Revising European Treaties, Thomas Beukers, 11 November 2013, EUI Florence

Constitutionalisation of the Eurozone: A possible way out?

Thomas Beukers (1)

1. Introduction

The objective of this workshop is to explore treaty revision in the current political, economic and financial context of the Union, and the euro area in particular. The intention of this contribution is to explore the possibilities and challenges of a limited treaty change leading to the establishment of a euro area flexibility clause.

Such a euro area specific flexibility clause can be seen as a way of constitutionalising the euro area, as it introduces a limited form of Kompetenz-­Kompetenz for the euro area through the power to create its own competences.(2) This can be understood as a way of increasing the constitutional authority of the euro area, in the sense of a limited power of this community to create its own destiny.(3)

Putting the proposal for a limited treaty amendment in context

In the following the proposed limited treaty amendment leading to the establishment of a euro area flexibility clause will be put in the context of first, existing EU treaty procedures, and secondly, other existing proposals on ways forward in the current political situation of the Union.

With regard to existing procedures, a euro area flexibility clause would obviously exist next to the current flexibility clause of Article 352 TFEU, which allows the Council to adopt measures if the Treaties have not provided the necessary powers, but action is nonetheless necessary to attain one of the objectives set out in the Treaties. Differently from this general flexibility clause however, under a euro area flexibility clause no unanimous Council decision would be required, acting with a right to vote for all member states. Instead, only the representatives of the euro area member states would decide on its use. Differently from a (so far only theoretical) combined use of the flexibility clause of Article 352 TFEU with enhanced cooperation under Article 20 EU,(4) no further authorisation would be required by the Council, this time acting with qualified majority, in each individual case for only a number of member states to make use of the newly created powers under Article 352 TFEU. Again differently from a combined use of flexibility and enhanced cooperation, no establishment would be required that the objectives cannot be attained within a reasonable period by the Union as a whole, as is the case under Article 20(2) EU.

In fact, a treaty change creating a euro area flexibility clause can be understood as a permanent authorisation to combine flexibility with stable strengthened cooperation by the euro area member states.In that sense it is similar to Article 136(1) TFEU,(5) but with a much broader substantive scope (see below). Such a ‘352 for the euro area only’ would be a specific flexibility clause similar to the limited versions existing under Articles 21(2) and 77(3) TFEU for the attainment of the objective of a right to move and reside freely in the Union for all EU citizens.(6)

It is also useful to put a euro area flexibility clause in the context of other recently tabled proposals regarding ways forward or out of the current crisis. Notably, this proposal is different from a comprehensive treaty reform, and from a new additional (euro) treaty.

A euro area flexibility clause is different from a comprehensive treaty reform, as it does not have ambitions that go beyond one of the institutional lessons from the current eurozone crisis. Thus, it is different from the Fundamental Law proposed by the Spinelli Group,(7) which proposes a comprehensive revision of the Treaty of Lisbon and a major step towards a federal union.(8) A euro area flexibility clause consists of only an institutional, procedural amendment, which creates an increased but still limited flexibility for the euro area, without proposing an overhaul of the current institutional balance and with no changes to substantive policy areas. It does not anticipate substantive decisions taken for the euro area.(9) Moreover, it does not anticipate member states leaving the Union and committing to an associate membership.(10)

A euro area flexibility clause is also different from a new, additional (euro) treaty, as its ambition is limited to changes within the current treaty framework. Thus, it is different from the proposal made by Piris, which entails legally building a two-­‐speed Europe through a closer cooperation among states in an additional treaty.(11) Finally, it is different from the Glienicker Group proposal of a two speed Europe,(12) which proposes a new contractual basis for the euro area. This group’s proposed new Euro-­‐Treaty would replace “previous piecemeal reforms” and create an economic government for the euro area with “graduated rights of intervention in national budgetary autonomy” and a budget. The proposal for a euro area flexibility clause will eventually lead to further differentiation between the euro area and the (permanent) ‘outs’ within the framework of the treaties, as opposed to outside of it.

2. Creating a euro area flexibility clause: opportunities and challenges

Treaty change, the crisis and the dual aspect of the EU’s current institutional challenge

The current crisis illustrates a dual aspect of one of the institutional problems the euro area is confronted with: a clear necessity of new powers for the euro area,(13) the creation of which can be blocked (also) by member states both temporarily and permanently outside the euro area. In other words, those member states which have integrated further in the euro area, and which face a need to adapt the basic rules, are limited by the – sometimes related, and sometimes unrelated – wishes of those outside the euro area (note the experience with the Fiscal Compact and the current banking union).

Moreover, even if all member states were always willing to cooperate to change the treaty framework to respond to challenges of the euro area, the rigid, time consuming and cumbersome amendment procedure, is still not ideal to ‘appropriately’ respond each individual time to changing needs and circumstances through a treaty amendment.

In practice, several ways do prove to exist to move forward avoiding the use of the existing amendment procedure of Article 48 EU, and without the consent and/or participation of all member states. The two principal routes that have been chosen (14) are 1) going outside the treaties (e.g. the Fiscal Compact, EFSF, and ESM Treaty); and 2) searching the limits of powers within the Treaties, notably by an extensive use of Article 136(1) TFEU (e.g. the Six Pack and the Two Pack).(15)

But there are limits, both legal and political, to what can be done under the current treaties, and going outside the treaties is neither optimal nor unlimited.(16) One way to respond to this situation is through a major substantive Treaty revision. That, however, does not at the moment seem to be politically feasible.(17)

What then about ‘procedural’ revisions? In theory, several ways exist also to render the ‘rules of change’ more flexible. One way would be to create a new, flexible amendment rule prescribing only a qualified majority for amending the treaties as opposed to unanimity. Another way would be to make the simplified revision procedure of Article 48(6) available also for an increase of competences of the Union or to make it applicable also outside the limited scope of Part Three of the TFEU. A further proposal for a more flexible amendment rule is advocated by the Spinelli Group.(18) Politically, however, the time may not be ripe for more flexible treaty amendment, not even if limited only to the euro area.

Yet another procedural innovation – a little less ambitious but still allowing for further flexibility – which will be explored in more detail below, would be to create a new, rigid, flexibility clause only for the euro area member states. This would give the opportunity to create new powers for the euro area, where they are currently lacking in the Treaties, but nonetheless considered necessary to attain the objectives of the Union, or better the objectives of the economic and monetary union, without having to revise the Treaties,(19) or go outside the Treaties. In other words, it would remedy the problems identified above, namely that the crisis illustrates the necessity of new powers for the euro area, the creation of which can be blocked by those temporarily and permanently outside the euro area, combined with the existing lack of support for change by non-‐euro area member states, and the political unfeasibility of a substantive treaty reform.

