New European Treaty?

I don’t have time to write about this in detail now but reports that Germany and France are pushing forward with the idea of an amendment to the Lisbon Treaty are an important development (news story here and a nice article by Arthur Beesley here). Apparently they want to use a new Treaty to formalise the sovereign bailout fund that is currently set to expire in 2013 and to formalise sanctions for states that break new EU budget rules.

These announcements appear to hijack what was an ongoing process involving the Commission and a task force chaired by EU President Herman van Rompuy. This process had just arrived at this package of significant reforms, which the accompanying press release had emphasised were “compatible with the existing Treaty of Lisbon”.

I’m pretty unenthusiastic about this. I don’t see why Treaty reform is required to formalise a sovereign bailout fund, when the thing is currently up and running without any Treaty change. The political sanctions element doesn’t strike me as desirable. And the whole idea seems to underestimate the complete lack of appetite of the European public for more Treaties and referenda.

Given that this would require a referendum in Ireland and what would be on offer would be the possibility of political sanctions for Ireland, one might imagine the people who worried about us potentially losing a Commissioner under Lisbon might also get a bit excited.

27 replies on “New European Treaty?”

Apparently they want to use a new Treaty to formalise the sovereign bailout fund […] I’m pretty unenthusiastic about this. I don’t see why Treaty reform is required to formalise a sovereign bailout fund, when the thing is currently up and running without any Treaty change.

The ESRF is banned under Lisbon/the TFEU. ‘formalise’ is a very kind way to say ‘retroactively make legal’ here.

@ anonym

Nope. Don’t agree with that. TFEU allows it under Article 122

“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.”

Or at least that’s the article being used to justify it.

Furthermore, the supposed “no bailout” Article 125 just says member states can’t assume the debts of other countries — it doesn’t rule out lending them new money:

“A Member State 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 another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.”

This seems to me to be a bit more German steamrolling, fuelled by a “Bild” mentality.

It seems Merkel is worried about being out-flanked by the right wing of her party on issues like the Greek bailout and the possibility of Germany having to bailout other EZ members.

What the writers in Bild refuse to admit is that the bailout of Greece was really just a bailout of German banks and reinsurers.

They also fail to mention that without the Euro a free-floating Mark would be totally overvalued now with dire effect on Germany’s exports. In fact, Germany has been one of the big winners of the Euro project.

Add into the mix the fact that Germany held back the Basel III requirements to protect its incompetent Landesbanken, and I for one, am getting pretty sick their arrogance.

On the other hand, not sure why the French are being so gung-ho about this – there may be complicated political reasons for giving their backing to what must be a German initiative.

Monetary union without fiscal union = current state of affairs
Fiscal union without political union = taxation without representation
Political union = publicly unacceptable
Fiscal union = publicly unacceptable

Whats left?

Political sanctions seem almost childish to me. Off to the bold room with you Greece and Ireland, who wants to follow them?

European oversight of national budgets combined with centralised borrowing (good solution for he PIIGS, prevents future problems) would seem to be a more logical solution.

“Given that this would require a referendum in Ireland”
I’m not sure that’s the case. See article 48: (consolidated treaty).

I believe that the simplified amendment procedure could be used as a bailout fund would constitute an internal arrangement and so come under Part 3 of the treaty. No?

So as long as a national parliament doesn’t object within six months, the amendment can be made by the EU commission/council/parliament.

There are a number of interesting and important aspects to this.

1. EU governance is constrained by the legal process established in the treaties, but there is a continuing tension between the political decision-making in the Council and the legal process. As anonym points out, the EFSF is a political bolt-on, constructed under pressure, that doesn’t fit and has to brought in from the cold in a legal sense.
2. The real news here is that Germany has modified its stance on punitive automatic sanctions on signs of fiscal incontinence and has rowed into line with France’s more political approach which seeks to apply sanctions using QMV in the Council before and after the brown stuff hits the fan. The old motor of the EU is being repaired and the political EU project is being pursued with the necessary centralised fiscal governance of the EZ. The legal process will have to be brought in line and that is why amendments Lisbon/TFEU are being contemplated.
3. There is, of course, a certain amount of hypocrisy attending this focus on fiscal governance and requiring delinquent peripheral countries to front-up on bank system losses to protect the banking and pension fund systems in France and Germany from the implications of their ill-judged investments in these countries. But, then, the big boys always win.
4. The politcial and institutional EU – spurred on by this repaired Franco-German motor – seems determined to ignore the serious democratic deficit at the EU’s core. The European Parliament represents neither national parliaments nor a European demos. However, since the extent of executive dominance varies througout the EU, some national parliaments are able to exercise some control over the behaviour of their governments in the Council. With Ireland being at the extreme in terms of executive dominance the Oireachtas exercises none. As a result, some national parliaments may legitimately ratify changes to the TFEU, but in Ireland’s case it is entirely appropriate for proposed changes to be put directly to the people.

