I’ll come to Shergar (http://en.wikipedia.org/wiki/Shergar) in a bit…..but first
RTE and British media are obsessed with reporting that Cameron has isolated Britain. This is a media line…and is highly arguable at that……it is far too early to tell if the UK has stepped fundamentally away from the EU in some profound way….they may well be able to influence the forthcoming March mini-Treaty in many indirect ways…but will the Euro be around by then?….What is much more important is what has been actually agreed, and that is not getting close enough scrutiny.
The summit conclusions can be found here: http://media.ft.com/cms/e68292c4-2230-11e1-acdc-00144feabdc0.pdf
What to focus on?
Point 3: “a new deal between euro area Member States to be enshrined in common, ambitious rules that translate their strong political commitment into a new legal framework.”
Translation: there will be some kind of new Treaty for Eurozone 17 plus others…..that suggests not merely a technical amendment of Articles 122-130…but new wordings, maybe even new concepts ….a new Treaty within the Lisbon Treaty. That sounds like we cannot by this alone avoid a referendum here in Ireland! Note however, its vague what exactly this means yet. Moreover, the legalities of a Treaty within a Treaty are complex-would it be via enhanced co-operation provisions, or separate intergovernmental Treaty…..that would sit alongside the Treaty of Lisbon……?
Point 4: “We commit to establishing a new fiscal rule, containing the following elements:
General government budgets shall be balanced or in surplus; this principle shall be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5% of nominal GDP. Such a rule will also be introduced in Member States’ national legal systems at constitutional or equivalent level. The rule will contain an automatic correction mechanism that shall be triggered in the event of deviation. It will be defined by each Member State on the basis of principles proposed by the Commission. We recognise the jurisdiction of the Court of Justice to verify the transposition of this rule at national level.
Member States shall converge towards their specific reference level, according to a calendar proposed by the Commission. Member States in Excessive Deficit Procedure shall submit to the Commission and the Council for endorsement, an economic partnership programme detailing the necessary structural reforms to ensure an effectively durable correction of excessive deficits. The implementation of the programme, and the yearly budgetary plans consistent with it, will be monitored by the Commission and the Council.
A mechanism will be put in place for the ex ante reporting by Member States of their national debt issuance plans.”
Translation: this is not quite a demand for a strict balanced budget rule-in fact its ambiguous. RTE radio this morning were reporting that the Irish government were exploring introducing a Act of the Oireachtas which would implement this political promise and economic policy. It is far from clear whether such an act of ordinary legislation might not itself require referral to the supreme court to judge whether it may be consistent with the budgetary process as set out in Article 21. The automatic correction mechanism may clash with the requirement for prior Oireachtas approval of money bills, but a contrary view is that it would not necessarily do so. In any event can an ordinary act of the Oireachtas be considered to be at an equivalent level to that of the ‘constitutional’ standard referred to in Point 4? My immediate reaction is that there is a major difference between a constitutional rule and an Act of the Oireachtas as regards their legal significance. So the Irish ‘back door golden rule’ strategy seems to me legally and politically precarious.
If we wish to fully reflect Article 21 of our Constitution we are going to possibly have to bring forward our budgetary process……the Commission want to vet national budgets in October….should we not consider a revised budgetary procedure whereby a draft budget would be submitted to the two Houses of the Oireachtas well before then……..?
My comment is that whole obsession with a golden rule is merely to please the German constitutional court in the face of future possible challenges. I am not entirely happy that the Commission seem to be getting formal rights to be heavily involved in our budgetary process, but on balance its not the worst thing and not entirely unreasonable. As a matter of economic policy, critical oversight from outsiders would be probably no harm-it might have prevented some of the worst budgetary wheezes which were wildly pro-cyclical viz the property markets. However, it is very far removed from what is written in Article 21 of the Constitution.
One should note that the exact wording of any Golden Rule is left to each Member State: this is good, and we should arguably exploit this to phrase any golden rule in the most flexible way possible, making full allowance for pro and counter cyclical effects, and the exigencies required due to national emergencies, broadly defined.
Anything else is effectively writing in a demand for austerity and a weak state role into law.
Point 5: The rules governing the Excessive Deficit Procedure (Article 126 of the TFEU) will be reinforced for euro area Member States. As soon as a Member State is recognised to be in breach of the 3% ceiling by the Commission, there will be automatic consequences unless a qualified majority of euro area Member States is opposed.
Translation: No surprise here. This is the ‘quick and dirty’ reform of Protocol 12 of the Treaty of Lisbon. They should have done this back in 2003, when France was in breech of the rules then. As such though it does very little to help the current crisis.
Point 6: “We will examine swiftly the new rules proposed by the Commission on 23 November 2011 …We call on the Council and the European Parliament to rapidly examine these regulations so that they will be in force for the next budget cycle.”
Translation: as I commented on yesterday no surprise, but constitutionally does this take us beyond what the Lisbon Treaty says, viz any possible conflict with the Budgetary process of the constitution?
The ESM will now be operating from July 2012…(Yawn!) BUT this is very significant…at Point 14: “we will reassess the adequacy of the overall ceiling of the EFSF/ESM of EUR 500 billion (USD 670 billion) in March 2012”
If Spain and Italy (or both get into serious borrowing problem in the Spring then 500bn will not be enough so they have left that door open. We may need it.
Euro 200bn is to be made available for the IMF in bilateral loans between each member state…and the IMF…..
I’ll hold fire on commenting on this except to say the bigger move here would be direct ECB loans to the IMF via printing money……perhaps this is the beginning of a process by which that can happen..albeit somewhat disguised?
Point 15 states that the Greek haircut was a once off and will not be done again……this is being sold in Ireland as good news because……it reassures the market for national bonds….. so they should not fear buying future Irish bonds…..
Point 15 also states that the ESM’s voting procedures will now be reformed by the creation of emergency procedure that allows a QMV to be pushed for when an urgent decision is required….that threatens the stability of the Euro area. There is a footnote that points out the Finnish parliament have to agree to that yet……..I wonder as well…..how wise this is…..from an Irish perspective?
And the final word?
“Some of the measures described above can be decided through secondary legislation. The euro area Heads of State or Government consider that the other measures should be contained in primary legislation. Considering the absence of unanimity among the EU Member States, they decided to adopt them through an international agreement to be signed in March or at an earlier date.”
Translation: the Brits quite sensibly vetoed a big new Treaty for all, which nobody wants and is politically undeliverable. Instead, we will have a dogs breakfast of Treaty changes: the quick and dirty re-write of Protocol 12 will be rushed through-which is the equivalent of bolting the stable door, after the stable has been on fire for over 24 hours and the horse is so far away its name is Shergar! It will truly impress investors to lend to Italy and Ireland at sensible rates (not). It will bail out Unicredit and other European banks with ‘exotic debt portfolios’ (No it won’t). Other stuff can be done perhaps by using Article 48, and many details will require national legislative responses. But it seems were looking at a mini-Treaty within the Treaty of Lisbon emerging as well?
Is any of this going to convince markets to buy national governments bonds at reasonable rates and to restructure the bad debts that European banks have?
And Shergar…we all know what happened to him in the end. A Lesson for the Euro there?