The “Fiscal Compact”: Legal Uncertainty and Political Ambiguity

No. 33 February 2012

The “Fiscal Compact”: legal uncertainty and political ambiguity

Renaud Dehousse is Professor at Sciences Po Paris where he holds the Jean Monnet Chair in European Union Law and Political Science and directs the Centre for European Studies (Centre d’études européennes). He is also scientific advi- sor at Notre Europe.

Renaud Dehousse

Introduction

Twenty years from now, how will the “Treaty work2, while the Commission has seen its over- on Stability, Coordination and Governance in sight responsibilities reduced, its power being the Economic and Monetary Union”1, recently limited to merely making recommendations3. The approved by the heads of state and government weaknesses of its power were to be measured in on 31 January, be viewed? The answer will largely 2003 when it attempted to use it against France depend on what follows from this decision. Will the and Germany, which clearly violated the stabil- treaty receive enough signatures to be ratified and ity pact. In many respects, the Maastricht Treaty enter into force? Will it calm market fears? Will gov- was thus halfway between the community method ernments actually fulfil the new obligations they of the “first pillar” and the intergovernmental are subject to? In any case, the reference to a lon- approaches of the second and third pillars. ger time-period should also be seen as an incen- tive to consider the place this “fiscal compact”, as The new treaty aims to remedy these structural it is sometimes called, will hold in the EMU’s short weaknesses. First, it will reduce states’ fiscal history. After all, the Maastricht Treaty, praised in discretion by establishing a “golden rule” of bal- its day as a historic agreement, today seems more anced budgets, which should be, if possible, a of an ambiguous compromise which left a certain fundamental element of their constitutional texts number of fundamental questions hanging in the (Article 3). Next, it will strengthen the control balance, questions which have weighed on the powers of the Commission, to which the Eurozone events of the past two years. What lies ahead for members are committed to lend their full support this new treaty? (Article 7). Finally, it will give the Court of Justice new powers of control (Article 8). In sum, the “fis- At first sight, the fiscal compact is inspired by a cal compact” may appear to be the formal aban- desire to break with the past, which is the main donment of the laxity that has marked the first rationale for its adoption. The “governance by decade of the single currency, a move that, among rules” set in Maastricht was characterised by two others, is meant to assuage market fears regard-

33 2012/No. things: first its rejection of overly strict discipline, ing the euro’s sustainability. Reality, however, is and second, its refusal to allow supranational much more complex. On the one hand turning to bodies to play a controlling role similar to that an “intergovernmental treaty” considerably limits accorded them in other areas. All infringement pro- reform possibilities. On the other hand, the effec- ceedings before the Court of Justice were therefore tiveness of the control mechanisms put into place excluded in the excessive deficit procedure frame- remains uncertain.

1. Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, 2. Article 126(10)of the TFEU. http://www.european-council.europa.eu/media/579087/treaty.pdf 3. Article 126(9) of the TFEU.