A (euro area) flexibility clause: EU competence beyond conferral

To understand some of the institutional and substantive challenges raised by a euro area flexibility clause, it is useful to look at the current general flexibility clause of Article 352 TFEU. The flexibility clause can be understood as a codified form of implied powers, which explicitly recognises that not all needs for future action can be foreseen, the underlying idea being that if only one had realised the power would be necessary, one would have created it. The challenge raised by the existence of implied powers exists in finding a balance between effectiveness and flexibility on the one hand, and sovereignty, the limits to conferred powers and democratic legitimacy on the other hand.

The current general flexibility clause of Article 352 TFEU has in fact been criticised by Von Bogdandy and Bast for representing “the weakest point in the limiting function of the current division of powers.”(20) Lebeck argues that “implied powers are problematic since they weaken the constraining effects of conferred powers, and possibly the constraining effects of subsidiarity.”(21)

At the same time, the inclusion of the flexibility clause in the past and current treaties is to be seen as a (continued) recognition by the treaty drafters of its need and benefits.(22) Moreover, Dashwood argues that the tension between the principle of conferral and the codified implied power of the flexibility clause “which is real in theory, has been successfully resolved in practice.”(23)

Finally, it has been argued that the role of Article 352 TFEU in its new, post-­‐Lisbon version is very limited, so much even to speak of a ‘faded constitutional memory’.(24) If this is true, a new euro area flexibility clause would mean a revival of flexibility in the Union.

Taking the hurdle of Article 48 EU

For the introduction of a euro area flexibility clause, the ordinary amendment procedure of Article 48 EU will have to be used. Using the simplified revision procedure of Article 48(6) TFEU is not an option (as it was in the case of Article 136(3) TFEU), as the competences of the Union are clearly increased. Finding unanimous among agreement among the representatives of the member states in the ordinary amendment procedure (Article 48(4) EU) might prove to be a first, insurmountable hurdle (see e.g. the experience with the UK and the Fiscal Compact); ratification may prove to be a second, difficult one (see e.g. the historical experience with referenda in Ireland, Denmark, France and the Netherlands and, albeit not an EU treaty amendment, the recent Czech ratification of the Fiscal Compact).

A referendum in the United Kingdom does not seem to be required for the introduction of a euro area flexibility clause only.(25) Still, convincing this ‘out’ (and Denmark) of its introduction may be the main political challenge of a euro area flexibility clause, confirming the dual aspect of the EU’s institutional challenge analysed above. What will be required to convince the United Kingdom (which agreed to the amendment of Article 136 TFEU, but blocked further treaty amendment in December 2011) is essentially a political question (possibly including a repatriation of powers), and would have to be balanced with the idea of a limited treaty amendment.

Member states may not be enthusiastic to start this ordinary amendment procedure. On the other hand, a non-­‐comprehensive treaty reform could be feasible, if certain political and legal concerns are addressed. Should this prove impossible, a separate Euro-­Treaty (see the Piris/Glienicker proposals above) might be the way forward.(26) In any case, it is useful to consider the further challenges of a euro area flexibility clause in this workshop on Treaty revision.

Would a Convention be required under the ordinary revision procedure for the introduction of a euro area flexibility clause? This is not necessarily the case, if a simple majority of the European Council and the European Parliament agree that convening a Convention is not justified by the extent of the proposed amendments (Article 48(3) EU). It can be argued that the proposed limited amendment does not justify convening a Convention. In any event, it would probably be difficult to have a Convention on this proposal without turning it into proposals for comprehensive treaty revision, and without turning it into a very lengthy process.

In fact, it is useful to keep in mind that even without a Convention a limited treaty revision can easily take up to 2 years to enter into force. The recent amendment to Article 136 TFEU – through the simplified revision procedure – still took more than 2 years to enter into force: the political decision was taken by the European Council in December 2010, the legal decision in March 2011 and entry into force occurred in May 2013. The introduction of a euro area flexibility clause is therefore arguably of limited help in addressing current issues such as the establishment of a banking union (see more on this below). One could partly remedy this by already making political agreements about measures to be adopted under a future euro area flexibility clause, to speed up the process of adoption once the treaty amendment has entered into force. Yet, this would arguably be a complex political process, and one that raises new issues of democratic legitimacy.

The limited treaty revision proposed here could still be of value for possible future initiatives like a euro area fiscal capacity or stability bonds (again see more on this below). Also, in general it can be of value for creating an open (but not unlimited) power to respond to future, currently unforeseen circumstances in the euro area in a more flexible way than is now the case.

The democratic legitimacy of transfer of powers

It could be argued that an extensive use of the (euro area) flexibility clause is at tension with democratic legitimacy, as it can lead to a significant increase in powers of the euro area/Union, without national ratification. It is recalled that extensive use was made in the seventies and eighties of the general flexibility clause in the areas of for example regional and environmental policy,(27) at that time not competences of the Communities.

Under the current general flexibility clause, these concerns are partly addressed by prescribing approval by the European Parliament, but it may well be argued that this form of input legitimacy at EU level is not sufficient,(28) especially if an extensive use of a new euro area flexibility clause is intended. One could add to this that the involvement of parliaments under the current clause, through the procedure for monitoring the subsidiarity principle, is not sufficiently strong.(29) One could therefore further address these concerns of democratic legitimacy by requiring approval of any decision to use a future euro area flexibility clause by the euro area member states in accordance with their respective constitutional requirements. Such a requirement would lead to a more rigid euro area flexibility clause compared to the current general clause. It would also be in stark contrast with the Spinelli Group proposal to make the current general flexibility clause more flexible.(30)

Introducing such a requirement for the euro area flexibility clause would also bring it closer in line with the spirit of the constitutional practice of some member states relating to the current general clause. Note in this context the requirement introduced by the German Constitutional Court in its Lisbon Judgment of prior authorisation by German Parliament for a German vote under Article 352 TFEU on a specific measure.(31) Note also that the UK European Union Act 2011 states that a UK Minister may in principle not agree to a decision under the Treaty’s flexibility clause unless an Act of Parliament has approved the draft decision.(32) Konstadinides in this context speaks of “powerful warnings issued by the German and Danish constitutional courts against an unprecedented use of EU residual competence”.(33)

The possible requirement to address concerns of democratic legitimacy could be drafted as follows:

“These measures shall not enter into force until they are approved by the Member States whose 34 currency is the euro in accordance with their respective constitutional requirements.”

