4 November 2010
The sovereign debt crisis that the European Union (EU) has gone through this year spells opportunity for EU leaders to improve the functioning of the eurozone. At the Council meeting on 28-29 October, EU leaders endorsed the final report of the Task Force on Economic Governance led by the Council President Herman Van Rompuy and agreed that changes to the Lisbon Treaty are needed in order to make room for a permanent crisis mechanism (as the current €750bn safety net agreed in May expires in 2013). This decision is significant seen in the light of what has been termed “treaty change fatigue” after the long and difficult process leading to the adoption of the present Lisbon Treaty in December 2009.
Germany, backed by France, succeeded in convincing other EU leaders that the Lisbon Treaty has to be changed in order to weave in a permanent crisis mechanism. This was despite initial misgivings from other countries that it would be unwise to open up the Treaty and change it fundamentally. Leaders agreed that the changes, as important as they may be, would be still technical and thus could be passed under a simplified procedure without having to convene an intergovernmental conference, a long drawn process involving representatives from all the three key EU institutions – the European Parliament, the Commission, the Council, and also representatives from national parliaments.
The Task Force proposed that with increased fiscal discipline, broader economic surveillance and deeper coordination the chances of falling into similar sovereign debt crisis would be much smaller. It is clear though that reassurance of good will is not sufficient in guaranteeing sound finances and sanctions are needed. The Member States approved the financial sanctions proposed by the Task Force. Germany and France even proposed to suspend the voting rights of the spendthrift Member States, but this proposal was shelved for the time being (although the summit’s conclusions still refer to such possibility in the “case of a permanent threat to the stability of the euro area as a whole”).
In one way or another, Germany also wants to put more responsibility on the private investors holding government bonds, as currently the taxpayers are the only ones who are paying the bill of the crisis. Axel A. Weber, president of the Bundesbank, said: “The next time there is a problem, they should be part of the solution rather than part of the problem.” (New York Times) However, it is too early to predict what turn the ‘battle’ between the eurozone governments and the markets will take, as currently there is no unanimity between the Member States on this issue. The problem is how to achieve this without prompting the investors to stay away from debt issued by the weaker countries, thus risking the stability of the eurozone – an argument put forward by the European Central Bank (ECB), opposed to such move.
While there is still much left to be decided, the summit has opened the way towards stricter rules with sanctions and a permanent mechanism to deal with the future crisis – a “quantum leap” for the EU, as described by German Chancellor Angela Merkel (EUobserver). Following the preparatory work by the Commission, the European Council President Herman Van Rompuy will submit a report in December 2010 and the Council will decide unanimously after consulting the European Commission and European Parliament. The changes will have to be approved by all Member States in accordance with their constitutional requirements (ratification by national parliaments). It is hoped that the changes could be ratified “at the latest by mid-2013”.
Sources and links to further information:
- “’Small, small, small’ EU treaty change to deliver ‘quantum leap’,” EUobserver, 29 Oct 2010
- “Merkel’s sacrifices secure fragile triumph,” Financial Times, 29 Oct 2010
- “Europe Plans System to Handle Debt Crises,” New York Times, 29 Oct 2010
- “EU leaders give green light to tweak treaty,” EUobserver, 28 Oct 2010
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