European Scrutiny CommitteeWritten evidence from Professor Michael Dougan and Dr Michael Gordon, Liverpool Law School, University of Liverpool

1. The European Scrutiny Committee’s call for evidence focuses on how the resolution of the Eurozone crisis is developing and the possible consequences for the UK; with particular emphasis on how to reconcile the policies agreed on 9 December 2011 by the Eurozone Heads of State or Government with the legal and institutional constraints.

2. This submission considers two main sets of legal issues, raised by the proposed treaty designed to implement the abovementioned policies, which seem directly relevant to the Committee’s inquiry:

(a)the relationship between the proposed treaty and the legal order created by the EU Treaties (the TEU and TFEU), ie examining the legal and institutional constraints facing the new treaty from the perspective of EU law; and

(b)the relationship between the proposed treaty and the system of control over various decisions relating to the EU contained in the European Union Act 2011, ie examining the legal and institutional constraints facing the UK’s own engagement with the new treaty under domestic law.

3. For those purposes, it should be made clear at the outset of this submission that our observations are based on the following sets of documentation:

the Statement by the Euro Area Heads of State or Government of 9 December 2011 (hereinafter: the December deal);

the draft “International Agreement on a Reinforced Economic Union” circulated by the President of the European Council on 16 December 2011 (hereinafter: the First Draft);

the draft “International Treaty on a Reinforced Economic Union” released on 4 January 2011 (hereinafter: the Second Draft); and

the draft “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union” released on 10 January 2011 (hereinafter: the Third Draft).

4. At the time of writing, it is anticipated that the terms of the new treaty may well be finalised by the relevant Heads of State or Government at a European Council meeting scheduled for 30 January 2012. Given the Committee’s deadline for the submission of written evidence, we base our comments primarily on the text of the First Draft, with appropriate reference to significant amendments contained in the Second and/or Third Drafts, fully conscious that the text will continue to change (perhaps extensively so) over the course of the remaining negotiations.

A. Relationship Between the Proposed Treaty and the Legal Order Created by the EU Treaties

5. On the relationship between the proposed treaty and the EU legal order, two main sub-issues warrant discussion: first, how far the proposed treaty might interfere with the Union’s own institutions, competences or procedures in a way which could run counter to the obligations of the Contracting Parties under EU law; and secondly, how far the proposed treaty further contributes to the emergence of a “two speed Europe” centred around a Eurozone core, which not only is more highly integrated in terms of substantive policy commitments, but also tends to dominate the EU’s agenda-setting potential more generally.

1. How far the proposed treaty might interfere with the Union’s own institutions, competences or procedures

6. The preamble to the First Draft expresses the intention of the Contracting Parties to incorporate its provisions, as soon as possible, into the EU legal order. The Second Draft goes even further: it promises, within five years of the treaty’s entry into force, an initiative aimed at incorporating the agreement’s substance into the Union legal order.1 In the meantime, the draft treaty is envisaged as an agreement concluded under ordinary international law and formally separate from the EU Treaties.

7. Nevertheless, given the very close relationship between its subject matter and a core part of Union business, there is inevitably a significant degree of overlap between the terms of the draft treaty and the EU’s own competences—not only the primary provisions of the TEU and TFEU,2 but also secondary legislation such as the “Six Pack” on improving economic governance which was adopted in November 2011,3 as well as the “Euro Plus Pact” signed in March 2011.4 Given such a degree of overlap, there are legitimate concerns about the need to prevent unhelpful duplication: many of the measures on budgetary discipline and economic convergence envisaged by Titles III and IV of the First Draft (respectively) could, and therefore should, be achieved through the medium of the existing Treaties.5 Beyond that, there are also worries about the possibility of inconsistencies arising between the terms of the draft treaty and the current/future state of Union law itself: it would surely do more harm than good if certain commitments accepted by the Contracting Parties under the draft treaty were to contradict their binding obligations under the Treaties.6

8. No doubt in response to those worries, the First Draft was already at pains to stress its own subservience: Title II alone, for example, proclaimed that the agreement will be applied in conformity with EU law, shall only apply insofar as compatible with EU law, shall not encroach upon the EU’s own competences, and shall give way to the precedence of EU law.7 Again, the Second Draft goes one step further: many of its amendments seek to align (or even define) the commitments set out in the draft treaty with (or by reference to) those imposed under the Union law;8 and more generally, to reinforce the message that this new treaty complements and builds upon, rather than bypasses or challenges, the EU Treaties.9 The same is true to an even greater degree of the Third Draft: it continues the trend which has so far emerged during the negotiations, of tying the proposed treaty as closely as possible to the relevant substantive and procedural provisions of Union law.10

9. Although the risk of duplication or inconsistency with the EU Treaties may thus have been legally neutered, one can still anticipate the persistence of nagging doubts about the lawfulness of the draft treaty from the perspective of the Union legal order. We will consider two principal examples.

10. First, some commentators might question the propriety of Article 7 of the First Draft, whereby the Contracting Parties essentially agree to pre-structure the exercise of their voting rights in the Council, when dealing with Commission proposals or recommendations in respect of Eurozone countries subject to the excessive deficit procedure, on the grounds that that provision seeks effectively to reverse the voting requirements set out in the Treaties themselves.11 But perhaps one should not be too quick to condemn the Member States simply for agreeing to coordinate the casting of their votes in the Council on a given issue, when the building of policy alliances and determination of voting positions is part and parcel of the ordinary life of Union decision-making, and is nowhere prohibited by the Treaties. It is also worth observing that the phenomenon of “reverse qualified majority voting” is already provided for under Union secondary law itself; indeed, it is a centrepiece of the “Six Pack” plan to facilitate more efficient and effective economic governance by the Union institutions.12

11. Secondly, objections were raised, at the time of the December deal itself, to the prospect of using the Union institutions for the purposes of a non-Union agreement without the involvement, or at least the explicit consent, of all 27 Member States. Again, however, there is little in the actual text of the draft treaty to contradict the integrity of the Union’s institutional framework as provided for under Article 13 TEU. Indeed, save for a few exceptional cases which we will discuss in greater detail in paras 12–22 below, the text has been carefully designed so as to involve the Union institutions only in procedures and actions they would already participate in and undertake pursuant to the EU Treaties. Consider, in particular, the provisions concerning the submission by Contracting Parties subject to an excessive deficit procedure of economic partnership programmes,13 and the ex ante reporting by Contracting Parties of their national debt issuance plans,14 to the Commission and the Council. For those purposes, it is clear that the Union institutions are not being co-opted into a novel procedure or exercising new powers to be created by the draft treaty, but will continue to act within the existing parameters laid down for them in the relevant provisions of the TEU and TFEU.15 It is worth noting that the preamble to the draft treaty specifically records the Commission’s intention to bring forward proposals for future Union legislation on precisely those issues.16

12. Against that background, we will now consider three situations where the various drafts of the new treaty seek to involve the Union institutions in a manner which might be seen as potentially more problematic.