The appropriate institutional structure

Creating a new euro area flexibility clause means making a choice about the unity of the institutions involved. The issues of principle behind such a choice are whether EU institutions can be used for the benefit of only a limited number of member states and whether nationals of member states that are not going to be bound by the rules adopted should have a vote within the institutions.

Using EU institutions for the benefit of a limited number of member states raises several issues. Can the EU institutions in total independence appreciate the relationship and possible tensions between measures adopted under the euro area flexibility clause and the part of the acquis that is binding on all member states? And who should bear the administrative costs in these cases? (35) Importantly, under EU law such use of institutions for a number of member states is currently accepted, both in cases of use within the EU treaty framework (e.g. for enhanced cooperation and for emu) and outside (e.g. EFSF and ESM Treaty).(36) Within the framework of the EU treaties this does not seem to be a contentious issue; the situation is different when it comes to the use of institutions outside the treaties, as illustrated by the Fiscal Compact where there is no agreement by all member states on the use of institutions under this intergovernmental treaty. Craig argues that “The default assumption must (…) surely be that where the contracting states have not used enhanced cooperation this should incline the EU institutions against participation in such an inter-­‐state agreement.”(37)

A possible euro area flexibility clause also raises the question of how to solve an old institutional dilemma for this new provision. Should British MEPs have a right to vote when it comes to giving consent to the use of a euro area flexibility clause? And should a Danish Commissioner have a right to vote on the proposal? In general, should nationals within an institution have a right to decide on matters that do not bind ‘their’ member states?

Again, under EU law the participation through vote within institutions by nationals of member states that will not be bound by the adopted rules is currently accepted for both the European Parliament and the Commission. The situation is different for the Council, where members are sometimes excluded from voting – e.g. member states that have not adopted the euro (38) – and specific rules exist to define majorities in such instances.(39) Thus, the Commission and European Parliament are considered as an institutional unity under enhanced cooperation,(40) economic and monetary union,(41) and where member states have negotiated a specific opt-­‐out/opt-­‐in arrangement (e.g. the United Kingdom, Denmark and Ireland).(42) Note also in this context that it is formally possible for MEPs to have a different nationality than the member state in which they are elected,(43) even though this is in practice an exception.

In discussing the arguments for and against having nationals within institutions decide on issues that do not bind ‘their’ member states, it is useful to look at the arguments raised in the academic literature on enhanced cooperation. Fabbrini believes that the operation of Parliament and Commission in their standard composition “should be positively appreciated, bearing in mind that the members of these last two bodies do not represent their states of origin, but rather the EU citizens, and can therefore defend the interests of the EU as a whole.”(44) With regard to the Commission, Piris instead argues that “there are convincing arguments in favour of changing the rules on this point, in order to allow only those Commissioners having the same nationality as the participating Member States to participate in votes when the aim is to develop a given case of enhanced cooperation involving those Member States only.”(45) This cannot be but related to his appreciation of the independence of Commissioners: “Commissioners are supposed to be independent of their state of origin. Of course, this is theoretical. Everybody knows that the political reality is different.”(46) With regard to the European Parliament, Dougan convincingly argues that it depends on “whether in the current state of European supranational democracy, MEPs may legitimately claim to represent the collective European interest, or only the parochial interests of their own constituency or Member State.”(47) He rightfully concludes that “This fundamental question about the proper democratic mandate of an MEP is an essentially political one.”(48)

Applying these arguments analogously to a euro area flexibility clause, the desirability of a right to vote for a Danish Commissioner on a proposal to be put forward under the clause depends on how you see the independent character of this institution. The desirability of a right to vote for a British MEP depends on how you see the representative claim of MEPs.

If the use of institutions for the benefit of only a limited number of member states is currently accepted under EU law, and also the power of nationals within the European Parliament and Commission to vote on rules that do not bind ‘their’ member states, is then – considering the above arguments – the creation of a euro area flexibility clause the moment to decide on a new sub-­‐ institution? Should a euro area flexibility clause complement the institutional structure of the euro area, which includes a European Central Bank, Eurogroup and Eurosummits, with also a Europarliament and a Eurocommission? And should the Eurogroup be given the power to take legally binding decisions under the euro area flexibility clause?

The idea of a limited treaty revision would militate against changing the current system based on the principle of institutional unity of the European Parliament and the Commission.(49) One may also want to take into account that the European Parliament itself does not seem to favour the creation of a separate Euro Assembly.(50) The same idea of a limited treaty revision would also lead to the conclusion that with regard to the Eurogroup, it may not be necessary to give this body formal decision-­‐making powers, as one can continue the current practice of using the formal Council setting, and of suspending the voting rights of member states with a derogation.

Substantive limits to the use of the flexibility clause

The current substantive limits to the use of the general flexibility clause of Article 352 TFEU illustrate that creating a euro area flexibility clause would not only lead to a procedural novelty (in the sense that the clause can be used by euro area member states collectively), but would also lead to a substantive change, as the economic and monetary union does not seem to be intended (anymore)(51) under the objectives referred to in current Article 352(1) TFEU. That is at least the conclusion that would seem to follow from Declaration 41 to the Lisbon Treaty on the current general flexibility clause of Article 352 TFEU, which declares that the objectives referred to in Article 352(1) TFEU are those set out in Article 3(2) and (3) EU and Article 3(5) EU.(52) This intends (politically) to exclude the objective of Article 3(4) TFEU (“The Union shall establish and economic and monetary union whose currency is the euro”) as one on the basis of which action under Article 352 TFEU can be taken.(53) It is not necessary to enter into a discussion about the legal significance of this declaration,54 to understand that a euro area flexibility clause designed to attain the objectives of the economic and monetary union would represent a change in approach to flexibility with regard to this policy area.

