New Fiscal Compact Draft

Via the IIEA blog, a new leaked draft of the proposed fiscal compact. Importantly for Ireland, the wording that balanced budget laws need to be “constitutional or equivalent” has been replaced with “preferably constitutional”.

52 thoughts on “New Fiscal Compact Draft”

  1. This is a bit strange.
    Only one question on a quick skim of this and its probably somethinh i missed but why would a country want to be a contracting party?

  2. I read elsewhere that the Commission will not now be responsible for enforcing the rules, but rather that MSs would be entitled to take each other to court to enforce the rules.

    This looks rather similar to the impractical structure of the Stability and Growth pact. i.e. MSs are supposed to police each other.

    I cannot for the life of me figure out what they are trying to achieve by all this. Is there some sort of solution to the crisis that is to be a quid pro quo for this compact?

    If fiscal rules alone were the solution then the program countries would all be being feted by the markets as they are locked into very strict rules.

  3. Let us not get distracted too much by whether these fiscal rules must be ‘constitutional’ or not. First, the more important question is whether such fiscal rules would make for good policy, not the variety of national norm needed to implement them at the national level. Second, binding European obligations of ‘constitutional status’ are often implemented by national statutory arrangements – the implementation of European law supremacy in the United Kingdom by an ordinary statute (the European Communities Act) is only one example. Third, although I do not have the relevant chapter of Hogan and Whelan’s book to hand, and thus stand to be corrected, I do not think the Irish Supreme Court’s test as to whether a European treaty change requires a constitutional amendment (and thus referendum) in Ireland hinges on whether the new treaty’s obligation requires an amendment to the Irish constitution, but rather the political importance of the treaty-mandated policy change in question. There it would be entirely possible for a European treaty which only required national budgetary rules to be implemented by a national statute to nonetheless require an amendment to the Irish constitution before it could be ratified.

  4. Pity they didn’t have those rules a decade ago. Appears to me its a contract for a new European core of members states. Peripherals destroyed by debt have nothing in those new rules to get them out of the situation they find themselves in. In that sense its another fudge ignoring the real elephant in the room, which is how peripherals can extract themselves from the stranglehold of debt.

    It includes the absurd “CONSCIOUS of the need to ensure that their deficits do not exceed 3 % of their gross domestic product at market prices and that government debt does not exceed, or is sufficiently declining
    towards, 60 % of their gross domestic product at market prices,”

    Absurd because it hasn’t a mechanism to burn bondholders and restructure
    through the EFSF deals to enable peripherals to fulfill those desired goals….in that sense ‘sufficiently declining towards’ is pure rubbish and meaningless. As a matter of fact, the caveat, ‘sufficiently declining towards’ is a caveat that provides so wide a scope of interpretation they could have left out the 3% requirement and 60% markers in their entirety.

  5. @Karl

    I know this is off topic, but I was wondering if you will be posting a follow up on the Target2 debate, following Martin Wolf’s blog entry on the subject.

    http://blogs.ft.com/martin-wolf-exchange/2012/01/09/the-delicate-balance-of-fixing-the-eurozone/#axzz1jAHADj8s

    He is supportive of Sinn’s view that T2 imbalances are important and argues that much of the collateral offered by banks in receipt of funding would be worthless without the funding itself.

    I note that there is no discussion of Sinn’s previous argument of credit rationing where T2 funding to banks in Ireland, say, affected the Bundesbank’s ability to lend to German banks.

    It would be interesting to hear thoughts…

  6. The euro gestation in the 90s and its Birth in the 00s has done just too much damage to the physical space in which we work rest & play.

    Walked through the centre of Cork & many many shops are closed or closing – I have never seen anything like it.
    Meanwhile car centric places such as Mahon point are expanding sucking the remaining life from the city centre.
    This is not how commerce works effiecently.
    Something is seriously wrong with our input & output signals.

    We cannot continue to work with this non optimum currency – lets face it the period from 1979 onwards has been a disaster for long term ROI.

    We now have a deformed caricature of a country.

  7. @ All

    As all versions of the negotiating drafts are now available, it is an interesting exercise to note where the main political changes have occurred, apart from the mentioned dropping of the absolute requirement with regard to constitutional change and leaving aside the finer legal points which will only be obvious, one assumes, to the legal eagles.

    The first notable change is the new recital (listed last) at page 3;

    “STRESSING the importance of the Treaty establishing the European Stability Mechanism as an element of a global strategy to strengthen the Economic and Monetary Union and POINTING OUT that compliance with Article 3(2) shall be considered as a condition for the granting of assistance
    under the European Stability Mechanism as soon as the transposition period mentioned in Article 3(2) has expired.”

    Whether this will survive in the final agreement remains to be seen.

    New sentence in Article 7. “This obligation shall not apply where it is apparent among the Contracting Parties whose currency is the euro that a qualified majority of them, calculated by analogy with the relevant
    provisions of the European Union Treaties without taking into account the position of the Contracting Party concerned, is of another view”.

    The spirit of Deauville is alive and well!

    The Commission can no longer take an action on behalf of a Member State (change to Article 8).