There is a requirement throughout the EU for national parliaments to exercise more control over their governments and to ensure that the European Parliament reflects the will of national parliaments and this could help to close the democratic deficit.

Ireland has a long way to go in this respect.

I think there is a bit of a tussle going on between those who want to take the inherent strutural problems of the single currency and kick the can down the road (sound familiar?) and those who want to try to tackle them.

Those who believe the structural issues are both real and need to be met head on also tend to think, obviously, that deeper fiscal union is required. But they also typically believe that countries have been allowed to join the union who had no place doing so, both from their own perspective and in the interests of the euro itself. If, pragmatically, no country can be forecefully ejected then a second best solution is to say to that country: accept the consequences of being allowed to stay in. Those consequences flow from forced fiscal stabilisation (persistent deflation – see the discussion of Ireland’s GDP deflator on another thread today) and allowing for, and preparing for, possible default within the union. This has become a very real game of consequences.

@Karl Whelan

The Greek public deficit is not a natural disaster, strictly speaking. That leaves “exceptional occurrences beyond its control”. But while the Greek public deficit may be out of control on quite a few levels, it’s obviously not beyond the control of the Greek state in any strict legal sense. As you know, the European institutions have been reduced to pretending that the “exceptional occurrence” causing the Greek funding crisis is not Greece’s actual creditworthiness but an outbreak of mass psychosis among the world’s bond purchasers, who have all suddenly succumbed to an irrational shared delusion that Greece might not pay back all its debt without assistance. I’m certain you’re not going to defend this idea. Future sovereign rescues under the EFSF would fail these criteria in just the same way as Greece’s ad-hoc arrangement.

It this amendment were past and our deficit remained above 3% and our voting rights were suspended, wouldn’t we then be powerless to reject a move to harmonise corporate tax rates with the EU?

I haven’t read anywhere (except the IT) that political sanctions are being taken seriously. i suspect it’s incorrect, or at the most, is a political kite to measure the mood among other MSs.

As a general Europhile, I am hugely sceptical that anything like this will ever see the light of day. It flies in the face of what the EU is and aspires to be. Membership is unnegotiable, it is not something that can be given and taken away on a vote by Council. Every MS is represented in the institutions by right, not by the whim of the others. That is the fundamental trade-off for submitting domestic law to European law. It’s not something that can just be upended in a panic.

I suspect that Madam has gotten the wrong end of the stick, or at the least is reacting hysterically to some extremist views that have been circulating. It is unthinkable to me that voting rights would be suspended over fiscal indiscipline, or anything of that nature.

There is provision in TEU for a suspension of voting rights if there is a threat to democratic principles in a MS. This was previously used when Jorg Haader was elected in Austria -and even then it was only used nominally for a couple of weeks to register displeasure. The idea of extending this principle to countries in budgetary difficulty is absurd and shows no understanding of how the EU works. There is a big difference between failing to balance your budget and voting in a neo-Nazi government.

To equate, would Californian representatives be denied entry to congress if their State fails to balance its budget? Should Sean Fitzpatrick lose his irish citizenship? The suggestion is absurd.

There is provision in TEU for a suspension of voting rights if there is a threat to democratic principles in a MS.

Come to think of it, isn’t France due a tap of that stick just now?

@ HoganMahew,
no. Internal arrangements only effect the way decisions are taken internally. Whereas, this proposal constitutes several changes to the nature of the EU and what it actually does. Therefore this procedure is not available.

Furthermore, even if it was available, that would only mean that the treaties could be amended without an intergovernmental conference. Whereas the necessity of a referendum in ireland is based in the Irish constitution -not in the procedures of the EU.

The Irish constitution States that all sovereignty belongs to the people and the Government has no right to give this away. Therefore, even if the simplified procedure was available to amend the European treaties, the Irish Government is not authorised to agree to this without seeking the peoples consent.

@ Justin Collery.
I agree with all of that (except centralised borrowing).

Especially as the Common Economic Policy did little to prevent the crisis with the tools it did have available to it. The problem is not that the Common Economic Policy lacks teeth (although it does), but that it (like everyone) did not see this coming. The Greek problem was hidden by crooked accounting, the Irish problem was partly hidden (banks) and partly lauded (bubble).

The power to suspend voting rights would have done little when there was no appreciation that there was a problem in the first place.

@ Anonym
Ha! Well they are being fairly aggressive. They are exploiting a temporary loophole in EU law, while the transitional period for Romania is still in effect.

Personally, I believe they are (just about) within the law -even if I think what they’re doing is sick. I suspect the Commission has come to the same conclusion, which is why they eventually backed down.

