The Treaty of Lisbon the Lisbon Treaty Establishing a New Legal Framework for the European Union Entered Into Force on 1 Decem- Ber 2009

DEUTSCHE BUNDESBANK

Monthly Report March 2010

The Treaty of Lisbon The Lisbon Treaty establishing a new legal framework for the European Union entered into force on 1 Decem- ber 2009. The objective of the Treaty is to reform the European Union, which now consists of 27 members, with the aim of enabling it to function more ef- ficiently and democratically. The Lis- bon Treaty integrates most of the innovations of the Treaty establishing a Constitution for Europe, the ratification of which failed owing to the “No” votes of the referendums held in the Netherlands and France. The present article describes the general institutional changes to the European Union, some of which impact on economic and monetary policy, such as the strengthening of the European Parlia- ment and of the national parliaments, and the improvement in voting modalities in the Council. Furthermore, key amendments in the field of Economic and Monetary Union are highlighted, such as the strengthening of the role of the euro-area countries and of the Commission in coordinating economic policy as well as the ECB gaining the official status of an EU institution. On balance, the established monetary framework of the 1992 Maastricht Treaty remains unchanged, the centre- piece of which is the independent system of national central banks and the European Central Bank committed to the primary objective of maintaining price stability.

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Key institutional changes ment. The codecision procedure, in which the Council and the Parliament jointly adopt le- Fundamental The Lisbon Treaty, which entered into force gislation, has also become the ordinary legis- changes: new structure on 1 December 2009, amends the existing lative procedure of the European Union (Art- Treaties: the Treaty on European Union (TEU) icles 289 (1) and 294 of the TFEU). The Euro- and the Treaty establishing the European pean Parliament and the Council thus, for the Community. The latter Treaty has been re- first time, have largely equal status as legisla- named the Treaty on the Functioning of the tive bodies of the European Union. Simultan- European Union (TFEU). The Lisbon Treaty in- eously, the number of cases in which this tegrates most of the innovations of the Treaty legislative procedure is to be applied has been establishing a Constitution for Europe, the further increased. It now also applies to the ratification of which failed owing to the “No” amendment of certain provisions of the votes of the referendums held in the Nether- Statute of the ESCB and of the ECB (Art- lands and France. As part of the reform of the icle 129 (3) of the TFEU and Article 40.1 of European Union, the existing three-pillar the Statute of the ESCB and of the ECB1). structure (the European Communities, a common foreign and security policy, and police Furthermore, the democratic legitimacy of National parliaments and judicial cooperation in criminal matters) the European Union is to be strengthened by have stronger was abolished. The legal successor to the the greater involvement of national parliaments influence European Community is the European Union, in the activities of the European Union and by which has its own legal personality. The Euro- expanding their scope of influence.2 Draft EU pean Council has officially gained the status legislation must be made available to national of an EU institution and will consist in future parliaments at an early stage. In response, a not only of the Heads of State or Government reasoned opinion may be sent stating why of all the member states and the President of the national parliament considers the draft le- the Commission, but will also have its own gislative act to be incompatible with the prin- President, whose official position has been ciple of subsidiarity, namely because the ob- newly created. The European Council pro- jectives of the proposed action can be suf- vides the Union with the necessary impetus ficiently achieved at national level. If one- for its development and defines the general third of national parliaments submit such rea- political objectives and priorities. soned opinions, the Commission has to review the legislative proposal. Moreover, the Strengthening As a further step towards enhancing the national parliaments also have the option of of the European democratic legitimacy of the European monitoring compliance with the principle of Parliament: Union, the role of the European Parliament codecision procedure has been strengthened. Its powers have been 1 Protocol on the Statute of the European System of Cen- becomes the tral Banks and of the European Central Bank. norm for expanded: it elects the President of the Com- 2 Article 12 of the Treaty on European Union, Protocol on legislation mission; the Commission is subject as a body the Application of the Principles of Subsidiarity and Pro- portionality, Protocol on the Role of National Parliaments to a vote of approval by the European Parlia- in the European Union.

