10 September 2015

The full non-Eurozone safeguards report can be found here or in the pdf reader below.

Why are non-Eurozone safeguards so important?

In an interview with the New Statesman this week Chancellor George Osborne said,

For me, perhaps the single most important issue is the relationship between the non-Euros and the Euros…the European Union was not designed to accommodate two classes of members, where one group, the majority, is rapidly integrating to try to make the single currency work, and the other group, particularly Britain, doesn’t want to be part of that ever-closer union. And our treaties don’t provide for that. If we don’t resolve this issue, it’s going to cause more and more problems for Britain’s economic national interest.

Our paper lays out the three key points underlying this sentiment:

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  1. The Eurozone now has an inbuilt caucus, meaning it can automatically outvote the non-Eurozone countries if it desired (as shown in graph above). This was driven home by the use of the EFSM to fund the Greek bridge loan.
  2. The Eurozone is moving towards closer integration as laid out by the Five Presidents report and driven home by recent comments from French Economy Minister Emanuel Macron and ECB Executive Board Member Benoit Coeure.
  3. A large number of states are likely to stay outside the Eurozone for some time to come, as detailed in the table below. A better settlement between these groups is needed.

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How could non-Eurozone safeguards be structured?

  1. Remove obligation for all EU states to join the Euro, ensuring the EU is a multi-currency union and there are no second class members.
  2. If three non-euro states object to an EU proposal on the basis that it would undermine the integrity of the Single Market or breach fundamental EU principles such as non-discrimination, proportionality or subsidiarity, national governments should delay the decision-making process and aim for consensus. If consensus cannot be reached within a six-month time period, the proposal should either be dropped or move to ‘enhanced cooperation’.
  3. Allow a right of appeal under an enhanced cooperation – can be triggered by three non-Eurozone states. The appeal can only be overturned by a simple majority of Eurozone and non-Eurozone states.

What are the mechanisms to introduce such non-Eurozone safeguards?

Also in his New Statesman interview Osborne said of safeguards,

These are the sorts of things that are going to require changes to the treaty…it is going to require, in my view, things that are legally binding and irreversible and, therefore, almost certainly treaty change, certainly on this issue around the relationship between the Euros and the non-Euros.

As we say in the report, undoubtedly the best way to do this would be to have treaty change and ultimately this should be the goal – a clearer institutional and legal settlement between ins and outs engrained in the EU framework. However, this is only likely to be found once the Eurozone actually figures out where it is headed. But in the interim there is still a clear need for such safeguards, as explained above, and not least because the process of the Eurozone figuring out where it is going should not trample non-Eurozone states.

But there is also something underlying what Osborne is saying, which is that some of this might be done through a post-dated protocol and promise to incorporate new rules into future treaties. While this certainly can, should and probably will form part of these safeguards (see our Reform Blueprint), they should not entirely be done this way. As such, Open Europe’s proposal for immediate changes to the voting rules combined with intergovernmental agreement which would be incorporated into the treaties as soon as possible, is in my view stronger than what Osborne was touching on in his comments which focused just on the latter part. With the referendum campaign coming and the result far from clear cut, the Government will need to come to the game with more than just post-dated promises, that is for certain.

Furthermore, new voting rights for non-euro countries could be agreed without EU treaty change. They could be written into the existing EU voting procedures in the Council of Ministers and via a separate intergovernmental legal agreement. The changes would require unanimity among national governments, but could only be undone by unanimity (i.e. with the UK’s consent).

Formal recognition of the EU as a ‘multi-currency union’ and a new right of appeal for those not taking part in enhanced cooperation would be best achieved by treaty change but could be subject to a political agreement and a separate intergovernmental legal agreement, pending subsequent treaty change. As the Financial Times notes today, there are limits to what can be under intergovernmental treaties and they cannot directly contradict the EU treaties. However, there is precedent for them complementing the treaties, such as the Fiscal compact between Eurozone states. Furthermore, agreements pertaining to political decisions are not dictated by the treaties so having them agreed intergovernmentally should be possible. As always in the EU, when there is a will (which there increasingly seems to be) there is a way.

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