1/4 2/4

2012/No. 33 with prior treaties is anything but simple. but anything is treaties prior with coexistence whose treaty, new – a solution shaky has led proposals to a reform of ernment the treaty As it by is gov the the British well rejection known, choice The I. of an “intergovernmental treaty” 4. sector texts policy previous by covered thoroughly is a which under falls Treaty” “Fiscal new area, unexplored relatively a with dealt which is treaty new to Agreements, the Schengen Contrary concerned. the where important particularly institutions EU of work the der lines, same the Along prohibits only which rule, Maastricht the by abide automatically will provision new this following government any demand: this with complies 3– Article in outlined as rule” “golden or the budgets, – balanced treaty ones existing derogate from not may but rules, new add may They remain treaty new treaties. the of European the by obligations the bound of signatories the First, to restrictions. subject several however, is, states member EU some The right to conclude a separate agreement between restrictions many with Aright 1.2. 2011. July in signed Mechanism Stability or the more recent establishing the treaty European concluded Agreement, Schengen the cooperation, treaties Nordic the Benelux, only: states of member EU some examples between several are competence of areas their in agreements ers pow limited has only EU the because Moreover, included. not parties the of rights the on infringe not does it as long as con themselves, among to agreements treaty additional clude multi-lateral a of signatories the of some allows law International states. member EU certain between established being from agree ment separate a prevents nothing principle, In treaty aseparate toconclude right 1.1. The 4 ofArticle the TEU. 4 , member states remain free to conclude conclude to free remain states member excessive . The centrepiece of the new new the of centrepiece The . h nw ue cno hin cannot rules new the deficits. . This principle is is principle This . . There There . the the , - - - - - Maastricht with the Social Policy Protocol, which which Protocol, at the Policy Social case the with the protect Maastricht been had to This acquis. order given institutional in be responsibilities, can obtained new institutions common be the should before countries member 27 EU the principle, in, Finally, institutions. supranational of powers the weaken could approach ernmental that who the feared choice in of favour an intergov supporters, method community of misgivings tain cer is to alleviate purpose primary Its aims. policy its in understandable yet redundant, is reminder fact. obvious an restating of matter a simply is this law, community on ment encroach an as the interpreted be should in treaty nothing new that affirms 2 Article when Thus, complete, weaken. not must mechanisms new the which and relatively mecha are which surveillance place into puts nisms package latest This nance gover economic adopted strengthen to 2011 November package in legislative the or, recently, pact more stability the treaties, European they be 7. 6. 5. Court. the or Commission the to given missions new have to agreement new the enabling formally clause specific no has 136 Article new The puted: dis was default solidarity by threatened of States those idea with very the because this mainly but was Mechanism; Stability European the ate cre to amended been has (TFEU) Union European unanimous. was it as long as sufficed, agreement informal an that consider to seemed has Justice of Court the past, the In matter. the on lax somewhat are tices prac reality, In British go-ahead. their the gave government once 11 members by approved was ECR1993, I-3713. Commission See, for example, the judgment importance of the newagreement? or is it rather because it could appear to reduce the symbolic treaty, included inthe first drafts of the same treaty, was removed, of Community law incase of conflict with the provisions of the new AL%3A2011%3A306%3ASOM%3AEN%3AHTML 23 November 2011, Is it because of its obvious nature that the reference to the primacy Official Journal of the European Union,L 306, Volume 54, 5 (known as the “Six-Pack” in Euro-speak). Euro-speak). in “Six-Pack” the as (known of 30 June 1993, Joinedcases C-181/91 and C-248/91, 7 The Treaty on the Functioning of the the of Functioning the on Treaty The http://eur-lex.europa.eu/JOHtml.do?uri=OJ%3 Parliament v Council and ro agreement prior 6 Legally speaking, this this speaking, Legally of the the of ------