    With regard to the change from 9 to 15 – and now back to 12 as the latest draft has it – as the minimum number of ratifications for the treaty to come into effect, it is worth noting the (unchanged) wording of Article 14.5. “This Treaty shall apply to the Contracting Parties with a derogation as defined in Article 139(1) of the Treaty on the Functioning of the European Union, or with an exemption as defined in Protocol No 16 on certain provisions related to Denmark annexed to the European Union Treaties, which have ratified it, as from the day when the decision abrogating that derogation or exemption takes effect, unless the Contracting Party concerned declares its intention to be bound at an earlier date by all or part of the provisions in Titles III and IV of this Treaty”.

    This is, of course, the option that the UK should have signed up to.

    @ William Phelan

    The text in question is an international treaty presumably governed by the relevant articles in the Constitution, not those relating to the EU. Ireland has always been free to sign international treaties, and ratify them subject to Dáil approval, as long as doing so is not in conflict with the country’s EU obligations. As the treaty now in question stipulates unequivocally in its Article 2 that it cannot be in conflict with the EU treaties, one wonders how a requirement for a referendum could arise.

  8. Ireland has always been free to sign international treaties, and ratify them subject to Dáil approval, as long as doing so is not in conflict with the country’s EU obligations.

    Rather “as long as doing so is not in conflict with the Irish Constitution”, which has been interpreted to require a referendum for transfers of sovereignty of sufficient political importance. Just as the argument in Crotty was the the SEA would restrict the State’s power to determine its foreign relations, which could not be alienated without approval of the Irish people in referendum, so the argument re. the new treaty would be that it would restrict the State’s power to determine its budgetary policy, necessitating a similar referendum. Indeed, in terms of political importance, the fiscal compact is likely to have a much more significant impact on Irish budget-making, and indeed Irish politics and Irish society more generally, than the SEA had on Irish foreign policy autonomy.

    Of course, the courts will have to make their decision. The important point here is that 1. that whether the fiscal compact requires constitutional rules or not is not determinative of whether the Irish constitution will require a referendum for such a treaty to be ratified – a referendum requirement is quite likely either way – and 2. that the more important debate, certainly for this blog, is whether these fiscal rules are a good idea or not.

  9. @ William Phelan

    With such an argument, a case could evidently be made that the MOU under which Ireland enjoys such budgetary freedom at the moment should be tested for its constitutionality.

  10. “CONSCIOUS of the need to ensure that their deficits do not exceed 3 % of their gross domestic product at market prices and that government debt does not exceed, or is sufficiently declining towards, 60 % of their gross domestic product at market prices,”

    Is the debt measured at market prices rather than nominal value significant?
    Especially for the PIIGS

  11. Any conflict with this?

    http://www.europeanlawmonitor.org/eu-legal-principles/eu-law-what-is-the-principle-of-proportionality-a-subsidiarity.html

    I like this interpretation from the above link:
    “What is the Principle of Proportionality & Subsidiarity?

    The principle of proportionality and subsidiarity is extremely important because it underlies everything the European Union does in areas where it does not have the right of exclusive competence.

    In plain English it means that the EU should not get involved in matters which do not concern it.”

  12. More worrying – is this the best that Europe can do! Is this what our government will sacrifice the future of this country for?

  13. @DOCM

    “STRESSING ……POINTING OUT that compliance with Article 3(2) shall be considered as a condition for the granting of assistance
    under the European Stability Mechanism as soon as the transposition period mentioned in Article 3(2) has expired.”

    Are you referring to Article 3.2
    “In all the activities referred to in this Article, the Community shall aim to eliminate inequalities, and to promote equality, between men and women.”

    of the CONSOLIDATED VERSION OF THE TREATY ESTABLISHING THE EUROPEAN COMMUNITY.

    If you get the time perhaps you give a layman’s update. I would be interested. I don’t have the time right now to read and research.

  14. @ Jesper

    Were the stipulations in the inter-governmental treaty to be included in the EU treaties proper, it is near certain that they would meet the tests of proportionality and subsidiarity as they are the logical consequence of the creation of the single currency. To take but one text, Article 119.3 TFEU stipulates that the activities associated with economic and monetary union, including the single currency, the euro, “shall entail compliance with the following guiding principles: stable prices, sound public finances and monetary conditions and a sustainable balance of payments”.

    In plain English, it means that most countries of the EU are getting involved in matters which do concern them as members of the EU and in a manner entirely in accordance with their commitments under the treaties. Their experience is to be reviewed within five years “with the aim of incorporating the substance of this Treaty into the legal framework of the European Union” (Article 16 of latest draft).

  15. Can I just ask again: What is the incentive for a country to become a contracting party.
    This is a little bit like joining weight watchers for sovereign debt with the only difference being that you cannot leave this club once you sign up.
    Who would do this?

  16. @ Joseph Ryan

    The article is in the draft text of the REU treaty.

