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The Fiscal Compact: How the Treaty on Stability, Coordination and Governance Failed to Achieve Its Aims

Herman Van Rompuy’s 2012 paper, ‘Towards a Genuine Economic and Monetary Union’ served as a blueprint for integration in the post-sovereign crisis era. He asserted that further integration needed to be coupled with ‘democratic legitimacy and accountability’, ‘a stronger democratic basis and broad support from citizens’, ‘wide consultation and participation’, and ‘openness and transparency’. Unfortunately, the Treaty on Stability, Coordination and Governance, also known as the Fiscal Compact failed to achieve these aims. It had been signed by 25 member states in 2012, excluding the United Kingdom and the Czech Republic, and would later come into force on the first of January 2013.

Its intention was to replace the ‘fire code without a fire brigade’:[1] the Stability and Growth Pact (SGP). As a result, Member States have now volunteered themselves to being policed and fined for not respecting strict adherence to fiscal discipline. This Treaty, along with other instruments like the European Stability Mechanism (TESM), reflected the political attitude of ‘More Europe’ with the intention of restoring confidence in the Eurozone in the face of crisis.

Some critics have addressed the inherent constitutional problems within the agreement. Other critics have noted the technical ineffectiveness of the budgetary provisions. Fortunately enough for the Fiscal Compact, I will only be discussing the former and not both. Two areas of interest are the new balances created between the EU institutions and similarly between the Member States, both inside and outside of the agreement. While it may expedite integration in the short term, it may also precipitate greater problems for the integration process in the future and undermine the European project as a whole.

Following a UK veto, the contracting parties were forced to introduce this amendment to the old Stability and Growth Pact outside of the European legal framework. This is not a novel development as both the Schengen Agreement and the Prüm Convention were concluded in a similar international arrangement. Indeed, it is part of the greater mechanism of differentiated integration which is inherent in a Union where consensus among 28 Member States has become a luxury. Admittedly, there must be ways to bypass troublesome vetoes in certain situations and while also adhering to certain minimal requirements which will be discussed shortly.

Despite, being concluded as an international agreement, the Fiscal Compact readily avails itself of the use of EU institutions. This has the effect of encouraging Member States to avoid the cumbersome EU legislative process in favour of intergovernmentalism in order to achieve difficult policies.[2] The use of institutions outside of the EU legal framework was confirmed and clarified by the CJEU in Pringle v Ireland which concerned the aforementioned European Stability Mechanism. However, criticism still remains nonetheless. Arguments against the use of institutions outside of the EU include that it would distract them from their current duties under the Treaties,[3] and that it sits uneasily with Article 13(2) TEU.

More troubling is how the institutions are configured within the Fiscal Compact. There is a clear departure from the Treaty of Lisbon’s emphasis on decreasing the democratic deficit by increasing the powers of the European Parliament and EU citizens, particularly the ones from marginalised Member States. This is evidenced in the Eurozone governance meetings (the Euro Summits) under the agreement’s Title V.

‘Parliamentary actors are … ‘discussing’ and ‘consulting’ on decisions that have already been taken.’[4]  Moreover, the European Commission has lost its ability to initiate legislation, being reduced to only setting goals and thresholds. Similarly, it cannot initiate proceedings by itself and requires Member States to request sanctions for non-compliance with the agreement. The Commission, recognised as the watchdog of the EU, and other institutions have been completely marginalised in order to ensure that executive policies are achieved without any outside input.

Having covered the imbalance created between the individual institutions, it is necessary now turn to the second issue of Member States. In this area, the Compact has further exaggerated the power of stronger Member States over the smaller ones. Normally, the veto of one Member State is enough to halt any amendment to the EU Treaties with a limited form of differentiated integration available under the process of enhanced co-procedure. However, this deviation is only possible when respecting the policies of transparency and involvement which stress that non-contracting parties are not be prejudiced by this integrationist group of Member States.

Once again, the meetings regarding the governance of the Eurozone have excluded non-contracting parties in certain discussions, as well as relegating contracting parties, who do not use the Euro, to a secondary tier in terms of involvement. The lack of greater and open discussion is a grave omission, because of the close proximity with EU policy and policy development. This is consistent with politicians claiming that the success of the Euro is closely tied with the survival of the EU.[5] And who better to discuss the survival of the EU, than the actual members of the EU?

A second question that is raised is regarding the value of the UK’s veto. Not only have the reforms went through, but they now operate with fewer restrictions and with more favourable treatment by the European Institutions. Similarly, there are concerns over the creation of a vanguard group of Member States who achieve consensus in integration through the use of fear.[6] It is too dangerous to stray behind the leading Member States if such ad hoc agreements can be conducted with or without them. It is preferable to be involved with the inevitable reforms, regardless of their feelings on them, rather than be left out of matters that cannot be ‘hermetically sealed’.[7]

Previous instances of international agreements concluded outside of the EU, like the Schengen Agreement would eventually become part of core EU law. The same can be expected here, with Article 16 of the Fiscal Compact stating that the implementation into the Treaties will be attempted within 5 years of the Treaty entering into force – which will be by 2018.

The result is that we are left with national politicians who are less concerned with EU Treaty provisions, and EU institutions who either share the same outlook as these politicians or who are unable to invoke these important and defining provisions.

Ultimately, we cannot ignore, as Majone put it, ‘[t]he inherent ability of the EU integration process to constantly reinvent itself as part of an evolutionary process of political and economic survival.’[8] Indeed in recognition of this, the use of differentiation has been encouraged with the continuous process of lowering the threshold in the Treaties, culminating in the current enhanced cooperation procedure. Given the limited use of this instrument – currently only used in the areas of divorce, patents, and tax  it is clearly unable to accommodate the present need for integration. However, this integration, cannot, nor should it be accommodated at the expense of losing the carefully placed safeguards of participation and transparency.

 

As a result, the demands for ‘More Europe’ as a rallying cry are less genuine when considering that the sacrosanct tenets of Europe are being so readily violated at the same time. Integration, be it political, economic, fiscal or monetary, must accommodate Europe and not the other way around.

 

Vladislav Ioukhyma

LLB Student, Durham Law School

 


[1] P De Grawue in Y Barry, ‘European Governance and Policy Responses in the Battle to Save the Eurozone: Do the Ends Justify the Means?’ [2013] 16 Trinity C.L. Rev. 167.

[2] S Peers, ‘Towards a new form of EU law? The use of EU institutions outside the EU legal framework’ [2013] 9(1) E.C.L. Review 40.

[3] A Dashwood, ‘The United Kingdom in a Re-Formed European Union’ [2013] 38(6) E.L. Rev. 751.

[4] M Dawson and F De Witte, ‘Constitutional Balance in the EU after the Euro-Crisis’ [2013] 76(5) M.L.R 834.

[5] M Monti in J Weiler, ‘Integration through Fear’ [2012] 23(1) E.J.I.L. 1.

[6] G Maganza, ‘Can the Enlarged European Union Continue to be that United’ [2011] 34 Fordham Int’l L.J. 1271.

[7] P Craig, ‘Two-Speed, Multi-Speed and Europe’s Future: A Review of Jean-Claude Piris on the Future of Europe’ [2012] 37(6) ELR 810.

[8] G Majone, ‘Unity in Diversity: European Integration and the Enlargement Process’ [2008] 33(4) E.L. Rev. 462.

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