2 February 2016

European Council President Donald Tusk has today tabled a compromise proposal on the UK’s renegotiation ahead of the EU referendum. This is a draft proposal and will now be discussed and negotiated between member states. There remain a number of unanswered questions and the details could yet change. The risk of watering it down remains real.

This keeps the possibility of a June referendum open (though there are a number of other hurdles, see here for details). It is a necessary step but not a sufficient one, meaning June is far from assured. A deal still needs to be found at the February EU summit.

What is included in Tusk’s plan?

The plan includes “solutions” in all the areas requested by Prime Minister David Cameron in his original letter to Tusk in November. On top of that the draft decision of European leaders restates the opt-outs the UK already has in a number of areas (including the euro and Schengen) and tries to broadly clarify the UK’s position in the EU.

Below, Open Europe lays out the key proposals in each section and the likely perceived strengths and weaknesses of each. In terms of the renegotiation, Open Europe will reserve judgement until the final agreement is reached (as noted, this is far from being guaranteed as the final deal). But our initial reaction is that based on this proposal the change secured from the renegotiation is likely to be a step in the right direction but unlikely to be transformative.

1) Economic governance

The main proposal in this section is improving the safeguards for non-Eurozone members. A set of principles has been laid out which should be safeguarded to ensure that there are equal rights for those inside and outside the Eurozone. There is also a mechanism to enforce these principles. If a number of members outside the banking union (exact number yet to be defined) believe any of said principles are being overridden by a certain piece of legislation it can request further discussion of the issue. The rotating Presidency of the Council of Ministers will then seek to find an agreement that takes account of the member state’s concerns. However, this process will take place “without prejudice to the normal operation of the Union legislative procedure”, meaning that the legislation can ultimately continue even if consensus is not found.

There are additional points included such as clarifying and confirming that the UK will not be involved in any future Eurozone bailouts and if EU-wide mechanisms are used that the UK and other non-euro members will be compensated. It also confirms financial supervision and macro-prudential remain under the UK’s control. An interesting point is that there could be flexibility in terms of secondary law implementing EU rules inside and outside the Banking Union. This could allow some differentiation in implementing things such as the rulebook on banks.

  • Strengths: The Government will likely argue that this provides the UK with a clear mechanism to protect its interests against Eurozone caucusing. Furthermore, that the delay will prove particularly useful in a crisis as the Eurozone will be short of time – this is when the enshrined principles are most likely to be disregarded as was seen with the decision to involve the UK in the bridge loan for Greece. Additionally, that a mechanism to raise concerns is itself useful since it adds another barrier which the legislation has to get over.
  • Weaknesses: The mechanism ultimately does not amount to a full stop on the legislation but only a halt and a discussion. The tension has always been between making such a safeguard binding and making sure that the UK does not have a veto on future Eurozone integration. It is not clear yet whether a workable balance between the two has been found. Furthermore, the control of the system in terms of how much discussion is needed and if consensus can be reached will be in the hands of the rotating Presidency of the Council of Ministers. The number of countries needed to trigger it remains unclear but it is set up to be a proportion of those outside the banking union. Depending on wording this could degrade over time or could give the UK more power as other states move inside the banking union (itself not guaranteed).

2) Competitiveness

This section takes the form of a declaration from the EU to continue to work towards greater single market integration – with specific mentions for services, digital and energy – as well as expanding the number of free trade agreements. There are also commitments on better regulation and subsidiarity, though these remain quite vague. There is a commitment to look at “feasible burden reduction targets in key sectors”.

  • Strengths: A big question is how significantly the EU contributes to the UK’s prosperity and growth as well as what the burden to business is from EU regulation. This attempts to address some of those concerns.
  • Weaknesses: It’s not clear how much further these proposals go than what is already happened or what already should be happening in the Commission. Ultimately, this will be seen largely as a restatement of what is already included in the EU treaties. Everything will lie in the hands of the Commission.

3) Sovereignty (ever closer union and red card)

There is a long section clarifying what “ever closer union” means. Including that it does not amount to “an equivalent to the objective of political integration” and does not “require that further competences be conferred upon the EU”. It recognises the UK is “not committed to further political integration into the EU” and that the Treaties provide for “different paths” of integration that “do not compel all member states to aim for a common destination.” The substance of this will be “incorporated into the Treaties at the time of their next revision”.

  • Strengths: This could be seen as a useful clarification of the UK’s position in the EU and what EU membership looks like for those outside the Eurozone and Schengen. At its strongest this could be seen as a commitment by the EU not to drag the UK into further integration.
  • Weakness: Given that it won’t be incorporated into the Treaties until they are next opened there will be concerns over how exactly this will apply. Furthermore, it remains unclear how exactly the European Court of Justice will interpret these conditions and the overall aims of the EU.

