The Five Presidents’ Report on Completing the EMU: A Glimpse at the Future of Europe

Menelaos Markakis, DPhil student at University of Oxford, Academy of Athens scholar

On 22 June 2015 the Presidents of the EU and Euro area institutions presented their report on ‘Completing Europe’s Economic and Monetary Union’. The report provides a roadmap for ‘deepening’ and ‘completing’ the Economic and Monetary Union (EMU). Building on the measures enacted to combat the crisis, the Five Presidents’ Report makes a wealth of valuable suggestions for strengthening the EMU governance framework and deepening economic integration in the Euro area. The EU Presidents recommend that progress be made towards a genuine Economic Union, a Financial Union, a Fiscal Union, and a Political Union.

An overview of the proposed reforms

The proposed reforms would be implemented in two consecutive stages. In the first stage (1 July 2015 – 30 June 2017), the EU institutions and Member States ‘would build on existing instruments and make the best possible use of the existing Treaties’ (p. 5). In the second stage (mid-2017 to 2025), ‘concrete measures of a more far-reaching nature would be agreed to complete EMU’s economic and institutional architecture’ (p. 5). What follows is perforce merely a general indication of the content covered within the report.

(i)                 A genuine Economic Union

As regards the economic ‘pillar’ of the EMU, the Five Presidents’ Report recommends that each Euro area Member State create a Competitiveness Authority which would be ‘in charge of tracking performance and policies in the field of competitiveness’ (p. 7). The rationale behind this proposal is twofold. Such bodies ‘would help to prevent economic divergence’ and ‘would increase ownership of the necessary reforms at the national level’ (p. 7).

It is patently clear that these Authorities are expected to boost economic convergence in the Euro area, most notably in relation to policy areas which fall outside the EU’s competence. These bodies would have a mandate to ‘assess whether wages are evolving in line with productivity and compare with developments in other euro area countries and in the main comparable trading partners’ (p. 8). Moreover, ‘these bodies could be mandated to assess progress made with economic reforms to enhance competitiveness more generally’ (p. 8). The Five Presidents’ Report further recommends that a Euro area system of Competitiveness Authorities be created, in order to coordinate the actions of these Authorities on an annual basis.

The report seeks to link this proposed technique of policy co-ordination to already existing forms of rules-based governance in the Euro area. The Commission is expected to ‘take into account the outcome of this coordination … in particular for … decisions to be taken under the Macroeconomic Imbalance Procedure (MIP), including whether to recommend the activation of the Excessive Imbalance Procedure’ (p. 8). In principle, Euro area Member States are and would remain free to choose whether to follow the best practices in Europe. However, if they choose not to, the Commission and Council might respond to such divergence by subjecting the Member States concerned to the Excessive Imbalance Procedure. In this connection, the presidents of the institutions explicitly recommend that the corrective arm of the MIP be used ‘forcefully’, in order to ‘encourage structural reforms’ (p. 8). Furthermore, they do not shy away from adding that social partners ‘should use the opinions of the Authorities as guidance during wage setting negotiations’ (p. 8).

At a later stage, ‘the convergence process would be made more binding through a set of commonly agreed benchmarks for convergence that could be given a legal nature’ (pp. 5 and 9). These binding standards would be laid down in EU legislation. In some areas, this would lead to ‘further harmonisation’ (p. 9). In other areas, ‘it will mean finding country-specific solutions’ (p. 9).  ‘Significant progress towards these standards – and continued adherence to them once they are reached – would be among the conditions for each euro area Member State to participate in a shock absorption mechanism for the euro area’ (p. 5), which will be discussed below (iii).

It is not clear which competence basis the EU institutions would use for the adoption of such instruments. It might be the case that the Five Presidents’ proposals rest on the implicit assumption that the EU Treaties will be amended before or during stage two of this process. It might also be the case that the EU institutions plan to make full use of Articles 114, 136, 153 and 352 TFEU and/or of the Treaty provisions on enhanced cooperation.

In this connection, the Constitutional Affairs Committee of the European Parliament has proposed that binding economic policy guidelines for the Euro area countries be adopted on the basis of Article 136 TFEU (p. 10 para. 15). It has further called for ‘the dropping of the restrictions under Article 136 TFEU’ and for ‘the upgrading of this article into a general clause for the adoption of legal acts concerning the coordination and setting of legally-binding minimum standards with regard to economic, employment and social policy’ (p. 16 para. 73). This would give more say to the European Parliament on Country-Specific Recommendations.

Moreover, it should not escape our notice that ‘Country-Specific Recommendations would continue to be used in this context’ (p. 9). Furthermore, the report suggests that the MIP ‘be utilised as a tool … to foster reforms and monitor progress in each euro area Member State towards these common standards’ (p. 9). As such, rules-based and co-ordination based governance techniques would continue to ‘form “hybrid” normative grids and accountability frameworks’ (Armstrong).

