SUMMARY
The euro area crisis is a complex blend of financial,
economic, political and institutional problems. Over the past
year, developments in these interwoven elements have dominated
the political and news agenda. National governments and EU institutions
have struggled to keep up with the pace of events. The EU, and
the euro area in particular, face massive challenges and there
is a need for effective and proactive leadership both from the
EU institutions and Member States, in the interests of the wider
Union.
Concerning the immediate economic and financial aspects
of the crisis, it is essential that the outline agreement reached
in October 2011 on Greek debt write-down, bank recapitalisation,
and the financing of the European rescue funds, is implemented
quickly and effectively. Although it should not be regarded as
a panacea, additional action by the European Central Bank is likely
to prove essential.
The proposed 'fiscal compact' and economic policy
coordination measures for the euro area have been highly controversial.
In December 2011 the United Kingdom indicated it would stand aside,
and at the end of January 2012 the Czech Republic stated that
it would not participate for the time being. Eight of the ten
non-euro Member States are likely to join the 17 euro area states
in signing the new treaty at the next European Council on 1-2
March 2012. The proposed treaty makes clear that the key provisions
apply only to euro area states (unless a non-euro state indicates
that it will choose to be bound by them).
The proposed treaty is outside the treaty architecture
of the EU, though it cites within it several obligations arising
under the EU treaties and legislation made under the treaties.
Under the fiscal compact, each state will undertake that it will
not have a structural deficit of more than 0.5 per cent of GDP
(or 1 per cent if certain conditions are met); that it will put
in place an automatic correction mechanism if it is not on course
to meet that objective; and that within 20 years the ratio of
general government debt to GDP should not exceed 60 per cent.
The EU Court of Justice will be allowed to rule on whether states
have met the requirement to put into national law the balanced
budget rule and, if they fail to comply with a judgment that they
have not, to levy a fine of up to 0.1 per cent of a country's
GDP. There are also treaty provisions on economic policy co-ordination
and governance, including for summit meetings of the euro area
states and the President of the European Commission and President
of the European Parliament to be held at least twice a year.
In the Committee's view it is vital that, while the
euro area states take the steps they consider necessary to strengthen
the euro, including on fiscal integration, matters relating to
the internal market remain the preserve of all 27 EU Member States.
We welcome the disclaimer on the face of the treaty which is designed
to ensure that this point is respected.
The proposed treaty raises a number of other questions,
particularly concerning the relationship between it and the EU
treaties and laws made under those treaties; and the proper role
of EU institutions. The history of the institutional development
of the European Union is characterised by pragmatic flexibility,
suggesting that some of the rough legal edges of the proposed
treaty will be softened over time. With the United Kingdom reducing
its objection to the use of the EU institutions under the proposed
treaty, it might be argued that this process is already underway.
But even so, the lack of clarity about whether it is legitimate
for the proposed treaty to confer new functions on institutions
of the European Union, and the extensive overlap between the provisions
of this treaty and functions which have already been imposed by
EU legislation, is undesirable.
The United Kingdom Government, together with the
other Member States of the Union, and the EU institutions, must
devise a means of securing the fiscal integration desired by some
of the euro area Member States while at the same time protecting
the integrity of the single market, including its provisions for
financial regulation, as an engine of economic growth for all
27 Member States of the Union.
We agree with the assessment of the United Kingdom
Government that the "optimum outcome" at the December
European Council would have been an agreement at the level of
all 27 EU Member States, with the interests of the United Kingdom
protected. Shifting discussions outside the main EU channels to
forums where the United Kingdom has no voice risks marginalising
the UK over time.
For the longer term, we note that the proposed treaty
states in Article 16 that it remains the intention for its provisions
to be folded in to the main EU treaty framework. We can see no
reason in principle why this should not in due course be achieved.
Article 16 of the proposed treaty also provides for
an assessment of experience with implementation, well within five
years. We hope that this assessment will encompass a reflection
on what is, in the fiscal compact, a major development in the
fiscal policy of the euro area states.
It is clear that improved budgetary discipline is
necessary in order to make progress in resolving the euro area
crisis, but ultimately the resumption of sustainable economic
growth will hold the key: both in general terms across the EU,
and in facilitating attempts to resolve the serious imbalances
in competitiveness between different countries in the euro area.
Therefore, while we acknowledge the great difficulty of devising
measures to support economic growth in a period of austerity,
we are concerned that the potential of the development of the
single market to enhance growth has faded from view during the
crisis. We are heartened by the emphasis on job creation and the
single market at the EU summit on 30 January 2012, but the real
challenge for policymakers will be the sustained implementation
of measures which are both effective in developing the single
market and thus supporting economic growth, and which do not threaten
the drive to improve budgetary discipline.
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