Treaty on Stability, Coordination and Governance: impact on the eurozone and the rule of law - European Scrutiny Committee Contents

5  Conclusions

63.   It is clear to us that the SCG Treaty does little towards solving the eurozone crisis, other perhaps than providing some comfort to international markets. Moreover it is possible that the Treaty will prove to be politically impossible to enforce. As undesirable as it may be, some form of breakdown of the eurozone clearly remains possible.

64.  It seems to us that on balance the UK is better off with this SCG Treaty than with amendments to the TFEU of similar content. This is because insofar as actions under the SCG Treaty might disadvantage the UK, for instance in relation to the single market, they could be challenged in the Court of Justice as incompatible with the TFEU. Whereas if those actions derived from an amended TFEU they might be less easy to challenge. Fears about threats to the UK from agreement on the SCG Treaty, particularly to the UK's negotiating weight, appear unsubstantiated. The Financial Secretary to the Treasury demonstrated, with his references to the Prime Minister's joint letter before the March 2012 European Council and to current negotiations on budgetary matters and financial services regulation, that the Government has had some success on matters of importance to the UK.[116]

65.  Whether or not the amendment to Article 136 TFEU is a necessary or a desirable precursor to the ESM may be open to debate. But it does raise the question as to why if it is not necessary the European Council clearly suggested it is. More importantly for Parliament why, until very recently, did the Government also suggest that the amendment is necessary?

66.  The Foreign and Commonwealth Office was less than cooperative in helping us to scrutinise the draft SCG Treaty on behalf of the House. Our letter of 12 January,[117] and the Minister's reply of 24 January,[118] are the clearest evidence of this. The Minister for Europe defended his Department's approach by relying on the confidentiality of negotiations and the inappropriateness of providing running commentaries. This was not what we asked: as the relevant Select Committee of the House, we wanted to know what safeguards the Government had sought at the December 2011 European Council, and what its views, whether formal or informal, were on the proposed use of the institutions in the draft SCG Treaty, revisions of which were put in the public domain. On the former we were rebuffed, on the latter ignored. By 10 January it was, however, clear that the Government did have concerns about the use of EU institutions,[119] although it chose not to apprise us, and thereby the House, of them. We strongly deprecate the Government's failure to respect the principle of accountability.

67.  We agree, for the reasons enumerated by Professor Craig, that the approach taken to proceed with the fiscal compact by way of an intergovernmental agreement when a revision of the EU Treaties had been blocked raises a fundamental question about the application of the rule of law within the EU. We conclude that the SCG Treaty would have been an EU treaty but for the veto and that the veto therefore was a real veto. However, we also conclude that the EU institutions and the governments of the 25 Member States who have signed the Treaty, subject of course to its successful ratification, have embarked on a dangerous precedent in seeking to attain their political objectives irrespective of the rule of law in the EU.

68.  The approach taken is also likely to render the foundation for the use of the EU institutions in the resulting SCG Treaty legally unsound. We consider that all Member States should have to agree to the new powers given to the Commission in Articles 3(2) and 8; that, unless Article 126(10) TFEU is amended, the de facto infringement powers of the Commission in Article 8(1) will in any event conflict with that provision of the TFEU; that the mechanism in Article 8(1) is a contrivance to avoid a conflict with the Court of Justice's jurisdiction in Article 273 TFEU; and that, as such, the Court should refuse jurisdiction to hear an application brought by a contracting State pursuant to a negative report of the Commission under Article 8(1) of the SCG Treaty.

69.  We have looked carefully at the counter-argument of Professor Dougan. Without further authority, we are not convinced by the argument that Member States should be given a wide margin of discretion to use the institutions as they choose where voluntary jurisdiction is given to the Court of Justice. We also find the distinction between all Member States giving their consent to the use of the institutions (the Bangladesh and Lomé Convention cases) and only 25 giving their consent significant, and not answered by Professor Dougan's analogy with enhanced cooperation, or with the residual monitoring functions of the Commission under the EU Treaties. We note his emphasis on the key criterion for conferral of power by non-EU agreements to EU institutions being consistent with the EU Treaties. As we conclude that the Commission's powers in Article 8(1) were de facto in violation of Article 126(10) TFEU, we think this criterion is not met.