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subsidiarity at a later stage by seeking a judi- Policy, at least 55% of Council members from cial review before the Court of Justice of the at least 15 member states, comprising at least European Union. 65% of the population of the Union, vote in favour of the proposal (Article 16 (4) of the Improved The Lisbon Treaty has also brought about key TEU). When the Council is acting neither on a voting modalities for changes in the Council’s voting modalities. In proposal from the Commission nor from the the Council as a many cases, the use of qualified majority vot- High Representative but on the initiative of result of more decision-taking ing (QMV) has replaced the principle of unan- another EU institution, say, if the Governing by qualified majority ... imity. QMV has become the standard voting Council of the ECB recommends changes to procedure in the Council (Article 16 (3) of the certain provisions of the Statute of the ESCB TEU). One of the provisions affected by the and of the ECB (Article 129 (3) of the TFEU change from unanimity to QMV is that con- and Article 40.1 of the Statute of the ESCB cerning the appointment of the members of and of the ECB), a qualified majority is at- the Executive Board of the ECB (Article 283 tained if 72% of the Council members, repre- (2) of the TFEU). Besides this, it is mainly in senting member states comprising at least the areas of justice and home affairs that the 65% of the population of the Union, vote in requirement for unanimity has been modi- favour of the initiative (Article 238 (2) of the fied. This facilitates decision-making by the TFEU). European Council and the Council of Minis- ters. Unanimity is still required, in particular, The principle of conferral developed by the Division of competences for decisions relating to the common foreign European Court of Justice has been expressly between the EU and security policy, common defence policy anchored in the Treaty on European Union to and its member states and social policy. govern the relationship between the Union and its member states. Under this principle, ... and by One fundamental improvement consists in the Union can act only within the limits of the amending 3 the rules the introduction of a second voting key. In competences which the member states have on attaining future, the size of the population of the indi- conferred upon it in the Treaties. Compe- a qualified majority vidual member states will be (one of) the cru- tences which have not been conferred remain cial factor(s) determining whether a qualified with the member states (Articles 4 (1) and majority is attained (and not, as is currently 5 (1) and (2) of the TEU). The monetary the case, acting only on a proposal), thus sus- policy of the euro-area countries falls within tainably strengthening representativeness in the sole (exclusive) competence of the Euro- the Union. This amendment will not enter pean Union, for example. The internal market into force until 1 November 2014, however. is one instance of shared competence (between the Union and its member states). This Under these rules, a qualified majority is at-

tained when, acting on a proposal from the 3 The Deutsche Bundesbank and representatives of the Commission or from the High Representative European Parliament also advocated such a second key in the reform of the voting procedure of the Governing of the Union for Foreign Affairs and Security Council of the ECB.