One of the current limits to the use of Article 352 TFEU that would certainly exist also in the case of a euro area flexibility clause is that expressed in Declaration 42 to the Lisbon Treaty. According to this declaration use of Article 352 TFEU, in line with the existing case law of the European Court of Justice, cannot lead to the ‘adoption of provisions whose effect would, in substance, be to amend the Treaties’. The flexibility clause allows for filling gaps, not for circumvention. This limit requires an individual assessment of measures to understand when exactly circumvention of treaty amendment is the case. What exactly would be, in substance, an amendment of the treaties? A change of the institutional balance? The creation of new policies? I will return to this issue in section 3 below.

Another limitation to the current flexibility clause, namely that it cannot be used to attain the objectives of the Common Foreign and Security Policy (Article 352(4) TFEU), does not seem to be affected by a possible euro area flexibility clause. More relevant seems to be the limit to the current flexibility clause that it cannot entail harmonisation of laws in the cases where the treaties exclude this (Article 352(3) TFEU). Considering this limit, an explicit choice by the drafters of a euro area flexibility clause would seem desirable as to whether and to what extent harmonisation under this clause is allowed. Making it possible in areas in which harmonisation is currently excluded would require not only a euro area flexibility clause, but also a change to the relevant treaty provisions. To what extent to allow for harmonisation under a new euro area flexibility clause is essentially a political decision.

Harmonisation of economic policy does not currently seem to be excluded under the Treaties, as strictly speaking it is not an area where the Union has powers to coordinate the actions of the member states, but one where member states coordinate their economic policies within arrangements as determined by the Treaties (Article 2(3) TFEU, although this provision arguably does not fully reflect the Union powers in this area).(55) Allowing for harmonisation in the area of economic policy would nonetheless be a radical break with the past, not only in light of the current limits to Article 352 TFEU, but also in light of the current division of powers between the Union and the member states in this policy area (where no provisions expressly allowing for harmonisation exist).(56)

To the extent that harmonisation is currently expressly prohibited in for example the area of employment policy,(57) the insertion of a euro area flexibility clause would not be sufficient to allow for such harmonisation – even if this would be considered necessary for attaining the objectives of the economic and monetary union – but an amendment of the respective treaty provisions prohibiting harmonisation would also be necessary.

The interpretation of the objectives of the economic and monetary union, and what action is necessary to attain them, will eventually determine the scope of a euro area flexibility clause. Both issues will arguably also be central to judicial review by the European Court of justice. In this context it may be relevant that, as Lebeck argues, the interpretation by the Court of the objectives under the existing clause has been broad, considering the treaty objectives as a whole.(58) Konstadinides argues that “Past jurisprudence suggests that common sense and the demands of the real world seem to have won against the formalistic, but ambiguous, constraints stemming from the wording of the Treaty’s flexibility clause.”(59)

The institutional and substantive relationship with the ‘outs’

The euro area – the member states to which the euro area flexibility clause would be available – and the economic and monetary union – the objective for which the clause would be designed – do not completely overlap. This may raise both institutional and substantive challenges between the euro area and the ‘outs’.

Creating a euro area flexibility clause in fact also means altering the relationship with the member states outside the euro area, both those with a temporary derogation (so-­‐called ‘pre-­‐ins’) and those with a permanent opt-­‐out. A central institutional preoccupation in many cases of differentiated integration within and outside the treaty framework of the EU is that all the ‘outs’ should always be able to join. Thus, enhanced cooperation “shall be open at any time to all Member States”,(60) and the Fiscal Compact “shall be open to accession by Member States of the European Union other than the Contracting Parties.”(61)

Should a similar approach be taken towards a euro area flexibility clause? Should the clause be designed in such a way as to make ad hoc involvement of the member states with a derogation or even an opt-­‐out possible?(62) The Fiscal Compact and the Euro Plus Pact illustrate that there can be cases where legal or political measures relating to the economic and monetary union are considered desirable by a great number of member states, not only euro area member states but also member states with a derogation and even opt-­‐out. It could be argued that a right to participate (or put differently an obligation to be bound) once the derogation is abrogated sufficiently addresses this issue. We can compare this to the current situation of strengthened cooperation by the euro area under Article 136(1) TFEU.

On the other hand, it can be considered desirable to involve future ‘ins’ in some way in decision-­‐ making under a euro area flexibility clause (e.g. a right to participate in deliberations on its use, which could otherwise be expected to shift to the Eurogroup setting). A step further would be to consider member states with a derogation not to be automatically bound by measures adopted under the euro area flexibility clause when they adopt the single currency, but to allow them to opt-­‐ in at that moment (in a way comparable to enhanced cooperation and candidate states for EU accession, Article 20(4) EU). This would arguably make a new euro area flexibility clause more acceptable to current ‘pre­‐ins’. It could be drafted as follows, expressing that they are not automatically bound, but do commit to adopt the measures concerned in accordance with their respective constitutional requirements:

“Measures adopted on the basis of this Article shall bind only Member States whose currency is the euro. They shall not be regarded as part of the acquis which has to be accepted by Member States with a derogation for adoption of the euro as a currency. If it is decided, in accordance with Article 140(2) TFEU, to abrogate a derogation, the Member State concerned shall adopt these measures in accordance with its respective constitutional requirements.”(63)

What about the substantive tensions between measures adopted under a euro area flexibility clause and the parts of the acquis that bind all member states, such as the rules on the internal market? Obviously measures adopted on the basis of a euro area flexibility clause should comply with the Treaties.(64) It could be politically wise to include an indent in the euro area flexibility clause that states the obvious:

‘Any measure adopted under this Article shall comply with the Treaties and Union law. The measure shall not undermine the internal market or economic, social and territorial cohesion. It shall not constitute a barrier to or discrimination in trade between Member States, nor shall it distort competition between them.’(65)

Moreover, the substantive rights of non-­‐euro area member states would be institutionally guaranteed through the enforcement actions available under the treaties to the Commission and through the related jurisdiction of the European Court of Justice (possibly even made explicit in the clause).(66)

3. A euro area flexibility clause in practice

Determining the exact limits to what can be achieved under a euro area flexibility clause is not within the scope of this paper. Moreover, it is a very difficult exercise considering the discretion such a clause would arguably give.(67) Nonetheless it is useful to describe some relevant discussions regarding crisis related proposals and crisis related ideas that would involve the use of the existing flexibility clause of Article 352 TFEU (possibly combined with enhanced cooperation under Article 20 EU), as this points to the possible limits of a euro area flexibility clause given by current treaty provisions. It also raises the question how current proposals and ideas to use Article 352 TFEU relate to the political intention expressed in Declaration 41 to the Lisbon Treaty to exclude the objective of economic and monetary union.