13. In the first place, consider the proposal under the First Draft to confer jurisdiction upon the Court of Justice of the European Union as regards compliance with the Contracting Parties’ obligation under Article 3(2) of the new treaty to enshrine the commitment to a balanced central government budget into national law at a constitutional or equivalent level.17 The preamble to the First Draft specifically states that that provision is based upon Article 273 TFEU, according to which the Court of Justice shall have jurisdiction “in any dispute between Member States which relates to the subject matter of the Treaties if the dispute is submitted to it under a special agreement between the parties”. The relevant provisions of the draft agreement do indeed relate to the subject matter of the Treaties, in the sense that they share a policy relationship with the system of economic coordination provided for under the TEU and TFEU (even if those provisions do not themselves have the character of Union law, and therefore cannot be considered to fall directly within the subject matter of the Treaties). That broad understanding of the scope of Article 273 TFEU follows the precedent already set by other international agreements where Member States have voluntarily accepted the Court’s jurisdiction.18

14. The involvement of the Court of Justice in enforcement of the new treaty was revisited under the Second Draft. The latter proposed to extend the Court’s jurisdiction so as to cover not only the Article 3(2) obligation to enshrine the balanced budget rule in constitutional or equivalent form, but indeed any failure by a Contracting Party to comply with the provisions contained in Title III on the “fiscal compact” more generally.19 How significant might such an extension prove to be? On the one hand, some of the commitments contained in Title III seem inherently ill-suited to judicial enforcement at all: for example, the undertaking to practise a form of “reverse qualified majority voting” in the Council as regards aspects of the excessive deficit procedure.20 On the other hand, it would be necessary to distinguish those obligations under Title III that are genuinely novel, in the sense that they are not already imposed under Union law;21 from those provisions under Title III which directly overlap with or are defined by reference to existing Union law.22 After all, insofar as the Court’s jurisdiction over a joint Title III-EU law issue already exists in the form of Article 259 TFEU enforcement proceedings, one would expect such jurisdiction to be exercised as such (rather than through the medium of the new intergovernmental treaty). By contrast, insofar as the exercise of the Court’s jurisdiction under Article 259 TFEU, in respect of a joint Title III-EU law issue, might be expressly excluded pursuant to the special provisions limiting judicial enforcement of the excessive deficit procedure contained in Article 126(10) TFEU,23 the idea of one Contracting Party nonetheless bringing proceedings against another, based upon the new treaty, would have to rely upon the argument that the relevant Member States’ voluntary conferral of jurisdiction upon the Court pursuant to Article 273 TFEU seeks positively to reinforce the enforcement mechanisms already provided for under Union law (rather than having the effect of contradicting an essential element in the scheme of the existing Treaties).

15. However, the issues thus raised by the Second Draft, about delimiting the precise extent of the Court’s jurisdiction over Title III as a whole, might well prove irrelevant to the final text of the new treaty. In particular, the Third Draft proposes once again to restrict the Court’s power of judicial review so as only to cover compliance with the obligation under Article 3(2) for Contracting Parties to enshrine the balanced budget rule into national law.24 As discussed above, Article 273 TFEU provides a sufficient legal basis for that arrangement as a matter of Union law.

16. In the second place, consider the proposal under the Second Draft whereby the Commission may, on behalf of Contracting Parties, bring an action for an alleged infringement of Title III on the “fiscal compact” before the Court of Justice of the European Union. At first glance, that amendment seems to go further than the terms allowed under Article 273 TFEU, which envisages only actions between Member States and might thus appear to exclude the possibility of standing, under voluntary jurisdictional agreements, for other institutional actors; it also seems to furnish a concrete example of the Commission being called upon to participate in proceedings above and beyond those which already exist under the EU Treaties.

17. However, greater nuance needs to be brought to bear upon that intuitive response. On the one hand, one should again separate out those provisions under Title III which directly overlap with or are defined by reference to existing Union law, and in respect of which the Commission’s competence to invoke the Court’s jurisdiction already exists in the form of Article 258 TFEU enforcement proceedings. In such situations, the proposal contained in the Second Draft actually adds nothing of significance. On the other hand, that leaves those obligations under Title III which either are genuinely novel as compared to existing Union law, or in respect of which the theoretical possibility of bringing Article 258 TFEU enforcement proceedings (based upon the corresponding substantive provisions of Union law per se) has been excluded in practice pursuant to Article 126(10) TFEU. In such situations, and those situations alone, the Second Draft would indeed involve certain Member States purporting to make use of a Union institution for non-Treaty purposes.25

18. Again, the revisions contained in the Third Draft would change the terms of this particular issue. Under the latest version of the new treaty, any Contracting Party which considers that another Contracting Party has failed to comply with the balanced budget rule under Article 3(2) may, instead of bringing its complaint to the Court of Justice directly, invite the Commission to issue a report on the matter. If the Commission’s report confirms the allegation of non-compliance, the Contracting Parties undertake to bring the matter before the Court for themselves. The Third Draft is therefore less far-reaching than the Second Draft to the extent that the Commission’s potential involvement in enforcement of the new treaty is both more limited in scope (ie only as regards Article 3(2), rather than Title III as a whole) and more indirect in nature (ie merely reporting its opinion on potential non-compliance, rather than enjoying any legal capacity to bring formal proceedings). But to that extent, the Third Draft still proposes that certain Member States may make use of a Union institution for non-Treaty purposes.

