Foreign Affairs CommitteeWritten evidence from Professor Michael Dougan, Chair in European Law, and Dr Michael Gordon, Lecturer in Public Law, Liverpool Law School, University of Liverpool

1. The main points substantiated in this evidence may be summarised as follows:

The December European Council veto will only be treated as a watershed if the UK opts to view it as such.

The TSCG1 is separate from and subordinate to the EU Treaties. One should be wary of dressing political reservations about the TSCG in the language of illegality.

There are several different scenarios in which UK policy towards the TSCG will be conditioned by the legal and political environment created by the European Union Act 2011 (EUA).

Flexible membership of the EU already exists. The benefits of further reform must be balanced against the corresponding costs of greater flexibility.

To what extent should the December 2011 European Council and its outcome be seen as a watershed in the UK’s EU policy and place in the Union?

2. There is no necessary reason that the “veto” exercised by the Prime Minister at the December 2011 Brussels summit should be treated as a watershed moment in UK Government policy towards the EU. The exercise and consequences of the veto were significant, yet we believe its implications can be construed in two ways. We suggest that the veto will only be treated as a watershed if the UK opts to view it as such.

3. First, the 2011 veto could be understood “narrowly”, as an exercise in the protection of specific UK national interests which has had a minimal impact on its broader position in the EU. Indeed, this would seem to reflect the view of the Prime Minister, who in a statement to the House of Commons on 12 December 2011 maintained that the veto was necessary in the absence of “relatively modest” safeguards “on the single market and on financial services”. Disagreement about the fiscal compact might thus be seen as effectively severable from other EU policy issues, and not necessarily inhibiting constructive engagement by the UK with fellow Member States.

4. Further, the UK, as a non-Contracting Party to the TSCG, actually remains in substantially the same position with respect to the provisions of the fiscal compact as non-eurozone Contracting Parties. The new obligations set out in the fiscal compact, and in particular the balanced budget rule, will only be applicable to such non-eurozone Contracting Parties if they declare an intention to be bound by these provisions. Further, the UK may decide at any point to accede to the TSCG, thereby placing itself in an identical position to any other non-eurozone Contracting Party. The UK may not then in practice be isolated on the margins of the EU simply because it has declined to participate in a compact designed principally to regulate fiscal policy among Euro-members.

5. Secondly, however, the Brussels veto might in contrast be viewed more “broadly”, as expressive of a more fundamental shift in UK Government policy towards the EU. The UK Government’s attempts to obtain concessions in exchange for consenting to an amendment of the existing EU Treaties demonstrates a lack of solidarity with fellow Member States during the ongoing financial crisis, especially since the most controversial provisions contained in the fiscal compact would not have been automatically applicable to the UK. Nor was the Prime Minister’s veto necessary to avoid a national referendum in accordance with the EUA, because the “referendum locks” contained in that Act would not have been triggered by the provisions of the fiscal compact. Indeed, it is difficult to see the Brussels veto as necessary or effective in any real sense, given the Prime Minister’s negotiating strategy failed to secure any of the safeguards sought, while the provisions of the fiscal compact objected to by the UK Government were still enacted by alternative means.

6. Perhaps the UK veto might then be emblematic of a shift in Government policy towards the EU, rather than a statement of dissatisfaction with the notion and/or terms of the fiscal compact itself. If this is the case, the 2011 veto may ultimately come to be seen as a watershed moment: the diplomatic manifestation of the UK’s retrenchment from Europe. Yet the fact that such an understanding of the veto may be adopted does not mean that it ought to be adopted. Whether viewed narrowly or broadly, the Brussels veto will have implications for the UK’s future within the EU. The two contrasting understandings discerned here will, however, afford different priority to the questions raised in this inquiry. If the impact of the veto is to be understood narrowly, attention should be directed to the Committee’s questions concerning the relationship between the fiscal compact and the existing EU architecture. If the impact of the veto is to be understood broadly, then one should concentrate rather upon the Committee’s questions concerning the UK’s vision for future EU membership.

Narrow Focus

What is the relationship between the TSCG and the EU acquis?

7. The formal relationship between the TSCG and the EU Treaties is very straightforward. The TSCG is an international agreement entirely separate from and constituting no part of the EU legal order. Moreover, the TSCG must be interpreted and applied in conformity with EU law, the latter taking precedence in the event of any conflict between the two regimes.

8. Despite that formal separation, there is a significant overlap between the subject matter of the TSCG and EU law. The TSCG contains certain obligations for Contracting Parties which go beyond those already laid down under EU law: eg the “balanced budget” rule in Arts.3 and 4 TSCG commits the Contracting Parties to a higher standard of fiscal discipline than that imposed under existing EU law (while Art.8 establishes a specific enforcement mechanism in respect of limited aspects of that commitment); the “reversed qualified majority voting” rule in Art.7 TSCG commits the Contracting Parties to a particular course of conduct within the Council (though there is no effective way to enforce that commitment, should a Member State behave otherwise in accordance with EU law).