    Article 3.2 reads;

    “2. The rules mentioned under paragraph 1 shall take effect in the national law of the Contracting Parties within one year of the entry into force of this Treaty through provisions of binding force and permanent character, preferably constitutional, that are guaranteed to be respected throughout the national budgetary processes. The Contracting Parties shall in particular put in place at national level, on the basis of principles agreed on a proposal from the European Commission, a correction mechanism to be triggered automatically in the event of significant deviations from the
    medium term objective or the adjustment path towards it, as specified in the revised Stability and Growth Pact. The mechanism shall include the obligation of the Contracting Parties to implement measures to correct the deviations over a defined period of time. It shall fully respect the
    responsibilities of national Parliaments”.

    It may be noted that there is no operational text in the draft to give effect to the recital, hence my doubt as to whether it will remain in the final agreed text.

    You will note the last sentence. Respecting the rights of the Dáil in budgetary matters under the REU treaty should be no problem as they are extremely limited. The Dáil can essentially vote the budget or reject it. It also has to give its approval to international agreements – other than purely technical agreements – with financial implications as is obviously the case with regard to the REU treaty.

    The governments signing up to this treaty would remain fully responsible for their budgets, as is the case under the existing programme for Ireland, but they must meet the commitments they have undertaken
    internationally. At least, that is my reading of the situation.

  17. How is the structural deficit to be measured? I thought this was an unknowable variable until long after the fact.

  18. It appears to me that the Irish electorate have deep seated fears about the EC being in a position to punish governments for acting irresponsibly. Referendums were another short term ploy to placate the electorate at a time when the Gov’t were unwilling or unable to sell a piece of legislation and win the next election. Our Gov’ts get hoist by their own petards repeatedly. Does anyone seriously believe that left to its own devices our Gov’t will lead us to prosperity faster than would occur if we sign up and follow the guidance of the EC and ECB.

    I would not rule out a few quick changes of Gov’t leading to the 1932 scenario where “ourselves alone” thinking predominated followed by the inevitable half century of stagnation and abject poverty. While there are many similarities between us and member states of the EU we differ in one respect and that is the Clan/Tribe instinct where we built raised platforms in shallow lakes and assembled and disassembled the bridge morning and evening. Some of this thinking lingers on along with our love affair with the Gaelic language and aversion to learning modern languages.

    I fervently hope that we do not go for the quick political fix and anchor our boat in a lake that will rise all boats and not drain and leave us high and dry.

  19. Article 8 of the draft compact seems to involve jumping through a whole set of legal hoops. I’d be quite dubious about its legal underpinnings. It seeks to give the ECJ powers to enforce the souped-up excessive deficit rules of article 3. Usually EU countries or the commission can bring a state it considers is in violation of its treaty obligations before the ECJ. The state then has to comply with its ruling (see articles 258-260 of the TFEU). However TFEU article 126.10 specifically excludes any such appeals to the ECJ for violations of the excessive deficit procedure (the 3% and 60% rules). Essentially article 8 of the new draft compact is a workaround to this rather inconvenient article. In effect, it would would be the same as if TFEU article 126.10 was simply deleted. Will the ECJ even play ball on this? Would it enforce the 3% or 60% rules on a country when the actual EU treaties say it really isn’t supposed to? IMO the ECJ playing along with this would be a worrying indication that EU treaty law is actually a fairly malleable thing.

  20. @ Finbar Lehane

    A good point! However, there is an inconsistency in the treaty itself in that Article 126.14 sets out the arrangements under which the Protocol on the Excessive Deficit Procedure could be converted into one or more legislative instruments which could hardly be excluded from the remit of the ECJ.

    The ideal solution would have been simply to amend the treaties (by a deletion in the case of Article 126.10 as you suggest). But we are where we are!

    I doubt whether any actions will actually be taken under the article in the REU treaty and the matter will be tidied up when its overall provisions are folded into the treaties in due course.

  21. Using the same currency does not provide any justification whatsoever for interfering with a sovereign nations affairs. The banking crisis we’re seeing now is serious enough to, without the shadow of a doubt, justify heavy regulation of banks.

  22. @Jesper
    You cannot regulate your landlord.
    He owns your wealth…..he effectivally owns you.

    Ireland is not a country – it never was , its a Giant estate.

    Sometimes its moderately well managed with some intelligent improvement works & the like , most of the time we have agents in Dublin running the shop…. into the ground.
    Meanwhile the foppish Landlord is whoring around Europe getting a yield from his Bank Bonds.
    He does not care what his agent gets up to once he gets a constant Yield.

    If things get real bad he calls some influential people in London and now elsewhere on the Continent to sort things out.
    Send a mission , Garrison a town or something.

    DO SOMETHING WOULD YOU – I need to go to Venice to do some thingies………..

  23. @DOCM
    Presumably there’s nothing stopping the ECJ from making a ruling which takes the excessive deficit provisions into account (or any such provisions updated using article 126.14). E.g. suppose the commission produced a report on a country giving it a black mark in terms of the deficit it was running, the country then felt aggrieved and hard done by, and so appealed to the ECJ. But whatever about making rulings on excessive deficit procedures, I think what 126.10 makes clear is that the ECJ can’t enforce such rules on a country.