19. In the third place, consider the potential involvement of the Commission in devising the automatic correction mechanism which Contracting Parties should put in place as part of their national transposition of the balanced budget rule. Under the First and Second Drafts, Article 3(2) merely stated that the Contracting Parties should introduce the automatic correction mechanism on the basis of commonly agreed principles. Those drafts were thus rather vague: in particular, they failed to specify who should define the commonly agreed principles and within what timescale. Under the Third Draft, the text of Article 3(2) is considerably more precise: not only is it proposed that national implementation of the commitment to a balanced budget should be achieved within one year of the new treaty’s entry into force, but also that the principles underpinning the automatic correction mechanism should be agreed by the Contracting Parties “on a proposal from the… Commission”. Given that the commitment to a balanced budget is one of the few elements of the December deal which is genuinely novel as compared to the EU Treaties, it seems unlikely that the term “proposal” is being used in Article 3(2) of the Third Draft to mean an ordinary Commission proposal under Union law. Again, the Third Draft seems here to be proposing that certain Member States may make use of a Union institution for non-Treaty purposes.

20. Our analysis of the most recent version of the draft treaty therefore suggests that there are just two situations in which the Contracting Parties propose to make use of the Commission for purposes lying outside the strict scope of Union law: in assessing the need for possible judicial enforcement of national transposition of the balanced budget commitment; and in proposing the principles for the agreement of the Contracting Parties which will underpin national design of the automatic correction mechanism.

21. To that extent, the draft treaty raises the interesting legal question of whether, and under what conditions, certain Member States may indeed make use of the common institutions for extra-Union purposes. On the one hand, some might find it difficult to square the Commission’s extra-Union roles, as envisaged by the Third Draft, with the fundamental principle of conferred powers contained in Article 5(2) TEU. On the other hand, it should be recalled that the Court of Justice has explicitly recognised the right of Member States to associate the Union institutions with procedures established outside the framework of the Treaties.26 It is true that the precise conditions under which such an association will be judged compatible with Union law remain rather sketchy. In particular, the prospect of the UK formally objecting to any novel role for the Commission under the draft treaty has focused attention on the question of whether all the Member States must at least consent to the proposed association of a Union institution with procedures established outside the framework of the Treaties (even if it is not required that every country should wish directly to participate in the relevant agreement).

22. Unfortunately, the current state of Union law offers no clear answer to that question. It would necessarily fall to the Court of Justice to identify the applicable legal criteria, seeking guidance from whatever provisions of the EU Treaties might seem relevant—including the duty of sincere cooperation imposed upon and between the Member States and the Union institutions by Article 4(3) TEU. Moreover, as in most situations where the Court is expected to develop a legal test which is not at all obvious from the text or scheme of the Treaties themselves, the process of identifying the applicable criteria would surely be influenced by the context and character of the concrete dispute in which the problem was actually being raised. In that regard, one might observe that the extra-Union roles envisaged for the Commission under the Third Draft are relatively narrow in scope and indirect in nature: they amount to little more than the provision of certain forms of assistance to the Contracting Parties, when it comes to the elaboration and/or the implementation of limited aspects of the new treaty. In such circumstances, one might find it difficult to understand how either the UK’s own national interests, or the autonomy and independence of the Union’s institutional system, could be adversely affected, in any direct or specific sense, by the relevant provisions of the Third Draft. Insofar as the duty of sincere cooperation under Article 4(3) TEU suggests any clear direction for the future development of Union law on this particular issue, it seems to counsel against the UK being entitled to block proposals for the Contracting Parties to associate the Commission to only a modest degree with the operation of the new treaty.

2. How far the proposed treaty further contributes to the emergence of a “two speed Europe” centred around a Eurozone core

23. The immediate aftermath of the December meeting of the European Council saw widespread speculation about the consequences of the choice to pursue extra-EU treaty-making, in particular, for the emergence of a “two speed Europe”. Doubts also quickly surfaced about whether the adoption of an intergovernmental agreement would avoid any of the ratification problems usually associated with amendments to the Union treaties themselves: on the contrary, several countries soon began to agonise over the need (whether legal or political) to ratify any new treaty by means of a popular referendum.27 Both sets of concerns were complicated by the swift realisation that not just the details but also some very fundamental questions about the terms of the December deal had been fudged by the relevant Heads of State or Government – not least the question of whether the non-Eurozone countries (apart from the UK) had merely pledged to support the changes and legal route agreed upon by the Eurozone states; or whether some or all of those non-Eurozone countries would also actively participate in some or all of the commitments and rules contained in the new intergovernmental agreement.

24. As for the challenge of securing national approval for the new treaty, in the face of strong parliamentary and potentially even popular opposition to the “fiscal compact” within several Member States, the First Draft deftly sought to neutralise the threat of non-ratification by various Contracting Parties: it provided that the agreement would enter into force after successful ratification by just nine Eurozone countries; from that time, the provisions relating to Euro Summit meetings would apply to all Eurozone states,28 while the remainder of the provisions would apply to Eurozone states as and from when they complete their own domestic ratification process.29

25. That proposal nevertheless gave cause for concern that the price of driving forward with the “fiscal compact” might well be to dent the legal and political unity hitherto displayed by the Eurozone countries. It also ran the risk that a significant number of states, including several whose public finances were believed to pose the greatest dangers to the stability of the single currency, might fail to ratify the new treaty at all. Perhaps so as to reduce those dangers, the Second Draft suggested raising the threshold of successful ratifications required for the treaty to enter into force from nine up to 15 Eurozone countries—thus maximising the cohesion of the Eurozone, while still allowing for the risk that one or two countries might eventually reject the deal.30

26. However, the Third Draft envisages a different regime again: the agreement would enter into force on 1 January 2013 (or earlier, if possible) provided that 12 Eurozone countries have ratified it.31 Whether that change reflects the sense of urgency fuelling the negotiations, or worries that genuine obstacles to ratification might well arise in more than just one or two states, it anticipates and accommodates – once again under relatively generous terms—the possibility of divisions arising within the Eurozone itself.