European Stability Mechanism

There is at the moment no express intention to incorporate the ESM Treaty into the EU legal framework. The European Commission does not exclude that this can be done on the basis of Article 352 TFEU.(68) There might be a tension though between the objectives for the attainment of which this provision can be used (and from which Declaration 41 intends to politically exclude the economic and monetary union) and the objective of the ESM, which is to safeguard the stability of the euro area. This could indicate a changed approach to Declaration 41 (at least from the side of the Commission). In any event, Declaration 41 does not legally seem to preclude the adoption of measures on the basis of Article 352 TFEU for the attainment of the objective of economic and monetary union.

It can very well be argued that incorporation would serve to attain the objective of economic and monetary union, and that the ESM in this sense would fall within the scope of a euro area flexibility clause. On the other hand, to the extent that incorporation would require an amendment to the EU’s Decision on Own Resources,(69) it should be noted that the latter is procedurally more difficult than the current flexibility clause of Article 352 TFEU.(70)

Stability bonds & European Debt Agency

Whether stability bonds can be adopted on the basis of Article 352 TFEU seems to depend on the specific form they would take, and in particular if they can be designed in conformity with the so- called no bailout clause of Article 125 TFEU. Stability Bonds under several but not joint guarantees have been argued to comply with the latter provision.(71) The rationale for Stability Bonds as argued by the Commission in its Green Paper on the issue is clearly related to the euro area and economic and monetary union, including financial stability in the euro area, the transmission of monetary policy, and improvement of efficiency in the euro area sovereign bond market.(72) In other words, in terms of objectives this could again be argued to fall within the scope of a euro area flexibility clause. Similarly, it has been argued that the current flexibility clause could be used for the establishment of a European Debt Agency. Artus e.a. argue that this could be a way to “restore a capacity for fiscal stabilisation against fluctuations in activity” in the euro area, and that it could be implemented under Article 352 TFEU, possibly in combination with enhanced cooperation.(73)

Fiscal capacity, possibly with a stabilisation function

The idea of the establishment of a fiscal capacity for the euro area, intended to “improve the resilience of the euro area as a whole”,(74) on the basis of Article 352 TFEU is also subject to discussion.(75) Central questions here seems to be to what extent changing the Decision on Own Resources would be sufficient (though as mentioned above this is not less cumbersome than the procedure of Article 352 TFEU), and to what extent the principle of the unity of the EU budget (Article 310 TFEU) would preclude such a fiscal capacity without amendment of the treaties. Or could a fiscal capacity be managed outside the Union budget on the basis of Article 352 TFEU?

And what about using a fiscal capacity for macroeconomic stabilisation? According to the Commission, using Article 352 TFEU for this purpose would amount to a circumvention of the Treaty amendment procedure and would thus not be allowed.(76) Similarly, Repasi argues that the microeconomic approach proposed by Van Rompuy, according to which “the fiscal capacity would work as a complement or partial substitute to national unemployment insurance systems”,(77) “cannot be implemented on the basis of Article 352 TFEU.”(78) Finally, Repasi comes to a similar conclusion with regard to the idea of raising EU taxes to fund the fiscal capacity.(79)

Contractual arrangements and a convergence and competitiveness instrument

A further recently proposed idea, the conclusion of contractual arrangements with member states combined with a convergence and competiveness instrument, has also been related to Article 352 TFEU. According to the Commission, the instrument could be established on the basis of Article 136, or alternatively “one could envisage having recourse on Article 352 TFEU, if necessary by enhanced cooperation.”(80) Hohmann and Kullas see no role for Article 136 TFEU, but agree on the possible use of Article 352 TFEU to this end for the objective of economic monetary union (apparently ignoring the existence of Declaration 41 to the Lisbon Treaty).(81)

Banking union

Finally, also with regard to the developing banking union the possible use of Article 352 TFEU has played a role in both academic and political debate. In this context, the recent discussion on the use of either Article 114 TFEU or Article 352 TFEU for a Single Resolution Mechanism should be mentioned.(82) Without going into detail, it can be argued that the more effective and centralised the intended banking union is to be, the more pressing the need for the use of either Article 352 TFEU (and possible a euro area flexibility clause) or the treaty amendment procedure.

4. Conclusion

The following premises and arguments motivate the limited treaty amendment proposed in this paper (see the Annex for a text of the draft proposal):

1) The eurozone crisis illustrates a dual aspect to one of the EU’s current, pressing institutional problems: a clear necessity of new powers for the euro area, the creation of which can however be blocked by those – both temporarily and permanently – outside the euro area.

2) A comprehensive, substantive Treaty reform – although possibly desirable – is currently not politically feasible; a treaty amendment creating a flexible treaty amendment procedure (doing away with unanimity) is similarly not feasible. A limited treaty amendment creating a Eurozone flexibility clause will equally have to pass the test of political feasibility, but is arguably politically more feasible.

3) A euro area flexibility clause would provide, within the EU treaty framework, the possibility to respond to unforeseen, future needs of the euro area, without having to resort to an amendment of the EU Treaties, or conclude ad hoc international agreements.

4) The possibilities offered by a euro area flexibility clause are not unlimited. Relevant limits will be found in current treaty provisions, which cannot be amended through a euro area flexibility clause.

5) The institutional unity of the European Parliament and Commission in cases of differentiated integration is accepted under current EU law. The idea of a limited treaty revision militates against changing the institutional unity of these institutions under a new euro area flexibility clause.

6) A euro area flexibility clause would probably be more acceptable to the so-­‐called ‘pre-­ins’ if the measures adopted would not automatically bind them once their derogation is abrogated, but if they would at that point have to adopt these measures in accordance with their respective constitutional requirements.

Appendix I: draft proposal euro area flexibility clause

The following draft provision could take the form of a new Treaty article (e.g. Article 352 bis TFEU), or a new Protocol.

The language chosen in the following draft provision reflects as much as possible the language of existing treaty provisions.

1) If action by the Member States whose currency is the euro should prove necessary, within the framework of the policies defined in the Treaties, to attain the objectives as set out in Article 3(4) of the Treaty on European Union, and the Treaties have not provided the necessary powers, the Council, acting unanimously on a proposal from the Commission and after obtaining the consent of the European Parliament, shall adopt the appropriate measures.

2) For those measures set out in paragraph 1, only members of the Council representing Member States whose currency is the euro shall take part in the vote.