(ii)               Towards a Financial Union

As regards the proposed Financial Union, the Five Presidents’ Report recommends that the Banking Union be completed and that the Capital Markets Union be launched. First, the report recommends the full transposition into national law of the Bank Resolution and Recovery Directive. It is recalled that, in the opinion of the Commission, 11 Member States have not fully implemented the Directive into national law. Second, the report argues that, before the Single Resolution Fund (SRF) is sufficiently capitalised, an ‘adequate bridge financing mechanism’ should be created for banks that need to be orderly unwound (p. 11). Third, a common backstop to the SRF should be implemented. In the opinion of the EU Presidents, this could be achieved through a credit line from the European Stability Mechanism (ESM) to the SRF (see p. 11). ‘In due course, the effectiveness of the ESM’s direct bank recapitalisation instrument should be reviewed, especially given the restrictive eligibility criteria currently attached to it’ (p. 11). Fourth, the report recommends that a European Deposit Insurance Scheme be launched. Fifth, it proposes strengthening macroprudential supervision at EU level and ‘review[ing] the treatment of bank exposures to sovereign debt, for example by setting large exposure limits’ (p. 12).

Building on the Commission’s Green Paper on ‘Building a Capital Market Union’, the report further proposes launching a Capital Markets Union for all 28 EU Member States. This would ‘ensure more diversified sources of finance’ and would ‘strengthen private sector risk-sharing across countries’ (p. 12). However, financial integration carries risks with it, because a problem in one country can rapidly spread to another. As such, the Five Presidents’ Report recommends that financial supervision be strengthened in the EU and that a single European capital markets supervisor be created (p. 12).

(iii)             Towards a Fiscal Union

As regards the proposed fiscal union, the Five Presidents’ Report puts forward two proposals. First, it recommends that an advisory European Fiscal Board be created. This body would coordinate and complement the national fiscal councils that have been set up in accordance with Regulation 473/2013. The European Fiscal Board ‘would provide a public and independent assessment, at European level, of how budgets – and their execution – perform against the economic objectives and recommendations set out in the EU fiscal framework’ (p. 14), thereby adding extra pressure on national Executives and legislatures to take EU fiscal rules seriously. ‘Such a European Fiscal Board should lead to better compliance with the common fiscal rules, a more informed public debate, and stronger coordination of national fiscal policies’ (p. 14).

Second, the report proposes the creation of a fiscal stabilisation function for the Euro area. Such a mechanism would enhance public risk-sharing in the Euro area (p. 4) and could build on the European Fund for Strategic Investments. However, it ‘should not lead to permanent transfers between countries or to transfers in one direction only’ (p. 15). ‘It should also not be conceived as a way to equalise incomes between Member States’ (p. 15). Notably, this stabilisation function ‘should be developed within the framework of the European Union’ (p. 15, emphasis added).

Democratic Accountability, Legitimacy, and Institutional Reform

The discussion thus far has focused on the economic reforms proposed by the presidents of the EU institutions. The focus now shifts to proposed reforms for enhancing the democratic credentials of the EMU. Save for the proposals for a more timely and better-structured parliamentary debate during the European Semester (see p. 17), it is hard to see how these proposals add anything to the already existing ‘six-pack’ and ‘two-pack’ arrangements for ‘institutional dialogue’. Be that as it may, the added emphasis on the role of social partners and civil society, as well as on consultation with EU-level social partners, should be readily applauded (see p. 22).

There is a strong focus on output legitimacy and on synergies between the European and national parliaments. ‘After many years of crisis, governments and institutions must demonstrate to citizens and markets that the euro area will do more than just survive. They need to see that it will thrive’ (p. 5).

Moreover, the report lays down a number of proposals for strengthening the EMU governance framework. More specifically, the EU Presidents suggest that the various treaties concluded outside the formal confines of the Lisbon Treaty be incorporated into the EU Treaties and secondary legislation and that the governance structure of the ESM be ‘fully integrated within the EU Treaties’ (p. 18). The report further suggests that a full-time presidency of the Eurogroup be considered and proposes the creation of a Euro area treasury (see p. 18). In the opinion of the authors of the report, ‘the world’s second largest economy cannot be managed through rule-based cooperation alone’; ‘it will need to shift from a system of rules and guidelines for national economic policy-making to a system of further sovereignty sharing within common institutions’ (p. 5). The division of labour between a Euro area and national treasuries is not made clear.

