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Introduction

Stiftung Wissenschaft und Politik German Institute for International and Security Affairs Comments

Blocked for Good by the Threat of Treaty Change? WP S Perspectives for Reform in the Nicolai von Ondarza

The European Union faces a fundamental dilemma. On the one hand, pressure to reform its structures is growing. The hard negotiations with in summer 2015 have revived the debate on deepening the , while at the same time London is pushing to roll back integration, at least for itself. On the other hand, national governments reject any moves that would require a treaty change (such as transfer of powers) as politically impossible. Legal options for evading the dilemma and developing the Union by “covert integration” do exist, but these require unanimous political agreement among all the national governments – and would in the medium term require treaty changes to restore transparency and democratic legitimacy.

The traumatic process of negotiating and bought itself some time for reform, the vola- ratifying the EU Constitutional Treaty and tile negotiations with Greece in summer the has left deep marks. 2015 again spotlighted the persistence of Ever since, national governments have con- grave deficits in its economic and political sistently avoided initiating significant treaty structures. In response, in summer amendments, including at the height of 2015 proposed strengthening the Eurozone the crisis. Even in projects such as the with a finance minister with a budget and banking union, they have instead turned a parliament of its own. Concurrently, in to treaties outside the EU framework. June 2015 the presidents of five European Despite this reservation – or perhaps institutions (Commission, Council, ECB, precisely because of it – pressure to tackle and ) pub- reform of primary law is growing. Momen- lished their conclusions on completing tum for a treaty amendment comes from the economic and monetary union. While three sides: Firstly, reform of the Eurozone recommending short-term reforms under remains on the agenda. Although indi- secondary law, in the longer term they also vidual crisis-hit countries like Ireland have suggest creating a European finance minis- made progress and the Eurozone has try. If this were to involve transferring new

Dr. Nicolai von Ondarza is Deputy Head of SWP’s EU/ Division SWP Comments 50 November 2015

1 powers to the Eurozone within the frame- Comprehensive Treaty Amendment work of the EU – such as rights to control Remains Out of Reach or even intervene in national budgets, or In all three areas, however, national govern- new transfer mechanisms – regular treaty ments appear to recoil from seeking treaty amendments would be required, under the change. The reasons for this are complex principle of conferred powers that explicitly and stem from more than just fear of refer- guarantees that only member states may endums. Fundamentally, the rejection of transfer new powers to the Union. treaty amendments can be explained in Secondly, British Prime Minister David terms of the interaction of six factors: Cameron is pursuing – in parallel to but Firstly, the greatest obstacle is that under not independently of the above – a reform Article 48 of the serving British interests to convince his (TEU) any form of treaty amendment must electorate and above all his party base to be agreed unanimously. This provision vote to remain in the European Union in guarantees that the member states retain the referendum planned for 2016 or 2017. control over the EU treaties. And this is the The British demands also amount to reforms reason why disagreements over treaty nego- on a treaty-amending scale: exemption from tiations have frequently led to the adoption the objective of an “ever closer Union”, of special arrangements and opt-outs to ac- greater rights for national parliaments, commodate individual member states. Now and safeguards for non-euro states in the the differences between national govern- process of closer integration of the Euro- ments are larger than ever. Whereas the zone. Not least, Cameron is seeking to Eurozone is at least debating a further deep- reduce the incentives for intra-EU migra- ening, London would prefer to curtail or tion to the . While not even reverse integration. The gap, however, calling into question the principle of free- is especially wide when it comes to ideas dom of movement, this could require – about the future of the Eurozone. These depending on the specific interpretation of range from demands for greater sharing of European law – amendments to the treaty risks (European unemployment insurance provisions on free movement of persons or scheme, Eurozone budget) through further non-discrimination of EU citizens. Before transfers of sovereignty (enhanced budget the British referendum is held, the other controls, binding reform programmes) to member states will thus have to decide a return to market-driven reforms and a whether and to what extent they are wil- strengthening of the no-bailout clause. Acri- ling to concede treaty-changing reforms. mony between European states over the refu- Thirdly, twenty-six of the twenty-eight gee crisis has further worsened the political member states have already agreed to seek climate within the Union. a treaty amendment by 2017, having com- Secondly, this also means that as soon as mitted themselves to incorporate the pro- treaty reform comes onto the table in any of visions of the Fiscal Compact into the EU the European Union’s many pressing issues, treaties within five years of its coming into the other questions almost automatically effect, in other words by January 2018 have to be debated and clarified too. For (Article 16 of the Treaty on Stability, Coordi- example, the United Kingdom would certain- nation and Governance in the Economic ly exploit any treaty reform initiated by the and Monetary Union). Given that this obli- euro states to force a deal on its own issues, gation is binding only on the signatories, using its veto to add weight to its demands. the corresponding treaty amendment is no The Union is thus unable to resolve any of foregone conclusion, because the two un- its problems in isolation by the route of re- involved states, the United Kingdom and form of primary law, but would be forced to , would also have to be persuaded tackle them as a whole. This naturally makes to give their consent. a solution considerably harder to find.