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also includes, for instance, legislative pro- Parliament. It would be possible in this way to posals on European financial supervision. In amend, for instance, the requirement of all areas of shared competence, the principle unanimity for the transfer of tasks in the field of subsidiarity – which has been further of financial supervision to the ECB (Article 127 strengthened – must be observed. This means (6) of the TFEU). that a centralised solution may be chosen only if the objectives of a proposed action Where amendments to Treaty legislation, Federal Constitutional cannot be sufficiently achieved by the mem- such as those allowed by the passerelle Court ber states themselves (Article 5 (3) of the clause, are possible without a ratification pro- judgement stipulates TEU). It is against these principles and, in par- cedure, note should be taken of the judge- Bundestag involvement ticular, the principle of conferral, that any le- ment passed by the Federal Constitutional even in Treaty gislative proposals for financial supervision at Court of Germany on the acts to ratify the revisions without a the European level will have to be measured. Lisbon Treaty, which sets limits on the transfer ratification procedure Another matter that will have to be scrutin- of competences to the European Union. 4 Es- ised is whether the implementation of har- pecially in such cases, the Federal Constitu- monised supervisory regulations by national tional Court prescribes an effective right of supervisory authorities is sufficient and participation for the Bundestag and, if its whether it is, therefore, unnecessary to give competence is affected, of the Bundesrat. powers of decision-making and implementa- The same is to apply to invoking the “flexibil- tion to European supervisory authorities. ity clause” if action by the Union should prove necessary to attain the objectives set Simplified The provisions of Part Three of the Treaty on out in the Treaties and the Treaties have not revision procedure the Functioning of the European Union – provided the necessary powers (Article 352 of for Treaties “Union Policies and Internal Actions” – which the TFEU). Consent given by a representative also contains the chapters on economic policy of the German government in the European and monetary policy, can be amended in fu- Council or the Council is therefore not suffi- ture by a unanimous decision of the European cient. German legislators have complied with Council; in other words, it will not be neces- the demands of the Federal Constitutional sary to convene an intergovernmental confer- Court and have amended the supplementary ence for this purpose (Article 48 (6) of the national legislation accompanying the Lisbon TEU). Any amendments still need to be rati- Treaty.5 Parliament must give its consent by fied by all the member states, however. Such act of parliament before a German member amendments may not lead to an extension of of the Council can vote in favour of a meas- the competences conferred upon the Union. Furthermore, the “passerelle clause” (Art- icle 48 (7) of the TEU) allows voting on certain

areas to switch from unanimity to QMV if this 4 Federal Constitutional Court, judgement of the Second is unanimously approved by the European Senate of 30 June 2009, 2 BvE 2/08. 5 Acts of 22 September 2009, Federal Law Gazette I, Council and has the consent of the European page 3022.

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ure where the passerelle or flexibility clauses EU is just as much unresolved as the issue of are applied.6 the renewed granting of a derogation to a member state whose currency is the euro. Higher profile The newly created functions of the President in the external representation of the European Council, who is elected for a of the term of two and a half years, and the High Changes in the area of Economic and European Union Representative of the Union for Foreign Monetary Union (EMU) Affairs and Security Policy are designed to heighten the influence, cohesion and profile The changes introduced in the area of EMU of the EU in foreign policy issues (Articles 15 are of secondary significance compared with (5) and (6), and 18 of the TEU). The President the general institutional reforms. The monet- of the European Council is to represent the ary constitution of Maastricht thus remains Union externally in matters concerning its unaltered. common foreign and security policy without prejudice to the powers of the High Repre- The member states and the Union – including sentative. The High Representative is also one its institutions – are obliged to maintain price of the Vice-Presidents of the Commission, stability; they work for the sustainable devel- presides over the Foreign Affairs Council, and opment of Europe based on balanced eco- is to ensure the consistency of the Union’s ex- nomic growth and price stability (Article 3 (3) ternal action. It remains to be seen how the sentence 2 of the TEU). The obligation to newly created official roles of President of the maintain price stability is enshrined in the European Council and High Representative Maastricht Treaty as a cornerstone of the will function in practice under the rotating EU monetary constitution of the Community presidency. and all the member states, and was pur- posely included as an objective in the Lisbon Explicit For the first time, there is an explicit provision Treaty. provision on withdrawal for the withdrawal of a member state from from the Union the European Union (Article 50 of the TEU). A A special provision in the Treaty on the Func- Strengthening of the Euro withdrawal would be effected by an agree- tioning of the European Union (Article 137) Group ment concluded by the Union with the state and a dedicated protocol have anchored the – concerned. There is no express provision for previously informal – Euro Group in EU law. the exclusion of a member state. Rather, the This has created an institutionalised frame- Treaty on European Union contains only pro- work for the finance ministers of the member visions for the event of a clear risk of a serious states whose currency is the euro “to discuss breach of the Union’s fundamental values by questions related to the specific responsibil- a member state (Article 7 of the TEU). The

question of whether it would be possible, ap- 6 In certain other cases, the German member of the plying general principles of international law, Council may vote in favour of a measure or abstain from voting only after the Bundestag and, if necessary, also to terminate a country’s membership of the the Bundesrat have taken a decision on this matter.