Regrettably, there is no elaboration of what accountability structures should be put in place if a Euro area treasury or fiscal stabilisation function were to be created. Likewise, there is no analysis of the desired accountability mechanisms for the proposed Financial Union. To be sure, requiring the consent of the European Parliament for the appointment of the Chair and the Vice-Chair of the Supervisory Board was a major step forward (see Article 26(3) of Regulation 1024/2013). What is more, there are no proposals for improving transparency in the workings of the Eurogroup, whose role in economic governance has now been heightened. A body actively seeking to foster economic convergence among Euro area countries (see p. 9) should not operate behind closed doors.

Final remarks

There will be no attempt to summarise the preceding argument. It is nonetheless worth highlighting certain features that are of particular importance. First, since ‘all euro area Member States must participate in all Unions’ (p. 5), these proposals would, if implemented,  put the idea of a multi-speed Euro area to sleep. To be sure, it might still be the case that not all Euro area Member States would meet the requirements to make use of the proposed shock absorption mechanism. Second, the EU Presidents’ proposals would, if implemented, entail a massive upward flow of power from the national to the EU/Euro area institutions and bodies. Arguably, this should be matched by increased democratic controls and robust accountability mechanisms. Third, it is particularly noteworthy that the report notes that all members of the Euro area should gain from EMU membership (p. 4). Spreading welfare gains across the Union and promoting economic, social and territorial cohesion might require that more thought be given to the EU’s regional and structural policies (see also the 1989 Delors Report). Lastly, at least some of the proposed reforms might require a Treaty amendment in order to be implemented, and therefore the Prime Minister of the United Kingdom might get his chance to renegotiate Britain’s relationship with the EU and to enshrine the desired precepts in primary law.

Barnard & Peers: chapter 19 

Photo credit: roarmap.org

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Open letter to UK MPs: Ensuring democratic scrutiny of UK surveillance law changes

Steve Peers

Due to my concern about inadequate democratic scrutiny of changes to UK law (often linked to EU law) affecting privacy rights, I am one of the signatories to today's letter to MPs on this issue, published in the Guardian and elsewhere. Thanks to Andrew Murray and Paul Bernal for taking this initiative.

An open letter to all members of the House of Commons,

 

Dear Parliamentarian,

 

Ensuring the Rule of Law and the democratic process is respected as UK surveillance law is revised

 

Actions Taken Under the Previous Government

 

During the past two years, the United Kingdom’s surveillance laws and policies have come under scrutiny as the increasingly expansive and intrusive powers of the state have been revealed and questioned in the media. Such introspection is healthy for any democracy. However, despite a need for transparency in all areas of lawmaking, and in particular in areas of controversy, the previous Government repeatedly resisted calls for an open and transparent assessment and critique of UK surveillance powers. Instead, in response to legal challenges, it extended the powers of the state in the guise of draft Codes of Practice and “clarifying amendments.” As we welcome a new Government we expect another round of revisions to UK surveillance laws, with the likelihood that the Queen’s Speech will signal a revival of the Communications Data Bill. At this time we call on the new Government, and the members of the House, to ensure that any changes in the law, and especially any expansions of power, are fully and transparently vetted by Parliament, and open to consultation from the public and all relevant stakeholders.

 

Last year, in response to the introduction of the Data Retention and Investigatory Powers Bill (“DRIP”), a number of leading academics in the field – including many of the signatories to this letter – called for full and proper parliamentary scrutiny of the Bill to ensure Parliamentarians were not misled as to what powers it truly contained. Our concern emanated from the Home Secretary’s attempt to characterize the Bill, which substantially expanded investigatory powers, as merely a re-affirmation of the pre-existing data retention regime.[1]

 

Since that letter was written, it has become apparent that the introduction of the DRIP Bill was not the only time an expansion of surveillance powers was presented in a way seemingly designed to stifle robust democratic consideration. In February 2015, the Home Office published the draft Equipment Interference Code of Practice.[2]The draft Code was the first time the intelligence services openly sought specific authorisation to hack computers both within and outside the UK. Hacking is a much more intrusive form of surveillance than any previously authorised by Parliament. It also threatens the security of all internet services as the tools intelligence services use to hack can create or maintain security vulnerabilities that may be used by criminals to commit criminal acts and other governments to invade our privacy. The Government, though, sought to authorise its hacking, not through primary legislation and full Parliamentary consideration, but via a Code of Practice.

 

The previous Government also introduced an amendment via the Serious Crimes Act 2015, described in the explanatory notes to the Bill as a ‘clarifying amendment’.[3]The amendment effectively exempts the police and intelligence services from criminal liability for hacking. This has had an immediate impact on the ongoing litigation of several organisations who are suing the Government based in part on the law amended, the Computer Misuse Act 1990.[4]

 

The Way Ahead

 

The new Conservative Government has announced its intention to propose new surveillance powers through a resurrection of the Communications Data Bill. This will require internet and mobile phone companies to keep records of customers’ browsing activity, social media use, emails, voice calls, online gaming and text messages for a year, and to make that information available to the government and security services. We also anticipate this Parliament will see a review of the Regulation of Investigatory Powers Act 2000, which currently regulates much of the Government’s surveillance powers. The Independent Reviewer of Terrorism Legislation, David Anderson QC, has conducted an independent review of the operation and regulation of investigatory powers, with specific reference to the interception of communications and communications data. The report of that review has been submitted to the Prime Minister, but has yet to be made public: when it is made public, parliamentary scrutiny of the report and any recommendations made following it will be essential.

