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E.U.Referendum 2012: Fiscal Treaty Guide

Tuesday, May 15, 2012 23:55

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Treaty article-by-article ,to explain in as factual a way as possible what each one means and to provide some background on what the various elements are supposed to achieve.

Before you read the guide there a few key points worth bearing in mind.

The treaty is designed to gather up a lot of the recent changes to how the euro is governed, and to give those changes a more permanent legal status.

These changes have been implemented during the height of the Greek debt crisis, and are already part of EU legislation. They were put in place because the crisis exposed the weaknesses of the original rules to govern the single currency as set out in the Maastricht Treaty in 1992.

These new rules are already binding on eurozone member states like Ireland whether or not we ratify this Treaty.

However, while much of the treaty is based on existing rules, there are key new elements, and some rules which are made stricter in this treaty.

Some economists argue that other changes to the rule book are needed to avoid a repeat of the crisis, or even to prevent the collapse of the currency; things like eurobonds, a common eurozone treasury or finance minister and so on.

But that is another day’s work.

While the Government says the Fiscal Treaty is a short one, it contains much of the rules and jargon which have been around since the euro came into effect and which have been updated more recently.

So, in this guide you are going to come across terms like the Stability and Growth Pact, the Six Pack, the Excessive Deficit Procedure, the Medium Term Objective and so on.

We have done our best to explain these terms at the link below.

Referendum 2012: EU Jargon Guide

Since Ireland is in a bailout programme we are, for the moment, subject to specific rules and constraints which are often stricter than what the Fiscal Treaty envisages.

It is also worth noting that when Ireland comes out of the programme, we, and the other recipients like Greece and Portugal, will be given some transitional flexibility to adapt to the new Treaty, if we ratify it.

The Guide

We have not re-typed each article so it is necessary to have a copy of the Treaty to read alongside.

“Treaty on Stability, Coordination and Governance in the Economic and Monetary Union.”

That is the official title. As we can see it does not contain the word ‘fiscal’. The Government’s title for it is, the Stability Treaty. The No Campaign calls it the Austerity Treaty.

For convenience and consistency this guide refers to it as the Fiscal Treaty.

The first page sets out the member states who have signed up.

Because it is not an EU treaty they are called ‘Contracting Parties’ instead. There are 25 (all 27 EU member states with the exception of the Czech Republic and the United Kingdom.)

The Treaty begins with 27 so-called ‘recitals’ or paragraphs. These set out the general rationale and broad principles behind the Treaty.

What are the two main innovations?

The new balanced budget rule

The role of the European Court of Justice in assessing whether or not that rule has been properly enshrined in national legislation

Many of the recitals restate EU rules which already exist. Again, this reflects the fact that the Treaty largely gathers up existing commitments and locks them into a binding treaty to give them greater effect.

Some of the recitals are of particular importance to Ireland.

One points out that the Treaty will not change the conditions under which Ireland gets its bailout.

“STRESSING that no provision of this Treaty is to be interpreted as altering in any way the economic policy conditions under which financial assistance has been granted to a Contracting Party in a stabilisation programme involving the European Union, its Member States or the International Monetary Fund.”

Another recital confirms that from 1 March 2013 a country will have to have ratified the Fiscal Treaty in order to avail of any future funding from the European Stability Mechanism. That is the new permanent EU bailout fund with an eventual lending capacity of some €700 billion. It comes into effect in July 2012.

The separate ESM Treaty carries a corresponding provision stating that only those countries who have ratified the Fiscal Treaty can avail of its funding.

The recital for this treaty reads:

“STRESSING the importance of the Treaty establishing the European Stability Mechanism as an element of the global strategy to strengthen the economic and monetary union and POINTING OUT that the granting of financial assistance in the framework of the new programmes under the European Stability Mechanism will be conditional, as of March 1 2013, on the ratification of this Treaty…”

The original draft of the Fiscal Treaty contained no such precondition but during the early stages of negotiation it was insisted upon by Germany.

According to the Government, the principle of such a precondition was “not contested” and was “an obvious connection.”

Since the connection between the ESM and ratifying the Fiscal Treaty is in the preamble (i.e. the recitals) of the Treaty and not an article in the main body of the Treaty, does this make it less legally binding? Not according to officials who insist it is a clear part of the treaty and represents a clear statement of the intention of the contracting parties. The same goes for the corresponding clause in the ESM Treaty which states:

“It is acknowledged and agreed that the granting of financial assistance in the framework of new programmes under the ESM will be conditional, as of 1 March 2013, on the ratification of the TSCG [the Fiscal Treaty] by the ESM member concerned…”

The ESM is also an intergovernmental treaty; Ireland has signed it, and is in the process of ratifying it through the Dáil. If the Government fails to ratify this insertion into Article 136 does that mean Ireland wields a veto over the ESM?

No. The ESM is a stand alone intergovernmental treaty so even if there are reservations over Article 136 in the TFEU they are unlikely to be insufficient to block what is an agreement between sovereign states.

The Fiscal Treaty preamble also states that even though it is an intergovernmental treaty outside the normal EU framework, it is expected to be incorporated into the EU’s main treaties within five years.

The preamble concludes by reminding all eurozone countries that they will be subject to the Treaty once it is ratified, and that non-eurozone or future eurozone members (Bulgaria, Denmark, Latvia, Lithuania, Hungary, Poland, Romania and Sweden) will also be bound by it if they so wish.

Articles

The articles set out in detail what the new rules are and how they work.

Article 1 states that the Treaty aims to strengthen economic and monetary union by adopting rules to improve budetary discipline and to strengthen co-ordination of economic policies.

Article 2 is designed to establish the link between the Fiscal Treaty and European Union law. It reaffirms that even though this new treaty is not a normal EU treaty, it should conform as far as possible with existing EU treaties and should be compatible with those treaties. Nor should it encroach on the competence of the EU to act in the area of economic union.

Article 3 is really the most important substance of the Fiscal Treaty and deserves close attention.

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