SWP Comments 50 November 2015

2 Thirdly, the situation is complicated more than two years for ratification by the fact that in a Union of twenty-eight alone. member states there is almost always an Finally, every EU treaty amendment important national election looming in one must be ratified by all member states. Plebi- or another, which reduces the scope of the scites are not automatically necessary, but (larger) member states in negotiations. The for political reasons a referendum is planned debates about a political union in 2012 in the United Kingdom, and depending on were accompanied by warnings about that the extent of transfer of sovereignty may no treaty change was possible before the also be required in Ireland, and on matters German Bundestag elections in 2013, in affecting non-euro states also . In 2013 it was the 2014 European elections, the event of more significant treaty amend- and then the British elections in 2015. ments referendums could also be demanded And now, with German parliamentary and in France, the and elsewhere, French presidential elections scheduled following the precedent of the EU Constitu- for 2017, there are again milestones before tional Treaty. Even parliamentary ratifica- which treaty reforms are excluded. As these tion is likely to be more difficult than for examples underline, national elections rep- the Treaty of Lisbon, because electoral suc- resent a structural rather than temporary cesses for EU-critical parties across Europe obstacle, because many national govern- have boosted their representation in ments believe that excessive willingness to national parliaments. compromise at the EU level reduces their prospects of re-election. Fourthly, the European Parliament must Option Covert Integration? also be involved in any significant treaty The EU member states are in a bind: The change. While it would not be expected to Eurozone must be adapted and developed fundamentally hinder any development of but the required major treaty amendments the Eurozone, there are certainly greater appear impossible. During the debt crisis concerns about the British demands. Under the European Union therefore incremental- Article 48 (3) of the TEU, simplified Treaty ly developed a way around this problem that revisions are possible without a convention, could be described as “covert integration”. but this shortcut requires the consent of The model is characterised by two mutu- the Parliament. Because a Convention grants ally complementary features. Firstly, nation- considerably greater influence to the Euro- al governments delegate substantive politi- pean Parliament (and national parliaments), cal decision-making powers that are not it is quite likely that the Parliament would explicitly defined in the EU treaties to the press for a Convention even for less signifi- EU level. This transfer of powers is then cant treaty amendments. concealed, either by creating structures Also for that reason, fifthly, the ordinary that can take decisions that might not be revision procedure suits neither the time- legally enforceable, but are politically bind- table of the British strategy nor that of the ing. Alternatively, the competences are Eurozone. The experience with the Treaty directly transferred to structures outside of of Lisbon shows that more than half a dec- the EU legal framework. The Fiscal Compact ade may pass between the first talks (early adopted in 2012, for example, did not rep- 2002) and entry into force (end of 2009). resent any formal alteration to the EU trea- Even for the latest “simple” treaty amend- ties. But the member states nonetheless ment – adding just one paragraph to Article agreed to include stricter budget rules in 136 of the Treaty on the Functioning of their national constitutions (or an equiva- the European Union (TFEU) to ensure the lent constitutional level) and introduced validity of the European Stability Mecha- new monitoring and penalty systems. The nism (ESM) – the member states required possibilities for to influence na-