    126.10 is most inconvenient in terms of what the drafters of this treaty are trying to achieve. But it’s still there! I guess the signatories will just close their eyes, cover their ears, pretend this clause doesn’t exist, and hope to God it never gets to the stage where all this is actually tested.

  24. Ok – I’m missing something major here obviously but why would a country become a contracting party here.
    Let’s say Ireland does not become a contracting party to this – what’s the big deal. 2018 the thing becomes universal in theory – why not worry about it then?
    I can see France, Germany, Luxembourg, Belgium, Holland and Italy sign up to this. That still leaves them needing 6 others. Where are they? What’s in it for them?
    Where’s the growth? WHere are the transfers to maintain healthcare systems etc. This – quite simply – is complete and absolute rubbish

  25. @DOCM et al.

    There are a couple of other changes as well:

    – (Article 2.2) The statement that European Union law has precedence over the fiscal compact treaty has been removed. Don’t know what the significance of this is, if any. The plan is clearly to make the new treaty part of EU law, rather than to keep it separate.

    – (Article 8) The statement the implementation of the rules will be subject to review in national courts has been removed. Perhaps this was seen as redundant. The scope of the ECJ powers remains the same.

    – (Article 9) This has been narrowed-down to compliance with the Euro Plus Pact rather than the much broader and undefined “all developments that might threaten stability, competitiveness, growth etc”. This may be significant in terms of CT, since the old wording might have been used by the French to raise this issue, whereas CT forms no part of the Euro Plus Pact.

    However these are all relatively minor – Article 7 remains, which will fundamentally change the nature of Irish governance, since the EU Commission will now have the power to craft detailed budgetary measures, which Ireland commits to support. It will be decades before Ireland is in compliance with both the debt and deficit criteria. During this time Ireland’s government will have more in common with a regional government than a national one.

  26. There is nothing particularly funny about Article 8. Seems WordPress is a little over-enthusiastic in its translation of text to emoticons.

  27. Can we finally grasp the reality that it is the monetary/fiscal union itself that is the enemy of European Union? The forcible introduction of such a fiscal deal will inevitably lead to secession by many states possibly leading to violence on a big scale. We don’t need it.

    Ireland must secede from the monetary union quickly and adopt Austrian economic strictures right away if it is to have any chance of achieving real prosperity and a degree of self respect. We have to get our house in order.

    A new political/economic model is urgently needed. Fortunately there is one ready made and to hand. It is based on the principles of sound money (not one subject to the predations of government/banker fraud), free market capitalism, the strengthening of the rule of law, a stronger sense of personal liberty and smaller government. The Austrian paradigm in short. The one Ron Paul espouses with which he hopes to restore the fortunes and freedoms of US citizens under their Constitution.

    Otherwise its “Goodnight Irene.” This country will end up as a big cattle ranch owned by a Sino/European conglomerate.

  28. Austrian economic structures and Ireland are mutually exclusive like oil and water. Emulsions are possible but i do not think that is what you had in mind.
    Italian economic structures are more our style. Particularly now that the Mafia with Euro 87 billion have the biggest pool of liquidity in the country. This came from FT so examine it before swallowing.

  29. @Mickey Hickey

    Does anyone seriously believe that left to its own devices our Gov’t will lead us to prosperity faster than would occur if we sign up and follow the guidance of the EC and ECB.

    The ECB, Commission, Troika, Merkozy, whatever, are currently stuffing €64 billion of private banks down our gullets, after we had lodged them in our own throat. They have decided we cannot regurgitate. Too messy for them. Not civilized. Down they have to go. Cleaner for everybody.
    Funny way to achieve prosperity.

  30. @Mickey Hickey.

    The second paragraph above was mine. I messed up the blockquote.
    Pressure of the private sector!

  31. @Joseph Ryan
    Ireland or to be more precise the Taoiseach , MOF, Head of the Central Bank and the Regulator (subservient to the Head) offered to bail out the banks. The whole world was aghast, particularly the rest of the PIIGS at the precedent that was set in Dublin. Increasingly as time goes by we seem to be adopting a victim mentality. It was not our fault we were forced into it. Nothing could be further from the truth. The Gov’t sits on its hands, completely paralysed as the borrowing continues monthly from the ECB and IMF. The country is willingly drowning itself in debt. The Gov’t is in thrall to the electorate which results in decisions being delayed thus ensuring the country goes into receivership or examinership as it is known here. There is no easy way out and the gov’t should be honest and tell the public what our options are.

  32. @DOCM

    The requirement that a country must adopt the fiscal compact treaty to use the ESM could be specified in the ESM treaty, and thus may not require any provisions in the fiscal compact treaty. It would make more sense to do it this way, back referencing the fiscal compact treaty as a condition of other programs, rather than try to forward reference these programs from the fiscal compact treaty. For example the ECB could also join in the fun by saying “if you want your junk sovereign debt to be accepted as collateral for ECB repo, then you need to adopt the fiscal compact treaty”.

