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 base | Article 48(6); consultation; unanimity
|
| Department | Foreign and Commonwealth Office
|
| Basis of consideration | Minister's letter of 18 January 2011
|
| Previous Committee Report | HC 428-xii (2010-11), chapter 2 (12 January 2011)
|
| 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 (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
| 