SWP Comments 50 November 2015

3 tional budgetary policy were thus strength- pressed, by shortening the negotiations, ened de facto – albeit not de jure. and in particular the ratification process. Secondly, these covert integration moves The Fiscal Compact, for example, was nego- sidestep the processes required for a regu- tiated within three months, and was fast- lar treaty amendment. The instruments tracked into effect within nine months applied here include generous interpreta- (even before all the parties had ratified). tion of the EU treaties, separate treaties That was at least a year faster than any under international law, and inter-govern- major EU treaty amendment since Maas- mental coordination. One example of this tricht. Additionally, the lack of any formal is the banking union, which only became transfer of sovereignty meant that national possible through a combination of second- ratification referendums were avoided, ary legislation under a broad interpretation with the sole exception of the Irish plebi- of the EU treaties and a supplementary scite on the Fiscal Compact. treaty. Covert integration thus stands in However, the disadvantages of covert contradiction to the purist line under which integration are equally weighty. It violates treaties should only be altered by a Con- important principles, whose observance the vention with the greatest possible legal regular treaty amendment procedure with security, transparency and democratic its high European and national hurdles is legitimacy. designed to guarantee. These are, firstly, Another relevant instrument is differen- transparency and democratic consultation tiated integration, without which no new guaranteed by a Convention, which fore- integration move would have been agreed sees participation by the interested public since the outbreak of the European debt alongside the European and national parlia- crisis. In fact, every step involving less than ments. Although integration steps such as the full twenty-eight members turns the the banking union and Fiscal Compact were Eurozone into the core of European inte- not accomplished entirely behind closed gration (see SWP Research Paper 2/2013). doors, they permitted considerably less Alongside the Fiscal Compact and the transparency and participation than a new banking union, this also includes the new Convention. euro structures such as the Euro Secondly, the referendums that are re- with its own president and the European quired in certain member states to approve Stability Mechanism. Meanwhile, the transfer of sovereignty lend a treaty amend- Union’s actual supranational institutions, ment additional democratic legitimacy in the Parliament and the Commission, on the the eyes of the public. Although it can be other hand, are only peripherally involved. debated whether referenda are the right From the perspective of national govern- tool for deciding matters such as EU treaty ments, this concealment of transfer of revisions in the representative democracies powers has decisive advantages, and allows of the European Union, the precedents mean most of the obstacles to treaty amendments that the legitimacy of any future major to be overcome in practice. Although all the treaty revision will surely be measured by named procedures still require unanimity, its popular approval, at least in certain with differentiated integration it is suffi- states. Nobody has forgotten that citizens cient if all the participating member states voted no in five of the fourteen national agree. This also reduces the interdependency referendums on EU treaties since Maas- of the various reform initiatives, for example tricht. when the Eurozone avoids treaty amend- Thirdly, in the longer term the present ments and thus divests London of the veto processes endanger legal clarity within the it could use to press its demands. Above all, European Union as a community of laws this approach allows the timeframe for whose legitimacy and stability also depend reform projects to be significantly com- on the observance of principles such as that

SWP Comments 50 November 2015

4 of conferred powers. But if existing EU law poses setting up national competitiveness is overloaded with contradictions created authorities (requiring no treaty amend- by a plethora of ancillary agreements or ment) and strengthening coordination distorted by over-generous interpretations of economic and fiscal policies between to push through integration steps, these Eurozone states. In the same vein, some practices will in the long term undermine political leaders have contemplated grant- the Union itself. ing a strengthened Commissioner for the Euro a veto over national budgets. Such a direct transfer of sovereignty would funda- Possibilities and Limits of mentally require a treaty amendment, but Covert Integration binding bilateral treaties between the euro Despite these reservations, national govern- states and the Commission would be legally ments appear to regard the arguments possible at any juncture. against major treaty revisions as so weighty A second strand of reform initiatives is that – at least for the foreseeable future – rooted in the diagnosis that mainly attri- reforms will be possible only via the diver- butes the Eurozone crisis to the fact that sion of covert integration, if at all. In both the common currency denies its members neuralgic issues, namely the Eurozone and the possibility to devalue their currency the United Kingdom, it is therefore neces- or to borrow extensively in order to make sary to consider which options are possible major investments, limiting their ability under these preconditions, where their to respond adequately to economic down- limits lie, and how they can in the longer turns. Addressing this issue in July 2015, term pave the way to a legally and above French President François Hollande revived all politically viable reform. the proposal to give the Eurozone an addi- tional fiscal capacity and a common unem- ployment insurance. The Eurozone could Options for the Eurozone then lend anti-cyclical support to member It will certainly not be possible to overcome states in recession and thus reduce struc- the complex political and economic chal- tural divergences. This would transform lenges within the Eurozone solely or even the character of the currency union, with largely through institutional reforms. None- the euro states sharing risks and assuming theless, all reform proposals that imply any greater responsibility for one another. transfer of new powers to the Union formal- Nevertheless, there are possibilities to ly require a regular alteration of primary achieve this without a treaty amendment: law. But in most cases a solution by the the Eurozone states could, for example, route of covert integration is conceivable, apply the instrument of enhanced coopera- at least for a time, as long as a political con- tion in conjunction with Article 311 TFEU sensus can be reached beforehand. This can to introduce new own resources – for in- be illustrated with four proposals that are stance in the form of Eurozone taxes that under discussion. could then be used for instruments such as Firstly, there are various ideas for strength- unemployment insurance. Even in this case, ening economic governance within the however, unanimity among the euro mem- Eurozone in order to reduce structural diver- ber states would be required. gences in the economic performance and Thirdly, the dramatic negotiations with competitiveness of the member states. These Greece in summer 2015 have revived open reform initiatives start from the diagnosis discussion about whether and how a state that the European debt crisis resulted from could leave the euro, at least for a certain the weakness of individual member states. period. At first glance this would not appear The five presidents’ report on Completing to be covered by the aquis, because the Europe’s Economic and Monetary Union pro- introduction of the euro was “irreversible”.