 

As the law requires that surveillance powers must be employed proportionate to any harm to privacy caused (as required by Article 8 of the European Convention on Human Rights and Article 12 of the Universal Declaration of Human Rights) we believe that any expansion or change to the UK’s surveillance powers should be proposed in primary legislation and clearly and accurately described in the explanatory notes of any Bill. The Bill and its consequences must then be fully and frankly debated in Parliament. When reaching an assessment of the proportionality, of any measure that restricts rights, both our domestic courts and the European Court of Human Rights place great stock on the degree and quality of Parliamentary involvement prior to any measure being adopted. If the matter ever came to before the courts one issue examined would be the nature of any “exacting review” undertaken by MPs into the necessity of extending these powers. The Government should not be permitted to surreptitiously change the law whenever it so desires, especially where such changes put our privacy and security at risk.

 

This letter has been prepared and signed by 35 academic researchers. We are comprised of people from both sides of this issue - those who believe that increased powers are a reasonable response to an emerging threat, and those who think them an unjustified extension of state interference. Our common goal is to see the Rule of Law applied and Parliamentary oversight reasserted. We are calling on all members of the House of Commons, new and returning, and of all political persuasions to support us in this by ensuring Parliamentary scrutiny is applied to all developments in UK surveillance laws and powers as proposed by the current Government.  

 

Signatories

 

Andrew Murray (contact signatory)	Paul Bernal (contact signatory)
Professor of Law London School of Economics a.murray@lse.ac.uk	Lecturer in Information Technology, Intellectual Property and Media Law University of East Anglia Paul.Bernal@uea.ac.uk
Subhajit Basu Associate Professor University of Leeds	Sally Broughton Micova Deputy Director LSE Media Policy Project, Department of Media and Communications London School of Economics and Political Science
Abbe E.L. Brown Senior Lecturer School of Law University of Aberdeen	Ian Brown Professor of Information Security and Privacy Oxford Internet Institute
Ray Corrigan Senior Lecturer in Maths, Computing and Technology Open University	Angela Daly Postdoctoral Research Fellow Swinburne Institute for Social Research Swinburne University of Technology
Richard Danbury Postdoctoral Research Fellow Faculty of Law University of Cambridge	Catherine Easton Lancaster University School of Law
Lilian Edwards Professor of E-Governance Strathclyde University	Andres Guadamuz Senior Lecturer in Intellectual Property Law University of Sussex
Edina Harbinja Lecturer in Law University of Hertfordshire	Julia Hörnle Professor in Internet Law Queen Mary University of London
Theodore Konstadinides Senior Lecturer in Law University of Surrey	Douwe Korff Professor of International Law London Metropolitan University
Mark Leiser Postgraduate Researcher Strathclyde University	Orla Lynskey Assistant Professor of Law London School of Economics
David Mead Professor of UK Human Rights Law UEA Law School University of East Anglia	Robin Mansell Professor, Department of Media and Communication London School of Economics
Chris Marsden Professor of Law University of Sussex	Steve Peers Professor of Law University of Essex
Gavin Phillipson Professor, Law School University of Durham	Julia Powels Researcher Faculty of Law University of Cambridge
Andrew Puddephatt Executive Director Global Partners Digital	Judith Rauhofer Lecturer in IT Law University of Edinburgh
Chris Reed Professor of Electronic Commerce Law Queen Mary University of London	Burkhard Schafer Professor of Computational Legal Theory University of Edinburgh
Joseph Savirimuthu Senior Lecturer in Law University of Liverpool	Andrew Scott Associate Professor of Law London School of Economics
Peter Sommer Visiting Professor Cyber Security Centre, De Montfort University	Gavin Sutter Senior Lecturer in Media Law Queen Mary University of London
Judith Townend Director of the Centre for Law and Information Policy Institute of Advanced Legal Studies University of London	Asma Vranaki Post-Doctoral Researcher in Cloud Computing Queen Mary University of London
Lorna Woods Professor of Law University of Essex

 

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[1]http://bit.ly/1jNzlUz

[2] http://bit.ly/1yiXUZD

[3] http://bit.ly/1LfVFz3

[4] http://bit.ly/1S4RCdJ    

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Can Thomas Piketty reform capitalism and democracy in the European Union?

