Foreign Affairs CommitteeWritten evidence from Jean-Claude Piris, former Legal Counsel, European Council and EU Council, and Director General, EU Council Legal Service (1988-2010)

Summary

The implementation of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (“Fiscal Compact”) which was signed on 2 March 2012 by 25 Member States of the European Union (EU) will not, in itself, go against the UK’s interests.

The conclusion of other intergovernmental agreements or arrangements of a similar kind, binding EU Member States other than the UK, and in particular the members of the eurozone, are not to be excluded in the future.

If this were going to happen, the UK’s policy should be to obtain legal guarantees for the protection of its rights and interests.

An intergovernmental agreement or arrangement might be signed, in the period to come, by the members of the eurozone, given the need to increase the convergence of their budgetary and economic policies in order to solve durably the current financial and economic crisis.

Solving this crisis and relaunching economic growth in Europe is a priority aim and an essential interest not only for the eurozone but also for the UK.

It is argued that, if the way of a further integration was chosen by the eurozone to attain this aim, the UK would have no interest, and in any case would have no legal or political means, in trying to oppose or delay this evolution. The UK’s aims could be that the provisions of any new intergovernmental arrangement should be fully compatible with the EU Treaties and guarantee openness and transparency. It should as well confirm the legal obligation of the Contracting Parties, under the judicial control of the EU Court of Justice, to comply with the letter and spirit of the EU Treaties, including the rules on the internal market.

Brief Answers to the Specific Questions of the Committee on the “Fiscal Compact”

(1) The December 2011 European Council and its outcome, including the signature on 2 March 2012 of the Fiscal Compact by 25 EU countries, are a logical consequence both:

of the need felt by the eurozone members to go forward in the integration of their policies in order to try and solve the current crisis, and

of the policy decided by the UK’s Government and Parliament, in particular by the 19 July 2011 EU Act.1

(2) One cannot expect the other EU Member States to remain inactive, if and when they think that they have important interests at stake, in cases when the UK exercises its right of veto within the framework of the EU.

(3) If such a case happens, it is argued that the UK’s policy should aim at ensuring that any action by the eurozone members shall respect their legal obligations under the EU Treaties. If this condition were fully respected, in letter and in spirit, the place of the UK in the EU and the possibility for the British Government to defend its rights and interests could be safeguarded.

(4) The Fiscal Compact will not be legally part of the EU’s acquis. Its entry into force will not have any impact on the EU budget, on enlargement, or on the Common Foreign and Security Policy.

(5) The rights and interests of the UK might be easier to defend through an incorporation of the Fiscal compact in the EU Treaties. It appears that the Contracting Parties to the Fiscal Compact would not have any obligation or interest to make concessions as a price to pay to the UK for that incorporation. However, the UK could ask that some rules should be formally confirmed (this would in any case follow from the incorporation in the Treaties), such as the possibility to go to Court in case the UK’s interests would be put in jeopardy by any decision taken by the Contracting Parties to the Fiscal Compact.

On the Possible Future Evolution of the EU and on the Policy of the UK

(6) To solve durably the crisis of the eurozone, its members will probably have to increase the convergence of their budgetary and economic policies.

(7) Most economists argue that it will not be possible to exit the financial (now also economic) crisis without increasing significantly the convergence of the budgetary and economic policies of the members of the eurozone. This has also been acknowledged by British political authorities.

(8) This is now becoming more pressing. The high rate of interest which some of the eurozone countries have to pay to borrow money in the markets makes it difficult to encourage investment. Given the present state of affairs, trying to re-launch their economic growth could trigger a further increase in their interest rate. At the same time, it is becoming unsustainable to continue on the road of more austerity. This increases desperation on the part of their population suffering unemployment and fall in revenues and translates into a heavy price to be paid to populist political parties.

(9) To be able to use adequate instruments to re-launch economic growth, a protection from possible reactions of the financial markets would be needed. The opportunity to earn money by speculating against individual members of the eurozone should disappear. To reach this aim, the eurozone should move closer to becoming a full economic and monetary union, as this is the only realistic way for the markets to be convinced.

(10) This would demand visible and credible—albeit politically hugely difficult—actions, committing the governments, parliaments and populations of the eurozone countries. This evolution might be accelerated by the current situation in Greece.