3) The measures set out in paragraph 1 shall not enter into force until they are approved by the Member States whose currency is the euro in accordance with their respective constitutional requirements.

4) Any measure adopted under paragraph 1 shall comply with the Treaties and Union law. The measure shall not undermine the internal market or economic, social and territorial cohesion. It shall not constitute a barrier to or discrimination in trade between Member States, nor shall it distort competition between them.

5) Measures based on paragraph 1 shall not entail harmonisation of Member States’ laws or regulations in cases where the Treaties exclude such harmonisation.

6) Measures adopted on the basis of paragraph 1 shall bind only Member States whose currency is the euro. They shall not be regarded as part of the acquis which has to be accepted by Member States with a derogation for adoption of the euro as a currency. If it is decided, in accordance with Article 140(2) of the Treaty on the Functioning of the European Union, to abrogate a derogation, the Member State concerned shall adopt these measures in accordance with its respective constitutional requirements.

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1 Max Weber Postdoctoral Fellow in Law at the European University Institute. Paper prepared for the Workshop “Revising European Treaties”, RSCAS/EUI, 11 November 2013. Critical comments and suggestions on this work in progress are most welcome at Thomas.Beukers@eui.eu.

2 Other common meanings of constitutionalisation include dropping the unanimity requirement for constitutional change (in fact, a flexible amendment procedure for the euro area only would be a powerful example of constitutionalisation of the euro area), the creation of further accountability structures and checks & balances, and the increase of constitutional legitimacy.

3 For use of the concept constitutional authority in this sense, see Maduro, ‘The importance of being called a constitution: Constitutional authority and the authority of constitutionalism’, International Journal of Constitutional Law (2005) p. 337.

4 A euro area flexibility clause is different from the enhanced or strengthened cooperation clauses of Article 20 EU and Article 136(1) TFEU in the sense that these latter clauses (alone) do not allow for the creation of new powers.

5 Article 136(1) TFEU allows for the adoption of measures for the euro area to strengthen coordination and surveillance of budgetary discipline and to set out economic policy guidelines.

6 See Article 21(2) TFEU which provides a specific flexibility clause for attaining the “objective” of every citizen of the Union having the right to move and reside freely within the territory of the member states as mentioned in Article 21(1) TFEU; slightly different is the wording of the specific flexibility clause of Article 77(3) TFEU can be used to facilitate the ‘rights’ (as opposed to objective) to move and reside freely.

7 The Spinelli Group, A Fundamental Law of the European Union (Verlag Bertelsmann Stiftung, 2013).

8 Ibid., p. 5.

9 Contrast the Spinelli Group, ibid., p. 12: “A new treaty is needed to mark the important fresh stage in European integration in which the eurozone is transformed into a fiscal union run by a federal economic government.”

10 Ibid., p. 20: “The Fundamental Law creates a new category of associate membership for any member state which chooses not to join the more federal union. Each associate state would negotiate its own arrangement with the core states.”

11 Piris, The Future of Europe. Towards a Two-­‐Speed EU? (Cambridge University Press 2012). More precisely, this is his fourth proposal in the book.

12 Glienicker Group, ‘Towards a Euro Union’, 18 October 2013: <http://www.bruegel.org/nc/blog/detail/article/1173-­towards‐a‐euro-­union/> (last visited 24 October 2013)

13 The concept necessity is used in a subjective sense here, including both political and legal necessity, and it is acknowledged that there may be different views on the extent of this necessity.

14 One could also include the simplified revision procedure as a way of moving forward, even though it is not available for increasing powers and in the case of ESM Treaty is to be seen only as a confirmation of what could already be done. One mode that has not been used is the combination of Articles 20 EU and 352 TFEU, so enhanced cooperation and the flexibility clause.

15 Piris, supra note 11, p. 107: “In other words, the scope of application of Article 136 is extremely wide (…)”.

16 Where the institutional framework of the EU and certain automatic safeguards are lacking.

17 In this sense Piris, supra note 11, p. 59: “Thus, at least at the time of writing, a substantive revision of the EU treaties looks politically implausible.”

18 Spinelli Group, supra note 7, p. 20: “But we modify the procedure for the Intergovernmental Conference to allow amendments to be agreed by three quarters of the states. The European Parliament gains the right of assent to treaty changes. Any future new treaty will enter into force either once ratified by four fifths of the states representing a majority of the EU population or, if carried in a pan-­EU referendum, by a simple majority. This less rigid approach to constitutional amendment will bring the EU into line with all other international organisations and federal states, and help to avoid situations in which one recalcitrant state can take the rest hostage.”

19 Konstadinides argues that “until recently, the density of EU legislation emanating from former Article 308 EC demonstrates that resort to this ‘catch-‐all’ clause bypassed the need to amend the Treaty.”, see Konstadinides, ‘Drawing the line between Circumvention and Gap-­‐Filling: An Exploration of the Conceptual Limits of the Treaty’s Flexibility Clause’, Yearbook of European Law (2012) p. 1-­‐36 at 3.

20 Von Bogdandy and Bast, ‘The Vertical Order of Competences’, in: Von Bogdandy and Bast (eds.), Principles of European Constitutional Law (Hart Publishing, 2005) p. 362.

21 Lebeck, ‘Implied Powers Beyond Functional Integration? The Flexibility Clause in the Revised EU Treaties’, Journal of Transnational Law and Policy (2008) 303-358 at 306.

22 Konstadinides, supra note 19, p. 2: “The flexibility clause has always expressed the view of the Treaty drafters, that the powers specifically allocated to the EU may not prove to be adequate for the purpose of attaining the objectives expressly set by the Treaties.”

23 Dashwood, ‘Article 308 EC as the Outer Limit of Expressly Conferred Community Competence’, in: Barnard and Odudu (eds.), The Outer Limits of European Union Law (Hart Publishing 2009) p. 44.

24 Konstadinides, supra note 19, p. 35: “The constraints to the use of Article 352 TFEU (plethora of new legal bases, unanimity, monitoring by the European and national parliaments, express exclusion from CFSP, new national constitutional safeguards) are vigorous enough to curb further the use of the once mighty flexibility clause and confine its loose practice to a faded constitutional memory.” Also, p. 31: “The Treaty of Lisbon grants Member States a number of additional safeguards in attaining the objectives set out in the EU Treaties through Article 352 TFEU. These safeguards have rendered it almost obsolete.” And p. 33: “The minimal number of proposals under Article 352 TFEU since the coming into force of the Treaty of Lisbon demonstrates that the flexibility clause has grown inflexible.”

