UK faces deepening isolation

The latest draft of the fiscal compact to be discussed today (23 January) and tomorrow by European finance ministers increases the isolation of Britain by excluding London from taking part in euro summits and rejecting the UK’s objections over the new role of the Court of Justice. 

After the first agreement on the fiscal compact, EU diplomats scrambled for weeks over the issue of the participation of member states to the newly institutionalised euro summits, which the new treaty says will be held “at least twice a year”.

The most radical option on the table was to exclude non-eurozone members from the summits. A milder possibility discussed by diplomats was to include non-eurozone countries as observers.

“I have nothing against giving the status of observers to non-eurozone members,” a senior diplomat said recently.

The deal reached on Thursday evening (19 January) and outlined in the latest draft says that non-eurozone countries will be invited “when appropriate and at least once a year” to euro summits. In other words, countries like Poland or Sweden will have the right to participate at least to half the summits held in a year, and potentially to all of them.

However, an important clause is attached to this provision. Only countries that “have ratified this treaty” will be able to claim their right to participate to euro summits, reads the latest draft of the fiscal compact. In other words: No ratification, no participation. Britain, which is still the only country to oppose the new treaty, will likely face deepening isolation.

EU Court to impose fines for excessive deficit

Moreover, the latest draft does not take into account Britain’s complaints against the new role attributed to the European Court of Justice by the fiscal compact.

The UK had claimed that since the compact is an international agreement and not an EU treaty, the Court of Justice should not have any role for its enforcement.

But diplomats rejected these arguments and confirmed that the Court will have a role in the last stage of infringement procedures for excessive deficit against a member state.

The new procedure will be triggered when countries's deficit go over 0.5% of the GDP. The existing stability and growth pact sets instead a ceiling at 3% for the deficit to GDP ratio and without any sanctions for the countries that do not respect it.

The role of the Court of Justice goes even further. In case a member state does not comply with a judicial ruling on excessive deficit, judges in Luxembourg “may impose on it a lump sum or a penalty payment appropriate in the circumstances and that shall not exceed 0,1 % of its gross domestic product,” reads the draft text.

Parliament president

When it comes to participation at euro summits, the president of the European Parliament will also have something to complain about.

Indeed, the latest draft of the fiscal compact says that “the president of the European Parliament may be invited to be heard.” Nothing more. The EP president participates regularly in EU summits, but in euro summits he would need to be invited.

Diplomats struck this deal the same week as the Parliament elected its new president. Martin Schulz will likely have another argument to criticise the compact, which has already attracted sharp dissent from MEPs for the limited changes it brings to the functioning of the European Union.

Indeed, the compact mostly replicates what already exists in the realm of European economic governance.

Parliament’s understanding of decisions taken at euro summits should be guaranteed through regular reports issued after each meeting, the draft says.

The president of the European Commission will be a permanent member of the euro summits. The president of the European Central Bank will be invited according to the circumstances.

Background

An agreement to tighten fiscal discipline in the wider EU-27 proved impossible at the 8-9 December EU summit, after British Prime Minister David Cameron demanded that London's financial district be exempted from financial market regulations.

Faced with a UK veto, EU leaders agreed that a new intergovernmental treaty (fiscal compact) should tighten fiscal discipline in the eurozone and address the bloc’s debt problems.

The treaty will be drafted by March 2012 and opened to ratification by nations outside the 17-member eurozone.

Timeline

  • 23-24 Jan. 2012: Ecofin to discuss fiscal compact
  • 30 Jan. 2012: EU summit expected to adopt fiscal compact
  • 1 Jan. 2013: Deadline for entry into force of fiscal compact provided that at least 12 countries have ratified it

Further Reading