27. As for the dangers facing the political cohesion of the EU as a whole, it should be recalled that flexible integration is far from a new phenomenon under EU law: EMU demonstrated that from its very outset, even besides other large scale manifestations of “variable geometry” in fields such as the AFSJ. Yet many observers sense that the Eurozone crisis has set us on the trajectory towards an altogether more significant division between “fast lane” versus “slow lane” Member States. True: it seems inevitable that new layers of substantive rules and decision-making structures, designed to bind the single currency states ever closer together, will to some degree create a relative distancing of the other Member States from the “reinforced economic union”.32 But just how far such distancing need or will go is far from obvious or self-fulfilling.

28. For example, much will depend upon the degree to which the relevant non-Eurozone countries merely express their political support for the terms of the December deal, which might also include putting their sovereign names to the draft treaty, or go further by actively participating in some or all of the new commitments for themselves.33 In that regard, the draft treaty provisions are marked by significant flexibility: it is envisaged that the new agreement would apply to the relevant non-Eurozone states which have successfully ratified it, only from the day when they join the single currency for themselves, unless they declare their intention to be bound at an earlier date by all or part of the provisions contained in Title III (on the “fiscal compact”) and Title IV (on closer economic policy coordination).34

29. Moreover, the Third Draft introduces a novel provision into the negotiations: Article 15 would allow for accession to the new treaty by a Member State other than the original Contracting Parties.35 That provision could cover the scenario in which one or more of the 26 Member States which subscribed to the December deal did not eventually feel able to become a Contracting Party to the final version of the new treaty. But Article 15 of the Third Draft also leaves open the possibility that the UK itself might decide, in the future, to reverse the position it adopted at the European Council meeting in December 2011 and seek formally to become a party to the new treaty.36 We will discuss the legal implications of such a possibility, in terms of UK law, at paras 41–45 below.

30. Another important factor relates to just how far the Eurozone countries eventually seek to extend their broader and deeper policy coordination – not just via the legal basis for closer Eurozone cooperation contained in Article 136 TFEU, but also through the enhanced cooperation regime contained elsewhere in the EU Treaties.37 If put seriously into practice, increased recourse to enhanced cooperation on matters essential to the smooth functioning of the single currency could imply the emergence of a bifurcated Union in all manner of fields related to economic policy—not only the regulation of specific sectors or markets, but also employment protection, consumer rights, taxation and social security. That would pose novel and interesting legal questions about how far enhanced cooperation may properly proceed before its scope and scale begin to threaten the integrity of the single market.38 But it also raises important political prospects: if the Eurozone were to break itself free from any sense of commitment to the pursuit of common Union policies in fields closely linked to the smooth functioning of the single currency, might it also begin to see the benefits of forging its own approach to more far-flung policy areas such as the environment, or discrimination, or public health? Whereas flexibility in fields such as EMU or the AFSJ was once seen as a temporary aberration or a minority fetish, the Eurozone crisis might yet provide the stimulus for flexibility to emerge as a much more entrenched and systematic phenomenon – with all the risks that implies for the legal coherence and political solidarity of the Union.

B. Relationship Between the Proposed Treaty and the System of Control over Various Decisions Relating to the EU Contained in the European Union Act 2011

31. As is well known, the UK Government does not intend to become a Contracting Party to the draft treaty, having exercised a much publicised “veto” over any direct changes to the EU Treaties during the negotiations in Brussels in December 2011. Consequently, the provisions of the future treaty, once it is finalised and enters into force, will have no application to the UK.

32. Nevertheless, it is worth exploring what impact the legal constraints contained in the recently enacted European Union Act 2011 (EUA) could have had on the position adopted by the Government during the Brussels negotiations. In particular, we will consider whether the Prime Minister’s decision to veto any potential amendment of the existing EU Treaties might be seen to have been affected or conditioned by the system of control over various decisions relating to the EU contained within the EUA.

33. We first assess the legal position: would the control mechanisms introduced in the EUA have been engaged had the UK Government indicated a willingness to ratify an amending treaty; and would those control mechanisms be triggered in the future, if the UK were eventually to agree to the incorporation of the provisions of the draft treaty into the EU Treaties? We secondly reflect on the political position: even if not formally engaged as a matter of law, is it possible to discern whether the controls introduced by the EUA have had an impact on the way in which the UK approaches negotiations which explore the viability of altering or augmenting the EU Treaties?

1. The Legal Relevance of the System of Controls Contained in the European Union Act 2011

34. The EUA introduced a range of legal mechanisms seeking to control the making of various decisions relating to the EU, including the requirement that certain categories of decision can only be made if affirmed by Act of Parliament,39 or if Parliamentary Approval has been received.40 Of direct relevance to the present discussion, however, are the EUA’s “referendum locks”, the most demanding form of control created by the Act.

35. The referendum locks contained in sections 2, 3 and 6 of the EUA are intended to ensure that, in the circumstances specified in the legislation, power or competence cannot be transferred from the UK to the EU by Act of Parliament unless approved of by a majority of the electorate voting in a referendum. Sections 2 and 3 of the EUA are of particular relevance for present purposes. By section 2, a treaty to amend or replace the existing EU Treaties must be approved at a referendum if it fulfils the criteria set out in section 4 of the EUA. Similarly, by section 3, a revision of the existing EU Treaties under the Article 48(6) TEU simplified revision procedure will attract a referendum if it falls within section 4. In principle, therefore, had the Prime Minister withheld his veto in Brussels, and had an agreement been reached to attempt to incorporate provisions of the sort now contained in the draft treaty into EU law via an amendment of the existing EU Treaties, whether through a new treaty or the simplified revision procedure, the EUA’s referendum locks might have been engaged.

