New treaty draft weakens role of commission
by Daniel Mason
11 January 2012
The latest draft of the European Union's fiscal compact weakens the demand for member states to insert a balanced budget rule into their constitutions and reduces the role of EU institutions in enforcing the rules.
The third version of the document, published today by the think-tank Open Europe, also sets January 1 2013 as the date the treaty would come into effect and reduces from 15 to 12 the minimum number of eurozone countries that must ratify it before it becomes law.
On Monday, German Chancellor Angela Merkel and French President Nicolas Sarkozy said negotiations over the treaty – designed to impose strict economic discipline in the eurozone to prevent a future debt crisis – were going well and that it should be signed by March 1.
But the third draft includes significant changes. Where the second version said member states would have to introduce the balanced budget rules "in national binding provisions of a constitutional or equivalent nature", the latest document calls for "provisions of binding force and permanent character, preferably constitutional, that are guaranteed to be respected".
It comes amid suggestions that some countries, including Ireland and Finland, would have to hold referendums to push through changes to their constitutions.
In another change, the power to take countries to court for not introducing the rule would be held by other member states rather than with the commission, which would only produce advisory reports. Under the terms of the third draft, the commission would not, as in previous versions, be able to submit recommendations to countries that have excessive public debt.
The European Court of Justice's powers are also reduced compared to earlier texts, with its role reduced to overseeing the implementation of the balanced budget rule.
The treaty will force member states to run a balanced budget and limit public deficits to 0.5 per cent of gross domestic product. Where debt is lower than 60 per cent of GDP, deficits of up to 1 per cent would be allowed. However, in places the term structural deficit has been replaced by "structural balance".
However, the draft gives permission for member states to "deviate" from medium-term economic objectives "in case of an unusual even outside the control of the Contracting Party concerned which has a major impact on the financial position of the government or in periods of severe economic downturn".
Senior members of the European Parliament who are observing the negotiations derided the latest draft as "unacceptable". Liberal leader Guy Verhofstadt, Green MEP Daniel Cohn-Bendit, Roberto Gualtieri of the Socialists and Democrats, and Elmar Brok of the centre-right European People's Party said it was "not compatible with the existing EU treaties".
In joint statement they added: "The draft does not guarantee that any decision to implement the new agreement would be taken via the normal procedures laid down in the EU treaties to ensure proper democratic scrutiny and accountability."
As many as 26 EU member states are expected to sign up to the treaty after only the United Kingdom ruled itself out at December's summit after failing to win concessions to protect financial services and the single market.
But the possibility of joining is available to the UK, with the treaty "open to accession by member states of the EU other than the Contracting Parties upon application". The draft foresees the treaty being incorporated into EU law within five years.
Business for New Europe, a coalition of British business leaders, said today that the fiscal compact should be moved inside the EU treaty quickly. Philip Souta, BNE director, said: "As it is in our interest for the eurozone to resolve its problems as soon as possible, and given that the fiscal pact in the treaty is a step towards that aim, we should aim to have it incorporated into the EU treaties as soon as possible."
Britain has insisted that there should be no conflict between the treaty and issues such as the single market and EU institutions which affect all 27 members – and the latest draft, as well as weakening the commission's role, removes a reference to the internal market, suggesting a victory for the UK.
Meanwhile, following talks with Merkel in Berlin today Italian Prime Minister Mario Monti has said structural reforms meant Europe "doesn't have to fear any more that Italy is a possible source of contagion". Merkel added that she had "watched with great respect how quickly they have been implemented.
Elsewhere the commission said that Belgium, Cyprus, Malta and Poland had taken "effective action" to correct excessive deficits. But it warned Hungary that it had not done enough and threatened the country with sanctions.
And commission vice-president Olli Rehn told MEPs that a long-awaited deal between Greece and banks on debt restructuring would be finalised "shortly" after Merkel said that the next installment of Greece's bail-out was dependent on a successful conclusion to the negotiations. Private sector bond holders are expected to take a 50 per cent hit on Greek sovereign debt.