  33. @ Finbar Lehane

    They are far too clever for that! The article under which the actions would be taken is presumably Article 273 not Articles 258 and 259 as mentioned in Article 126.10. Article 273 reads “The Court of Justice shall have jurisdiction in any dispute between Member States which relates to the subject matter of the Treaties if the dispute is submitted to it under a special agreement between the parties”.

    One may assume that the initial draft used the term ‘agreement’ rather than ‘treaty’ having this in mind; but a treaty is an agreement.

    I have also just noted the change in the title which is now the rather unwieldy ‘Treaty on Stability, Coordination and Governance in the Economic and Monetary Union’ which underlines a general point; the text is being changed in a manner which guarantees its it compatibility with the existing treaties.

    @ Brian G

    Interesting points which tend to underline what this exercise is all about; a very public recognition by the main players that a single currency requires them to accept mutual disciplines which they would have thought unthinkable even a few months ago.

    One cannot look at the situation solely through an Irish prism. The change with regard to the method of implementing a debt brake, for example, was almost certainly made to suit the situation of the Netherlands, not that of Ireland.

    The die is now cast. It is a near racing certainty that the treaty will be ready for signature in a few weeks and that a sub-set of countries, including Italy, will make an agreement to apply its provisions provisionally before final ratification and entry into force; just in time for Sarkozy to make a big thing out of it in his electoral campaign!

  34. @ Bryan G

    On your most recent post, which I had not seen, this would indeed be a much neater solution. (The use of capitals POINTING OUT the need for compliance showed rather an excess of zeal on the part of some bureaucrat whose nationality can easily be guessed).

    According to the logic that we have succeeded in locking ourselves into, because of a clearly erroneous initial Supreme Court judgement (Crotty), the ESM treaty will presumably also require a referendum in the minds of many.

  35. @DOCM
    Yes, article 273 seems to be the main article being used to justify the legal logic. I guess it might allow the ECJ to rule on elements of the compact that relate to the actual EU treaties. Maybe country A could ask the ECJ if country B was conforming to the excessive deficit procedure (though if there are elements of the new rules, e.g. the 0.5% structural deficit rule I think, that aren’t part of EU law, then I doubt if the ECJ could give an opinion). Article 126, though, envisages no role for the ECJ in determining compliance. Making that judgment call seems to be a wholly political process for the commission and council. But what I think 126.10 makes clear is that the ECJ can’t actually enforce any such rules, can’t prescriptively give a plan to amend to situation, or even set a fine. I suspect article 8 is in reality a bit of a paper tiger. I guess that at most the ECJ might be persuaded to give an opinion on a country’s compliance or non-compliance with the excessive deficit procedure. After that? It’ll probably be then up to the country itself to live up to honoring the fiscal compact it signed up to.

  36. @ Finbar Lehane

    The 0.5% rule is not only part of EU law, it is in the form of a Regulation (as amended).

    http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:306:0012:0024:EN:PDF

    The problem with Article 8, as presently drafted, it seems to me, is the involvement of the Commission. There will probably be a reversion to the text as initially drafted which made no provision for any Commission involvement i.e. the plaintiff, which can only be another Contracting Party, would have to make their own case.

    As to what the ECJ might do! This can only be conjecture.

    I come back to the point made earlier; this is a political exercise and the politics will dictate the final outcome. All the lawyers have to do is to ensure that it is legally watertight. Admittedly, on the evidence, not an easy task in this instance.

  37. Re Article 3.2 ;

    “The Contracting Parties shall in particular put in place at national level, on the basis of principles agreed on a proposal from the European Commission, a correction mechanism to be triggered automatically in the event of significant deviations from the
    medium term objective or the adjustment path towards it, as specified in the revised Stability and Growth Pact. The mechanism shall include the obligation of the Contracting Parties to implement measures to correct the deviations over a defined period of time. It shall fully respect the
    responsibilities of national Parliaments”.

    To repeat the point I made earlier.This is all stick with no carrot.

    To put this in the context of how the FED works eg in the case of a possible imagined scenario where one of its central banks responsible for an area covering say California, if that area experienced regional difficulties, the FED would have authority and power vested in the FOMC to impose conditions as in article 3.2.

    But here’s the difference, the FED would have to power to pour liquidity into that delinquent CB in return for its compliance with changes requested. This would balance out inflation across all of the FED CB’s, removing liquidity from one CB to curb excessive inflation, pouring liquidity into another CB, to curb deflation due to regional difficulties eg bank closures.

    No counterbalance to the austerity demands is offered by the Fiscal Compact. No method to come to the rescue of the peripherals other than a demand to exacerbate deflation by demanding they stick to austerity or face undisclosed sanctions?

    Obviously the document i not based on economics but on some Germanic blindfold prejudice that the only problem that exists is the profligacy of the Irish and the other peripherals. Get them to return to good spending habits and all will be fine.

    Nope, the proposals in the document from the peripherals point of view are absurd without adequate determinations on debt forgiveness and debt restructuring. Without mechanisms of this nature, if the peripherals follow blind the path marked out in 3.2, which we are following to the letter, economic destruction of Ireland as well as destruction of its sovereign independence and democracy, is assured.

