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Monday, January 30, 2012

Fifth time lucky?

Thanks to La Stampa Brussels correspondent Marco Zatterin's blog, we've just got hold of the fifth (maybe last) draft of the new 'fiscal treaty' on budgetary discipline, due to be discussed at today's meeting of EU leaders in Brussels.

As we are at the 'finishing touches' stage, changes from the previous version are getting more subtle and harder to spot. However, there are still a few interesting changes, including:
  • In Article 3(1b), the so-called 'balanced budget rule' seems to have been further watered down. The wording "with the annual structural deficit not exceeding 0.5% of the GDP at market prices" has been replaced by "with a lower limit of a structural deficit of 0.5% of the GDP at market prices." We wonder how the markets will react: There's quite a substantial difference between imposing a maximum cap and a blander lower limit. We interpret this as meaning that the lowest the limit will be set for any country will be 0.5% (where as previously it could have been even stricter). Since the article still refers the the Stability and Growth pact we can infer that the new balanced budget targets will probably fall somewhere between 0.5% of GDP and 3% GDP (the deficit limit in the treaties);
  • Non-euro countries will no longer need to implement at least part of the budgetary rules set out for eurozone countries in order to qualify for a place by the table at future summits of eurozone leaders. However, invites will still be allowed only for meetings which specifically focus on the implementation of the 'fiscal treaty'. In light of the recent agreement with the opposition Social Democrats, this is probably enough to have the Swedish government sign up. Poland's stance remains more uncertain, as the Polish government is clearly seeking greater participation;
  • In a bid to win Denmark's support, the latest draft stipulates that fines imposed by the ECJ will be paid into the eurozone's permanent bailout fund, the ESM, only if they are imposed on eurozone countries. Otherwise, the money will be channeled into the EU's general budget;
  • Regarding the fines, there's an aspect of the 'fiscal treaty' that is worth flagging up. Under the agreement, the ECJ will impose fines of 0.1% of GDP on countries that failed to comply with its previous ruling (on whether the countries have correctly incorporated the balanced budget rules into their national laws). This is a power that the ECJ seems to have under Article 260 of the Lisbon Treaty. The power to impose fines in such circumstances is therefore not a new power (and the ECJ still does not have the power to punish countries for missing their deficit targets). However, questions still remain over the eligibility of the ECJ to rule on whether the balanced budget rules have been correctly incorporated in the first place;
  • Countries who want to join the agreement at a later stage will not have to wait for other Contracting Parties to "approve the application by common agreement." Under the latest draft, accession will become effective as soon as a country deposits the necessary instruments of accession - i.e. when it decides to ratify the 'fiscal treaty'.
Most changes aimed at convincing the remaining holdouts to sign up while keeping the tone of the treaty the same, but the 'lower limit' change does suggest a further watering down of the rules.

Update, 30/01/12, 1pm

Over on the Telegraph's live blog, it has been noted that this version of the pact does allow for some of the fines to go into the EU budget (as we also note above). The Telegraph suggests that this could benefit the UK, since budget surpluses are distributed to all member states. In theory this is true, but the fines which are paid into the EU budget will be those levied on non-eurozone countries. However, as we point out above, non-eurozone countries no longer need to incorporate any of the rules in order to be invited to attend future eurozone summits. In other words, non-euro countries would have no incentive to accept the rules set out in the 'fiscal treaty' before joining the single currency. What would they be fined for then? It seems very unlikely that non-eurozone countries would ever be fined and therefore that it could ever benefit the UK.

1 comment:

Denis Cooper said...

Once again, Article 260 only empowers the ECJ to impose fines for infringements of the EU treaties, not for infringements of any other treaty.

That is made perfectly clear in its full text, rather than the misleading partial gloss in the preamble to the "fiscal pact".

On page 161 here:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:083:0047:0200:EN:PDF

It starts:

"If the Court of Justice of the European Union finds that a Member State has failed to fulfil an obligation under the Treaties ... "

and everything which follows is predicated on that first condition being met, going through several steps to:

"... it may impose a lump sum or penalty payment on it."

It doesn't say:

"If the Court of Justice of the European Union finds that a Member State has failed to fulfil an obligation under any treaty ... " ,

So clearly the power conferred on the Court is restricted to obligations under the EU treaties, and does not extend to obligations under the "fiscal pact" or any other treaty which is not an EU treaty.

I read elsewhere:

http://www.telegraph.co.uk/finance/financialcrisis/9048721/Britain-officially-drops-opposition-over-use-of-European-Union-courts-to-enforce-fiscal-pact-says-William-Hague.html

"Government lawyers have advised that is is technically illegal to allow the European Court of Justice (ECJ) to police the fiscal compact's debt brake rule"

In fact it is blatantly and seriously illegal, not just "technically" so, as if this was some very minor legal inconsistency which can be quietly set aside, because the EU is supposed to be based upon the principle of "conferral" and that basic principle is being overturned.

In particular, from Article 13(2) TEU:

"Each institution shall act within the limits of the powers conferred on it in the Treaties".

As an EU institution the ECJ can legally only do what it is permitted to do under the EU treaties; and where in the EU treaties does it say that the ECJ may fine a country over infringement of an extraneous treaty made by some, but not all, EU member states, outside the EU treaties?

Not in Article 260 TFEU, or anywhere else.