New treaty ready ‘by March’

Germany says the treaty would have “everything of substance” needed to protect the euro in the long term.

Eurozone countries are aiming to finalise by March a new treaty that will oblige governments to exercise greater discipline over public finances.

At the end of the two-day summit, Angela Merkel, Germany’s chancellor, said that she was satisfied with what had been agreed because it included “everything of substance” she had wanted on tougher economic rules to protect the euro. 

Herman Van Rompuy, the president of the European Council, said that the inter-governmental “fiscal compact treaty” would be open to all countries outside the eurozone.

The decision to create a new treaty outside the existing EU’s treaties was taken in the early hours of this morning (9 December) after David Cameron, the UK’s prime minister, vetoed plans to revise the EU’s existing treaties to introduce tougher rules on national budgets and public deficits.

Van Rompuy and Merkel said they hoped that the new treaty would be incorporated into the EU treaties in the future.

Merkel drew a comparison with the Schengen treaty creating a border-free travel area. The Schengen treaty was agreed by a group of member states and eventually fully incorporated into the EU’s treaties.

Debt rules

The treaty will set out stricter rules for a “fiscal compact”. These include a legal requirement for participating countries to balance their budgets through a ‘debt brake’ written into national constitutions or primary law. Under the agreement reached today, countries that fail to respect limits on debt and deficit levels would be subject to almost automatic sanctions – these sanctions could be blocked only by a weighted majority of member states.

Fact File

The legal path to the new treaty

The principal purpose of the inter-governmental treaty is to bind the member states of the eurozone (plus however many of those outside the eurozone wish to sign up) to comply with fiscal discipline.

The existing article 126 of the treaty on the functioning of the European Union lays down that the European Commission must monitor the deficit and debt of each member state. On advice and recommendations from the Commission, the EU’s member states – through the Council of Ministers – decide, successively, whether an excessive deficit exists, what remedial action to recommend to the member state concerned and whether to take sanctions against a member state in the event of non-compliance. Those Council decisions are to be taken by a qualified majority of all the other member states.

What Germany had sought, in the run-up to the European Council, was that article 126 should be changed, so that the Commission recommendations would apply, unless there was a qualified majority of member states against the proposal.

But the UK’s refusal to permit a treaty change prevented this re-writing of the article. The UK also refused to permit a change to Protocol 12, which was attached to article 126 – the course that had been suggested by Herman Van Rompuy, the president of the European Council.

Changing the EU’s treaties was not, in the face of the UK veto, a practical option, so the member states of the eurozone now intend to conclude a treaty between themselves that makes promises about their voting behaviour to the same effect: that where a member state breaches the rules on deficits, the other member states will vote in favour of the proposals for sanctions. The only difference would be that the Commission could not make such proposals (because the Commission is not a party to an inter-governmental treaty), so the proposal (to decide that a country is in breach of deficit rules, or should have to take remedial action, or be punished for failing to remedy a deficit) would have to come from the other member states.

The parties to the inter-governmental treaty can, according to article 273 of the treaty, agree among themselves that the European Court of Justice will have jurisdiction over their treaty, which is what they intend to do in this case.

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Van Rompuy said that there were advantages to an inter-governmental treaty. “An inter-governmental treaty can be approved and ratified much more rapidly,” he said.

Van Rompuy said that legal enforcement would not be as strong with an inter-governmental treaty, but that the effect could be the same provided countries showed sufficient commitment.

Role of institutions

Merkel said that the EU institutions would be closely involved in ensuring compliance with the new inter-governmental treaty’s rules. She made an analogy with the European Commission’s assistance in preparing meetings of the finance ministers from the eurozone and the EU.

José Manuel Barroso, the president of the Commission, said that he had ensured that the European Parliament would be involved as observers in the process of drawing up the new treaty.

Officials from the Council of Ministers say that a first draft could be ready within two weeks. It would then need revision and agreement by national governments. The target date is March, as Van Rompuy indicated. The treaty would then need ratification by member states.

The eurozone leaders’ statement at the end of the summit says that many changes to bring in tougher fiscal discipline rules can be achieved through secondary legislation. Leaders agreed, for example, that there should be quick approval by the Council of Ministers and the European Parliament of proposals presented in November to strengthen the powers of the Commission in their surveillance of national budgets.

Some officials believe that a treaty on the eurozone’s permanent bail-out fund, the European Stability Mechanism (ESM), could be re-opened to include some of the changes needed for the fiscal compact.

Van Rompuy said that the ESM treaty would be finalised in the coming days but it has not yet been fully ratified, which offers an opportunity to examine further changes.