  38. @DOCM
    Fair enough on the 0.5% rule. Seems it was only recently incorporated into the excessive deficit framework. And the commission has even less of a role in this draft. Ultimately only a country can bring another country before the ECJ under article 8 of this new compact draft. And I do agree political expediency is the main driver here. For France and Germany the more important point for domestic consumption of their voters is that it at least *appears* that the treaty contains a big stick to beat the sinning peripherals into line (I’m simply arguing the ECJ may well refuse to use this stick). No one can predict with certainty what the ECJ or any court will do (they might well play along). But 126.10 says the ECJ cannot be involved in enforcing excessive deficit rules: setting out prescriptive plans, setting deadlines, imposing fines etc.. The new treaty says it can. And I don’t think article 273 (or other lines of argument I’ve seen) really injects enough ambiguity or wriggle room or doubt into the question to work around this. But then again maybe some hotshot lawyer will eventually persuade the ECJ that black is white! 🙂 But at minimum there must be a serious question mark over whether article 8 can really do what it claims to do.

  39. @Finbar Lehane

    The way I read it Article 8 is solely about whether the national laws are in compliance with the rules mandated by the treaty, and has nothing to do with whether a country is adhering to those rules or not. If a country is not sticking to the rules, the effective remedies are

    – EU Commission gets to directly intervene in national budget policy formulation
    – ESM money can be stopped
    – ECB may threaten to collapse the banking system (my guess based on past practice)

    It seems all talk of levying fines on countries has stopped as someone probably figured out that fining Greece €1bn, say, wouldn’t actually help very much.

    @DOCM

    According to the logic that we have succeeded in locking ourselves into, because of a clearly erroneous initial Supreme Court judgement (Crotty), the ESM treaty will presumably also require a referendum in the minds of many.

    Rather than being “clearly erroneous”, Crotty provides a necessary check and balance on ceding sovereignty. Transferring powers to the EU is in practice turning out to be irrevocable. Since such decisions are binding and cannot be undone by later governments, procedures other than ‘business as usual’ are needed.

  40. @ Finbar Lehane

    “But 126.10 says the ECJ cannot be involved in enforcing excessive deficit rules: setting out prescriptive plans, setting deadlines, imposing fines etc.. The new treaty says it can”.

    With respect, neither of these statements is true. Article 126.10 states simply “The rights to bring actions provided for in Articles 258 and 259 may not be exercised within the framework of paragraphs 1 to 9 of this Article”. The new treaty implies recourse to an entirely different legal base which specifically allows a role for the ECJ “in any dispute between Member States if the dispute is submitted to it under a special agreement between the parties”.

    Article 8, as presently drafted, also provides for an alternative procedure where the complainant may “invite the European Commission to issue a report on the matter. In the latter case, if the European Commission, after giving the Contracting Party concerned the opportunity to submit its observations, confirms non-compliance in its report, the matter will be brought to the Court of Justice by the Contracting Parties”.

    As I said above, this seems to me to be gilding the lily a bit although the parties to the treaty can agree whatever they like. The question is what will the UK think of it! We can only await developments.

  41. @ Bryan G

    The Wikipedia summary of the Crotty judgement is pretty good.

    “While the action taken by Crotty was made on a number of grounds, the only grounds on which the appeal was allowed by the Supreme Court were those relating to cooperation in the field of foreign policy. In particular, it was the opinion of the Court that all other aspects of the treaty were consistent with the Constitution, including the expansion of Qualified Majority Voting to new policy areas, and the creation of the European Court of First Instance.

    The judgments were divided into two sections. The first consisted of a single judgment of the court which upheld the constitutionality of the European Communities (Amendment) Act, 1986. The constitution requires the court to give only a single judgment on the constitutionality of acts of parliament. The second part consisted of separate judgments on the constitutionality of ratifying the foreign policy provisions of the Single European Act. In this section Justices Walsh, Henchy and Hederman formed the majority of the court and ruled that the SEA could not be ratified by the state without a reference to the people. They argued that the state’s power to determine its foreign relations was held in trust from the people and could not be alienated by the government. Chief Justice Finlay and Justice Griffin dissented”.

    The state’s powers to determine its foreign relations were not limited one iota by the SEA as the provisions contained within it were entirely inter-governmental in character. This remains equally true to the present day, the distinction being, if anything, copper-fastened by the Lisbon Treaty.

  42. @DOCM
    We’ll probably have to agree to disagree!
    On the first sentence of mine you quote, I’d agree that 126.10 doesn’t literally say that, but I’d contend that’s precisely the situation under current EU law. Articles 258 and 259 are, as far as I can see, the only avenue with teeth available to the ECJ to remedy treaty violations. And their use is prohibited for the excessive deficit procedure. You essentially argue that a chink in this shield is created by article 273:
    “The Court of Justice shall have jurisdiction in any dispute between Member States which relates to the subject matter of the Treaties if the dispute is submitted to it under a special agreement between the parties.”

