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The “Fiscal Compact”: Legal Uncertainty and Political Ambiguity

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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 33 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- 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 I. The choice of an “intergovernmental treaty” As it is well known, the rejection by the British gov- be they European treaties, the stability pact or, ernment of the treaty reform proposals has led to a more recently, the legislative package adopted shaky solution – a new treaty, whose coexistence in November 2011 to strengthen economic gover- with prior treaties is anything but simple. nance5 (known as the “Six-Pack” in Euro-speak). This latest package puts surveillance mecha- 1.1. The right to conclude a separate treaty nisms into place which are relatively complete, and which the new mechanisms must not weaken. In principle, nothing prevents a separate agree- Thus, when Article 2 affirms that nothing in the ment from being established between certain EU new treaty should be interpreted as an encroach- member states. International law allows some of ment on community law, this is simply a matter of the signatories of a multi-lateral treaty to con- restating an obvious fact.6 Legally speaking, this clude additional agreements among themselves, reminder is redundant, yet understandable in its as long as it does not infringe on the rights of the policy aims. Its primary purpose is to alleviate cer- parties not included. tain misgivings of community method supporters, who feared that the choice in favour of an intergov- Moreover, because the EU only has limited pow- ernmental approach could weaken the powers of ers4, member states remain free to conclude supranational institutions. agreements in their areas of competence. There are several examples of treaties concluded Finally, in, principle, the prior agreement of the between some EU member states only: Benelux, 27 EU member countries should be obtained the Nordic cooperation, the Schengen Agreement, before the common institutions can be given or the more recent treaty establishing the European new responsibilities, in order to protect the Stability Mechanism signed in July 2011. institutional acquis. This had been the case at Maastricht with the Social Policy Protocol, which 1.2. A right with many restrictions was approved by 11 members once the British government gave their go-ahead. In reality, prac- The right to conclude a separate agreement between tices are somewhat lax on the matter. In the past, some EU member states is, however, subject to the Court of Justice has seemed to consider that several restrictions. an informal agreement sufficed, as long as it was unanimous.7 The Treaty on the Functioning of the First, the signatories of the new treaty remain European Union (TFEU) has been amended to cre- bound by the obligations of the European treaties. ate the European Stability Mechanism; but this They may add new rules, but may not derogate was mainly because the very idea of solidarity from existing ones. The centrepiece of the new with those States threatened by default was dis- treaty – balanced budgets, or the “golden rule” as puted: The new Article 136 has no specific clause outlined in Article 3 – complies with this demand: formally enabling the new agreement to have new any government following this new provision will missions given to the Commission or the Court. automatically abide by the Maastricht rule, which only prohibits excessive deficits. Along the same lines, the new rules cannot hin- der the work of EU institutions. This principle is particularly important where the new treaty is 33 concerned. Contrary to the Schengen Agreements, which dealt with a relatively unexplored area, the new “Fiscal Treaty” falls under a policy sector which is thoroughly covered by previous texts, 2012/No. 5. Official Journal of the European Union, L 306, Volume 54, 23 November 2011, http://eur-lex.europa.eu/JOHtml.do?uri=OJ%3 AL%3A2011%3A306%3ASOM%3AEN%3AHTML 6. Is it because of its obvious nature that the reference to the primacy of Community law in case of conflict with the provisions of the new treaty, included in the first drafts of the same treaty, was removed, or is it rather because it could appear to reduce the symbolic importance of the new agreement? 7. See, for example, the judgment Parliament v Council and Commission of 30 June 1993, Joined cases C-181/91 and C-248/91, 4. Article 4 of the TEU. ECR1993, I-3713. 2/4 II. Uncertainty regarding the control of national policies The choice of an “intergovernmental treaty” in the European treaties. True no government has alongside the European treaties has considerably opposed this. But who is to say that this will be reduced the range of possibilities. Two articles the case tomorrow if the Commission proposes demonstrate the uncertainty surrounding the new sanctions against a member state? In other words, compact: Article 7, relative to controlling exces- the rejection of overly strict community control sive deficits, and Article 8, which deals with the results in an uncertain legal solution. role of the Court of Justice. 2.2. A limited role for the Court of Justice 2.1. Rejection of automatic sanctions More caution was shown with regard to the Court With regard to Article 7, the TFEU states that deci- of Justice, but the final solution adds nothing sub- sions in the excessive deficit procedure are made stantial to the existing mechanisms. The problem by the Council, acting by a qualified majority on is two-fold: A legal basis needed to be found that a Commission recommendation8 – a measure that allowed the Court to intervene, while also taking has shown its limits because it enabled a minor- into account the Maastricht acquis, which pro- ity of states to avoid condemning the French hibits infringement proceedings, a classic instru- and German governments in 2003.The reforms ment used in community law, under the excessive adopted in November 2011 under the “Six-Pack” deficit procedure.10 The authors of the new treaty framework have significantly strengthened the have found a possible source of jurisdictional con- EU’s powers of control, in particular concern- trol in Article 273 of the TFEU, which authorises ing the establishment of a mechanism to prevent the Court’s intervention to rule on “any dispute excessive deficits by focusing on reducing public between member states which relate to the sub- debt and expanding the scope of oversight to a ject matter of the treaties, if the dispute is sub- series of macro-economic indicators, experience mitted to it under a special agreement between having shown that fiscal virtue can hide other the parties”.
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