In the early hours of this morning, EU finance ministers reached a technical agreement on the plans for a single financial supervisor under the ECB.
This deal is pretty big, as it links to a number of key questions surrounding the future of the eurozone, including whether the permanent bailout fund (the ESM) can directly recapitalise banks. It was always going to have important implications for the UK, given the threat of eurozone caucusing - the 17 writing the rules for the 27 - in the European Banking Authority (EBA) and changes to EU financial regulation (as we discussed here).
The details on the deal are still emerging and we'll look at the ECB-side later (our assessment from last night still stands). But the Chancellor George Osborne stressed that the UK (along with Sweden and the Czech Republic who also decided not to join) got a “very good deal” and that the “single market was protected”. He would, wouldn't he, so what deal did the UK actually secure and how good is it?
Double simple majority within QMV – This means technical rules at the EBA will (as before) need to be approved under QMV. Additionally, within this vote, there must be a simple majority of ‘ins’ and a majority of ‘outs’. So say that no non-eurozone country will join the banking union (which is very unlikely), this means the UK along with 4 other ‘outs’ can block any regulations which they do not support.So a big question remains:
Revised voting rules once there are only four countries left: For the UK, there's one potential weakness, if the number of 'outs' gets below 4 then the rules will need to be reviewed - and could be completely rewritten. Currently only three countries have explicitly said they won't join: the UK, Sweden and the Czech Republic. If all remaining countries decide to join, then these rules could need to be changed almost immediately. Here's a concern: the EBA regulation is decided by QMV, the ECB regulation by unanimity. Once the UK has agreed to the ECB regulation, it loses much of its leverage. The concern is that at a later date, the double majority principle is watered down using QMV, meaning that the UK gets stuffed anyway. Also, remember, MEPs must also approve this deal. Any changes made by the EP would also be subject to QMV approval. However, as a further guarantee, there seems to a provision making clear that the revised voting modalities will need political approval at the European Council (where unanimity applies). This is not a legal protection but a political one, so not completely watertight but clearly a useful addition.
Non-discriminatory clause – The separate proposal giving the ECB supervisory powers (see Article 1 here) also includes a provision meant to commit the ECB to not discriminate within financial regulation against a single or a group of countries.
Who are the ‘ins’ and who are the ‘outs’? Currently the UK, Sweden and the Czech Republic have said they definitely will not join the single supervisor, while all eurozone countries are obliged to. The other non-euro countries have suggested they will have a ‘close cooperation’ deal with the single supervisor (expect for Denmark) – this basically makes them count as ‘in’. For the UK point of view, 5 non-participants seem the ideal number as it will be much easier to block unwanted regulations, while 4 could trigger the review referred to above.
Will Croatia be an ‘in’ or ‘out’? This could alter the necessary majorities in EBA.On current count, this is a pretty good deal for the UK and it does establish that principle that the eurozone cannot run over none-eurozone countries.