9. Otherwise, however, the TSCG does little which can be considered genuinely novel. Various provisions merely anticipate obligations which are possible and indeed imminent under the EU Treaties, eg Art.5 budgetary and economic partnership programmes; Art.6 public debt issuance plans; Art.11 major economic policy reform plans. Similarly, several provisions do no more than express aspirations about the future use of powers/procedures already provided for under the EU Treaties, eg Art.10 enhanced cooperation; Art.13 parliamentary cooperation. Meanwhile, other provisions refer to informal programmes/activities already established before the TSCG, eg Art.9 enhanced convergence and competitiveness; Art.12 Eurosummit meetings.

10. We do not share the analysis expressed by certain commentators, and partially endorsed by the recent report of the European Scrutiny Committee, concerning three important issues of compatibility between the TSCG and EU law.

11. First, there is the idea that recourse to an international treaty is somehow improper, as a matter of principle, whenever a Member State(s) tries and fails to persuade its partners to amend the EU Treaties themselves. That is quite a remarkable proposition—amounting to a virtual denial of state sovereignty. It cannot be seriously argued that the failed or indeed hypothetical possibility for the EU to have assumed responsibility over a given matter thereby precludes the Member States from pursuing the same or similar objectives under ordinary international law.

12. Secondly, there is the argument that Art.273 TFEU2 is an improper legal basis for the jurisdiction conferred upon the ECJ pursuant to Art.8 TSCG. There is little direct judicial authority exploring the detailed conditions governing resort to Art.273 TFEU, though there is much historical precedent to support the view that the Member States enjoy a wide margin of appreciation when it comes to voluntarily submitting disputes to the ECJ. To reject the lawfulness of Art.8 TSCG implies adopting a systematically restrictive interpretation of Art.273 TFEU without any real legal authority and despite the evidence of past practice.

13. Thirdly, there is the argument that it is impermissible for Member States to entrust limited tasks to the Union institutions outside the framework of the EU Treaties. There is direct authority from the ECJ to support the lawfulness of such delegated functions as a matter of constitutional principle. However, the conditions governing such delegated functions in practice remain unclear—especially whether delegation requires the express consent of all Member States. There are solid legal arguments on both sides of that debate—which should caution against adopting a strong critical stance based on the alleged unlawfulness of the TSCG, as opposed to holding an opinion about its political desirability.

Should the UK Government support the incorporation of the TSCG into the EU Treaties?

14. Adopting a narrow understanding of the implications of the UK veto, and accepting that the TSCG contains little which can be considered genuinely novel, the possibility of the fiscal compact’s future incorporation into the existing EU Treaties will need to be considered. We focus here on the legal issues arising in relation to the UK Government supporting incorporation of the fiscal compact into EU law, as envisaged by Art.16 TSCG.

15. There is no compelling political reason that the Government should not support incorporation, especially since the provisions of the fiscal compact do not bind the UK. There is also no domestic legal impediment to the Government supporting incorporation, for, as noted above, the referendum locks contained in the EUA would not be triggered by such a development. Although an amendment of the existing EU Treaties to include the balanced budget rule set out in Art.3 TSCG would appear to be caught by s.4(1)(f)(i) EUA, which provides that an extension of EU competence in relation to economic policy will attract a referendum, the exemption in s.4(4)(b) would serve to obviate this requirement. By this exemption, while the provisions of the fiscal compact remain inapplicable to the UK, it would not be necessary for a national referendum to be held before an amending Treaty could be lawfully ratified by the Government.

16. This basic position should be qualified by noting three potential legal problems in relation to future incorporation attempts. First, if an amending Treaty went beyond the simple incorporation of the fiscal compact provisions into EU law, and purported to make other changes which extended the competence of the EU in any of the ways specified in s.4 EUA, unless those changes were exempt under s.4(4), a referendum would be necessary. If the UK were to make its acceptance of an amendment of the existing EU Treaties conditional upon certain demands being satisfied, and other Member States were to counter with competing demands, it is conceivable that the exercise could expand beyond the mere incorporation of the fiscal compact into EU law, with the consequence that a broader amending Treaty might engage the EUA’s referendum locks.

17. The remaining problems expose inconsistencies in the EUA itself. The second problem is a gap in the scheme of referendum locks. If the UK were to support the incorporation of the fiscal compact into EU law, and subsequently opted to be bound by these provisions, the competence of the EU with respect to UK economic policy would have been extended, and yet a referendum would not have been required lawfully to ratify this extension of competence. A referendum lock would only be engaged if the rules contained in the fiscal compact were to be applicable to the UK from the time of their incorporation. Otherwise, a national referendum could be readily avoided, and while this may appear politically convenient, given the controversial content of the fiscal compact, it might also be difficult to justify.

