New treaty ready 'by March'

The legal path to the new treaty

The principal purpose of the inter-governmental treaty is to bind the member states of the eurozone (plus however many of those outside the eurozone wish to sign up) to comply with fiscal discipline.

The existing article 126 of the treaty on the functioning of the European Union lays down that the European Commission must monitor the deficit and debt of each member state. On advice and recommendations from the Commission, the EU's member states – through the Council of Ministers – decide, successively, whether an excessive deficit exists, what remedial action to recommend to the member state concerned and whether to take sanctions against a member state in the event of non-compliance. Those Council decisions are to be taken by a qualified majority of all the other member states.

What Germany had sought, in the run-up to the European Council, was that article 126 should be changed, so that the Commission recommendations would apply, unless there was a qualified majority of member states against the proposal.

But the UK's refusal to permit a treaty change prevented this re-writing of the article. The UK also refused to permit a change to Protocol 12, which was attached to article 126 – the course that had been suggested by Herman Van Rompuy, the president of the European Council.

Changing the EU's treaties was not, in the face of the UK veto, a practical option, so the member states of the eurozone now intend to conclude a treaty between themselves that makes promises about their voting behaviour to the same effect: that where a member state breaches the rules on deficits, the other member states will vote in favour of the proposals for sanctions. The only difference would be that the Commission could not make such proposals (because the Commission is not a party to an inter-governmental treaty), so the proposal (to decide that a country is in breach of deficit rules, or should have to take remedial action, or be punished for failing to remedy a deficit) would have to come from the other member states.

The parties to the inter-governmental treaty can, according to article 273 of the treaty, agree among themselves that the European Court of Justice will have jurisdiction over their treaty, which is what they intend to do in this case.

Tim King