    Perhaps that will prove correct. But 273 does narrow what it will rule on to that “which relates to the subject matter of the Treaties”. Admittedly that wording is a bit vague. How broadly/narrowly will the word “relates” be interpreted here? Plus 126.10 hasn’t gone away. The ECJ will still have to balance the requirements of 273 and 126.10. I suspect it’ll draw the line on one side, I think you feel feel it’ll be towards the other. Who knows? Anyway, language is, by its nature, imprecise (and that most certainly includes legalese). Often such decisions can come down to the particular panel of judges sitting in the court on the day (e.g. the original narrowly won Crotty decision could just as easily have gone the other way).

  43. @Bryan G
    Some of the wording of article 8 is a little confusing to me tbh. It says title III infringement can be brought before the ECJ. Title III lists the deficit rules themselves, contains commitments to obey the deficit rules, and also commitments to transcribing these into national law. Title III covers a lot. I’d guess any and all of that is supposed to be appealable to the ECJ. But then the article goes on to say that the national courts get to review the implementation of the rules. So presumably it is the national courts rather than the ECB that decide whether the national laws are up to scratch in implementing the various deficit rules. A bit confusing though!

    And, yes, there are plenty of other sticks in the draft treaty: withdrawal of ESM support, close supervision by the commission etc.. Probably am getting way too fixated on the ECJ’s role.

  44. @ Finbar Lehane

    I have no problem with agreeing to disagree. The essential objective must be to throw as much light as possible on the subject and to let all come to their own conclusions. By way of example, while the UK ‘observer’ element in the 100 strong participation in this vaguely ridiculous negotiation is being landed with responsibility for the various leaks, it can only be a good thing that these are happening.

    There are several other un-explored aspects, notably the accidental creation of a genuine debate at a European level. Nobody appears to have noticed that the junior partners in the governing coalitions in both Germany and the UK are in open revolt with regard to the conduct of their governments, Clegg with regard to the cul-de-sac into which Cameron and Hague have led the UK and the FDP with regard to the needless concessions, in their eyes, by Merkel to Sarkozy.

    As to why Merkel allowed the net to close on Cameron, Der Spiegel had a good explanation weeks ago.

    http://www.spiegel.de/international/europe/0,1518,803923,00.html

    When it comes to decisions by constitutional courts of whatever hue, I am reminded of what Wellington said of his troops; “I do not know what they do to the enemy but they scare the hell out of me!”.

  45. @DOCM
    “As to why Merkel allowed the net to close on Cameron, Der Spiegel had a good explanation weeks ago.

    http://www.spiegel.de/international/europe/0,1518,803923,00.html

    When it comes to decisions by constitutional courts of whatever hue, I am reminded of what Wellington said of his troops; “I do not know what they do to the enemy but they scare the hell out of me!”. ”

    Thanks. Very interesting article! I’m sure Frau Merkel has her fill of the German constitutional court at the moment! 😉 One of a host of many problems she has to juggle with right now. But IMO it’s actually a very good thing that Germany, the most powerful country in the EU, has such a strong, independent and respected court. It has done a lot in recent years to bolster the strength of the German parliament. Its portrayed skepticism towards EU integration is probably far overdone; I think it’s at heart friendly towards Europe. But it’s contrariness and independence in this regard was amply demonstrated in its still relatively recent 2009 ruling on the Lisbon treaty.

    A legacy of the German Allied occupation after the war was a fine and very well-regarded constitution, which learned well from some of the mistakes of Weimar. That was later modified to give Bundesrat and Bundestag a strong say into European matters. And Merkel has lost her Bundesrat majority (not uncommon for a German government as its term progresses and the continual round of Länder elections gradually alters its makeup). As your article describes, she attempted the work-around of treating recent Europe-related agreements as ordinary international treaties rather than specifically EU ones. The Greens have now appealed this classification, and the constitutional court rears it head again. IMO all this is a sign of healthy robust German democratic institutions. In the shorter term, though, this is all perhaps not so good for either Merkel or the EU. Longer term, who knows?

  46. @Finbar Lehane

    Article 8 refers to infringement of Article 3(2), which relates the transposition of the rules into national law, and not to all of Article 3. This more limited role for the ECJ was, I think, a result of the last major round of French/German negotiations at the time of the last summit.

  47. @Mickey Hickey

    Does anyone seriously believe that left to its own devices our Gov’t will lead us to prosperity faster than would occur if we sign up and follow the guidance of the EC and ECB.

    What makes you think that either the ECB or the current European Commission care at all about Ireland’s prosperity?

    The ECB’s two interests are protecting the value of the Euro and its constituency/class interests (banks and financial capitalists) while the Commission could give two shits whether Ireland recovers at all as long as the Franco-German engine survives and the commission gets more powers from national governments to play with.

    In other words however badly the Irish government implements its plans, and it is open to question whether the political dogma of the ECB allow it to approach economics rationally, the government has actual incentives to stay focussed on achieving Irish well being and not the self aggrandisement of European technocracy or the public coddling of private investors.

    Europhiles seem remarkably detached from the actual events of the last three years. Sad.