70.  We note that that the Legal Service of the Council published its advice on the compatibility of the Article 8 of the SCG Treaty with EU law. This was contrary to normal practice on the disclosure of its legal opinions and no doubt intended to dispel doubt among Member States. We asked Professor Craig to comment on the advice. He described it as a "best shot", which he did not mean pejoratively.[120] Martin Howe had more forthright views, describing the advice as "tortured", in other words:

[…] to achieve the end result that political imperatives imposed. I did think that it was particularly remarkable, in that final paragraph, as to why the intention that was expressed by these particular states to incorporate the material into the EU treaties was at all relevant to the question of whether or not it complies with article 273 in the first place.[121]

We agree with these views. We were also perturbed to read in the final paragraph of the expectation, rather than the possibility, that the SCG Treaty will be incorporated into the EU Treaties:

It is again to be noted that that the substance of the draft Treaty is intended to be incorporated into the law of the Union following steps to be taken "within five years at most of the entry into force". When this happens [...]"[122]

For this to happen the UK would have to give its consent, but this has been assumed by the Council Legal Service. We consider that that this legal advice has been manipulated to achieve the political result that the European establishment desires, particularly at the expense of the breach of EU law which they hold up as inviolate.

71.  Given the views we express above, we understand why Sir John Cunliffe was asked to take the unusual step of writing to the Secretary-General of the Council on 22 February reserving the Government's position on the use of the institutions in Article 3(2) and 8. However, the Government's evidence on the consequence of the letter was inherently contradictory, and inconsistent with the letter itself. The tenor of it was that the Government does not want to stand in the way of 25 States reinforcing the eurozone, but the use of the institutions outside the EU Treaties without the consent of 27 Member States is unlawful. This to us suggested a conclusion that the SCG Treaty as agreed on 31 January must be unlawful in the Government's view. The Minister accepted that the Government's concerns were related to both how the Treaty was drafted and might be applied, but to suggest it was unlawful was "taking it a step further".[123] When pressed on whether it thought the role of the Commission in Article 8 gave it de facto infringement powers, the Government disagreed, or demurred, telling us the use of "will" as opposed to "shall" meant there was not a mandatory obligation on the contracting States to bring proceedings in the event of a negative report from the Commission. We could see no contextual basis for this surprising opinion, nor could Professors Craig, Dougan and Peers.[124] The Government's reticence does, however, raise serious questions as to whether the letter of 22 February is a serious expression of intent.

72.  The Government has made clear that it has reservations about the legality of what has been done, but the question of what it intends to do remains unsatisfactorily unresolved. Politically and legally, it is profoundly unwise to suggest taking action, and then not to explain how it intends to carry it through, or what concessions are now being sought and achieved.

73.  We agree with Professors Dougan and Peers that the reference to Council voting procedures in Article 7 is not binding on contracting States, and with all the experts that the reference to enhanced cooperation in Article 10 cannot change the way it is applied under the EU Treaties. We do think, however, that referring to EU procedures in a non-EU treaty runs the risk of them no longer being considered exclusive to the EU—Professor Dougan's reference to enhanced cooperation as support for the use of the institutions in the (non-EU) SCG Treaty with the agreement of 25 Member States being a case in point.[125] It also runs the risk that EU procedures will be used more often than intended, a particular concern of Professor Hix in relation to enhanced cooperation.

74.  Finally, although questions have been raised as to what the UK achieved by the use of its veto, we conclude that the veto was justified because of the very real concerns about a breach of EU law, even if this was not the reason given exclusively for the use of the veto in the first place. We note that there is an increasing tendency for the EU to propound the virtues of the rule of law but not to apply it in practice. For example, the Stability and Growth Pact was violated without further action being taken. Furthermore, we reported in January 2011 that the EFSM could not be justified under Article 122 TFEU.[126] In our view, the approach to this SCG Treaty provides further and ever more disturbing evidence of the European Union dangerously ignoring its own precepts for political ends. We therefore recommend that the Government clearly states as soon as possible what action it now intends to take on the SCG Treaty.

116   Q 252 Back

117   Ev 71 Back

118   Ev 73 Back

119   See the final para of Sir John Cunliffe's letter of 22 February (Ev 74). Back

120   Q 28 Back

121   Q 106 Back

122   Final para of the Opinion of the Legal Service of the Council of 26 January 2012: Article 8 of the draft Treaty on Stability, Coordination and Governance in the Economic and Monetary Union - Opinion on its compatibility with European Union law. Back

123   Q 179 Back

124   Ev 83, 84 and 85 Back

125   Q 78. Back

126   See HC 428-xii (2010-11), chapter 2, para 12 (12 January 2011) Back

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Prepared 3 April 2012