21 February 2016

Summary – Open Europe’s take

The reform package being offered to the British public is a step in the right direction. The deal is not transformative, but neither is it trivial. It is the largest single shift in a member state’s position within the EU. The changes help supplement the reforms which have already happened – notably the double majority for Eurozone ins and outs on EU banking rules – and the opt outs which the UK already has on the Euro and Schengen. The UK Government has achieved most of what out it set out to do – though it could have asked for more. That said, it seems unlikely, given the opposition of a number of other member states, that much more substantial change could have been achieved at this point in time. Attention will now turn to arguments on the broader benefits or costs of EU membership, the prospect for future EU reform and the alternatives for the UK outside the EU.

The deal – What has been agreed?

1. Economic governance

What have EU leaders agreed?

  • A set of principles which outline that those outside the Eurozone/Banking Union should not be discriminated against, will not participate in Eurozone bailouts, can keep their own financial supervision/macro prudential regulation and will have visibility on all pertinent Eurozone talks.
  • Specifically, the text mentions the prospect of “specific provisions within the single rulebook” for financial institutions, which opens the door to differentiation between those inside and outside the banking union on bank regulation.
  • A mechanism to enforce these principles whereby, if any single member outside the banking union believes 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. This can include triggering a discussion at the level of the European Council. However, this process will take place “without prejudice to the specific voting arrangements” previously agreed, meaning that the legislation can ultimately continue even if consensus is not found.

Does this change the status quo?

The principles create a concrete reference point for the UK to help it protect itself from Eurozone caucusing in the future, though the underlying ideals are already in the Treaties. Teasing these issues out is also meant to guide and constrain the Commission when it is drawing up legislative proposals.

The mechanism does provide another means of political recourse to enforce such principles and as such is a shift in the status quo – though it doesn’t alter the voting mechanism and is not a full stop on a proposal. The fact that a single country, such as the UK, can trigger it alone is very helpful for the Government.

While the mechanism is legally binding under EU law as a Decision of the Council of Ministers, the principles themselves are in the broader agreement between the states. But, importantly, the principles and the wider content of the Economic Governance section can, according to the government, be enforced via the courts – including the ECJ and UK domestic courts (more on this below in Section 5). This would give the UK further recourse. Another point to note is that the mechanism itself applies only to “legislative acts relating to the effective management” of the Banking Union or Eurozone – however, this is not always easy to define.

Verdict: Given the UK and non-Eurozone states were never going to get a veto on Eurozone proposals the mechanism is probably the best that could have been hoped for. It provides an additional hurdle for Eurozone states to overcome and adds to the political cost of trying to ride roughshod over the non-Eurozone states. The principles are quite wide ranging and if the UK can actively enforce them via the courts, then further account may well be taken of them when drawing up and implementing legislation. The fact that the UK can unilaterally trigger this delaying mechanism is a useful tool – unilateral recourse exists rarely in an institution defined by compromise, especially when it comes to the single market.

2. Competitiveness

What have EU leaders agreed?

This section takes the form of a declaration from the European Council that it will 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 is a commitment to look at “feasible burden reduction targets in key sectors” and to better regulation in general. There is also a European Commission declaration on a subsidiarity and burden reduction implementation mechanism whereby the Commission commits to examining the existing body of legislation to make sure it is proportionate and in line with having legislation at the correct level (EU versus national level).

Does this change the status quo?

This remains to be seen, since the commitments are quite vague. They are broadly in line with what is already happening. But they also include clear commitments to trying to change the status quo, such as completing the single market in services. Furthermore, burden reduction could amount to repealing legislation but again this remains uncertain. The subsidiarity points do open the door for reassessing the Acquis Communautaire on the basis of whether the powers it transfers to the EU are proportionate and are best done at EU level rather than national.

Verdict: It was always hard to see exactly what the UK would achieve beyond what is already happening in this area. Positive changes could emerge if the Commission comes forward with concrete proposals on reducing the regulatory burden, better enforcing subsidiarity and improving the single market. The challenge will be implementation, but only time will tell if this actually happens.

3. Sovereignty

3.1 Ever closer union

What have EU leaders agreed?

The deal sets out the various areas in which the UK already enjoys a semi-detached relationship inside the EU, as noted above. In light of these exceptions, it notes that “It is recognised that the United Kingdom, in the light of the specific situation it has under the Treaties, is not committed to further political integration into the European Union” and envisages that “The substance of this will be incorporated into the Treaties at the time of their next revision.”

It adds that ever closer union does “not offer a legal basis for extending the scope” of the EU and that it is “therefore compatible with different paths of integration” and does “not compel all Member States to aim for a common destination”.

How does it change the status quo?