36. Yet upon examination of the criteria set out in section 4, which determine whether a purported amendment of the existing EU Treaties would attract a referendum under the EUA, it becomes clear that provisions of the sort now contained in the draft treaty would not have required approval at a national plebiscite. To determine whether a provision falls within section 4 of the EUA, a two stage process is to be followed. First, it must be established whether a proposed provision satisfies any one of the criteria set out in section 4(1) of the EUA, which, in broad terms, is designed to catch an increase in the competence or power of the EU. Second, if a provision does satisfy the criteria set out in section 4(1), it must be considered whether that provision is nevertheless exempt from the requirement that a referendum be held in accordance with section 4(4). If the proposed amendment is to be carried out using the simplified revision procedure, by section 3(4) a further stage is added: if a provision falls within section 4 only because it is caught by subsection (1)(i) or (j), a referendum will not be required if the effect of that provision in relation to the UK is not significant.

37. Applying this process to the provisions contained in the Third Draft of the proposed treaty it is evident that the EUA’s referendum locks would not be engaged. Article 3 of the Third Draft, which imposes the balanced budget rule, comes closest to being caught by the criteria set out in section 4(1) of the EUA. In particular, it seems to be covered by section 4(1)(f)(i), which provides that “the extension of the competence of the EU in relation to the co-ordination of economic and employment policies” will attract a referendum. Nevertheless, when we look to section 4(4), it is apparent that Article 3 would be exempt from the requirement that a referendum be held in accordance with subsection (b). Article 3 would not engage the EUA’s referendum locks because it is a provision “that applies only to member States other than the United Kingdom”. As noted above, the provisions of the draft treaty will not apply automatically to non-Eurozone states like the UK, and as such, Article 3 would be exempt from the EUA’s referendum requirements.

38. Indeed, the exemption provided under section 4(4)(b) would also be applicable to all of the other substantive provisions contained in the draft treaty; each one would also, as with Article 3, be exempt from the requirement that a referendum be held because it “applies only to member States other than the United Kingdom”. Yet this is not the only reason that the other provisions of the draft treaty do not engage the EUA’s referendum locks, with one further potential exception. Article 8, at least as outlined in the Second Draft, might also have had to rely exclusively on the section 4(4)(b) exemption to avoid triggering a referendum, though even this would ultimately depend on how this draft of Article 8 is to be interpreted. If, as discussed in paras 13–15 above, Article 8 of the Second Draft were to be understood as extending the jurisdiction of the Court of Justice through a partial elimination of Article 126(10) TFEU, which otherwise operates to limit the judicial enforcement of the excessive deficit procedure, it is possible that this provision could satisfy the section 4(1) criteria. In particular, Article 8 of the Second Draft could potentially be caught by section 4(1)(i) if it were to be seen as a provision which removes a limitation on the power of an EU institution or body “to impose a requirement or obligation on the United Kingdom”. If such an understanding of Article 8 of the Second Draft were to be adopted, then the exemption under section 4(4)(b) would be necessary to negate the referendum requirement that would otherwise take effect. As with Article 3, if required, this exemption would be effective because, once again, Article 8 of the Second Draft would not be applicable to the UK.41 Nevertheless, Article 8 of the Third Draft avoids such problems, as the amended text of this provision limits the jurisdiction of the Court of Justice to matters related to Article 3(2) of the draft treaty alone. It thus cannot be contended that Article 8 of the Third Draft further extends the Court’s jurisdiction, with the consequence that section 4(1)(i) is not engaged.

39. Looking beyond Article 3, and the potential complications of the Second Draft of Article 8, while (in principle) all of the other substantive provisions contained in the Third Draft would also seem to be exempt under section 4(4)(b), they would also fail to attract a referendum under the EUA for a number of other reasons that can be briefly summarised:

Article 4 would also be exempt in accordance with section 4(4)(a) of the EUA as it involves (at most) “the codification of practice under TEU or TFEU in relation to the previous exercise of an existing competence”.

Articles 5, 6 and 11 appear to be outside the scope of section 4(1), in so far as they do not confer any new competences on the EU. In addition, as the Preamble to the Third Draft states that the Commission intends to bring forward proposals for legislation within the framework of the EU Treaties in the areas covered by these Articles, in the future these provisions may also be exempt as a “codification of practice under TEU or TFEU in relation to the previous exercise of an existing competence” in accordance with section 4(4)(a) of the EUA.

Article 9 appears to be outside the scope of section 4(1), as it does not confer any new competence on the EU.

Articles 7, 10, 12 and 13 seem to be outside the scope of the EUA entirely, as they are not provisions the ratification or approval of which the Act seeks to control.

40. The overall position is therefore that nothing in the Third Draft of the proposed treaty, had it been conceived as an instrument to amend the EU Treaties themselves, would have engaged the referendum locks contained in the EUA. As a result, the UK Government could have lawfully agreed to ratify a treaty containing these provisions by way of amendment to the existing EU Treaties without having to seek the approval of the electorate at a national referendum. On this basis, it seems difficult to imagine that concerns that a referendum might be legally required under the EUA made a significant contribution to the Prime Minister’s decision to veto a change to the existing EU Treaties at the negotiations in Brussels.

41. A further legal issue relevant to the relationship between the draft treaty and the EUA must be addressed. If the UK were in the future to change its position in relation to the provisions contained in the draft treaty, would the control mechanisms contained in the EUA then be triggered? A change of the UK’s present position could involve simply acceding to the new treaty while its provisions remained outside the architecture of the EU Treaties, in accordance with Article 15 of the Third Draft. A change of position might also entail the UK declaring its intention to be directly bound by all or some of the provisions contained within the new treaty, again while outside the architecture of the EU legal order; a declaration which would be necessary under Article 14 of the Third Draft for the treaty’s provisions to be applicable to the UK. Finally, the UK might also change its position by agreeing to the incorporation of the new treaty into the EU Treaties, thus making the provisions set out in the Third Draft a part of EU primary law, as is envisaged in Article 16 of the Third Draft. When the potential ways in which the UK could change its position in relation to the draft treaty are combined, two problematic scenarios can be discerned.

