Herman Van Rompuy, the president of the European Council, today sent national governments a draft of an inter-governmental treaty that will seek to boost economic discipline in the eurozone.
Crucially, it will enter into force once nine out of the 17 eurozone member states have ratified it, meaning it will still come into effect even if some countries vote against it in referenda or their parliament reject it.
Non-eurozone countries that sign up to the agreement will be subject to the new rules only when they adopt the euro. However, they can choose to apply the rules earlier if they wish.
The treaty, called “an international agreement on a reinforced economic union”, contains the tougher rules on economic discipline that national leaders agreed at their summit on 8-9 December. An inter-governmental treaty became necessary when the United Kingdom refused to back changes to the EU’s treaties.
The rules include introducing a debt brake into national legislation and agreeing to semi-automatic sanctions for failing to respect debt and deficit limits.
Officials from all 26 European Union member states that have shown interest in signing up to the agreement will now get to work to draft a final text. Three MEPs will also be involved and officials from the UK will be present as “observers”.
It is still unclear how many non-eurozone countries will sign up, with some saying that they will let their national parliaments look at the treaty wording first.
However, the issue of tax harmonisation, which was mentioned in last week’s summit deal and was a potential obstacle to countries such as Hungary and the Czech Republic opting in, is not included in the treaty text.
EU officials say that they hope a final version of the treaty will be ready by the end of January so that it can be signed by leaders at the beginning of March.
If a eurozone country does not ratify it, it will not be bound by the new rules. However, an EU official said that this would “make life politically very uncomfortable for a non-ratifying country”. “It would not be durable for long,” he said.
Once adopted the treaty will force countries to run a balanced budget and enshrine this rule in their constitutions. This transposition will be monitored by the European Court of Justice.
They will be allowed to incur deficits “only to take into account the budgetary impact of the economic cycle” as well as “in case of exceptional economic circumstances or in periods of a severe economic downturn”.
EU officials said they would have still preferred the new rules to be enshrined in a full-blown EU treaty to avoid the legal headache of ensuring that the new agreement does not contradict the EU’s existing rules.
One example of this is in the case of “increasing automaticity” of punishments for countries, once the European Commission deems that the debt and deficit rules have been flouted.
Under the agreement these countries will be placed in the EU’s excessive deficit procedure unless a qualified majority of other member states blocks it – a tougher process than the existing format which needs a qualified majority to allow it.
But as the EU’s treaties demand the current rules, member states are effectively signing up to apply the tougher regime to themselves.
“The rule remains qualified majority voting,” an EU official said. “We keep the rule but in practice we increase the standards and introduce a bigger element of automaticity,” he added.
Since the agreement is inter-governmental, the European Commission cannot take member states to court when they breach budget rules. However, member states are allowed to take each other to court and, by signing up to the treaty, agree to be bound by the court’s judgment.
The agreement also paves the way for summits of leaders of the countries that sign up to the treaty to take place at least twice a year.
There are also references in the treaty to further economic convergence but they remain vague. They include an undertaking to “work jointly towards an economic policy fostering growth through enhanced convergence and competitiveness” and an assurance that “all major economic policy reforms that they plan to undertake will be discussed and co-ordinated among themselves”