Steve Peers

A few months ago, no one would have predicted that a leftwing French economist would become the intellectual equivalent of a rock star, in particular the UK and the USA. Yet Thomas Piketty has managed this feat with Capital, a tome which suggests a radical new thesis about the link between capitalism and democracy.

Like other rock stars, Piketty cannot resist the call to lend to his name to good causes. But unlike Bono and Cher, his support for a French academic initiative for EU reform, published recently in The Guardian, is still linked back to his day job.

The EU used to be reasonably good at doing capitalism, but not very good at doing democracy; now it is not very good at doing either. So the Piketty thesis suggests a number of major reforms to address both failings.

The Piketty proposals

The first of three proposals is that France and Germany, and then other Eurozone countries ‘share’ (he means ‘harmonise’) their corporate income tax. This would entail a common tax base, a minimum rate of 20%, and a ‘federal’ rate of 10% imposed by a Eurozone authority. This would create a Eurozone capacity as regards investment programmes. There should also be automatic exchange of bank information within the Eurozone, an active policy for more progressive taxation of income and wealth and an ‘active fight’ against tax havens outside the Eurozone.

Secondly, there should be a parliamentary chamber for the Eurozone, made up of members of national parliaments, selected on the basis of political party representation in national parliaments. The numbers of representatives from each state would be (strictly?) proportionate to the population. It would start with those Eurozone members that support ‘great political, fiscal and budgetary union’, but would be open to all EU countries that share this goal. There would be a Eurozone minister of finance, and eventually a Eurozone government, answerable to this chamber.

Piketty and co reject the idea that a second chamber could be made up of heads of state, on the basis that a single individual cannot represent a state. They suggest that the European chamber could address issues such as corporate governance, childcare, training, social legislation and a price for carbon emissions.

Thirdly, there would be a debt redemption fund, paying off all debts over 60%, with the Eurozone parliament deciding on ‘the level of the common deficit’ each year.

As for how to achieve these aims, they assume that a Treaty change would be necessary. They assert that ‘the Treaties are being modified constantly’, such as in 2012. This is an apparent reference to the Treaty amendment relating to the European Stability Mechanism (ESM), the treaty between Eurozone states which created a sort of bail-out fund.

Comments

Assuming, for the purposes of argument, that Piketty’s economic analysis is valid, how feasible are the suggested remedies to address the undoubted challenges to capitalism and democracy within the European Union?

Starting with the reformers’ final point, Treaty reform is much harder than they suggest. While it is true to say that there have been several Treaty amendments in recent years, they were all minor. The four amendments agreed since the Treaty of Lisbon consist of: the single new paragraph of the Treaty relating to the ESM, which the CJEU said was not necessary anyway (Pringle); a Protocol clarifying the position of Ireland; a Protocol concerning the effects of the Charter of Rights on the Czech Republic (dropped when that country withdrew its request for it); and a Protocol on the numbers of MEPs. The latter three amendments were all leftovers from the Treaty of Lisbon, either being promises made to get it ratified (the Irish and Czech Protocols), or a transitional measure to take account of the delay in in its entry into force.

In comparison, a plan to negotiate a more significant Treaty amendment relating to economic governance collapsed in December 2011, when the UK and the other Member States could not agree whether there should be specific safeguards built in for the UK’s financial services industry. The last successful major Treaty amendment, the Treaty of Lisbon, took years to negotiate and ratify (taking into also account the efforts to drawn up and ratify the Constitutional Treaty). Perhaps Piketty and his colleagues were all on sabattical in 2005, when the French public rejected that Treaty in a referendum?

Having said that, a Treaty amendment would not be necessary as regards all of the points which they raise. Given the difficulties in agreeing any significant Treaty amendment, and the time it would take to come into force even if the effort is successful, any advocates for EU reform should consider first what reforms can be agreed within the current EU legal order, including enhanced cooperation, and/or in the form of treaties between a limited number of Member States outside the EU legal order.

As regards Piketty’s first proposal, a harmonised corporate tax base and a minimum rate could be the subject of EU law, by means of enhanced cooperation (which means using EU law to adopt measures for a minimum group of nine Member States, if not all Member States wish to participate). In fact, there is already a proposal to harmonise the corporate tax base under discussion. Alternatively, a treaty between Member States could address this issue, if it complies with other EU measures on corporate tax, as well as the Treaty requirement of non-discrimination between Member States.

However, the EU has limited powers as regards wealth and income taxes. On these issues, though, there could be a treaty among Member States, which would have to be consistent with the EU Treaty rules on non-discrimination.

There are many EU measures on the exchange of tax information an EU issue already, and the idea that a group of Member States fight against tax havens within the EU is hugely problematic due to EU free movement rules. Similarly, negotiations with non-EU tax havens can only be carried out by the EU, because to the extent that the issues concerned (like the exchange of information) have been dealt with by internal EU laws already, the EU has exclusive external competence to negotiate such treaties.