However, the transitional period for Bulgaria/Romania will have to end sometime before 2014. Further, if there is any escalation or actionable discrimination in France’s actions, they will most likely fall foul of the general ban on racial discrimination (which they are arguably avoiding at present).

@ Ger
Centralised borrowing gives it the teeth. You can’t spend if you don’t have the money. One would sell it as lower borrowing rates for the PIIGS, but make no mistake, it’s a control mechanism. It’s also more flexible than a hard % limit, emergencies do happen.

If I was in a really bad mood, I’d also put in a 3 step mechanism to eject countries from the Euro at the same time. If a country decides to go on a solo borrowing run we start off with step 1 of kicking them out and see how the economy fairs with a flight of capital. Of course, this would never happen, only a madman would contemplate leaving the Euro…

The Economist has kindly provided the text of the Franco-German Deauville Agreement:

If the proposals for fiscal governance and the possible evolution of the EFSF into a European Monetary Fund are to have enduring legitimacy and effect, treaty amendments will be required. Neither the French nor Germans seem to be keen on ‘cute hoor’, ‘backdoor’ stretching of existing provisions of the treaty.

Of course, just because the Germans and French agree does not mean this will happen; but I wouldn’t bet against it.

Lil ole Ireland will just have to get its act together.

“Furthermore, even if it was available, that would only mean that the treaties could be amended without an intergovernmental conference. Whereas the necessity of a referendum in ireland is based in the Irish constitution -not in the procedures of the EU.”
Well, the Lisbon treaty is part of the constitution. That’s why we had a referendum on it the last time. If this is law under Lisbon, it is constitutional in Ireland.

I dispute your notion that Part 3 of the treaty “only effect the way decisions are taken internally.” Article 122, for example, is in Part 3. So is the current setup of the ESCB. So are pretty much everything to do with the way the union operates internally. Please excuse the link to a random blog post, but I don’t have the time to cover this fully, Wargle has done in the past, though:

Isn’t it to be presumed that Germany/France are engaged in what Dick Morris referred to as triangulation? My bet is that the parts of the agreement dealing with political sanctions will be traded away to secure the passage of the rest.

@ Justin
“only a madman would contemplate leaving the Euro…” voluntarily!!!!
We mightn’t get many options.
A few years ago a meltdown on this scale was unthinkable, being forced to leave the Euro is not that far fetched any more.

@ Hoganmahew
if you read what that link says, the answer is there. You can’t extend competence without a referendum. That’s not the case in every MS, but it is the case in IE.

Perhaps, the Irish body politics is neither ready nor fit for purpose in operating the fiscal levers of a modern economy. Isn’t that what the Sarkozy-Merkel doctrine is saying? Countries that won’t or can’t shape up will be shipped out (not by way of canceling their membership but by making them financially unattractive to investors).

I noticed tonight that Lenihan has once again reduced the growth forecast to somewhere north of zero making the 3% target more difficult to achieve. Really? Another case of wondering where the wheel will stop as if the myriad other crashes at the guess-the-debt machine weren’t enough. Constant stumbling over figures, influenced by some unique form of bipolar optimism is exactly what irritates the Germans.

I agree with you that competence can’t be extended. However, competence has already been established by Maastricht over budgets, borrowing and deficits. The Fecked Sovereigns Fund has been created under the existing treaty. A longer term framework can’t be dismissed.

The wording of the bailout Article can be amended.

The competence to penalise for budgetary, debt and deficit transgressions is already established.

The treaty is amendable for these provisions. It could be pushed through without a referendum. I would guess, though, that the powers that be would prefer that an enabling act is voted on and passed by a majority of the population. There could be no complaint about effects or divorce as a result.

… Angela and Niclas are gettin a little too fond of the Tango – think they need to slow it down to a relaxing Viennese Waltz …..

“A useful crisis” virtually demands further deepening and widening of the EU experiment?

First they set out certain terms that may get acceptance, then o0ther terms get floated, then m ore extreme terms until a halt is called. The debate continues as the depression deepens and eventually, a new treaty is agreed. Predictable circumstances and predictable consequences. Economic warfare accomplishing a political objective, made easy in Ireland due to incompetence and compliance of opposition parties.

Ireland has a history of holding up progress on EU matters.


The Fecked Sovereigns Fund has been created under the existing treaty.

It has been created in defiance of the existing treaty. Though that’s not exactly a reason to doubt that the core two will be able to do whatever it is they want to do next, of course.

So long as the new treaty would transfer more power to the EU institutions and take power from the Dail it has my vote. Seriously, what is so wrong with being run by people who have long experience of strategic economic planning? Our vastly expensive executive is populated by local councilors, the vast majority of whom are incapable of seeing, let alone understanding, the big picture (we are a very small country with increasingly limited resources which means we have to rationalize public services resulting in the closure of schools, hospitals and third level institutions.)

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