42. First, consider if the UK agreed to the incorporation of the new treaty into the existing EU Treaties, when it had either not acceded to the new treaty at all, or had acceded but not declared its intention to be bound by the new treaty’s provisions. In such circumstances, at the point of the incorporation of the new treaty’s provisions into the EU Treaties, the EUA’s referendum locks would not be engaged. For, as discussed above, if the provisions were applicable only to Member States other than the UK, the section 4(4)(b) exemption would operate to ensure that a referendum was not required. Yet this creates a potential gap in the EUA’s system of control. For if a UK government subsequently agreed to be bound by the provisions contained in Title III (Fiscal Compact) of the Third Draft—which would now be incorporated into the EU Treaties—new competence would have been conferred on the EU through the UK’s acceptance of the rules contained in what is at present Article 3.42 And this could occur without a referendum being held to approve the changes, for these provisions would already have become part of EU law, and thus—even in relation to provisions which would otherwise fall within section 4—the referendum locks contained in sections 2 and 3 of the EUA would not bite.

43. The potential gap described above arises because the EUA is not as such structured to catch future hypothetical increases in EU competence; if an increase in competence is not applicable to the UK at the time of the treaty change, the EUA’s referendum locks will not be engaged. Only in certain explicitly listed situations does the Act make provision for referendums to be held if a future UK government were to seek to opt-in to existing areas of competence within the EU Treaties: for example, by joining the euro43 or accepting the Schengen Protocol.44 To close this potential loophole, whereby EU competence could be increased without a referendum being held, section 6 of the EUA could be amended: for example, to require a decision for the UK to subscribe to the fiscal compact to be approved at a referendum. The continued existence of this gap in the coverage of the EUA could otherwise serve to undermine the overall coherence of the system of control put in place by the Act. Further, given the potential impact of the rules contained in the fiscal compact on the macro-economic autonomy of Member States, an acceptance to be bound by these provisions would appear to be a “trigger event” of at least equivalent significance to many others specifically covered by section 6 of the EUA. Consequently, the inconsistency created by the existence of this gap in the EUA’s scheme of referendum locks, when judged on its own terms, is difficult to justify.

44. The second problematic scenario created by a UK change of position in relation to the draft treaty is almost the inverse of the first. Consider now if the UK agreed to the incorporation of the new treaty into the existing EU Treaties, when it had already both acceded to the new treaty and declared its intention to be bound by the latter’s provisions. Upon declaring its intention to be bound by the new treaty, the UK would, in accordance with Article 3(2) of the Third Draft, be required to enact national provisions of “binding force and permanent character, preferably constitutional”, to give legal effect to the balanced budget rules set out in Article 3(1) of the Third Draft. In the UK, this would almost certainly need to be done by Act of Parliament. Yet even if the UK was in full compliance with its obligations under Article 3(2) of the Third Draft, and had put in place national legislation to give effect to the new treaty’s provisions in advance of their incorporation into the existing EU Treaties, at the point of incorporation a referendum could nevertheless be triggered under the EUA. For if, in accordance with section 4 of the EUA, new competence was in principle being transferred to the Union through a revision of the EU Treaties, a referendum would need to be held pursuant to section 2 or 3 of the EUA. And if a provision of the sort now contained in Article 3 of the Third Draft was incorporated into the existing EU Treaties, it would indeed fall within section 4 by virtue of subsection (1)(f)(i), and would not be exempt by section 4(4)(b), for the provision would be applicable to the UK.45 Nor does it appear that such a change would be exempt under section 4(4)(a), because it could not be said to be a “codification of practice… in relation to the previous exercise of an existing competence”, since the EU would not possess an “existing competence” in relation to these matters.

45. Here then, rather than there being a gap in the EUA’s system of control, the problem is one of overprovision. In such circumstances, the EUA would require a referendum to be held to approve the granting of new competence to the EU even though the UK would already have agreed to be bound by the rules to be incorporated into the EU Treaties, and further, would already have passed national legislation to make such rules legally enforceable. The peculiarity of having to hold a referendum in such a situation – essentially to approve something already in place – is clear. And the consequences of a “no” vote would be significant and complex: the legal and political status of the national legislation implementing the relevant rules would be open to question. As with the first problematic scenario considered above, it is likely that the EUA would need to be amended, possibly on a one-off basis, to avoid such a situation occurring.

2. The Political Relevance of the System of Controls Contained in the European Union Act 2011

46. We concluded above that the referendum locks contained in the EUA would not have been applicable, as a matter of law, to provisions of the sort now contained in the draft treaty. It is therefore difficult to see that apprehension about the prospect of being legally required to hold a national referendum in the UK on the changes set out in the December deal could have been a factor which inhibited the Prime Minister from agreeing to ratify an amendment of the existing EU Treaties to this effect. Indeed, it was widely reported in advance of the Brussels summit that the Government’s position was that a referendum would not be held unless power or competence was transferred from the UK to the EU, with the Prime Minister himself stating, “I’m not intending to pass any powers from London to Brussels so I don’t think the issue will arise.”46 The Prime Minister thus appeared to be aware of the legal inapplicability of the EUA’s referendum locks prior to the December negotiations, and yet nonetheless decided to wield the British veto.

47. The position seemingly adopted by the Prime Minister in advance of the negotiations – that a referendum would likely be unnecessary – was not, however, unchallenged, both within and without the Government. A number of senior Conservatives argued publicly that a referendum might in fact be required to ratify any revising treaty agreed at the Brussels summit. The Work and Pensions Secretary, Iain Duncan Smith, called for a referendum to be held on any “major treaty change”.47 The Northern Ireland Secretary, Owen Paterson, said that it was “inevitable” that a referendum would ultimately need to be held: “If there was a major fundamental change in our relationship, emerging from the creation of a new bloc, which would be effectively a new country from which we were excluded, then I think inevitably there would be huge pressure for a referendum.”48 Similarly, the mayor of London, Boris Johnson, argued that it was “absolutely clear to me that if there is a new treaty at 27 – if there is a new EU treaty that creates a kind of fiscal union within the eurozone – then we would have absolutely no choice either to veto it or to put it to a referendum”.49