As for a Eurozone budget, it should be possible to arrange for one within or outside the Treaties, in either case without amending them.

On the other hand, Piketty’s third suggestion, the debt redemption fund, really will require Treaty reform, since it is likely to infringe the existing ‘no bail-out rule’ by making some Member States at least partly liable for the debts of other Member States.

This brings us to the institutional arrangements. While a Eurozone parliamentary chamber (and the accompanying government and ministers referred to) could be created in a treaty among Member States, any overlap between the powers of these bodies and the existing EU institutions is legally problematic, since the CJEU ruled in Pringle that treaties between Member States were also subject to the rules on the EU’s exclusive external competence. Clearly the proposals of Piketty, et al, would in part create such an overlap, since the Eurozone parliament and government would address issues such as carbon pricing and social legislation. Moreover, any powers concerning a debt redemption fund would entail an underlying Treaty amendment in the first place.

It is also unhelpful that the reform proposals ignore the very existence of the Council – the EU body which is made up of ministers from Member States (as distinct from the European Council, made up of heads of state), and which legally speaking does constitute an existing second legislative chamber (alongside the European Parliament) in the EU.

Certainly, the substance of any reform initiative could be more easily taken forward by means of reforming existing bodies, rather than creating new ones. It might be fairly quick and simple to agree on the creation of a Eurozone-only element of the European Parliament (if MEPs from non-Eurozone states agree to abstain, or if a treaty between Member States creates such a formation and gives it powers distinct from the normal powers of the European Parliament).

The one strong argument for creating a new Eurozone chamber is that such a radical step may be the only way politically to address widespread concern about the legitimacy and democracy of the EU, in particular as a response to the result of the upcoming EP elections. The particular make-up of that parliament being proposed would also address the concerns of the German Federal Constitutional Court about the current make-up of the European Parliament (ie the degressive proportionality that gives smaller Member States more MEPs per person). Again, though, the only safe way to create such a chamber legally is to ensure that its powers are clearly distinct from those of the EU institutions, for instance focussing at first on the harmonisation of taxes which the EU has not addressed, as well as supervision of the functioning of the ESM (which is mainly the subject of an international treaty).

One final consequential suggestion (although it would entail a Treaty amendment). The creation of a Eurozone parliamentary chamber would be bound to lead to disputes over exactly where to locate it. The obvious answer is Strasbourg – in return for the European Parliament finally being liberated from holding most of its plenary meetings there, and moving fully to Brussels. Surprisingly, these French reformers do not raise this issue.

Barnard & Peers: chapter 2, chapter 3, chapter 19

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The possibility of a UK referendum on the EU: The plot thickens

Steve Peers

What to make of the latest twist in the complicated tale of the UK's relationship with the European Union?

Back in January 2013, the Conservative party committed itself to a policy of renegotiating the UK's membership in the European Union by 2017, and then submitting the results of that renegotiation to an 'in/out' referendum, which would decide whether the UK stayed in the EU. It would only be in a position to deliver on that promise if it won a majority of seats in the next general election (May 2015), or at least came very close to holding a majority (possibly a small number of MPs from other parties would support its renegotiation and referendum pledge). So a referendum depended on the result of the next general election.

Now, an 'in/out' referendum at first glance seems more likely, with a change in the policy of the Labour party on March 11th to support such a referendum. However, the Labour party supports a referendum on a different basis than the Conservative party. It does not intend to aim for a renegotiation of UK membership, but rather supports an 'in/out' referendum only if there is an amendment to the EU treaties which transfers significant powers from the UK to the EU. This appears to align the Labour party policy on this issue with the longer-standing policy of the Liberal Democratic party - which could be relevant if the two parties decide to consider a coalition government or other form of political agreement following the 2015 election.

In fact, the European Union Act 2011 already requires a referendum in such circumstances - but it need only be a referendum on whether to approve the changes resulting from this Treaty amendment, rather than an 'in/out' referendum.  So the change in the Labour party's policy is really only meaningful if there is such a major Treaty amendment.

What are the odds of this? While there is some prospect of a major Treaty amendment to address the issues facing the eurozone, which might also apply to non-eurozone States that wished to participate in those changes, it would be easy to draft a treaty which made major changes, but exempted the UK from them. This would be particularly easy if those changes only applied to Member States applying the single currency, perhaps including those Member States obliged to apply it (all other Member States except the UK and Denmark) or all non-eurozone Member States that wished to participate.

This scenario could be combined with a renegotiation of the UK's position (if the Conservative party holds a majority), or could simply leave the UK's position untouched. It would seem odd to pass up the opportunity to, at the very least, clarify the relationship between the eurozone and non-eurozone Member States, which would be directly relevant to such a Treaty amendment.

