The legal scramble for the EU institutions

So, following the news this morning that the eurozone plus six more countries want to go ahead with their own treaty, where are we? David Cameron vetoed a treaty of 27 because of a refusal to insert a protocol safeguarding the City and other key economic interests (Sarkozy called Cameron's demands for safeguards on financial services "unacceptable").

Well. the EU now looks set for an almighty legal battle. Cameron has warned the new bloc of 23 (the UK has been joined by Sweden, Hungary and the Czech Republic so far but that group is fluid) that it would not be able to use the resources of the EU (the Commission or the ECJ), raising real doubts as to whether the eurozone would be able to enforce its fiscal rules in order to calm the markets.

Last night Spiegel was reporting that the European Council's legal service had advised that a smaller group of member states could not amend articles in the EU Treaties (e.g. the articles on budget deficits etc) without agreement of the 27. So, the UK has a veto over this.

The draft summit conclusions state that:

"This will require a new deal between euro area Member States to be enshrined in common, ambitious rules that translate their strong political commitment into a new legal framework."

This leaves the group of 23 pursuing a new treaty outside the EU framework. The next, and now most important, issue is whether they will be able to use the EU institutions to enforce the commitments set out in this new non-EU treaty.

The UK is clearly of the belief that they can't. Cameron said last night, "Clearly, the institutions of the European Union belong to the union, they belong to the 27. They are there to do the things that are in treaties that we have all signed up to over the years. That is an important protection for Britain."

As Bruno Waterfield tweeted last night an ECJ ruling from 1993 set a precedent that the EU institutions can be used by ad-hoc groups of member states, but only after unanimous agreement of the 27. This still gives the UK a veto.

The FT today reports that

José Manuel Barroso, the Commission president, said he believed there were ways to work around such legal prohibitions, but senior EU officials acknowledged it would be difficult to give Brussels new powers over eurozone national budgets outside the EU treaties, and diplomats expressed concern financial markets would not see the new pact as credible.

So Barroso may throw his hat in with the new group and support them in their desire to use the EU institutions - a key German demand. It all looks set for a legal standoff but, given the past history of EU law (the new interpretation of "no bailout" clauses and so on), where there's a will there's usually a way.

Everyone now naturally has their own take on the situation, ranging from "victory" to leaving the UK completely isolated. Clearly, few EU leaders expected this. The Germans thought that Cameron was bluffing, and possibly vice-versa. But remember, a treaty change not involving the UK was always a possibility - and it was never on the cards that Britian itself should participate in the new 'compact', only whether it would approve it at the level of all 27. The political dynamics have changed, and not being able to do this at 27 has made the situation a lot messier. Eurozone leaders now have to work out a non-EU treaty, based on Merkozy's letter but otherwise very little substance to work with.

Without the use of the EU institutions to enforce them, the new rules will have limited credibility (to be honest, they don't have a lot of credibility as it is).

However, if the new group does gain access to the EU institutions - which to us would be another example of a massive legal stretch of the EU treaties - this could clearly have a negative impact on the UK, possibly increasing the risk of the European Commission for example being colonised by eurozone interests. But that risk has been there since the very formation of the euro.