(11) It is obvious that this would raise huge political problems in the countries concerned, and that it is by no means certain to happen. Would taking such a road be sustainable politically, especially when coupled with budgetary austerity and slow or negative economic growth during a few years? This is a big question mark. However, the economic and political risks of an explosion of the crisis are such that one can bet that the road towards more share of powers within the eurozone has a reasonable chance to be accepted.

(12) Making the eurozone a full economic and monetary union would involve accepting a substantial sharing of powers.

(13) In such a hypothesis, the members of the eurozone would accept not to be the only masters of their budgetary and economic policies.

(14) In legal terms, this would translate into a legally binding convergence, ie to go much further than the language used in 2 March 2012 “Fiscal Compact”, where the Contracting Parties “undertake to work jointly towards...”, “stand ready to make active use, whenever appropriate and necessary...” and “ensure that all major economic policy reforms that they plan to undertake will be discussed ex-ante and, where appropriate, coordinated among themselves...”.

(15) The members of the eurozone would be linked together by a joint responsibility and solidarity.

(16) According to the author of this Evidence, “joint responsibility” would mean that each country involved should not finally adopt its national budget before having obtained a green light from “the centre”. The choice not to respect a red light would entail the exclusion of financial help from Eurozone Funds. Economic policies might be subject to a convergence mechanism, which would be tighter in cases where a country is receiving financial help. A Eurozone Debt Agency could be created, as well as a Eurozone Banking Supervision Authority, going in the direction of a kind of Banking Union. This might also be accompanied by a minimal harmonisation of national laws concerning taxation (eg a common basis for the assessment of corporate taxes, to be followed eventually by minimal harmonisation) and social policy (such as linking the age and conditions of retirement to current demographic trends, establishing a common minimum guaranteed salary, taking measures to liberalise the labour market and to encourage labour mobility). It is also recalled that Article 138 TFEU might be used to ensure unified representation of the members of the eurozone in the Bretton Woods institutions in Washington, both the International Monetary Fund and the World Bank. These policies and actions would not be detrimental to the rights and interests of the UK or of the other EU States not having the euro as their currency.

(17) If such a framework were to be adopted, the other side of the coin, ie “joint solidarity”, might trigger a joint answer to a move from the financial markets directed against an individual country in the eurozone.

(18) Such an evolution would take the form of an intergovernmental treaty or arrangement to be concluded by the eurozone countries.

(19) A revision of the EU Treaties is politically excluded, especially due to the opposition of the UK and of other EU Member States. The only way forward for the eurozone members would therefore be to negotiate an intergovernmental agreement or arrangement among them. Taking into account its content, the conclusion of a legally binding instrument might involve a referendum, and possibly a change of Constitution, for some countries.

(20) It is argued that the UK would not be able, and in any case would have no interest, in trying to oppose such an “Intergovernmental Arrangement” among the countries of the eurozone. However, the UK could and should obviously demand that this arrangement be compatible with the EU Treaties.

(21) Besides, the members of the eurozone might, for reasons of coherence and also of political visibility, decide that the Additional Treaty could have other ambitions than in EMU matters stricto sensu, for example:

in the policy of immigration, as linked to the labour market;

in giving new political rights to the citizens of the countries involved, after a few years of residence;

in encouraging swift progress in judicial cooperation in civil matters, especially the law of contracts and family law with cross-borders implications, in order to try and make life easier for families of different nationalities; and

in armament industry cooperation, aiming at a common public procurement; moreover, as regards defense policy, it is not excluded that some of the Contracting Parties consider that the time has come for the implementation among them of the “Permanent Structured Cooperation” foreseen in the Lisbon Treaty. If these last issues were to be considered as raising a difficulty for the UK, the British Government might think about launching other ideas in that domain, if that would better suit the UK’s interests. This might be welcome by the other EU States, as it is difficult to conceive a group of European countries going ahead on defence matters without the active participation of the UK.

(22) One of the issues concerning the UK would be to know if a new intergovernmental arrangement would entail a new institutional framework, distinct from the EU’s institutions.

(23) It would be in the interest of all to avoid the establishment of new organs, in order not to make the picture of Europe more complex than it is already today.