48. Such calls for a referendum clearly go beyond the strict scope of the EUA, and reveal two things. First, the political rhetoric surrounding the referendum locks has the potential de facto to extend the reach of the EUA. Second, the political rhetoric surrounding the referendum locks also has the potential de facto to entrench the EUA. The reach and applicability of the EUA may be extended in practice if it is argued that any major or fundamental change, either to the text of the EU Treaties or the UK’s relationship with the EU, should be subject to approval at a referendum. This is a strikingly broad proposition, and would cover a range of scenarios which would not otherwise fall within the EUA. When it is recalled that the system of referendum locks contained in the EUA is already very extensive, the idea that in practice this scheme could become all-embracing is a cause for concern. Furthermore, the EUA may be entrenched in practice if it becomes accepted that any major or fundamental change would need to be approved at a referendum to take effect. At present, it seems clear that a future government could seek to repeal or amend the referendum locks contained in the EUA. Parliament is sovereign, and its legally unlimited legislative power could be exercised to remove any or all of the referendum requirements which bind the Government at present. Yet if it becomes politically accepted that a referendum would always need to be held to affirm major changes, an entirely lawful repeal of the EUA might, in practice, be ineffective to release a government from these obligations. In addition to undermining the sovereignty of Parliament, such a development could unduly restrict the freedom of action of future governments.

49. It might be objected that the comments of the senior Conservatives set out above are not statements about the scope, reach or application of the EUA. Instead, it could be argued that they are simply political calls for a referendum to be held. Yet such calls must nevertheless be understood in the context of the EUA. This Act is the pre-eminent constitutional instrument which establishes the circumstances in which referendums will be required with respect to the UK’s relationship with the EU. It ought therefore to be seen as the yardstick against which calls for the imposition of further controls must be measured. In this sense, the EUA has had an important impact politically, as well as legally, on the question of whether it is necessary for a referendum to be held to approve any particular change to the structure, power or competence of the EU.

50. Two examples of the political effect of the EUA can be identified. First, the existence of the EUA seems to have reversed the political presumption that the holding of a referendum on changes to the UK-EU relationship will be an exceptional event, rather than an ordinary occurrence. The broad scope of the EUA’s referendum locks, which are triggered in an array of circumstances, gives the impression that the holding of a referendum to approve a change to the UK-EU relationship is the norm, and we might thus expect calls for referendums to be held, even where not required by the Act, to become regularised. Second, the EUA provides a barometer against which the significance of a change to the structure, power or competence of the EU can be measured, and thus offers a comparator which can be used to justify calls for referendums beyond the scope of the Act. So, it can be argued, if issue X is covered by the Act’s referendum locks, and issue Y is not, yet it is of equivalent (or greater) importance, why should we not also hold a referendum on issue Y, even though not required by law? Indeed, such an analogy will be even more potent when it is appreciated that the EUA could in principle operate to require a referendum to be held to approve changes which have already been implemented, a quirk of the Act identified in paras 44–45 above. On both counts, then, it appears that the introduction of the EUA has made it easier to make and sustain political calls for a referendum to be held even where it falls outside the scope of the legislation, and correspondingly more difficult for such calls to be convincingly rebutted.

51. As a result, while it is difficult to see that the EUA’s referendum locks had a legal impact on the decision of the Prime Minister to wield the British veto at the Brussels negotiations, due to their inapplicability to provisions of the sort now to be found in the draft treaty, the Act may nevertheless still have had a political affect on the Government’s negotiating position. Undoubtedly other factors played a role in motivating the Prime Minister to veto the negotiation of a revision of the existing EU Treaties, including a desire to protect the City of London from EU regulation,50 the absence of any repatriation of powers already passed to Brussels, and a need to assuage euro-sceptic members of the Conservative party. Nonetheless, in so far as the use of the veto was also intended to bypass calls for the holding of a referendum which would have been inconvenient, yet politically difficult to resist, it would also appear to have been conditioned in part by the referendum locks contained in the EUA. Moreover, it is likely that the EUA will continue to have an important influence, both legally and politically, on the way in which UK governments approach treaty negotiations on matters related to the EU in the future.

Concluding Summary

52. Our main findings may be summarised as follows:

1. No obvious legal problems are created by the relationship between the proposed intergovernmental treaty and the EU Treaties, so far as concerns preserving the integrity of the Union’s existing institutions, competences and procedures. Only one issue might potentially arise, ie concerning the suggestion (under the Third Draft) to associate the Commission with limited aspects of defining and enforcing the commitment of the Contracting Parties to maintaining a balanced government budget. In theory, the UK might object to the prospect of the Commission exercising functions beyond those assigned to that institution under the EU Treaties. However, it is far from clear that the UK would have any convincing basis under Union law for raising such an objection.

2. The referendum locks contained in the European Union Act 2011 should have had no legal bearing upon the negotiating position of the UK at the meeting of the European Council in December 2011. However, an analysis of its relationship to the proposed treaty seems to reveal certain shortcomings in the control system created under the Act: certain decisions relating to the UK’s position in Europe are not subject to any control, even though they seem comparable in importance to many of the decisions which would trigger a referendum under the Act; other decisions relating to reform of the EU Treaties could well trigger a plebiscite, even though they would carry little or no significance for the UK’s relationship to the Union. Furthermore, the experience of (and following) the December European Council suggests that the political impact of the Act may well be outpacing its true legal scope—in particular, by creating a political rhetoric which has the potential appreciably to affect both the nature of the UK’s public discourse, and its room for diplomatic manoeuvre, in relation to European affairs.

13 January 2012

1 See Art 14(6) of the Second Draft. That provision is retained (with minor amendments) as Art 16 of the Third Draft.

2 Especially Arts 5(1), 121, 126 and 136 TFEU; as well as Protocol No 12 on the Excessive Deficit Procedure.

3 Reg 1173/2011 [2011] OJ L 306/1; Reg 1174/2011 [2011] OJ L 306/8; Reg 1175/2011 [2011] OJ L 306/12; Reg 1176/2011 [2011] OJ L 306/25; Reg 1177/2011 [2011] OJ L 306/33; Dir 2011/85 [2011] OJ L 306/41.

4 See the Conclusions of the Heads of State or Government of the Euro Area of 11 March 2011; together with the European Council Conclusions of 24-25 March 2011.

5 Indeed, it is arguable that only the balanced central government budget rule, and the presumption of support for proposals/recommendations against Eurozone states under Art 126 TFEU, go beyond what is already possible under the TEU and TFEU.

