During last weekend’s EU Summit, the European Council noted the intention of European leaders of the euro area to explore the need for “limited Treaty changes”. These changes are considered to be necessary in order to strengthen the economic convergence within the euro area, improve the fiscal discipline and deepen the economic union, notably by allowing the imposition of economic policy decisions on Member States. A final decision on the required Treaty changes will be taken during the European Council of December.

Already adopted amendment - Art 136 TEU

A Treaty amendment was already adopted by the European Council on 24-25 March 2011 as part of the “euro plus pact” package in order to accommodate the European Stability Mechanism (ESM) into the Treaty. The ESM is the institutionalised financial stability mechanism that will substitute the current European Financial Stability Facility (EFSF) in 2013.

The amendment consists in the addition of a paragraph 3 to Article 136 of the Treaty on the Functioning of the European Union (TFEU):

“3. The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”

The rationale of this amendment is to neutralise the no-bailout clause from Article 125, which expressly rules out the possibility of Member States providing direct financial support to each other. It has to enter into force by 1 January 2013 at the latest. This requires its approval by all EU Member States (see procedure below).

Dutch proposal

A proposal by Dutch Prime Minister Mark Rutte and Finance Minister Jan Kees de Jager was introduced early September as a basis for further debates on the Treaty revision issue. The proposal has received some positive feedback from other European leaders as it advocates for setting up an EU independent supervision system to enhance compliance with budgetary rules. It would be guaranteed by a Commissioner for budgetary discipline with powers comparable to those of the Competition Commissioner:

  • Intervene in the budgetary policy of Member States that run excessive deficits
  • Force concerned Member States to adjust their public finances (e.g. by raising additional tax revenues)
  • Impose sanctions on Member States that breach budget rules:
    • Reduced payments from the European Union Cohesion and Structural Funds or higher contributions to the EU budget
    • Preventive supervision: national budget to be pre-approved by the Commission before it can be presented to national parliaments
    • Suspension of voting rights in the Council
    • Expulsion from the euro zone

A number of these measures would require Treaty amendments. However, others could be introduced by the euro zone members through enhanced cooperation following Article 20 TEU.

Commission’s Position

The Secretariat-General of the European Commission has indicated that Treaty changes designed to enforce EU economic governance are currently being discussed at Cabinet level, involving in particular President Barroso’s office and senior officials from the Directorate-General for Economic and Financial Affairs- DG ECFIN.

The Communication from the Commission “A roadmap to stability and growth”, presented on 12 October 2011 openly addresses the Treaty reform issue when outlining the Commission’s view on the EU’s future Economic Governance. The Communication draws upon the Dutch proposal as it envisages a stronger intervention of the euro area in the planning, implementing and monitoring of Member State policies and calls for greater policy coordination by means of greater “discipline of economic policy responsibility […] through rules that cannot be broken.”

The main measures proposed are the following:

  • Strengthening the economic and budgetary surveillance of euro area Member States that have requested financial assistance
  • Monitoring national budgetary policies of euro area Member States in excessive deficit procedure or programme countries. Measures include:
    • Examine national draft budgets ex-ante and request a second reading in serious cases
    • Monitor budgetary execution
  • Assuring a more unified external representation for the euro area
  • Developing options for «stability bonds» (i.e. eurobonds)

The Commission also recognises that given the situation, enhanced cooperation between the euro area members would be the best possible option for approving the measures presented in the Communication, but clearly expresses its wish for a Treaty revision that would consolidate the new economic governance architecture.

European Council of 23 October 2011

The Heads of State and Government of the EU expressed their intention of exploring the possibility of “limited Treaty changes” in order to strengthen the economic governance of the euro area, improve fiscal discipline and further economic union. The European Council conclusions do not detail which Treaty changes are being considered at this stage, however, it is assumed that the amendments elaborate on the previous proposals of the Commission and the Dutch leaders. These references are heavily influenced by the German position and would therefore address the following topics:

  • Reinforcing excessive deficit procedure (art. 126 TFEU) even by introducing the possibility of bringing euro zone countries before the European Court of Justice if national debt exceeds 3% gross domestic product limit
  • Creation of a budget commissioner / creation of a EU finance ministry
  • Introduction of Eurobonds

The conclusions confirm that the Treaty changes will be decided at a European Council in December 2011 upon the basis of a report drafted by European Council President Herman van Rompuy in collaboration with Commission President Jose Manuel Barroso and Eurogroup president Jean-Claude Juncker.

Procedure - Simplified Revision

The fear of Treaty revision is understandable given the tortuous reform process leading to the Lisbon Treaty which witnessed a negative result of the Irish referendum and the complete failure of the Constitutional Treaty after the rejection of French and Dutch voters in 2005.

The different Treaty amendment procedures are lied down in Article 48 TEU. Whereas fundamental Treaty provisions need to be amended following an ordinary revision procedure (Article 48.2-5) which requires a Convention and an Inter-governmental Conference, technical provisions can be revised through simplified revision procedures (Article 48.6-7), which are, in principle, less cumbersome.

Article 48.6 procedure is applicable to all amendments of Part III of the TFEU –internal policies of the EU- as long as the proposed amendments do not imply an increase of EU competences. Therefore, provided that the Treaty amendments refer to the Member States of the euro area and not to the European Union itself, this simplified procedure will be used.

Even though, Treaty amendments relating to the euro area (17 Member States) have to be approved by the 27 EU Member States, Article 48.6 amendments are adopted by the European Council by unanimity and do not require a Convention or an IGC. The only problem is that the European Council’s decision can only be enacted after its approval by each Member State in accordance with their own constitutional requirements, whichever they might be, i.e. consultation, vote of approval by the national parliament or even a referendum.