2012/No. 33 , eaie o otoln exces controlling to relative 7, Article compact: new the surrounding articles uncertainty the Two demonstrate possibilities. of range treaty” the reduced “intergovernmental considerably has an treaties European the alongside of choice The Uncertainty regardingII. the control of national policies 9. 8. contained principles the contradict way no in may as whereas, treaty was seen, an intergovernmental TFEU the in exists that one for majority) qualified (reversed rule a substitutes but threat, the of ity credibil the weakens only not qualification This conclusions. Commission’s the oppose states ber mem of majority a if stands longer no 7 Article in contained commitment new the sanctions, matic to has accept refused the auto French government because 126.However, Article to contravening out with discipline com stricter impose to managed “fiscal pact” the that argued been have could it was, there all were that If them. supporting to ted commit are question in zone the of members the 7 Article to according Council, the in debated are countries Eurozone concerning recommendations and proposals Commission’s the When ernments. gov national of behaviour proce the the regulating by dure tighten to tries compact” “fiscal The tions not allow the to same rule for be the applied sanc this However, treaty. in the foreseen that to are not measures explicitly applies it as long as problem no poses this that treaty, the by out in majority Council qualified the a by rejected be only can recommendations its powers, Commission’s the other hide can Accordingly, imbalances. virtue fiscal that shown having experience indicators, macro-economic a of to series oversight of scope the expanding and debt public reducing on focusing by deficits excessive concern prevent particular to mechanism a of in establishment the ing control, of the powers strengthened EU’s significantly have framework “Six-Pack” the reforms under 2011 November French in 2003.The adopted in the condemning governments German avoid and to states of ity minor a enabled it because limits its shown has on recommendation Commission a majority qualified a by acting Council, the by made are procedure deficit excessive the in sions deci that states 7,TFEU the Article to regard With sanctions automatic of Rejection 2.1. Justice. of the Court the of role with deals which 8, Article and deficits, sive deposit with the Union. from the memberstate to make amake anon-interest-bearing 126(11) ofArticle the TFEU, inparticular the possibility to require 126(13) ofArticle the TFEU. 126. Article in listed . Although this hardens the rule set set rule the hardens this Although . one seems to have considered considered have to seems one a contrario a 9 in order to consolidate consolidate to order in 8 a measure that that measure – a reasoning does does reasoning ------mitted to it under a special agreement between between agreement special a under it to mitted sub is dispute the if treaties, the of matter ject sub the to relate which states member between dispute “any on rule to intervention Court’s the in trol con of a have source found jurisdictional possible procedure. deficit excessive the under law, community in used ment instru classic pro a proceedings, which infringement hibits acquis, Maastricht the account into taking also while intervene, to Court the allowed that found be to needed basis legal A two-fold: is problem The mechanisms. existing the to stantial sub nothing adds solution final the but Justice, of Court the to regard with shown was caution More Justice of Court the for role Alimited 2.2. solution legal uncertain an in results control community strict overly of rejection the proposes words, In other state? a member against Commission sanctions the if tomorrow case be will the this that say to is who But this. opposed has government no True treaties. European the in 10. out of fear “weaknesses”, states’ other way concerning other the look to chosen have governments Too often, matters. in fiscal states between lance” surveil “mutual of limits the shown has years few past the over experience Yet obligations. their fil on the way by reports which the ful states drafting before to rule” restricted being Commission the with Court, the “golden the of bring violations to possible right the states member gives 8 Article to right states. reluctant against act independently Commission’s the on rests largely which of power deterrent the proceedings, infringement ditional than in tra uncertain more even remains the Court of intervention the Furthermore, suggested. been had that budgets national on veto a of possibility the from far is quite This is concerned. procedures budgetary national of oversight where Council the by taken decisions the room of no enforcement judicial for is there affected: not are Maastricht in out set principles the authorities, budgetary the by year each taken decisions the i.e. issues, all other For law. national into principle budget anced bal the of transposition the to related issues on rule only may It intervention. of scope Court’s the reduced significantly however, has, solution This rule” to the “golden limited be strictly would trol that decided finally was it tation, hesi some is why, after This compact. fiscal of the rest the about same the to say difficult be would it 126(10).But Article of clause fall exclusion not the does under it that argued be can it rule, new a parties” the 126(10) ofArticle the TFEU. 273 of the TFEU, which authorises authorises which TFEU, the of 273 Article . As the balanced budget clause is is clause budget balanced the As . 10 The authors of the new treaty treaty new the of authors The the Court’s con Court’s the . 3/4 ------. www.notre-europe.eu / [email protected]

19 rue de Milan – 75009 Paris – France

Tel: +33 (0)1 44 58 97 97 / Fax: +33 (0)1 44 58 97 99

of being judged themselves by their peers. We are not have been a bolder innovation than the ref- dealing with the results of such behaviour today. erence to possible financial sanctions as set out under Article 8. Why has this solution not been While it is true that Article 273 does not mention adopted? The most likely answer is that the reluc- the Commission, recognising its power to inter- tance to accept overly strict supranational checks vene in “disputes between member states” that remains as strong today as it was in the past. could arise when applying the golden rule would

Conclusion

These two examples demonstrate the ambigu- them alone can oppose the progress desired by a ity of the new treaty. To be fair, legal difficulties sufficient number of member states. were plentiful and it is no easy task to create an effective treaty that can stand alongside the TFEU. Nevertheless, there is a clear contradiction between Additionally, this legal complexity was further the relatively modest scope of the agreement and magnified by some governments’ ambivalence the formal shape it was given. regarding transfers of sovereignty, which are however a cornerstone of the construction of Europe. The choice of a treaty entails exposure to various risks. As a reminder, in the ratification proce- These limits must not cause us to lose sight of the dures, the number of veto holders is higher than progress made in the agreement. Given the signif- the number of states. In most countries, several icant amount of financial transfers that have been parliamentary assemblies are generally called agreed upon over the previous months, it was upon to intervene. Constitutional courts may find important to obtain a formal commitment for fiscal reasons to object, as may the head of state; and responsibility from the Eurozone member states. it is easy to imagine that a referendum on fiscal The consecration of the Eurozone summit can help discipline would be hard to win. Reforms are not provide more stable economic governance that simply a question of approving major principles has often been lacking over the past few years. around a conference table; the conditions for their The fact that the new treaty can enter into force as successful implementation must also be con- soon as it is ratified by 12 signatory states is an sidered. It is most certainly at this level that the important precedent, and underlines that none of European Council’s decisions appear the weakest.

33 2012/No.

4/4 With the support of the European Commission