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ities they share with regard to the single cur- Nonetheless, the Council must still adopt the rency”. Unlike the ECOFIN Council, which Commission’s proposal by a qualified major- has a semi-annual rotating chair, the mem- ity. A further, indispensable change in com- bers of the Euro Group elect a president for parison with the previous legal position is two and a half years. that, for decisions regarding the existence of an excessive deficit, the member state con- Possibilities Economic policy essentially remains the re- cerned is not entitled to vote; the voting for euro-area countries sponsibility of the member states. However, rights of all other member states with an ex- to coordinate the possibility of a more extensive coordin- cessive deficit can be exercised. However, the economic policy ation of economic policy among the euro- voting rights of member states with a deroga- area countries has been created. The euro- tion are suspended for decisions in the frame- area countries, acting by a qualified majority, work of multilateral surveillance as well as for can adopt measures to strengthen the coord- measures relating to excessive deficits con- ination and surveillance of their budgetary cerning those member states whose currency discipline and set out economic policy guide- is the euro (Article 139 (4) of the TFEU). lines (Article 136 of the TFEU). In addition to a number of mainly technical ECB now (also) part of the Commission’s Furthermore, the Treaty expands the Com- adjustments, the chapter on monetary union institutional scope extended mission’s scope for action within the excessive also contains an institutional amendment. framework with regard of the EU to the Stability deficit procedure. In order to prevent exces- The ECB has been formally designated an in- and Growth Pact sive deficits, the Commission has been given stitution of the European Union and, as such, the right to issue an early warning to member now forms part of the institutional frame- states that fail to fulfil their fiscal policy obli- work of the Union together with the Euro- gations (Article 126 (3) of the TFEU). In add- pean Council, the Council, the European ition, the Commission can address a warning Commission, the European Parliament, the to a euro-area country if its economic policies Court of Justice of the European Union and are not consistent with the broad guidelines the European Court of Auditors (Article 13 of recommended by the Council or risk jeopard- the TEU and Article 282 of the TFEU). Previ- ising the proper functioning of EMU (Art- ously, the ECB had a special status as an insti- icle 121 (4) of the TFEU). The extent to which tution sui generis rather than being an institu- the Commission will make use of this new tion of the European Union. scope for action remains to be seen. More- over, the Council’s decision on whether an ex- Nonetheless, the ECB is not comparable with ECB’s stability mandate cessive deficit exists in a member state is now the other EU institutions for a number of rea- still takes based on a proposal from the Commission ra- sons. While all the other institutions are ob- precedence ther than a recommendation, as was previ- liged to participate in achieving all of the ously the case. Consequently, the Commis- Union’s aims, the ECB – as part of the ESCB sion’s proposal can be amended only on the and the Eurosystem – remains committed to basis of a unanimous decision by the Council. its primary objective of maintaining price sta-