25 See section 4(4) UK European Union Act 2011, which states that the referendum requirement does not apply in case of “the making of any provision that applies only to Member States other than the United Kingdom.”

26 Another possible way forward, within the Treaty framework, could be through a political agreement (at European Council level) stating that non-­‐euro area member states will in principle authorise the adoption of measures proposed by the Commission through a combined use of the flexibility clause of Article 352 TFEU and enhanced cooperation of Article 20 EU. Exploring the challenges raised by this way forward does not fall within the scope of this paper.

27 Konstadinides, supra note 19, p. 2: “The use of the flexibility clause reached its heyday in the 1970s and the 1980s. (…) Today, Article 352 TFEU has grown weak and weary. Recourse to it by the Council is now rare.”

28 See in general on the continuing importance of legitimacy through the member states, as opposed to the EP, J.H.H. Weiler, ‘In the Face of Crisis: Input Legitimacy, Output Legitimacy and the Political Messianism of European Integration’, European Integration (2012) p. 825-­‐841 at 837: “at what will be a decisive moment in the evolution of the European construct, the importance, even primacy of the national communities as the deepest source of legitimacy of the integration project will be affirmed yet again.”

29 See Lebeck, supra note 21, p. 356: “The increased role for national parliaments, regarding subsidiarity, seems only to change the role of national parliaments from non-­‐ existent to very weak.”

30 Spinelli Group, supra note 7, p. 17-­‐18: “The Fundamental Law greatly extends QMV in the Council at the expense of unanimous decision making. Notably, this change affects the important ‘flexibility clause’ which allows action to be taken by the Union in certain circumstances when such action has not been expressly foreseen by the treaties.”

31 Bundesverfassungsgericht, BVerfG, 2 BvE 2/08, Lisbon judgment, 30 June 2009, para. 328. It can be expected that the German Constitutional Court would interpret similarly a euro area flexibility clause that is procedurally similar to the current flexibility clause.

32 See Section 8. For exceptions and alternative agreements, see <http://www.legislation.gov.uk/ukpga/2011/12?view=plain> (last visited 30 October 2013).

33 Konstadinides, supra note 19, p. 3.

34 See also Annex 1: draft proposal euro area flexibility clause.

35 On the practical issue of costs in case of enhanced cooperation, see Article 332 TFEU: “Expenditure resulting from implementation of enhanced cooperation, other than administrative costs entailed for the institutions, shall be borne by the participating Member States, unless all members of the Council, acting unanimously after consulting the European Parliament, decide otherwise.”

36 In both cases use of the EU institutions happens with the explicit agreement of non-­‐participating EU member states. With regard to the ESM Treaty this has also been accepted by the ECJ in the Pringle case; Case C-­‐ 370/12, Thomas Pringle v. Government of Ireland, Ireland, The Attorney General, Judgment of the Court of Justice (Full Court) of 27 November 2012. See De Witte and Beukers, ‘The Court of Justice approves the creation of the European Stability Mechanism outside the EU legal order: Pringle’, 50 CML Rev (2013) p. 805-­848 at 843-­847.

37 Craig, ‘Pringle and Use of EU Institutions outside the EU Legal Framework: Foundations, Procedure and Substance’, 9 EuConst (2013) p. 263-­284 at 274.

38 See e.g. Article 136(2) TFEU and Article 139(4) TFEU.

39 See e.g. Article 238(3) TFEU.

40 With regard to enhanced cooperation a practical consideration is probably also in place, considering the unlimited possible combinations of member states participating under different enhanced cooperation initiatives, which would lead to just as many compositions of the EP/Commission if the principle of institutional unity were abandoned.

41 Sometimes with maybe surprising results, such as the current British chair of the EP’s Economic and Monetary Affairs Committee Sharon Bowls.

42 See e.g. Protocols 19 and 21 to the Lisbon Treaty.

43 See Article 20(2) TFEU on the right to vote and to stand as candidate in elections to the European Parliament in the member state of residence.

44 Fabbrini, ‘The Enhanced Cooperation Procedure: A Study in Multispeed Integration’, Centro Studi Sul Federalismo Research Paper, October 2012, p. 7.

45 Piris, supra note 11, p. 118.

46 Ibid., p. 117.

47 Dougan, ‘The Unfinished Business of Enhanced Cooperation: Some Institutional Questions and Their Constitutional Implications’, in: Ott and Vos (eds.), Fifty Years of European Integration: Foundations and Perspectives (TMC Asser Press, 2009) p. 178. Also, p. 170: “The risk is that the MEPs in question might share the same political or cultural views as their national governments, and thus display the same antagonism towards the purpose and substantive content of the proposed enhanced cooperation measure.” But also on p. 172: “(…) in the scenario where enhanced cooperation eventually proves to be a dynamic and integrative mechanism, the exclusion of voting rights for MEPs from non-­‐participating Member States could pose a serious challenge to the institutional role and legislative prerogatives of the European Parliament.”

48 Ibid., p. 174.

49 Compare Piris, supra note 11, p. 126 on creating new institutions in an additional euro treaty: “It would obviously be politically and legally better and more simple to avoid establishing new institutions or organs, as this might entail political tensions and legal difficulties.”

50 At least that was reflected in an unofficial reflection paper prepared by three influential MEPs (Brok, Verhofstadt, Gualtieri) in the Autumn of 2012 during negotiations with Herman Van Rompuy; see Fox, ‘No eurozone-­‐only assembly, say MEPS’, EuObserver, 6 October 2012, <http://euobserver.com/news/117773> (last visited 25 October 2013.

51 I.e. since the Treaty of Lisbon, see Declaration 41 discussed below. In the past measures relating to emu have been adopted through the flexibility clause. See e.g. Regulation 1103/97 on Certain Provisions Relating to the Introduction of the Euro [1997] OJ L162/1; Regulation 2595/2000 amending Regulation (EC) No 1103/97 on certain provisions relating to the introduction of the euro [2000] OJ L 300/1.

52 Action pursuing only the objectives set out in Article 3(1) TFEU is excluded.

53 Lebeck, supra note 21, p. 351: “it seeks to exclude, albeit through soft law, policies of the EMU from the scope of Article 352 TFEU”.