The language on ‘ever closer union’ is a useful clarification of the UK’s existing position in the EU and, at its strongest, could be a step in the direction of a more flexible EU. The fact that the EU will have to cope with two categories of states, one bound by the provisions of ‘ever closer union’ and others not, could force change. The Commission could propose legislation in a way which took this into account and unnecessarily integrationist rules would be more vulnerable to challenge by Britain.

For example, the deal suggests that the UK could be subject to different provisions within EU financial rules to reflect that it has opted out of the EU’s banking union and further integration in this area. The deal also tightens the UK’s right to opt in or out of justice and home affairs legislation. The Government has complained that there have been persistent efforts to find a way round the UK’s opt-out, for example by claiming that the UK is bound by commitments in this area made in EU agreements with other countries. The deal states that other EU states will respect the UK, Ireland and Denmark’s rights not to choose to be bound by laws that fall under the opt-in/out clauses of the EU treaty.

However, the text also notes that “the competences conferred by the Member States on the Union can be modified, whether to increase or reduce them, only through a revision of the Treaties with the agreement of all Member States.” The UK-EU deal does not reduce the competences of the EU and therefore falls short of the type of structural reform towards a two-circle or two-system EU that could better delineate the degrees of integration required from purely single market states (UK) and members of the Eurozone.

Verdict: David Cameron has delivered his commitment to exempt Britain from the EU’s commitment to ever closer union. That the EU has been unwilling to entertain a more fundamental debate at this stage about how this concept might be given greater substance owes much to disagreements amongst Eurozone members about how integrated the Single Currency should become and therefore how the responsibilities of member states outside the Eurozone, such as the UK, might differ. Therefore, how much of a turning point this could mark is uncertain.

Those leaning towards the side of Leave will fear that, following the referendum, the concessions made to the UK will be swept aside and the process of creeping EU integration will continue. Others will argue that the deal would clearly establish the UK’s uniquely semi-detached relationship inside the EU and reflect that, for Britain, the high point of EU integration has been passed – a position that would establish the starting point for any future EU treaty negotiations prompted by calls for further Eurozone integration, likely to commence between 2017 and 2020.

3.2 Red card for national parliaments

What did EU leaders agree?

The deal includes a ‘Red Card’ which would allow 55% of the EU’s national parliaments (each member state gets the same voting weight) 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.

How does it change the status quo?

Unlike the existing ‘Yellow Card’ and ‘Orange Card’ procedures, the ‘Red Card’ provides a commitment to drop (rather than simply review) legislation if the concerns of national parliaments are not met. The extension to twelve weeks (from eight under the yellow and orange cards) provides a longer time frame for national parliament across the EU to club together.

However, the threshold of 55% is set very high and would require a number of national parliaments to ‘rebel’ against their own governments for it to be triggered. Ultimately, it might be easier to block a proposal in the Council of Ministers under Qualified Majority Vote (where the blocking threshold is 35%). The grounds for using such a red card remain 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, only new legislation.

Verdict: Despite widespread opposition to the ‘Red Card’ in principle, national parliaments have been given a binding role in the EU decision making process. However, due to the high threshold, the ‘Red Card’ will be very difficult to trigger in practice.

4. Migration and access to welfare

What did EU leaders agree?

The package on migration contains measures on benefits, the rights of non-EU family members, the right to refuse entry to EU migrants, and free movement rights for those countries that join the EU in the future.

Emergency brake

  • The deal states that in order to “take account of a pull factor arising from a member state’s in-work benefits regime” the Commission will amend EU legislation to provide for an ‘emergency brake’ on restricting EU migrants’ access to these benefits.
  • The brake would enable the UK to restrict and phase in EU migrants’ access to in-work benefits for the four years after they first arrive. The UK would be able to apply this ‘brake’ for an initial seven years.
  • A Commission declaration states the UK qualifies to apply this break immediately after the legislation is in place, in particular because it did not apply seven-year transitional controls to workers from new Member States in 2004 as most other EU states did.
  • The UK could ask to apply the brake again, but would need the approval of the Commission and other EU governments to do so.
  • The legislation will be put forward by the European Commission after the UK’s referendum and need to be approved by the European Parliament.

Child benefit

  • The deal states that the amounts paid in child benefit to children living in other EU countries can be limited by indexing payments to the standard of living in the receiving country. This will apply to new arrivals straight away and will apply to EU citizens already in the UK from January 2020.
  • All member states will be able to take advantage of this change to EU law.
  • The legislation will be put forward by the European Commission after the UK’s referendum and need to be approved by the European Parliament.

Out-of-work benefits

  • The deal reiterates recent EU case law on the ability of member states to deny EU migrants access to out-of-work benefits if they haven’t got a job, which the UK is implementing through the Universal Credit.
  • The government has also said it will more strongly enforce the ability to deport EU migrants who have not found a job after six months of their first arrival and are not self-sufficient.