(24) In principle, this should not be problematic for some institutions: the EU Court of Justice, the Court of Auditors and the European Central Bank could work, in their present composition and without any change to their status, in the implementation of an “Intergovernmental Arrangement”, subject to the acquiescence of all EU Member States. One could hardly see what would be the interest of the UK in opposing this. Actually, British nationals are members of all these institutions. It would look better for the UK (and the other EU Member States non members of the eurozone) to accept that these institutions work for the eurozone as well as for the EU, rather than pushing the Contracting Parties to create new organs, which would appear to be legally feasible, even if politically unadvisable.

(25) As for the European Council and the Council, the current situation would not be changed. Meetings of the 17 are already taking place back-to-back with them, both at the level of Heads of State or Government and at the level of ministers responsible for economic and financial affairs.

(26) The issue of the possible role to be conferred on both the European Parliament and the Commission would be more difficult.

(27) It is quite obvious that, given its content, the implementation of an Additional Treaty would make it an absolute requirement to have strong, effective and legitimate democratic control. For legal reasons (text of the EU Treaties), it would look a priori impossible to use only the MEPs from the eurozone countries.2 For political reasons, it would be difficult to use the entire European Parliament which, moreover, would not bring sufficient political legitimacy, especially in these matters, which are in the remit of National Parliaments, which have the power to decide on taxes. It would also be difficult to ask the National Parliaments of the States concerned to accept an important transfer of their powers in such essential domains, without giving them any say when corresponding decisions will be made at the European level. The logical solution would therefore be to establish a Delegation composed of Representatives of the National Parliaments concerned and to confer upon it a real power of co-decision and control.

(28) As to the Commission, it would be difficult to imagine the EU Commission, composed of one member for each of the 27 (soon to be 28) EU Member States, taking (at least theoretically) all its decisions by a simple majority, being in charge of monitoring and imposing its decisions in essential matters to a group of them. However, it would be even more difficult to envisage the creation of a new organ with a whole range of similar functions, as well as with the necessary human resources which that would require. A solution might be found through the establishment of a small political organ, exercising limited tasks by itself, and out-sourcing their preparation, as well as other tasks, to other bodies, including to the EU Commission, if this was accepted by all EU Member States.

(29) This would look easier if the EU Commission were re-organised, in order to be more efficient, assertive and independent, both from the Member States and from the European Parliament, in particular at a time when more powers are conferred upon it for the governance of the euro. The UK might be interested in such a way out, especially if it helps re-organising the EU Commission, which has been regrettably weakened over the last two decades or so.

(30) The imperative for the UK would be to request and obtain respect and protection of its rights and interests.

(31) The UK will certainly demand that the eurozone should not establish itself as the first class of a permanent two-class or two-tier EU. Any action of what should remain a temporary group should be excluded in areas pertaining to the exclusive competence of the EU, including the areas of shared competence where the EU has already exercised its competences. The group should be forbidden to deal with issues directly linked, inter alia, to the internal market, external trade or foreign policy.

(32) It should respect the normal functioning of the EU and of its institutions. Priority should always be given to proposals of the Commission to act or to legislate in the framework of the EU. The cohesion of the EU should be preserved, both in the internal market and in foreign policy.

(33) An Intergovernmental Arrangement, legally binding or not, should always remain open to accession for the other EU Member States, and foresee means to help those of “the others” willing and able to join. Actually, “the others” include States whose stated policy is to have the euro as their currency as soon as possible. Once these States will have ratified the “Fiscal Compact” and confirmed their policy, they might be offered an “active observer status” in the organs of the eurozone group.

(34) As for the others, including the UK, they should insist that their concerns be taken into account and allayed. Provisions ensuring the legal protection of their rights and interests should be included in any new Intergovernmental Agreement. Firstly, openness and transparency should be ensured. Secondly, legal rules, whose respect should be under the judicial control of the Court of Justice of the EU, should guarantee the group’s strict compliance with the letter and spirit of the EU Treaties, in particular of the rules on the internal market.

(35) Solving the current crisis of the eurozone would obviously be good for all EU Members, including the UK. It would be in the interest of the UK that the members of the eurozone organise themselves in order to solve durably the crisis, on the condition that the rights and interests of the UK be strictly and legally protected.

15 May 2012