54 Ibid., p. 353: “The constraints on the exercise of implied powers through the annexed declarations are, from a legal perspective, very weak.”

55 See also Article 2(5) TFEU and note that in the areas where the Union (as opposed to member states) has the competence to coordinate the actions of the member states, harmonisation is not allowed.

56 See Articles 120 TFEU and following.

57 See Articles 2(5), 5(2) and 149 TFEU.

58 Lebeck, supra note 21, p. 316. Also, the substantive limit that the clause had to relate to action ‘in the course of the operation of the common market’ (abolished by the Lisbon Treaty) has been interpreted broadly by the ECJ. See Dashwood, supra note 23, p. 43: “the European Courts have recognised that Article 308 is available to supplement the powers specifically conferred on the institutions of the Community across the whole range of its activities, not merely those connected with the establishment and functioning of the common market (‘the whole Treaty thesis’).” Similarly, Konstadinides, supra note 19, p. 17: “The current reference of Article 352 TFEU to the attainment of ‘the objectives set out in the Treaties’ is an example of legal drafting which reflects current practice.”

59 Konstadinides, supra note 19, p. 11.

60 Article 20(1) EU.

61 Article 15 Treaty on Stability, Coordination and Governance in the Economic and Monetary Union.

62 The alternative creation of a flexibility clause that can be used by any combination of member states is arguably not desirable.

63 See also Annex 1: draft proposal euro area flexibility clause.

64 Piris is aware of the same limits to his proposal for an additional treaty. Piris, supra note 11, p. 122: “as long as the proper functioning of the internal market and the acquis communautaire, as well as all the other rules of the treaties, would be respected.” Also ibid., p. 139: “Therefore, it follows from this examination that there would be no legal obstacle to the conclusion of an additional treaty organizing closer cooperation between some of the EU Member States on matters to be determined by them, as long as they continue to be bound by all their obligations under the EU treaties.”

65 See also Annex 1: draft proposal euro area flexibility clause.

66 As would again be the case for an additional treaty as proposed by Piris, supra note 11, p. 141: “The Commission or any EU Member State should be able to seize the Court of Justice of the EU of any infringement of the EU treaties and EU law by one participating state or by all of them collectively”.

67 Compare on the discretionary power provided by Article 352 TFEU, Lebeck, supra note 21, p. 326: “This means that implied powers provide an excessive degree of legislative discretion to the Council, making constitutional constraints relatively ineffective and democratic accountability very difficult.”

68 Communication from the Commission. A blueprint for a deep and genuine economic and monetary union. Launching a European Debate, Brussels, 28.11.2012, COM(2012) 777 final, p. 34: “While it would not be excluded to integrate the ESM into the EU framework under the current Treaties, via a decision pursuant to Article 352 TFEU and an amendment to the EU’s own resources decision, it appears that, given the political and financial importance of such a step and the legal adaptations required, that avenue would not necessarily be less cumbersome than operating an integration of the ESM through a change to the EU Treaties. The latter would also allow the establishment of tailor-­‐made decision-­‐making procedures.” One can infer a similar conclusion from para. 67 of the ECJ’s Pringle case, where the Court states that there is not obligation to act on the basis of Article 352 TFEU to adopt a stability mechanism. Case C-­‐370/12, Thomas Pringle v. Government of Ireland, Ireland, The Attorney General, Judgment of the Court of Justice (Full Court) of 27 November 2012.

69 Ibid.

70 The adoption of a Decision on Own Resources requires unanimity in the Council and approval by the member states in accordance with their respective constitutional requirements; see Article 311 TFEU.

71 European Commission Green Paper on the feasibility of introducing Stability Bonds, Brussels, 23.11.2011, COM(2011) 818 final, p. 11.

72 Ibid., p. 4­‐5.

73 Artus, Bénassy-­‐Quéré, Boone, Cailloux and Wolff, ‘A three-­‐stage plan to reunify the Euro area’, Conseil d’Analyse Économique Working Document (March 2013) p 20. 74 Herman Van Rompuy, Towards a Genuine Economic and Monetary Union, 5 December 2012, p. 5.

75 Compare Repasi, ‘Legal option for an additional EMU fiscal capacity’, Report for the European Parliament’s Committee on Constitutional Affairs (2013) p. 12: “A legal basis for the establishment of a fund outside of the EU budget and of an agency, which implements it, can be found in Article 352 TFEU. The functions of the fund as proposed by the President of the European Council serve to attain a “sustainable development of Europe based on balanced economic growth” and to safeguard the “economic and monetary union whose currency is the Euro”; objectives mentioned by Article 3 TEU.”

76 Communication from the Commission to the European Parliament and the Council Strengthening the Social Dimension of the Economic and Monetary Union, Brussels, 2.10.2013, COM(2013) 690 final, p. 11-­12: “A common instrument for macroeconomic stabilisation could provide an insurance system to pool the risks of economic shocks across Member States, thereby reducing the fluctuations in national incomes. (…) The EU’s current competences are limited, as regards employment, to incentive measures designed to encourage cooperation between Member States and to support their action, excluding any harmonisation (see Article 149 TFEU). As regards social security and social protection, its competence is limited to adopting directives setting minimum requirements for Member States’ systems whose fundamental principles and financial equilibrium are set by Member States (see Article 153 TFEU). Given the current framework of competences and the system of own resources of the Treaties, the flexibility clause of Article 352 cannot be used either, as the establishment of macroeconomic stabilisation systems would exceed the general framework of the current Treaties and thus amount to amending the Treaties without following the requisite procedures.”

77 Herman Van Rompuy, Towards a Genuine Economic and Monetary Union, 5 December 2012, p. 11.

78 Repasi, supra note 75, p. 26.

79 Ibid., p. 25: “This means, conversely, that the Treaties do not provide for any legal basis for an own EU tax which cannot be circumvented by relying on Article 352 TFEU (Mayer & Heidfeld 2011: 375).”

80 Communication from the Commission. A blueprint for a deep and genuine economic and monetary union. Launching a European Debate, Brussels, 28.11.2012, COM(2012) 777 final, p. 22.

81 Hohmann and Kullas, ‘Roadmap for “Genuine” Economic and Monetary Union’, Centrum für Europäische Politik Policy Brief, No. 2013-­‐16 of 22 April 2013, p. 14.

82 Barker, ‘Germany wins allies over banking union concerns’, The Financial Times, 13 September 2013; see also Eurointelligence, 23 October 2013.

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