness of the legal base of the European Financial Stabilisation Mechanism.

1.9  We note the Minister's detailed justification for why he was correct to say in the 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", and we thank him for responding in time for the debates on the EU Bill in Committee this week. Suffice to say that we draw a different conclusion from him on the effects of the Bill, as reported in the final chapter of our Report: The EU Bill: Restrictions on Treaties and Decisions relating to the EU.[7]




1   (31611) 9606/10: see HC 428-i (2010-11), chapter 7 (8 September 2010). Back

2   See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/117496.pdf, paragraph 2. Back

3   See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/118578.pdf, paragraphs 1-2. Back

4   See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/118578.pdf, Annex I. Back

5   See headnote. Back

6   HC Deb, 20 December 2010, col. 1193. Back

7   See HC 682 (2010-11), chapter 6. Back


 
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