EU leaders back ‘limited’ treaty change, budget cap

Merkel Cowen Oct 2010 Picnik.jpg

Britain and other European Union countries put their weight behind Franco-German calls for tougher eurozone rules at a summit today (29 October), agreeing on "limited" changes to the EU's main treaty in return for a cap on the EU budget.

The leaders agreed that changes were needed to create a permanent system to handle sovereign debt problems and endorsed tougher budget discipline rules, including sanctions on states that do not keep deficits and debt in check.

Angela Merkel, the German chancellor, said "everybody agreed that there must be a permanent crisis mechanism and […] that this will require limited treaty change".

She insisted, however, that "the crisis mechanism will only be valid for cases where the stability of the euro as a whole is under threat".

But Berlin failed to win support for demands to suspend the voting rights of member states which breach the rules. This would have required more radical treaty change and will be looked at only after the other measures have been dealt with.

European Council President Herman Van Rompuy, who chaired the meeting in Brussels, said he was asked to prepare changes to the Lisbon Treaty so that they could be agreed upon at a summit in December. He will work on them with the European Commission.

Legal tricks

Officials struggled to deliver the message that legal tricks could accommodate both Germany's push for treaty change and conflicting calls from several other countries which had rejected the idea.

Regarding treaty change, the key word is "simplified", officials explained. A simplified provision, enshrined in Article 48, Section 6 of the Lisbon Treaty, allows member countries to unanimously adopt a decision amending all or part of the main elements of the Treaty on the Functioning of the EU (TFEU), which governs how the Union carries out its work.

Such a procedure would avoid the need to call a constitutional convention, experts explained. In addition, the European Parliament would only be "consulted" instead of enjoying full voting rights as part of the normal co-decision procedure.

The changes to the treaty are to be settled by mid-2013, before the expiry of the present emergency fund agreed earlier this year to deal with crises such as the one that hit Greece. The objective is to replace that with a permanent mechanism.

The simplified treaty change procedure will not enter into force until it is approved by member states in accordance with their constitutions.

Most EU countries are expected to ratify the decision by a simplified procedure in their parliaments. As for Ireland, it remains unclear whether a change effected in this way would require another referendum.

Experts also explained that the treaty changes could not be attached to Croatia's accession treaty, as the issues were not enlargement-related.

Budget cap

UK Prime Minister David Cameron appears to have been instrumental in forging a deal, lending his backing to Franco-German calls for treaty change in return for keeping a lid on the EU's 2011 budget.

11 member states, including Britain, France and Germany, will send a letter to the European Commission and Parliament today saying that their plans to increase the EU budget by 5.9% in 2011 are "especially unacceptable at a time when we are having to take difficult decisions at national level to control public expenditure".

The letter was signed by the leaders of the UK, Germany, France, the Netherlands, Sweden, the Czech Republic, Denmark, Austria, Finland, Slovenia and Estonia.

The bloc's finance ministers had earlier voted for a limited increase in the EU budget of 2.9%. "We are clear that we cannot accept any more than the 2.9% increase proposed by the finance ministers," the leaders say in the letter.

Cameron argued that a planned increase in the EU budget would cost his country's taxpayers the equivalent of one billion euros. The 2.9% rise would still cost them £435m (500m euros).

Parliament to fight back

By agreeing to cap the budget, EU leaders set themselves on a collision course with the European parliament, which has the power to approve or reject the proposed budget.

Negotiations between the European Parliament and the Council, which represents the 27 member countries, over the EU's 2011 budget kicked off on 27 October (see 'Background').

"If Cameron is prepared to give up the British rebate […] then we can for sure discuss a reduction of the budget," said Martin Schulz, leader of the Socialist & Democrats group in the European Parliament, speaking to EUX.TV, the European policy news channel powered by EURACTIV.

"The European budget is not to be compared with national budgets," said Schulz. "There are no own resources. We have no European taxes. We have no own money. It is money coming from the member states. We can make no debts. The British budget must be reduced because there is enormous debt. Europe has no debts," he said.

Irish Prime Minister Brian Cowen described the discussions on a permanent crisis resolution mechanism for the euro zone as "productive" and said European Council President Herman Van Rompuy will consult the member states on "any necessary limited amendments" to the Lisbon Treaty.

"It's very clear that what's envisaged is a targeted and limited approach. The Treaty specifically provides for a lighter mechanism to be used when changes are required that does not involve the transfer of any competence from the member states to the Union," he stated.

On the Franco-German proposal to suspend the voting rights of an EU country in violation of the principles of the euro zone, Cowen diplomatically said this would be examined at the next EU summit in December – though on Thursday he stated that the idea was "not a runner" for Ireland.

Asked whether treaty change would require a referendum in his country, the Irish leader said this would only become clear once the details had been agreed in December and the case had then been examined by legal experts on the Irish constitution.

UK Prime Minister David Cameron claimed victory on economic governance, saying Britain would not be affected by the new, stricter budget rules. "We have established beyond doubt a full British opt-out from possible sanctions on individual member states. And we have also established that any possible future treaty change, should it occur, would not affect the UK."

He argued that the most likely outcome for eurozone countries was that they would simply "put on a more formal basis the arrangements which exist already for bailing each other out in the event of a crisis".

French President Nicolas Sarkozy said the summit's outcome was "strictly in line with the Franco-German agreement in Deauville," which called for the EU treaties to be changed in order to introduce stricter rules for eurozone rule-breakers. Speaking to journalists after the meeting, he denied that the summit had seen a Franco-German "diktat" on other EU member states.

Speaking after the meeting, German Chancellor Angela Merkel agreed that the "Franco-German agreement was helpful for this summit," adding it was better than Franco-German disagreement. On sanctions for budget offenders, she insisted that "voting rights [are] still on the agenda" and that the "limited treaty change will not delegate more powers to Brussels". 

Boyko Borissov, prime minister of Bulgaria, the poorest EU country, said he would back a mechanism introducing sanctions for budget sinners, but only on certain conditions.

"I would support [the proposals], but let's first discuss the mechanism. Imagine that you have a 3.5% or 4% deficit, and the sanctions include freezing of EU funding. The country would not solve its deficit problem: it would sink even deeper."

He also hinted that he saw the measures as targeting the Eastern European newcomers.

"Let's speak frankly: who will punish Germany or France? They will punish countries like Bulgaria, Romania, Poland, the Czech Republic: this is why we need to be very careful," said Borissov, quoted by Bulgarian national radio.

Negotiations between the European Parliament and the Council, which represents the 27 member countries on the EU's 2011 budget, kicked off on 27 October. The conciliation committee has 21 days to agree on a joint text.

If no budget is adopted at the beginning of 2011, a sum equivalent to one twelfth of the 2010 budget may be spent each month until there is an agreement. In its vote on 21 October, Parliament supported an increase of 1.1% in budget commitments, while the Council favoured 0.2%. This represents a difference of €1.29 billion in absolute figures.

Although the 2011 payments are set to rise by around 6%, this is the result of prior decisions made on commitments. Parliament also wants a wider discussion on the future financing of the EU.

  • 16-17 Dec.: EU summit in Brussels to decide on permanent crisis mechanism.
  • Dec. 2010/Jan. 2011: Commission to table set of legislative proposals to amend EU budget rules (Stability and Growth Pact).
  • Summer 2011: Expected agreement on new budget rules between EU member states and European Parliament.
  • Mid-2013: New budget rules expected to come into effect. 

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