Rules on non-EU family members

  • The deal makes it clear that the Commission will make amendments to free movement rules to make it clear that member states can deny free movement rights to those abusing free movement rules to enter a country by avoiding national immigration laws – the UK has complained that the rules have enabled non-EU nationals to use marriages of convenience to enter Britain.

Rules on refusing entry

  • The Commission will also ‘clarify’ that national governments can refuse entry to or remove EU nationals who pose a threat by widening the scope of criteria to include the individual’s past conduct and that the threat may not be imminent.

Free movement for new member states

  • The deal makes it clear that when a new country joins the EU, transitional arrangements can be put in place on the free movement of people from that country. The UK has a veto over this already and the deal merely confirms this.

How does it change the status quo?

Once agreed, this package on immigration and welfare would be the first time in the history of the EU that its rules on free movement of people have been rolled back rather than extending integration in this area. The right of EU nationals to come to the UK to seek work remain unchanged but it is clear that they must be self-sufficient and cannot rely on welfare to do so.

The restrictions on in-work benefits mean that for the seven year period under the ‘emergency brake’ the UK will be able to treat its own citizens differently to nationals from other EU member states – this is a significant precedent and establishes that EU citizens do not have an automatic right to the UK welfare system and must contribute before gaining full access. The UK would be able ask for the break to be re-applied after the seven years elapse, but it would again need to demonstrate to the Commission that the criteria have been met and secure the agreement of the other EU states.

Meanwhile, the changes to the rules on the abuse of free movement address long-standing UK concerns about EU rules undermining its national rules on non-EU migration and grant greater national discretion to refuse entry to EU nationals deemed a threat to public security.

Verdict: Cameron has not achieved the complete four-year ‘ban’ on in-work benefits he set out to because migrants’ access to benefits over the four years must be graduated to reflect their integration into the UK labour market. Nevertheless, the ‘emergency brake’ achieves something very close to his original demand when many people on both sides of the debate argued this was politically unfeasible and/or legally impossible.

As the deal acknowledges, the emergency brake will reduce the perverse incentives created by the UK’s in-work benefits system for people to come to perform low-paid, low-skilled work and establishes that EU workers should only get access to the UK’s universal welfare system over time and after a contribution – a principle that resonates with a majority of the public. As the Prime Minister points out, the combination of the seven-year brake and four-year phase-in means that someone arriving in 2024 will not get full welfare access until 2028.

Similarly, on child benefit, the proposal does not completely ban payment to children abroad, which the UK sought, but reduces the cost by indexing payments to the cost of living in the country where the child is. For those people already in the UK, the indexation will be delayed. It should be noted that several other member states’ seem set to take advantage of the new rules.

Ultimately, this deal will not satisfy those who want ‘complete control’ over immigration – but it’s not clear whether that is something the Leave side can offer either. There is currently no template for a relationship with the EU outside that offers the current levels of access to the single market without accepting the free movement of people.

5. Is the deal legally binding and irreversible?

Cameron said he wanted his EU deal to be “legally binding and irreversible”. The European Council conclusions in which the deal is contained state that the “Decision is legally binding” and can only be amended or repealed with the consent of all states including the UK. The overall package is legally binding on EU governments in international law and will take effect once the UK has voted to Remain. However, some of the elements need further action to take effect. This includes the commitments to enshrine the changes to ‘ever closer union’, the principles protecting non-Eurozone members in the EU Treaties when they are next changed and the changes on EU migrants’ access to welfare via secondary legislation.

The Government argues, pointing to legal advice from Sir Alan Dashwood QC and the European Council and Commission legal services, that following previous ECJ case law, and since the decision is legally binding in international law and interprets the EU treaties, the UK could seek redress in the ECJ if it feels the provisions of the deal have not been respected. For example, if EU legislation was passed which the UK considered in breach of the principles on non-discrimination between Eurozone ins and outs, it could seek annulment of the EU legislation at the ECJ. However, other legal experts have argued that, since the heads of state decision is not technically binding in EU law, it cannot be justiciable at the ECJ.

In any case, the parts of the package which are implemented through EU legislation (such as the mechanism for protecting the rights of non-Eurozone states, the child benefit changes and the emergency brake on EU migrants’ access to welfare benefits) will be binding in EU law.

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To give effect to the changes on immigration and welfare, the deal commits the European Commission to table legislation. The Commission’s proposal would then be subject to ‘co-decision’, meaning that it would need to be adopted by a qualified majority in the Council of Ministers and by a majority in the European Parliament. As such, there is a theoretical risk that the Parliament could reject or attempt to amend it. However, the main political groups in the Parliament have indicated support for the deal.

In addition, the member states represented in the Council of Ministers will be bound by the deal. This reduces the scope for MEPs to try to water down the proposals as they go through, since any amendments made by MEPs would need to be signed off by national governments. This means national ministers can present the European Parliament with a take it or leave it choice. Since throwing it out altogether is extremely unlikely, MEPs’ leverage will ultimately be limited.

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