Tag Archives: revision

The Tedious Necessity of Treaty Revisions

The spirit of reform is haunting Europe once again. There’s talk of political union, scrapping EU institutions, and even leaving the European Union altogether. I can only sympathize with this spirit of reform and creative destruction. But one thing worries me – the lack of apprehension of the legal foundation of the EU.

The European Union is not a tribal clan. It is a supranational organization based on law, and encompassing an intricate network of rules that makes the whole thing possible. Having ideas about reform is cool, but reform necessitates the revision of the Treaties by the prescribed procedures.

That is why a political union cannot happen on a short notice. It will have to go the long way through the ordinary revision procedure, since it will provide new powers to the EU (art. 48 TEU). This is also the case with scrapping the European Economic and Social Committee, for example (it changes the institutional framework of the EU). As for the potential quitting of the EU by the United Kingdom, a more detailed legal analysis is needed in order to calculate all the costs and provisional time-frames for such a move.

Whatever the spirit of reform brings to the table, we need to execute reform legally. Backdoors are not available (see the position of Otmar Issing against the adoption of a political union through the backdoor of a monetary union).

 

 

The Technicalities of Eurozone Breakup

The concept of eurozone breakup is not new, and I have mentioned it before. But now more and more voices warn of this threat. One important observer of European affairs, Gideon Rachman, says that the single currency will indeed eventually break up – and that the euro’s executioner will be Germany. On the other hand a prominent US economist, Barry Eichengreen, says that the euro is an example of a path-dependent historical process that is unlikely to be reversed. None other than Angela Merkel said that “if the euro fails, then Europe fails”. But is this really true?

The markets signal mistrust. Even Mrs. Merkel admits that the eurozone is facing “an exceptionally serious situation”. In any case the possible breakup of the eurozone is a matter of speculation.

That being said, there’s not much discussion on the technicalities of the eurozone breakup, and that is a hugely important aspect. It is very important mainly because of the legal basis of the eurozone and its structural place in the legal framework of the European Union.

Barry Eichengreen again is probably the only person who wrote a whole scientific paper on the subject, claiming that the technical difficulties would be quite formidable. He notes that redenomination in national currencies may pose some real difficulties, especially in determining the scope of redenomination. But his analysis focuses mainly on the exit of a single country or a group of countries from the eurozone, and not on the breakup of the eurozone as a whole.

More recently Wolfgang Münchau and Susanne Mundschenk have written an analysis for Eurointelligence that considers the legal implications of both the exit of a single country from the eurozone, and the breakup of the eurozone altogether. The authors note that the European Treaties have no provision for an exit clause from the euro area, just as there is no provision for an exit from the CAP. They claim that it is virtually impossible for a member state to leave the euro area, devalue, and remain in the EU. They also dismiss the argument that Germany’s persistent trade surplus will eventually cause the collapse of the euro area. But in their paper they do not consider the technicalities of a possible breakup if it occurs.

The truth is that the breakup of the eurozone goes through a Treaty amendment. This may be a simplified procedure (art. 48, para. 6 TEU) since the provisions on economic and monetary policy are in part III of TFEU, and the breakup of the eurozone does not increase the competences conferred on the EU. Such a breakup is only possible through a unanimous decision of the European Council, though. That means that all member States must agree on the dissolution of the Economic and Monetary Union in its present form. The real challenge will be to agree on initial redenomination rates.

However unlikely that is, I would like to point out that there is, indeed, a legal mechanism for the breakup of the eurozone. This breakup will only happen if all Member States agree that the euro is not a sustainable currency. To me it sounds much easier to prevent this breakup from happening in the first place. But should Member States fail to act on the euro crisis, a breakup of the eurozone remains legally and technically possible.

As for the claims that if the euro fails, then Europe fails, I disagree. It is better to have limited, but consensual integration process, than to have secession or atrophy.

 

 

New Insights on Possible Treaty Amendments

The idea for an amendment of the founding Treaties in order to accommodate a permanent bail-out mechanism is on the table after the last European Council meeting. Now there are new developments and opinions that touch on this subject.

CEPS has published three reports that contemplate on possible Treaty amendments – a post-mortem on the European Council, an overview of revision procedures under the Lisbon Treaty, and a more specific overview of the practicalities of the Lisbon Treaty revision(s). All documents suggest that a limited revision of the Treaties is achievable. The more specific proposals are:

  • amending art. 122 TFEU, and including a reference to financial stability (plus a permanent European Financial Stability Facility – EFSF, created on an intergovernmental basis), or
  • adding a reference to art. 143 TFEU – the legal basis to extend the existing EU support mechanism to non-euro area member countries in art. 136 TFEU – the special Treaty article for the euro area countries.

The authors note that the viability of both approaches will depend on the interpretation whether such an amendment would affect the no-bailout clause in Art. 125 TFEU, thereby changing the nature of monetary union and creating a fiscal transfer union (in German Transferunion). Additionally, it is arguable whether such an amendment would constitute a change to the “essential scope and objectives” of the EU, thus requiring an ordinary revision procedure.

Meanwhile some Dutch parties are trying to force a preliminary referendum on any pending Lisbon Treaty amendments.

It appears that any proposal for Treaty amendment must be considered very carefully in the light of possible ratification, as well as taking into account the no-bailout clause of art. 125 TFEU. My personal conviction is that any institutionalisation of a permanent bailout mechanism is legally troublesome, and in any case should be subject to ordinary revision procedure. But first of all we need to see the amendments in print before speculating on their legal essence.

First Revision of the Treaties after Lisbon

You may have heard of it – one of the leftovers of the Treaty of Lisbon is the question about the 18 missing MEP seats. The 2009 European Parliament elections were conducted under the old rules with a total of 736 MEPs, because the Treaty of Lisbon was not yet in force. Under the Treaty of Lisbon there had to be 754 MEPs. That is why 18 MEPs could not take their places unless a new Intergovernmental conference (IGC) was conducted, and a Treaty amendment was ratified.

This IGC has speedily approved the text of the amendment, and so has the European Parliament. But the 18 MEPs will only be able to take their places in the EP after the ratification process is concluded in all the 27 Member States.

Does the EMF Require a Treaty Revision?

Angela Merkel says that a European Monetary Fund (EMF) could not be created without treaty changes. The reasoning is in the no-bailout clause (art. 125 TFEU). The exact wording is:

“The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.”

Now, some (such as Daniela Schwarzer) claim that another clause – art. 122 TFEU – should apply:

“Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned.”

The initial proposers of the EMF say that the drafters of the Maastricht Treaty had failed to appreciate that, in a context of fragile financial markets, the real danger of a financial meltdown makes a ‘pure’ no-bail-out response unrealistic.

The question is deadly serious – should we create the EMF on the current legal basis or should we amend the treaties?

To my opinion we definitely should amend the treaties first. In both Mrs. Schwarzer’s, and Mr. Gros’s and Mr. Mayer’s opinions we do not encounter any serious legal analysis of the no-bailout clause. They say that the urgency of the situation justifies the amendment, albeit circumventing, in a way, the TFEU.

The problem from my perspective lies in art. 122 TFEU in particular. The phrase “beyond its control” to me means that we should assess – case by case – the causality of the exceptional occurrences. It is clear to everyone that maintaining budget discipline IS in the control of national governments. Any interpretation of the current financial crisis as a force majeure is not convincing, since it would imply a systemic event has incapacitated the fiscal governance abilities of some (but not all) Member States.

The urgency of the situation is a different matter. It may well be true that without a bailout a bigger crisis might emerge. But we need to ask ourselves what is that we value more – a community based on law or something else.