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bility.7 For the ECB, therefore, this greatly The basic central bank tasks are still to be car- limits the duty of sincere cooperation associ- ried out by the whole system and still entail, ated with EU institution status. In particular, in particular, defining and implementing for example, the Council cannot demand of monetary policy, managing the foreign re- the ECB an ex ante coordination of monetary serves of the member states and promoting policy with other policy areas such as fiscal the smooth operation of payment systems policy by invoking a duty of sincere cooper- (Article 127 (2) of the TFEU). The system is ation. governed by the decision-making bodies of the ECB. The supreme decision-making body Its specific Unlike the other EU institutions, the ECB – of the ECB is the Governing Council. It com- characteristics remain alongside the Union – has legal personality. prises the governors of the national central unchanged ... The ECB is entirely separate from the EU banks of the euro-area countries and the budget; it is funded by the national central members of the Executive Board of the ECB. banks. As shareholders, they own the ECB’s In particular, the Governing Council of the capital, decide how its profits should be used ECB formulates the monetary policy of the and bear its losses. Consequently, official li- euro area and takes all key decisions neces- ability for the ECB on the part of the Union is sary to ensure the performance of the tasks expressly ruled out; given its legal personality, entrusted to the ESCB. The main task of the the ECB itself is liable (Article 340 of the Executive Board of the ECB is still to manage TFEU). It is therefore likely that the ECB’s new the current business of the ECB. Pursuant to role as an EU institution will ultimately be of a the principle of decentralisation enshrined in formal and symbolic nature. Article 12 (1) third subparagraph of the Stat- ute of the ESCB and of the ECB, operations ... as does Given the political proviso for the Lisbon which form part of the tasks of the ESCB, the ECB’s integration in Treaty that the established monetary frame- particularly in the area of monetary policy, are the Eurosystem work created through the 1992 Maastricht still generally to be carried out by the national Treaty should not be changed, the Eurosys- central banks. tem’s tasks and their distribution within the system were left unaltered. The relevant pro- The independence of the central banks of the No change to guarantee of visions in the Statute of the ESCB and of the ESCB – the ECB and the national central independence ECB remain unchanged and are simply reiter- banks 8 – and their decision-making bodies re- for ECB and national central ated in the new section on the ECB (Articles mains unchanged (Article 130 of the TFEU). banks 282 and 283 of the TFEU). The term “Euro- The same conditions still apply to their func- system”, which has been used in practice tional, institutional, personal and financial since the euro was introduced in 1999, was independence. The separate arrangements incorporated into the Treaty on the Function-

ing of the European Union to designate the 7 As before, the system will support the general econom- ECB and the national central banks of those ic policies in the Union only insofar as this is not detri- mental to its primary objective. member states whose currency is the euro. 8 With the exception of the Bank of England.

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incorporated for the ECB in Article 282 (3) It is imperative that the involvement of the sentences 3 and 4 of the Treaty on the Func- ECB General Council’s members in the Euro- tioning of the European Union do not contain pean Systemic Risk Board does not cause any changes with respect to the previous them to lose sight of their primary objective guarantee of independence. of maintaining price stability. In this context, care must be taken to ensure that a clear dis- Transfer of Finally, the procedure under which specific tinction is made between the functions of financial supervisory tasks relating to the prudential supervision of this new body and the financial stability tasks tasks to the credit institutions and other financial institu- conferred upon the Eurosystem, which must ECB tions with the exception of insurance under- be carried out independently. In particular, takings can be transferred to the ECB has the independence of the members of the ECB been changed. While the previous legal pos- Governing Council, who will also become ition envisaged that the Council, acting members of the European Systemic Risk unanimously after receiving the assent of the Board, will therefore be of paramount im- European Parliament and consulting the ECB, portance when fulfilling Eurosystem tasks. could confer tasks upon the ECB, the new provisions do not, in this case, follow the rule Article 133 of the Treaty on the Functioning New legal basis for euro running through the Lisbon Treaty that deci- of the European Union has created a new monetary law sions must be jointly adopted by the Council legal basis for euro monetary law. This provi- and the European Parliament. Before making sion grants the Council and the European its decision, which must still be unanimous, Parliament the right to lay down the meas- the Council is now obliged only to consult the ures necessary for the use of the euro as the European Parliament (as was previously al- single currency; this is without prejudice to ready the case for the ECB) (Article 127 (6) the powers of the ECB; the ECB must be con- of the TFEU). As things stand at the EU level, sulted before the measures are adopted. This the Secretariat of the European Systemic Risk provision is a new addition; its forerunner en- Board is to be entrusted to the ECB on this visaged only measures for the “rapid intro- basis. duction” of the euro.