SWP Comments 50 November 2015

5 The predominant opinion among experts Even by the route of covert integration, the in European law is therefore that an orderly monetary union can only be adapted and exit procedure or an insolvency process for developed if at least the nineteen euro states euro states would presuppose a regular can agree on common interests. Politically treaty amendment. Nevertheless, the talks that would require all of them to make with Athens were accompanied by discus- compromises that would be domestically sion as to whether Greece could “tempora- controversial, if not explosive. rily” leave the Eurozone – at its own request and with the consent of all the other EU member states – to restructure its debt. A Danish Solution for the United Kingdom One option considered was to use Article Negotiations with the United Kingdom 140 TFEU to revoke the original decision will be similarly complex. With his target to introduce the euro in Greece. While this of a referendum by the end of 2017, Prime alternative was ultimately not used in the Minister David Cameron has set himself talks in July and August 2015, it remains and the Union a clear deadline that more in the air in the longer term. or less precludes achieving regular treaty Fourthly, almost all demands for greater change. Yet he still demands that reforms powers for the Eurozone contain at least a for the United Kingdom must be anchored declaration of intent to enhance its demo- in a permanent and legally binding form, cratic legitimacy. The five presidents’ report in other words on the level of primary law. calls for a strengthening of parliamentary Thus alongside the substance of the talks control of decisions both on the national with London (see SWP-Studie 4/2014), the and the European level, including partici- EU partners will have to agree whether and pation by the European Parliament in how they wish to grant concessions without . French President an immediate major treaty amendment. To Hollande has even called for the creation this end London is already thinking about of a Eurozone parliament. However, this a so-called “Danish solution”, orientated could easily complicate the Union’s struc- on the agreement reached with Denmark tures rather than improving their demo- in connection with the Treaty on European cratic legitimacy. On the other hand it is Union (). The “Danish solu- easily possible to expand the European tion” arose in talks between Copenhagen Parliament’s role in economic governance and the then eleven other EC member with the help of regular EU legislation. states after the Danish electorate rejected Furthermore, its statutes would allow the the Treaty in 1992. After hard negotiations Parliament to establish a special committee the heads of state and government – notably for the economic and monetary union with under British mediation – concluded an MEPs from the euro states. Via such a com- agreement promising Denmark opt-outs. mittee the European Parliament could Denmark, like the United Kingdom, was directly represent the citizens of the euro excluded from the third stage of economic states on matters concerning the euro. The and monetary union, and exempted from national parliaments, too, could expand future EU integration in defence policy and their coordination without a treaty amend- in justice and home affairs. ment, by using the Inter-parliamentary Con- The heart of this solution was an inter- ference established under the Fiscal Com- national treaty signed by all the EU mem- pact. ber states and annexed to the Treaty on This brief overview suffices to demon- European Union, together with a binding strate that the necessity for treaty amend- promise to incorporate the substance of ments is not absolute. Yet at the same time the annex in primary law at the next treaty it reveals how contradictory the reform amendment. After their inclusion in the proposals for the Eurozone continue to be. Treaty of , the Danish opt-outs

