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Wednesday, May 09, 2012

A bit of European political dynamite in the Queen's Speech

The Queen delivered her "Queen's Speech" earlier today - which, for non-UK readers, isn't her speech at all but rather the government's, setting out its agenda for the forthcoming year (a rather odd ceremony but good opportunity to see Ken Clarke in a wig if nothing else).

For those interested in the ever-so-opaque EU dimension, the Queen said in passing:
"My Government will seek the approval of Parliament relating to the agreed financial stability mechanism within the euro area."
 "My Government will seek the approval of Parliament on the anticipated accession of Croatia to the European Union."
The latter won't be much of an issue - most MPs will play along as further enlargement rightly enjoys buy-in across the political spectrum.

The former is a different story. This relates to the EU treaty change dating back to December 2010, when the Germans managed to get agreement for tweaking the Lisbon's Treaty Article 136 to allow the eurozone's permanent bailout fund, the ESM, to be put on a more legally sound footing (at least that's how Berlin sees it). This treaty change has now finally come up for UK ratification in Parliament. Before carrying on, just to clarify, this is not the EU treaty change that Cameron vetoed in December 2011, and which gave rise to the separate Fiscal Treaty.

The December 2010 agreement didn't cause a whole lot of fuss at the time, and MPs gave their preliminary approval. Back then, Cameron had far greater control over both events and his own backbenchers. And the UK media was still waking up to the massive - and ongoing - continental political shift unleashed by the euro crisis.

2012 is a different matter altogether.

The ESM won't actually impact on the UK itself, so the 'referendum lock' wouldn't kick in. However, the treaty change that Cameron vetoed back in December wouldn't actually have had a direct impact on the UK either - that veto was about getting guarantees that UK interests were protected as the eurozone integrates further, and the rules of the game are effectively changed.

Exactly the same logic could apply to the Treaty change to put the ESM on legal footing. Like the Fiscal Treaty, the ESM will lead to greater integration in the eurozone (indeed, the two go together - see here), so Tory MPs could use the same line of reasoning they did leading up to the December summit in calling for the UK to block the measure, in return for EU concessions. Remember, an EU treaty change is not a change at all until it has been ratified by all member states.

Will they? So far, there are no signs that this issue is fully on MPs' radar and the UK government prays it will stay that way. But a lot of things to look out for:
  • The UK government is likely to sell the measure as a guarantee that it will never again be forced to indirectly contribute to eurozone bailout funds - a few papers have already run with that story. At the same December summit, Britain won a political declaration and an EU decision that the article that forced it to contribute to the EU-wide bailout funds, the EFSM, won't be used again (Article 122 - for background, see here and here). However, the legal status of this guarantee is uncertain. It is not part of the treaty change itself, and MPs may argue that a guarantee that isn't anchored in the Treaties could well prove ineffective. After all, the UK has received guarantees before which proved to be pretty worthless (clue: Charter of Fundamental Rights, Working Time Directive). If MPs wake up to the legal ambiguity underpinning the 'guarantee' they may ask for something firmer in return for ratifying the treaty change.
  • The timing of the ratification will be crucial, i.e. if it coincides with some cataclysmic event or political row in Europe (there will be a few to choose from), it would make life potentially much more difficult for the UK government. The ratification certainly won't happen before the summer' that's for sure. 
  • Under the current agreement between eurozone leaders, the ESM is supposed to be up and running by 1 July (in parallel with the temporary bailout fund, the EFSF). This is important, because without the ESM in force, the lending capacity of the euro bailout funds will be a lot lower than markets are expecting, meaning more market nervousness, in particular as Spain is struggling.  
  • To make matters even more complicated, the treaty change itself isn't actually what's needed to approve the ESM in eurozone countries - for that, eurozone leaders have agreed a separate 'ESM treaty' which is now going through national parliaments in the eurozone. As you'd expect, this is by no means plain sailing as the treaty - for obvious reasons related to taxpayers' cash - is subject to controversy in Germany and the Netherlands, which are still to ratify it. Before the ESM treaty can become operational and lend money to countries and banks, it needs to be approved by eurozone countries accounting for at least 90% of the contributions to the fund (meaning that Germany, France, Italy and Spain have an effective veto).
  • And this is where things get rather bizarre.  Even if all euro countries manage to ratify the ESM treaty, the Germans originally said that they absolutely need the separate EU Treaty change for the ESM to be fully legal. However, since the UK won't have ratified the EU treaty changes by 1 July, the ESM will be up and running before the 'vital' Treaty change designed to make the whole construction legal is actually ratified in national parliaments. In other words, expect another batch of court cases to soon land in the in-tray of the German Constitutional Court in Karlsruhe.
Pretty messy - but then again, we're talking eurozone politics and EU 'law'. That one short line in the Queen's Speech hides so many complications...