A more likely scenario is that, if any amendments to the EU primary law are deemed necessary, they will take the form of a treaty among a group of Member States, avoiding the Treaty amendment procedure altogether. This process was approved by the CJEU in the Pringle judgment, at least as regards the treaty establishing the European Stabilisation Mechanism. It was also applied as regards the fiscal stability treaty, after David Cameron vetoed the possibility of a Treaty amendment to that end. Such treaties do not need all the Member States, or all their signatories, to enter into force, and at least in some circumstances can use the EU institutions to implement them.

So the net result of today's policy change is a slightly increased likelihood of using such a procedure in order to avoid a Treaty amendment. This was already likely in the event of a Conservative government; now it is also likely if the Labour party takes office. This outcome does nothing to improve the transparency or complexity of EU law. It would have been preferable to take the opportunity in the near future to consider the role and functions of the EU more fundamentally, not only as regards the UK, in order to attempt to rebuild its rather tarnished democratic legitimacy. 


Barnard & Peers: chapter 2

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Would an independent Scotland have to reapply to join the EU?

Steve Peers

There has been extensive discussion, during the current campaign on the referendum on Scottish independence, on the legal issues relating to an independent Scotland's membership of the European Union. Would an independent Scotland automatically be a member of the EU? Would the Treaties have to be renegotiated, with Scotland as a Member State participating fully? Or would Scotland have to apply to 'rejoin' the EU as a non Member State? Would an independent Scotland retain the UK’s current opt-outs from the single currency and Justice and Home Affairs (JHA) matters?

I have looked at these issues before, as part of a longer analysis of the legal issues arising from the EU Treaty amendment process, published in the Yearbook of European Law. However, now that the issue has arisen in practice, it's a good time to revisit the topic.

General points

First of all, as a matter of (non-legal) principle, it's clear what the answer ought to be. If Scottish independence is supported by a majority of Scottish votes, then, given that the legitimacy of the vote is accepted by the rest of the UK, Scotland ought to remain an EU Member State with the same opt-outs that the UK now has. Our views on the desirability of independence (for the record, I would be sad to see Scotland leave the UK) should not influence our interpretation of the legal position, or our recognition of the democratic legitimacy of the process. But nor can we assume that the legal position is aligned with what it ought to be.

Secondly, one aspect of the debate is worth noting: it seems to be taken for granted that Scotland ought to remain an EU Member State after independence. From the perspective of the Eurosceptic Deep South of the UK, this is surprising. There are, of course, some Eurosceptics in Scotland: the Shetland Islands and Western Isles voted against the Common Market in 1975. But polls show 2-1 support for remaining in the EU, so it doesn't seem to be an issue. Perhaps Scots just want to make sure that after separation from England, they would still have something to whinge about.

This raises a further interesting scenario: what if Scotland votes against independence this year, but the UK as a whole votes to leave the EU in a few years' time? Could support for independence then increase, given the link with the more popular (in Scotland) case for EU membership?

Finally, it's worth noting that Scottish independence would redress one 'reverse discrimination' issue in EU law, and exacerbate another one - assuming that both Scotland and the remaining UK were both EU Member States. It would end the anomaly by which students from other Member States have the same generous treatment as regards tuition fees in Scotland as Scottish students, while students from the rest of the UK do not. This might well raise questions about the affordability of this policy.

And it would create a new route for British citizens with third-country national family members to avoid the increasingly obnoxious constraints placed by British immigration law upon family reunion with their loved ones. Scottish politicians have talked about increasing immigration to Scotland; the combination of harsh immigration laws in the remaining UK and the application of EU free movement law would mean that they would get their wish.

The legal issues

Would it be possible for an independent Scotland simply to become an EU Member State without further ado, simply by virtue of its independence? The analogy here would be with Algeria, which technically remained a part of France (as a matter of EU law) until the Treaties were amended to catch up with reality in 1993. However, there is a world of difference between a third country which is no longer part of a a Member State and no longer wishes to remain part of the EU, and a State which, having been part of a Member State, wishes to succeed to that Member State's membership of the EU.

The starting point is that the EU Treaties (unlike the founding treaties of some other international organisations) list the Member States of the EU: see particularly Article 52 TEU, and the other provisions referred to in my Yearbook article. It must follow that to alter the list of Member States a Treaty amendment is needed, even where part of an existing Member State has seceded. It is not sufficient for the Member States to agree informally among themselves to this end, for the Court of Justice of the European Union (CJEU) has ruled that the Treaty can only be amended by using the formal procedures provided for to this end (Case 43/75 Defrenne II).