18. The third problem is, in contrast, one of overprovision. If the UK were to accede to the TSCG in accordance with Art.15, and declare an intention to be bound by the fiscal compact prior to supporting its incorporation into EU law, a referendum would be required at the moment of incorporation notwithstanding the fact that the UK would already have put in place a domestic mechanism to implement the balanced budget rule. In such circumstances, the formal extension of EU competence would trigger a referendum essentially to approve what had already been done, with the corollary that a failure to obtain the requisite popular approval would produce significant legal and political uncertainty.

19. In essence, the EUA adds a further layer of legal and political complexity to any UK Government decision to support the incorporation of the fiscal compact into the existing EU Treaties. In so far as it has transformed the domestic procedure for approving an amendment of the EU Treaties, and dramatically reconfigured prior assumptions about the role played by national referendums in this process, we contend that, if a watershed moment in UK Government policy towards the EU is sought, it should be found not in the Brussels veto, but in the enactment of the European Union Act 2011.

Broader Focus

Between now and 2020, what institutional architecture and membership should the UK seek for the EU?

20. It is worth recalling that, despite its controversial evolution, the final Lisbon Treaty was widely seen across Europe as a triumph for the UK’s vision of European integration. Lisbon clearly affirms that the EU is merely the creation of its Member States, the latter remaining sovereign states under international law, and that the EU lacks any claim to statehood of its own. Lisbon reinforces fundamental characteristics such as the principle of attributed EU powers and a system of differentiated EU competences. It redraws the EU’s institutional balance by strengthening the influence of national governments. It also includes specific provisions for the UK, such as extending the opt-out across all of justice and home affairs. Against that background, we should ask: if the British vision for Europe triumphed at Lisbon, what is it that remains “wrong” with the UK-EU relationship?

21. For some, the problem is a relatively narrow one: it relates to the fact that one government objects to being bound by particular EU reforms or policies (in fields such as employment rights) that were agreed to by or under a previous administration. If that diagnosis is correct, there seems little that can be done to remedy it: there is no unilateral capacity to undo EU treaty reforms; the right to repudiate existing EU secondary obligations is very rare. Perhaps the major political parties need to reconcile themselves to a system in which certain policy choices are indeed a collective responsibility of the Member States and as such difficult to reverse unilaterally even after a change of domestic government.

22. For others, however, the real difficulties are significantly more far-reaching. Perhaps the British vision for Europe has changed since Lisbon, even among those actors who are not opposed as such to UK membership: there is certainly a strong political constituency which argues that the extent of our participation in European integration now needs positively to be rolled back. Or perhaps the fallout from the ongoing Eurozone crisis will see other Member States pushing for a renegotiation of the Lisbon settlement, so as to strengthen considerably the foundations of European economic and political integration—a project in which the present or a future Government decides the UK should not fully participate. In either case, the FAC’s terms of enquiry suggest that one potential solution lies in developing multiple forms of EU membership.

23. In that regard, it is worth recalling that “flexible integration” already exists under the current Treaties. The range of policy opt-outs provided for directly under the Treaties themselves, together with the system for engaging in enhanced cooperation within the EU framework, mean that there are myriad constellations of (actual and potential) national participation in various fields of EU activity. Moreover, such flexibility already carries clear institutional (as well as substantive) consequences, eg as when the Council acts in restricted formations, taking into account only the votes of participating Member States.

24. Against that background, one should ask: how much further might the UK want such flexibility to go? Eg would it be sufficient to encourage more frequent/extensive resort to enhanced cooperation within the framework of the existing Treaties? If so, that would permit the UK to opt into or stay outside given EU measures or policy sectors as the national interest required—but would require building consensus within the EU that enhanced cooperation should be exploited to its full potential (and possibly also a Treaty amendment to remove the requirement that enhanced cooperation may only be used as a “last resort”). Or would the UK wish to negotiate amendments to the Treaties themselves, extending its existing opt-out rights beyond the single currency or justice and home affairs, to cover additional policy fields? If so, that would require the UK to persuade its European partners of the need for potentially far-reaching revisions to its EU membership, potentially including making the difficult case for special treatment within the single market, or a second-rate status for UK workers/consumers.

25. In any event, it is worth recalling that flexibility has costs as well as benefits. Flexibility can involve a tangible loss of policy leadership and influence—especially if it involves institutional arrangements which exclude a Member State even from being present around the negotiating table. Depending on the relative sizes of the core/periphery, and the importance of the subject matter, flexibility might risk non-participating states being de facto obliged to follow, or work around, the policy agenda agreed by others. Flexibility can also exacerbate concerns about the complexity, transparency and legitimacy of EU decision-making—though such concerns pale when compared to the limitations of more traditional intergovernmental bargaining conducted outside the EU framework. Seeking to negotiate “country specific” Treaty amendments obviously still requires unanimity among the Member States, and opens the door for other countries to bring their own demands to the table, some of which may not serve the UK national interest.

22 May 2012