Cause and Effect in European Politics and Law

Decisive Times for the Eurozone

Ralitsa Kovacheva, September 12, 2011

The Dutch government joined the bidding of ideas for the rescue of the euro area as Prime Minister Mark Rutte and Finance Minister Jan Kees de Jager published in The Financial Times a joint article titled Expulsion from the Eurozone Has to be the Final Penalty.

Although the authors state that their proposals are based on some ideas already presented by France and Germany, there is one significant difference – the Dutch proposal envisages the European Commission to conduct “independent supervision” on the eurozone countries embodied in a Commissioner for Budgetary Discipline.” The commissioner should be able not only to make recommendations and “set requirements for the budgetary policy of countries that run excessive deficits,” but also to have the means to forcefully implement them.

In parallel, the countries may be sanctioned by reducing payments for them from the EU structural and cohesion funds or by increasing their contributions to the EU budget, the Netherlands proposes. The last step of applying the sanctioning mechanism provides for the country's budget to be approved by the commissioner before being submitted to parliament, as in parallel the country's voting rights in the Council can also be suspended.

“Countries that do not want to submit to this regime can choose to leave the eurozone. Whoever wants to be part of the eurozone must adhere to the agreements and cannot systematically ignore the rules. In the future, the ultimate sanction can be to force countries to leave the euro.” However, this cannot happen at this stage because Treaty changes are required, the authors specify, emphasising that the purpose of their proposal is to prevent a situation where the ultimate sanction is to be applied.

“Neither exit nor expulsion from the euro area is possible according to the Lisbon Treaty, under which participation in the euro is irrevocable,” Amadeu Altafaj Tardio, a spokesman for EU monetary commissioner Olli Rehn, commented. According to Dutch Finance Minister Mr De Jager, the appointment of a Commissioner for Budgetary Discipline does not require a treaty change and can be done immediately.

As for the Treaty changes, they are no longer a taboo in the European Union, as noted by German Chancellor Angela Merkel in her speech to the Bundestag a few days ago. Her finance minister, Wolfgang Schauble, is also actively speaking of the need for changes, aimed at creating a centralised governance of the eurozone. Some of the Hague's ideas have already been launched by Paris and Berlin - political sanctions by suspending voting rights in the Council, for instance, as well as the suspension of payments from the EU funds. The leader of the Liberals in the European Parliament, Guy Verhofstadt, has already proposed the creation of a special team of commissioners responsible particularly for the euro area.

So far, European leaders refrained from the idea of changing the EU founding treaties because of the difficult and lengthy adoption of the Lisbon Treaty only two years ago. Changes, however, were necessary because of the creation of the permanent rescue fund for the euro area – the European Stability Mechanism. However, arguing that the amendments do not transfer more sovereignty from member states to the Union, the leaders found a possibility to apply the simplified procedure and to avoid referenda.

This, however, cannot happen when it comes to ceding more responsibilities for budgetary policies. This would need changes as in the EU treaties, so in the national constitutions. In this context, the decision of the German Constitutional Court, regarding the rescue operations in the euro area, is significant. Although the court supported the participation of Germany, it stated that the current legal basis made any “automatism” impossible that would deprive Parliament of its powers over the budgetary policy: "The decision on revenue and expenditure of the public sector remain in the hand of the German Bundestag as a fundamental part of the ability of a constitutional state to democratically shape itself. As elected representatives of the people, the Members of Parliament must remain in control of fundamental budget policy decisions in a system of intergovernmental governance as well.”

The Court emphasised that “the existing European Treaties are not contrary to an understanding of the national budget autonomy as an essential, inalienable competence of the directly democratically legitimised parliaments of the Member States but that they, on the contrary, require the existence of such competence.”

In addition, according to the court, “the Bundestag, as the legislature, is also prohibited from establishing permanent mechanisms under the law of international agreements which result in an assumption of liability for other states’ voluntary decisions, especially if they have consequences whose impact is difficult to calculate” – a view, which will probably be used as a strong argument by the opponents of the eurobonds.

Obviously the big question in Germany (and not only) is how to ensure more control over countries violating the rules, while legitimising publicly the need Berlin to cede part of its sovereignty. Even in the situation when the first default of a eurozone country is not only possible, but quite possible, deprivation of the member states' right to define their own budgets continues to be highly sensitive issue in the EU. However, it is clear that the current loose framework of institutional monitoring and political peer pressure does not provide the needed results and a new workable solution must be found. If not through evolution and through the strength of arguments, it will happen dramatically and under the pressure of circumstances.