So which Treaty Article would apply to those amendments? Article 48 TEU provides for the Treaties to be amended by unanimous consent of the Member States, while Article 49 TEU provides for a new Member State to join by means of an accession treaty negotiated between the existing Member States and the new Member State, and then ratified by all of them. The key difference between the two procedures from an independent Scotland's point of view (there are other differences, but let's leave them aside for now) is that it would be in a stronger position as a would-be Member State (Article 48) than as a non-Member State (Article 49). So this is, not surprisingly, the view of the Scottish government.

However, the use of Article 48 has to be rejected. The basic legal problem is that only Member States can be party to a Treaty amendment pursuant to Article 48, whereas Scotland would not be a Member State, since it would not be listed in Article 52. If Scotland were a Member State already, recourse to Article 48 to amend the Treaties merely to confirm that fact would not be necessary. It cannot simply be asserted that the listing of the United Kingdom as a Member State in Article 52 implicitly covers Scotland also, after independence, since the whole purpose of holding an independence referendum is precisely to become a separate State. As others have pointed out: after a divorce, you're single.

Sir David Edward has argued that the drafters of the Treaties did not intend that a portion of a Member State which voted to secede from an existing Member State would have to apply as a new Member State. There is no evidence of what the Treaty drafters thought of this issue (if they thought about it at all), but given that some Member States face secessionist movements or even (in the case of Cyprus) breakaway self-declared States, it's hard to believe that all Treaty drafters took such a view.

Also, it has been argued that depriving Scots of EU citizenship would be a breach of the citizenship provisions of the Treaties, since they would lose that status without their consent. But this begs the question: for the reasons I set out here, a vote for an independent Scotland would be a vote to leave the EU. By the same token, the foundation of the EU on the principles of democracy (Article 2 TEU) is not as such relevant, since the second sentence of Article 2 states that these principles are common to the Member States. The same goes for the principle of sincere cooperation set out in Article 4(3) TEU. This argument essentially boils down to: an independent Scotland would remain a Member State, because it is a Member State. It's entirely circular.

The Scottish government seeks to circumvent this chicken-and-egg problem by stating that the current Member States (ie the 28 Member States not including Scotland) could amend the Treaties by means of Article 48 in the 18-month period before Scottish independence took effect, in order to provide for immediate Scottish EU membership upon independence day. It's not quite clear why, as a matter of politics, the other Member States would wish to do Scotland this enormous favour. Anyway, as a matter of law, they couldn't do it: as Professor Kenneth Armstrong has pointed out, Article 49 is obviously the lex specialis provision regarding the addition of new countries to the list of Member States set out in Article 52. However, it would be possible to use Article 48 to amend Article 49 on this point, at the same time as providing for new rules on Scottish membership. This seems an unlikely scenario, however, since it would encourage secessionist movements in other Member States, even if the amendment to Article 49 were limited to the case of Scotland.

In fact, in my view, Article 49 arguably has to be used in conjunction with Article 48, since any Treaty amendment which gives a permanent opt-out for a new Member State from significant EU policies goes beyond what can be addressed in an accession treaty (see my Yearbook article for elaboration), and presumably Scotland would want to keep the UK's current opt-outs. On the other hand, it might reasonably be argued that an exception to the latter rule might be made here, since the legal position as regards the territorial scope of those opt-outs would not really be changing.

Having said that, I am not convinced that the use of Article 49 necessarily would be that difficult in practice. In principle, it should be possible to draw up a very short accession treaty quite quickly, given that Scotland is already applying EU law by virtue of its integration into the United Kingdom. There would be a technical problem negotiating with a State which does not yet exist, but there could be informal talks during the period leading up to independence, with the accession treaty signed on the day of independence. It would arguably be possible (as Professor Armstrong has pointed out) to apply the accession treaty provisionally, pending full ratification, or retroactively if necessary.

An alternative route is to agree a very far-reaching association agreement between the EU and Scotland to ensure that EU law still applies to Scotland in the interim period before the accession treaty can be ratified or (if need be) negotiated. This treaty could in turn be applied provisionally from the date of independence (there are many precedents for the provisional application of treaties between the EU and third States, and Article 218 TFEU expressly provides for this possibility).

This potentially simple legal process could, however, be complicated by purely political problems, if one or more Member States (and it would only take one) wished to slow down the process for whatever reason. It cannot simply be assumed at this stage that this would (or would not) necessarily happen. While Sir David Edward has argued that there would be an obligation to negotiate in good faith in the event of a Scottish 'yes' vote, it is hard to find a provision in the Treaties which supports that proposition.

So, the bottom line is that when Commission President Barroso and Vice-President Reding argue that Scottish membership of the EU would entail (a) an accession treaty and (b) be lengthy and difficult, they are clearly right on the first point, but wildly speculating on the second.


Barnard & Peers: chapter 2 

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