Rik said...

1. There are very good reasons why Merkel wants these rules to be European ones. Both to avoid problems at home with the unconstitutionality as well as making it absolutely clear in all countries that this goes first and EU law is as high as it gets.
2. On the other side Merkel is clearly not overseeing the whole legal playfield. She has made several big mistakes in the past.
You basically go because of the delay that a courtcase might bring for the safe way. She has broken that rule several times.
Plus she keeps repeating them.
3. There are also good other reasons to do it this way. Working with different systems next (or better through) each other simply creates a legal mess and uncertainty. And is a guarantee for more Euro-mess in the future.

4. Starting from there it simply looks the best solution from an EZ-rescue point of view to do it this way.
5. However that means that we create a block that will most likely act as a block within the EU.
And subsequently might push its will through as there is no real opposition.

6. Basically this looks like a moment to rethink the whole set up of the EU. Answer questions like: do we want that much integration? Which things should be decided and in what way at what level? Etc.

7. Cameron imho should see this as one of the opportunities that might arise to change the EU set up, look at the UKs position in it etc.

8. That means requiring a long term strategy and having an idea where you want to go and if changes are realistic for other reasons, etc.

9. Imho ther time is about right to bring the issue up. Which can be done in a friendly atmosphere at this point. As well as it would give the opportunity to mobilise the opposition to a French style Europe. See what is possible and overthink eg the long term consequences of things.
10. Opposition partly like:
- everybody within the EU that thinks that it has gone far enough as well as:
- parties outside it (Turkey, Russia, US) as it would likely implivate a lot of protectionism;
- countries like Germany and Holland that cannot be really in favour of a french (proven non working model).

11. Especially for the last group, it also could be a welcome support. France and the other bankrupts on its left the rest of the world on its right might result into them getting exactly what they want (their model).

Imho the UK could use this issue to start that process.

12. For Cameron a bit opposition (against EU stuff) on the homefront and given in (well in PR friendly way of course) could do him good at home as well.

Denis Cooper said...

"Britain won a political declaration and an EU decision that the article that forced it to contribute to the EU-wide bailout funds, the EFSM, won't be used again (Article 122 - for background, see here and here). However, the legal status of this guarantee is uncertain. It is not part of the treaty change itself, and MPs may argue that a guarantee that isn't anchored in the Treaties could well prove ineffective."

To be more accurate, the preamble to the Decision does no more than record the fact that there had been a political declaration to that effect; because Article 122(2) would not be amended by the treaty change, and decisions under it would still be taken by QMV, there would be nothing to stop the leaders of other EU member states setting aside the previous political declaration, outvoting the UK and dragging us into future illegal bailouts based upon the abuse of that article.

Denis Cooper said...

Rik -

"7. Cameron imho should see this as one of the opportunities that might arise to change the EU set up, look at the UKs position in it etc.

8. That means requiring a long term strategy and having an idea where you want to go and if changes are realistic for other reasons, etc.

9. Imho ther time is about right to bring the issue up."

But the best time came and went in the summer of 2010, when Merkel had already started to mutter about the need for further EU treaty change even though the Lisbon Treaty had only come into force on December 1st 2009; however Cameron did nothing except agree to give Merkel what she wanted and ask for nothing substantive in exchange.

Denis Cooper said...

Going back through your references, I find this from July 5th 2010:

"1) As the CEP points out, the use of Article 122 in this way involves a heroic legal interpretation - particularly as the European Council has previously said that Article 122 must be compatible with the “no bail-out clause” in the EU treaties. The fact that Article 122 involves Qualified Majority Voting, rather than unanimity, makes it even more outrageous."

The EU leaders of that time did indeed say that, in a Declaration attached to the Nice Treaty, which moved decisions under that article from unanimity to QMV; but that was a political declaration and not legally binding, just like the more recent political declaration by a different set of EU leaders - some of whom have already been replaced/displaced - that Article 122 won't be abused in the future; and if the EU treaty change agreed through European Council Decision 2011/199/EU of March 25th goes through, Article 122 will still involve QMV rather than unanimity; and a future set of EU leaders could still abuse that Article 122 in the same way, and if necessary outvote the UK to do so.

