December 10, 2011 

EU fiscal union deal raises paramount legal issues

The fiscal union deal achieved during the European Council summit of December 2011 constitutes a fundamental shift not in just in European political history and the path to EU integration, but also in terms of the legal basis on which Member States are bound to each other under International Law.

In examining the deal, although legal particulars remain scarce as at the time of writing, we do know the following as having been agreed among the Member Sates (bar the United Kingdom):

  • annual structural deficit should not exceed 0.5% of nominal GDP;
  • the above ‘golder rule’ will need to be enshrined in Member States constitutional orders;
  • deviation from the ‘golden rule’ will trigger automatic correction, which must exist in national law of the Member States;
  • compliance with common standards of compliance will be monitored by the European Commission while the ECJ will enjoy jurisdiction over these standards’ compliance;
  • Eurozone States will have to report their national debt issuance plans;
  • States breaching the 3% budget deficit ceiling will be subject to automatic consequences unless a qualified majority of States decides otherwise.

    • The European Stability Mechanism (ESM) also agreed amongst the Member States will be regulated by treaty, expected to enter into force by July 2012. Under the ESM, urgent financial assistance will be subject to an 85% majority agreeing to provide such assistance upon representations made by the Commission and the ECB.

    Yet, in light of the UK’s refusal to join in the above, details of how the other Member States plan to use EU institutions without the permission of all 27 remains to be seen and is plagued by doubt. The Commission has already said that EU institutions can be used under the new treaty.

    A treaty between these States in international law could attain fully legal validity and any compromise over these States’ sovereignty – which may not be an entirely bad thing as it entails the prospect of fiscal stability across the eurozone – can be agreed between them, as the EU was also established in the past. However, if things are as the various officials have indicated to be – which should be clarified in the coming weeks – how are the Contracting States to this new treaty planning to use the EU’s institutions given the UK’s refusal to consent to any such use, through being party to the fiscal union treaty?

    Fundamental legal issues need to be answered in the coming weeks.

    Relevant links

  • European Council
  • Statement by the Eurozone leaders
  • EU Law Cyprus Lawyers
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