SWP Comments 50 November 2015

6 remain part of the EU treaties to this day. A Tricky Balancing Act This outcome was achieved without the A closer look at what are currently the most other EU member states having to undergo urgent reform projects reveals that even a separate ratification process, while the without major treaty revisions there are Danish government was able to muster certainly legal possibilities for the Union sufficient popular support for membership and the Eurozone to move forward and under the new conditions to win a second develop substantially. referendum. Promises were also made to Yet the essentially political dilemma of Ireland in 2008 after its negative referen- EU reform, the neglect of political integra- dum on the Treaty of Lisbon, with conces- tion, cannot be resolved in this manner. sions granted within the scope of the exist- Firstly, even with these instruments unani- ing treaties (Irish solution). For example the mous agreement among the nineteen Euro- principle of “one commissioner per member zone states – and in the case of the United state”, which had actually been abolished Kingdom the twenty-eight EU member under the Treaty of Lisbon, was restored by states – remains a necessary condition. decision of the , permit- Thus even if the hurdles of a major treaty ting smaller states like Ireland to continue reform, with its referendums and long to nominate a commissioner. Dublin was timeframes, are taken out of the equation, also promised that the Common Security it does not become significantly easier to and Defence Policy would not violate its achieve political agreement on concrete neutrality. reform projects. Whether with a reform of A similar solution would be conceivable primary law or without, the biggest politi- for the United Kingdom. The now twenty- cal challenge lies first and foremost in eight member states would have to make a persuading the national governments to political declaration and conclude a treaty agree on the necessary reform initiatives. under international law, defining outcomes Secondly, the use of covert integration to be incorporated in the Treaty on Euro- for substantive reform projects exacerbates pean Union at some point after 2017. This the Union’s greatest long-term challenge, would permit agreement to be reached namely its lack of democratic legitimacy. If before the British referendum, while allow- the perception that national governments ing the British question to be tackled sepa- are implementing integration by the back rately from reform of the Eurozone. That door without popular participation con- would also avoid giving London additional tinues to consolidate, that would be grist negotiating power in the form of a veto to the mill of adversaries like the Front over EU treaty reform. National in France, UKIP in the United King- It must be remembered, finally, that dom and others. Without the consent of the there are also limits to such an approach. people the Union is condemned to failure The Danish and Irish solutions were only in the long term. The numerous successes possible because all the opt-outs remained of euro-sceptics in the European elections, within the scope of the existing EU treaties. and above all the subsequent national elec- But as long as the agreement with the tions, have already impaired the function- United Kingdom does not explicitly contra- ing of the Union. dict the treaty (for example by placing re- In order to resolve this dilemma and strictions on freedom of movement), this reform its structures, the European Union would open a path to agreement within must accomplish a tricky balancing act Cameron’s timeframe without referendums under the most difficult of circumstances. in other EU member states. Unforeseen turns aside, the medium-term political perspective will be dominated by three looming events: German Bundestag elections and French presidential elections

SWP Comments 50 November 2015

7 in 2017, and the British referendum in 2016 or 2017. Until then covert integration remains realistically the only means to im- plement necessary reforms in the Eurozone and achieve agreement with the United Kingdom. The combination of reaching a Danish solution with London and otherwise using the flexibility of the EU treaties as far as possible for the Eurozone could pave the way for actually tackling a treaty revision after 2017: to retrospectively legitimise the reforms introduced by covert integration, integrate extra-treaty elements like the Fiscal Compact into EU law, and complete

© Stiftung Wissenschaft und outstanding expansions of powers. Politik, 2015 can and should play a key role All rights reserved in this process. Not only does Berlin occupy These Comments reflect at least a leading position in the Eurozone, the author’s views. if not in fact now a semi-hegemonic one. SWP London also orientates its negotiating strat- Stiftung Wissenschaft und egy largely on Germany. If Berlin wishes to Politik German Institute for advance the Union’s development it needs International and to use these levers, above all to achieve the Security Affairs necessary political agreements in the short Ludwigkirchplatz 3­4 and medium term. And in the longer per- 10719 Berlin spective the German government must de- Telephone +49 30 880 07-0 Fax +49 30 880 07-100 clare its willingness to tackle the challenge www.swp-berlin.org of a regular treaty amendment, including a [email protected] Convention. ISSN 1861-1761

Translation by Meredith Dale

(English version of SWP-Aktuell 89/2015)

SWP Comments 50 November 2015

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