The deal includes a proposal for a “red card” which would allow 55% of national parliaments (based on votes assigned under the current yellow/orange card procedures) to object to draft legislation if the objection is submitted within 12 weeks. EU ministers agree to drop the legislation if the concerns of national parliaments are not met.

  • Strengths: A binding role for national parliaments in the EU decision making process for the first time, bringing it closer to citizens.
  • Weaknesses: Threshold set very high and would require a number of parliaments to ‘rebel’ against their governments for it to be triggered. Ultimately, it might be easier to block a proposal in the European Council under Qualified Majority Vote (threshold 35%). The use of such a red card is remains narrowly defined to issues of subsidiarity, meaning only specific concerns can be used to justify a trigger. The red card will not apply to existing legislation.

4) Social benefits and free movement

The proposal explicitly acknowledges that “diversely structured” social security systems “may lead members of the workforce to be attracted to certain territories without this being a natural consequence of a well-functioning market” – a key argument made by the UK to address access to its unique system of in-work benefits. It further notes that if “overriding reasons of public interest, such as encouraging recruitment, reducing unemployment… averting the risk of seriously undermining the sustainability of social security systems, make it necessary, free movement of workers may be restricted by measures proportionate to the legitimate aim pursued.”

The four-year restriction on access to in-work benefits will be introduced via an ‘emergency brake’ that will be incorporated in the EU legislation on free movement and social security. The Commission has said that it is satisfied that “the type of exceptional situation that the proposed safeguard mechanism is intended to cover exists in the United Kingdom today. Accordingly, the United Kingdom would be justified in triggering the mechanism in the full expectation of obtaining approval.”

The Commission has pledged to bring forward proposals that would reduce the cost of paying child benefit to children who live abroad.

  • Strengths: Achieves something very close to his original demand on migration and welfare when many people on both sides of the debate argued this was politically unfeasible and/or legally impossible without Treaty change. Fundamentally, the UK will be able to treat its own nationals differently to nationals from other EU member states for a specified time period – this is a significant precedent. It also means that the UK has not had to go down the potentially toxic route of denying in-work benefits to young British nationals which seemed to be on the cards at one stage. The fact that this proposal commits the European Commission to proposing the four-year policy on migrants’ access to benefits by amending EU secondary legislation – i.e. without treaty change – illustrates that EU law can be flexible to meet political imperatives. It was argued by many that ‘discriminatory’ restrictions on in-work benefits (i.e. the ability to apply restrictions on new EU arrivals but not UK nationals) were impossible and ‘illegal’ but, as Open Europe argued and if this package is agreed, the changes can broadly be achieved and the law changed if there is political will.
  • Weaknesses: It is not a complete ‘ban’ in the sense that migrants’ access to benefits over the four years must be graduated to reflect their integration into the labour market. The four year restriction will only be in effect for a certain period – this is one of the outstanding issues that still requires further negotiation – rather than permanently. If the UK would want to re-apply it after it has elapsed, it would again need to demonstrate to the Commission that the criteria have been met and secure the agreement of the other EU states. Similarly, on child benefit, the proposal does not ban payment to children abroad but reduces the cost by indexing payments to the cost of living in the country where the child is.

What legal form do the proposals take?

Donald Tusk has tabled a ‘draft decision’ of EU leaders, which would come into force the moment the UK confirms its intention to remain in the EU after the referendum. Such a decision of EU leaders taken under unanimity can only be reversed under unanimity, meaning the UK has a veto on any future changes. It will be lodged at the United Nations so that it is legally binding under international law and it commits EU leaders and the European Commission to instituting the various changes, some of which would be in place immediately after the referendum but others would require further action. This method was used for changes agreed with the Irish and Danish governments, which were later appended to the EU treaties. These are the likely precedents the UK Government will point to.

  • Immediate changes: The changes to bring in the ‘red card’ for national parliaments and the safeguard mechanism for non-Eurozone countries would come into force with the Decision of EU leaders immediately after the referendum.
  • Changes via amendments to EU secondary legislation: The changes required to enact the ‘emergency brake’ on access to welfare and the changes to child benefit rules will be enacted through amendments to secondary EU law. The Tusk proposal commits the European Commission to tabling this legislation immediately after the referendum but it will require the support of a qualified majority of member states and a majority in the European Parliament to come into force. Manfred Weber, the leader of the centre-right EPP, the biggest bloc in the European Parliament, has said that, with strong backing from EU member states and parliamentary leaders, a UK package “could go through very quickly after the referendum. One or two or three months is possible.”
  • Post-dated treaty changes: Tusk’s proposal would commit EU leaders to incorporate certain elements of the plans into the EU treaties “at the time of their next revision”. This would mean inserting language on the meaning of ‘ever closer union’ and on the principles defining the relationship between Eurozone ins and outs into the Treaty at the next available opportunity. However, this point is still under negotiation.
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