The third version of the document, published today by the think-tank Open Europe, also sets January 1 2013 as the date the treaty would come into effect and reduces from 15 to 12 the minimum number of eurozone countries that must ratify it before it becomes law.
On Monday, German Chancellor Angela Merkel and French President Nicolas Sarkozy said negotiations over the treaty – designed to impose strict economic discipline in the eurozone to prevent a future debt crisis – were going well and that it should be signed by March 1.
But the third draft includes significant changes. Where the second version said member states would have to introduce the balanced budget rules "in national binding provisions of a constitutional or equivalent nature", the latest document calls for "provisions of binding force and permanent character, preferably constitutional, that are guaranteed to be respected".
It comes amid suggestions that some countries, including Ireland and Finland, would have to hold referendums to push through changes to their constitutions.
In another change, the power to take countries to court for not introducing the rule would be held by other member states rather than with the commission, which would only produce advisory reports. Under the terms of the third draft, the commission would not, as in previous versions, be able to submit recommendations to countries that have excessive public debt.
The European Court of Justice's powers are also reduced compared to earlier texts, with its role reduced to overseeing the implementation of the balanced budget rule.
The treaty will force member states to run a balanced budget and limit public deficits to 0.5 per cent of gross domestic product. Where debt is lower than 60 per cent of GDP, deficits of up to 1 per cent would be allowed. However, in places the term structural deficit has been replaced by "structural balance".
However, the draft gives permission for member states to "deviate" from medium-term economic objectives "in case of an unusual even outside the control of the Contracting Party concerned which has a major impact on the financial position of the government or in periods of severe economic downturn".
Senior members of the European Parliament who are observing the negotiations derided the latest draft as "unacceptable". Liberal leader Guy Verhofstadt, Green MEP Daniel Cohn-Bendit, Roberto Gualtieri of the Socialists and Democrats, and Elmar Brok of the centre-right European People's Party said it was "not compatible with the existing EU treaties".
In joint statement they added: "The draft does not guarantee that any decision to implement the new agreement would be taken via the normal procedures laid down in the EU treaties to ensure proper democratic scrutiny and accountability."
As many as 26 EU member states are expected to sign up to the treaty after only the United Kingdom ruled itself out at December's summit after failing to win concessions to protect financial services and the single market.
But the possibility of joining is available to the UK, with the treaty "open to accession by member states of the EU other than the Contracting Parties upon application". The draft foresees the treaty being incorporated into EU law within five years.
Business for New Europe, a coalition of British business leaders, said today that the fiscal compact should be moved inside the EU treaty quickly. Philip Souta, BNE director, said: "As it is in our interest for the eurozone to resolve its problems as soon as possible, and given that the fiscal pact in the treaty is a step towards that aim, we should aim to have it incorporated into the EU treaties as soon as possible."
Britain has insisted that there should be no conflict between the treaty and issues such as the single market and EU institutions which affect all 27 members – and the latest draft, as well as weakening the commission's role, removes a reference to the internal market, suggesting a victory for the UK.
Meanwhile, following talks with Merkel in Berlin today Italian Prime Minister Mario Monti has said structural reforms meant Europe "doesn't have to fear any more that Italy is a possible source of contagion". Merkel added that she had "watched with great respect how quickly they have been implemented.
Elsewhere the commission said that Belgium, Cyprus, Malta and Poland had taken "effective action" to correct excessive deficits. But it warned Hungary that it had not done enough and threatened the country with sanctions.
And commission vice-president Olli Rehn told MEPs that a long-awaited deal between Greece and banks on debt restructuring would be finalised "shortly" after Merkel said that the next installment of Greece's bail-out was dependent on a successful conclusion to the negotiations. Private sector bond holders are expected to take a 50 per cent hit on Greek sovereign debt.
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