6 Concerns raised especially by the relatively precise obligations set out in Arts 3 and 4 of the First Draft.

7 Though note the deletion of the reference to the precedence of EU law under Art 2(2) of the Third Draft.

8 Consider, in particular, the amendments contained in the Second Draft to Art 3(1)(b); Art 3(1)(c); Art 3(2); Art 4; and Art 5(1).

9 Consider, in particular, the amendments contained in the Second Draft to Art 9 and Art 10.

10 Consider, in particular, the amendments contained in the Third Draft to its Art 3(1)(b); Art 3(1)(c); Art 3(1)(d); Art 3(2); Art 5(1); Art 6; and Art 9. Certain amendments to the preamble of the Third Draft also tell a similar story.

11 Also Art 7 of the Second and Third Drafts.

12 In particular: Reg 1173/2011 [2011] OJ L 306/1; Reg 1174/2011 [2011] OJ L 306/8; Reg 1175/2011 [2011] OJ L 306/12; Reg 1176/2011 [2011] OJ L 306/25.

13 See Art 5 of the First (and Second/Third) Draft.

14 See Art 6 of the First (and Second/Third) Draft.

15 In that regard, the preamble to the First (and Second/Third) Draft specifically refers to Arts 121, 126 and 136 TFEU.

16 As well as on the coordination between Eurozone states of major economic policy reform plans (an issue dealt with under Art 11 of the First (and Second/Third) Draft). Note also Commission participation in informal Euro Summit meetings (an issue dealt with under Art 13 of the First Draft/Art 12 of the Second/Third Draft); such meetings had already been agreed upon in principle by the relevant Member States on 26 October 2011.

17 See Art 8 of the First Draft; which also states that the actual implementation of the balanced budget commitment would be subject to the review of the domestic (not Union) courts.

18 Consider, eg the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters. And more recently, eg the jurisdictional provisions of the European Financial Stability Facility Framework Agreement.

19 See Art 8 of the Second Draft; which nevertheless retains the qualification that implementation of the balanced budget commitment would be subject to review (only) by the national courts.

20 See Art 7 of the Second Draft.

21 Such as the balanced budget rule contained in Art 3 of the Second Draft.

22 Such as the obligation to reduce the ratio of general government debt to GDP contained in Art 4 of the Second Draft.

23 “The rights to bring actions provided for in Articles 258 and 259 may not be exercised within the framework of paragraphs 1 to 9 of this Article [126].”

24 See Art 8 of the Third Draft; further noting that that provision no longer contains any reference to the idea that implementation of the balanced budget commitment should be subject to review by the national courts.

25 Though note that there would still be no possibility (when acting specifically under the jurisdiction recognised through Art 273 TFEU) of the Commission seeking the imposition upon a Contracting Party of fines/penalties pursuant to Art 260 TFEU.

26 See, in particular, Cases C-181/91 and C-248/91 Parliament v Council and Commission [1993] ECR I-3713; Case C-316/91 Parliament v Council [1994] ECR I-653.

27 Eg Austria, Denmark, Ireland and the Netherlands. Political troubles may also be brewing in countries such as the Czech Republic, Finland, France and Hungary.

28 Cf. Art 13 of the First Draft (which became Art 12 of the Second/Third Draft).

29 See Art 14 of the First Draft.

30 See Art 14(2) of the Second Draft.

31 See Art 14(2) of the Third Draft.

32 Even allowing for the possibility of limited divisions arising, under the new treaty, within the Eurozone itself: see the discussion above.

33 In which regard, consider the precedent already set by the “Euro Plus Pact” which was signed not only by the Eurozone countries but also by several other Member States as well (specifically: Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania).

34 See Arts 1(2) and 14(5) of the First (and Second/Third) Draft.

35 Though the latter must unanimously approve the request.

36 Though occupying the same legal position as every other non-Eurozone country, ie of choosing voluntarily whether to be bound by all or part of the provisions contained in Titles III and IV.

37 Cf Art 10 of the Second (and Third) Draft.

38 Cf Art 10 of the First (and Second/Third) Draft; and also Art 326 TFEU.

39 See especially s.7 EUA.

40 See especially s.10 EUA.

41 It should also be noted that, if the existing EU Treaties were to be amended to include the provision contained in Art 8 of the Second Draft using the simplified revision procedure, rather than via a new amending treaty, the significance condition set out in s. 3(4) EUA would also be potentially applicable. This is because Art 8 would only fall within the scope of s4(1) EUA via subsection (i). Consequently, in accordance with s3(4) EUA, if the change was deemed to be “not significant to the UK”, a referendum would also not be required on this basis. The significance test would not be relevant, however, in accordance with s2 EUA, if the change were to be made through a new amending treaty.

42 Further, were the Second Draft of Art 8 to be reinstated, it is possible that a limitation on the power of an EU institution to impose obligations on the UK could also potentially have been removed, depending on how the Second Draft of Art 8 is to be interpreted; see the discussion in paras 13–15 above.

43 See s6(5)(e) EUA.

44 See s6(5)(k) EUA.

45 As might the version of Art 8 contained in the Second Draft; on which see above.

46 “Downing Street insists there will be no EU referendum despite Iain Duncan Smith’s demands”, The Daily Telegraph, 5 December 2011
(http://www.telegraph.co.uk/news/politics/conservative/8935685/Downing-St-insists-there-will-be-no-EU-referendum-despite-Iain-Duncan-Smiths-demands.html).

47 “Iain Duncan Smith calls for referendum on European ‘fiscal union’”, The Daily Telegraph, 5 December 2011
(http://www.telegraph.co.uk/news/politics/conservative/8934746/Iain-Duncan-Smith-calls-for-referendum-on-European-fiscal-union.html).

48 “Tory minister breaks ranks with Cameron over Europe”, The Guardian, 7 December 2011 (http://www.guardian.co.uk/politics/2011/dec/07/tory-minister-cameron-europe).

49 Ibid.

50 See the Prime Minister’s statement to the House of Commons; Hansard, HC Vol 537, col 519–555 (12 December 2011).

Prepared 30th March 2012