A summit of deals and divisions

Cameron blocked plans for treaty change; Merkel ‘satisfied’ with inter-governmental deal.

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The leaders of the European Union’s 27 member states met on 8 and 9 December aiming to solve the eurozone’s sovereign-debt crisis. In the event, the summit proved even more dramatic than expected and could have a lasting effect on the shape of the EU itself.

Eurozone countries are seeking to finalise by March a new treaty that will oblige governments to exercise greater discipline over public finances. It will be inter-governmental, formed outside the EU’s existing treaties, after David Cameron, the British prime minister, blocked plans to revise the current text after failing to secure assurances over financial-services legislation.

Angela Merkel, Germany’s chancellor, who was the most vocal proponent of treaty change, said that she was nevertheless satisfied with what had been agreed since it included “everything of substance” she had wanted. Despite the treaty being inter-governmental, the EU institutions would be closely involved in ensuring compliance with the new rules, she said. The EU’s legal specialists are currently working out the degree to which that can happen.

No concessions

Nicolas Sarkozy, France’s president, never a supporter of full treaty change, was also satisfied with the outcome, and said he made no apologies for refusing to make concessions to the UK. “We cannot stand by and watch the euro drown without stepping in,” he said in the early hours of Friday morning (9 December). “Those that criticise the euro and opt out of the euro are not necessarily the best at telling us how to get out [of its difficulties].”

Diplomats say officials from the treasuries of member states have already started drafting the treaty, a process likely to take up to two weeks. It would then need revision and agreement by national governments before it can be implemented. José Manuel Barroso, the president of the European Commission, said that he had ensured that the European Parliament would also be involved, as observers in the process.

Much remains uncertain, including the degree to which the rules will need a new treaty and how much can be implemented through secondary legislation.

Olli Rehn, the European commissioner for economic and monetary affairs, said on Monday (12 December) that most of the measures could be introduced without a treaty, including the power for the Commission to demand scrutiny and amendments of national budgets. Only the move towards automatic sanctions for countries that break budgetary rules would have to be enshrined in a treaty, he said.

Fact File

WHAT THEY AGREED

The inter-governmental treaty will set out stricter rules for a ‘fiscal compact’, described by leaders of eurozone member states as a “significantly stronger co-ordination of economic policies in areas of common interests”.

Budgets must be balanced or in surplus with the annual structural deficit not exceeding 0.5% of gross domestic product (GDP), to be introduced in national constitutions and verified by the European Court of Justice.

Countries in excessive deficit procedure must submit to the Commission and Council a plan detailing structural reforms.

As soon as a member state is in breach of the deficit-to-GDP ratio of 3% (as set out in the stability and growth pact), sanctions will be imposed unless a qualified majority of eurozone member states block the process.

Member states will “examine swiftly” proposals made by the Commission on 23 November on monitoring of national budgets by the Commission and other eurozone member states before they are passed to national parliaments. Closer monitoring of budgets of countries subject to an excessive deficit procedure will be introduced.

Summits of leaders of eurozone member states are to be held at least twice a year.

ARTICLE 126

The existing article 126 of the treaty on the functioning of the European Union requires the European Commission to 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 whether an excessive deficit exists, what remedial action to recommend, and whether to impose sanctions in the event of non-compliance. Those Council decisions are taken by a qualified majority of all other member states.

Germany in particular wanted article 126 to be changed so that Commission recommendations would apply unless there was a qualified majority of member states against the proposal.

Changing the EU’s treaties was not, in the face of the UK veto, a practical option, so eurozone member states and at least five other countries now intend to conclude a treaty among themselves. The only difference is that the Commission will not be able to make proposals on countries in breach of the rules; this would have to come from 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.

Open to all

Herman Van Rompuy, the president of the European Council, said that the inter-governmental treaty to form the ‘fiscal compact’ would be open to all countries outside the eurozone. The UK has already said it will not participate, but others could follow suit.

Amid the arguments over treaty change and the status of EU institutions, it remains to be seen whether leaders have done enough to stop the eurozone’s crisis worsening further. So far, the markets remain unconvinced.