international analysis and commentary

A comment on the October European Council results


During its first evening meeting, the October 28-29 European Council had already come to a result that few had expected: a unanimous agreement to a ‘limited’ Treaty reform in order to allow Germany to agree to a permanent crisis resolution mechanism (i.e. a permanent successor to the existing European Financial Stability Facility (EFSF)).

That all 27 members agreed on a limited change in the Treaty becomes less surprising if one considers what it is likely to imply, namely no change to the no bail out clause (Art. 125), but the simple addition of a few words to Art. 122 TFEU. This article reads at present:

Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned.

Adding a reference to financial stability in this article should be enough to satisfy the German Constitutional Court, and should provide a solid legal basis for the new permanent EFSF, which will probably not be expressly referred to in any Treaty changes.

This small change to Art. 122 would not create the ‘perma-EFSF’, but it would create a permanent legal basis on which a post-2013 EFSF could exist.  The perma-EFSF could then probably be created on an inter-governmental basis and might not involve the creation of a new institution, but rather an emergency financing mechanism run by the Council whose use would require unanimity, as in the existing EFSF.

Such a ‘reform’ of the Treaties would indeed be very limited; limited enough to allow for the use of the simplified Treaty revision procedure and to avoid the need for a referendum.  Including the EFSF in the Treaties would have been problematic as a new EU institution falls outside Part Three of the TFEU, which means the simplified revision procedure would then not have been available.

Ireland is on the verge of passing legislation through parliament that allows it to join the EFSF. If this can happen by parliamentary means on the basis of a eurozone inter-governmental agreement, a referendum should not be needed simply because the same mechanism is part of the treaties. In any case, the Irish Government will not agree to any reforms that require a referendum, as a referendum will fail. Remember the trigger for a referendum in Ireland is a change to the “essential scope and objectives” of the EU. Adding a reference to eurozone stability in 122 is not a change in scope or objectives, so the creation of a perma-EFSF seems to pass this test.

With this agreement for a ‘limited’ Treaty change, the way is now open for the work that really counts, namely agreeing on the details of the new permanent EFSF.  Given that only a little more than six weeks remain until the December European Council meeting, and given that in the end Germany’s financial contribution will be essential, this implies that the new permanent EFSF will in all likelihood be a rather light structure, probably along the lines of the ‘Berlin Club’ now being mooted in German government circles.