Denis Cooper said...

"All 17 eurozone countries need to approve the ESM treaty before it can become operational and lend money to countries and banks."

That isn't the case; under its own terms, Article 48:

"This Treaty shall enter into force on the date when instruments of ratification, approval or acceptance have been deposited by signatories whose initial subscriptions represent no less than 90% of the total subscriptions set forth in Annex II."

Open Europe blog team said...

many thanks for your comments

@Denis - you're absolutely right on the number of countries that need to ratify the treaty (as we've pointed out in earlier post and press summaries). A slip on our part and we've updated the post to clarify the situation. Thanks for flagging it up.

Denis Cooper said...

Originally Merkel said that she must have that EU treaty change, to create a legal base in the EU treaties for the eurozone states to have their ESM treaty.

Everyone agreed, in various words which I could quote, that this was a necessary EU treaty change for that to happen.

For example, in December 2010 Cameron said:


"Enabling Eurozone countries to establish such a mechanism is in our interests."

But while googling for the exact Hansard link to that statement, with that word "enabling", bang! up comes this:


"Foreign Office Minister introduces EU Treaty Amendment Bill to the House of Lords"

"Foreign Office Minister Lord Howell said that the treaty change will help eurozone countries take forward a key aspect of their plan to resolve the crisis and secure financial stability."

"This treaty change is firmly in the UK’s national interest, since it makes explicit the ability of eurozone countries to set up a permanent European Stability Mechanism to support other eurozone countries in financial trouble."

So we've gone from "enabling eurozone countries", Cameron December 2010, to "help eurozone countries", and "it makes explicit the ability of eurozone countries", Howell May 2012; and we've gone from a treaty change which was previously said to be "necessary" to one which is merely "desirable":


"62. So we were extremely surprised by the Financial Secretary to the Treasury's comment, in his letter to us of 13 March, responding to our enquiry as to whether, as the ESM was now to come into force in July, ratification of the Treaty amendment would be brought forward, that:

It is not legally necessary for the Article 136 Treaty change to have been made before the ESM can come into force.

When we questioned the Minister about this he reiterated that:

It [the Treaty amendment] is desirable, but I do not think that it is necessary."

Why is it no longer considered "necessary"?

Because the "fiscal pact" episode has shown Merkel that she can bully other countries into an intergovernmental treaty which is illegal under the EU treaties, and the UK government will huff and puff for a bit but then cave in.

Rik said...

@Denis Cooper
Fully agree, but he unfortunately has no time machine. And looks to have his eyes not on the ball.
Imho you should stay away as far as possible from the EZ, it looks like the modern financial version of the plague.

Will Podmore said...

All of which leads to the conclusion that Britain would be better off out of the EU altogether.

Patrick Barron said...

The UK should get out of the EU. It offers nothing but added cost and constant meddling. Plus, as this issue so clearly demonstrates, nothing is ever settled. Is the UK a sovereign country or isn't it? If it is, then get out of the EU.

Rodney Atkinson said...

Your claim that the entry of Croatia into the EU would not be challenged may be true but it is quite frightening - for that State’s politics are an utter disgrace
The Simon Wiesenthal centre in 1991identified "The first refugees in the Yugoslav conflict were the 40,000 Serbs who fled Croatia after a constitutional amendment defined them as an alien minority." According to The Wiesenthal Centre death threats were sent to its investigators of ethnic crimes by a Croatian organization called the Anti-Jewish Movement saying they would "begin murdering Croatian Jews."

German Nazis helped to arm and train Croat fascist gangs in the 1990s who helped to drive 300,000 Serbs from the Krajina. They have not been allowed to return (I contacted the Foreign Office). When Alice Mahon the Labour MP visited former Serb villages in the Krajina in 1999 she said: "I can only conclude that the Croatian government is aiming for an ethnically pure state. The international community is tolerating these openly racist policies."

Two Croat Generals recently convicted at the Hague Tribunal of the most hideous crimes during the mass ethnic cleansing of Serbs in the Krajina have been declared innocent by the Croatian Roman Catholic Church and the Croat Government has mobilised its political and diplomatic forces in their defence.

Denis Cooper said...

Glad to see that your commentary about Article 122 being unaffected has found its way into the Times.