  48. RE the Fiscal Compact:

    “The Contracting Parties shall in particular put in place at national level, on the basis of principles agreed on a proposal from the European Commission, a correction mechanism to be triggered automatically in the event of significant deviations from the medium term objective or the adjustment path towards it, as specified in the revised Stability and Growth Pact. The mechanism shall include the obligation of the Contracting Parties to implement measures to correct the deviations over a defined period of time. It shall fully respect the responsibilities of national Parliaments”.

    I can see it being challenged in the High Court by any member of the public on grounds relating to the following:

    Article 1 The Irish nation hereby affirms its inalienable, indefeasible, and sovereign right to choose its own form of Government, to determine its relations with other nations, and to develop its life, political, economic and cultural, in accordance with its own genius and traditions.

    “article 2.1

    2. Institutions with executive powers and functions that are shared between those jurisdictions may be established by their respective responsible authorities for stated purposes and may exercise powers and functions in respect of all or any part of the island.

    Article 5 Ireland is a sovereign, independent, democratic state.

    Article 6 1. All powers of government, legislative, executive and judicial, derive, under God, from the people, whose right it is to designate the rulers of the State and, in final appeal, to decide all questions of national policy, according to the requirements of the common good.

    Article 10 1. All natural resources, including the air and all forms of potential energy, within the jurisdiction of the Parliament and Government established by this Constitution and all royalties and franchises within that jurisdiction belong to the State subject to all estates and interests therein for the time being lawfully vested in any person or body.

    Article 21 1. 1° Money Bills shall be initiated in Dáil Éireann only. 2° Every Money Bill passed by Dáil Éireann shall be sent to Seanad Éireann for its recommendations. 2. 1° Every Money Bill sent to Seanad Éireann for its recommendations shall, at the expiration of a period not longer than twenty-one days after it shall have been sent to Seanad Éireann, be returned to Dáil Éireann, which may accept or reject all or any of the recommendations of Seanad Éireann. 2° If such Money Bill is not returned by Seanad Éireann to Dáil Éireann within such twenty-one days or is CONSTITUTION OF IRELAND – BUNREACHT NA hÉIREANN returned within such twenty-one days with recommendations which Dáil Éireann does not accept, it shall be deemed to have been passed by both Houses at the expiration of the said twenty-one days.

    Article 26 This Article applies to any Bill passed or deemed to have been passed by both Houses of the Oireachtas other than a Money Bill, or a Bill expressed to be a Bill containing a proposal to amend the Constitution, or a Bill the time for the consideration of which by Seanad Éireann shall have been abridged under Article 24 of this Constitution. 1. 1° The President may, after consultation with the Council of State, refer any Bill to which this Article applies to the Supreme Court for a decision on the question as to whether such Bill or any specified provision or provisions of such Bill is or are repugnant to this Constitution or to any provision thereof. …….

    26.3

    3. 1° In every case in which the Supreme Court decides that any provision of a Bill the subject of a reference to the Supreme Court under this Article is repugnant to this Constitution or to any provision thereof, the President shall decline to sign such Bill.

    Article 27 This Article applies to any Bill, other than a Bill expressed to be a Bill containing a proposal for the amendment of this Constitution, which shall have been deemed, by virtue of Article 23 hereof, to have been passed by both Houses of the Oireachtas. 1. A majority of the members of Seanad Éireann and not less than one-third of the members of Dáil Éireann may by a joint petition addressed to the President by them under this Article request the President to decline to sign and promulgate as a law any Bill to which this article applies on the ground that the Bill contains a proposal of such national importance that the will of the people thereon ought to be ascertained.

    29.5

    5. 1° Every international agreement to which the State becomes a party shall be laid before Dáil Éireann. 2° The State shall not be bound by any international agreement involving a charge upon public funds unless the terms of the agreement shall have been approved by Dáil Éireann.”

  49. “ECB’s Asmussen warns of softening of EU fiscal pact”
    http://www.lse.co.uk/FinanceNews.asp?ArticleCode=f0s4f5rk1fjnqc3

    in german:
    “EZB kritisiert Aufweichung des Fiskalpakts”
    http://www.ftd.de/politik/europa/:harte-verhandlungen-ezb-kritisiert-aufweichung-des-fiskalpakts/60153883.html

    and on the topic of “The End of the European (Project) Institutions?” you can read in the german article:
    “Fierce criticism of the treaty negotiations came from the European Parliament. The involvement of parliaments and the Commission had been severely restricted. The head of the SPD deputies Rapkay Bernhard spoke of a “declaration of war against the parliament and the European institutions”.”

  50. @ Finbar Lehane

    I would not be too starry-eyed about constitutional courts in general and the German court in particular. (The first question to be posed is in relation to how appointments to such courts are made and to what level of scrutiny appointees are subjected. But that is a topic for another day).

    The domestic problems the German political establishment have with their court is a matter for them. the problems created at a European level are a matter for all countries in the EU.

    This recent speech by the President of the ECJ may interest you if you have not already seen it (ironically in the Hungarian court, the threats to which are a major focus of European disquiet at the moment).

    http://www.mkab.hu/index.php?id=vassilios_skouris__president_of_the_european_court_of_justice

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