REPowerEU: a European fiscal space beyond the pandemic

 

Rosalba Famà, PhD student in EU law, Bocconi University

 

Photo credit: ThibaultC, via wikicommons media

 

The European Union is in the process of adopting a new initiative named REPowerEU to manage the current energy crisis which followed the Russian invasion of Ukraine. On May 2022, the Commission presented a comprehensive REPowerEU strategy which includes a proposal to amend Directives on the promotion of the use of energy from renewable sources, on energy performance of buildings and energy efficiency, as well as an ambitious industrial policy program which aims to break free from all energy dependency. Only the latter will be the object of the current analysis and I will refer to it as the REPowerEU plan. This programme is designed to boost reforms and investments dedicated to diversifying energy supplies and will be embedded in the legal architecture of Next Generation EU (NGEU), which is the European plan for the economic recovery after the Covid-19 pandemic. This blogpost, after depicting the geopolitical context of the adoption of REpowerEU, will explain its objectives, its legal structure and its functioning. It will then conclude that NGEU represents a blueprint for further European initiatives which involve common spending in times of emergency.   

         

As it is well known, in order to tackle the economic consequences of the pandemic, the EU adopted the NGEU plan which consists of taking up common debt of up to 750 billion euro to distribute funds amongst the requesting Member States. The distribution is in the form of loans and grants based on a formula that favors countries most affected by Covid-19 (see Art 12 of Reg 2021/241 establishing the Recovery and Resilience Facility). This unprecedented and ambitious plan has allowed the EU to avoid a serious economic recession caused by the consequences of the lockdowns. Since then, another unexpected geopolitical event occurred being the Russian invasion of Ukraine.    

  

Before the outbreak of the conflict in Ukraine, EU Member States relied extensively on Russian energy imports which provided gas and oil, both for industrial and household use. Accordingly, the Russian energy supply played a crucial role within the European economy. It became self-evident that the EU’s dependence on Russian oil and gas markets represents a threat for the continuation of the EU’s economic recovery following the pandemic and makes an enfranchisement strategy indispensable. Therefore, with the Versailles Declaration of 10 and 11 March 2022, the Heads of States and Governments of the EU agreed on the need for a plan to phase out the dependency on Russian fossil fuel imports.

 

This ambitious objective requires massive investment in strategic energy infrastructure having an estimated cost of up to 210 billion euro. As such, the EU is confronted with the need to provide additional large amounts of funding to cover the cost of these new investments. The Recovery and Resilience Facility (RRF), the temporary fiscal capacity dedicated to the pandemic introduced with NGEU, is regarded as a “well-suited” instrument to contribute to the Union’s response to these new challenges. To foster the independence and security of the Union’s energy supply, REpowerEU will channel additional funds to the RRF and allocate these amounts to the Member States to modernize the EU energy infrastructure.

 

Moving to the legal structure of REpowerEU, the plan will have the form of a Regulation of the Council and the European Parliament which amends Regulation (EU) 2021/241 establishing the Recovery and Resilience Facility (RRF). REPowerEU introduces within the framework of NGEU, an additional chapter of reforms and investments, dedicated to diversifying energy supplies and increasing energy efficiency of the Member States. REPowerEU also amends Regulation (EU) 2021/1060 which lays down Common provisions on European funds, Regulation (EU) 2021/2115 that regulates the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD), Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, and Decision (EU) 2015/1814 on the Market Stability Reserve for the Union greenhouse gas. Amending certain provisions concerning European funds is crucial to channel additional resources to a new “basket” of the RRF, which will be specifically dedicated to finance energy related targets also called “REPowerEU objectives”.

 

The legal basis for the RRF is Article 175 (3) TFEU, a provision falling within the scope of the cohesion policy that allows the establishment of specific actions outside pre-existing funds when they are proved to be necessary. This provision is drafted in very broad terms and actions to be adopted only need to comply with a necessity test. The general objective of the RRF stated in Article 4 of Regulation (EU) 2021/241 is to promote the Union’s economic, social and territorial cohesion by mitigating the social and economic consequences of the Covid-19 crisis. REPowerEU amendments aim at increasing the resilience of the Union energy system in two ways, on the one hand through a decrease of dependence on fossil fuels and, on the other hand, through a diversification of energy supplies at Union level.  

 

At the heart of the REpowerEU implementation is the pooling of pre-existing European resources for new energy related targets and milestones, such as improving energy facilities to meet immediate security of supply needs, boosting energy efficiency in buildings and critical energy infrastructure, increasing the production of renewable energy, addressing internal and cross-border energy transmission bottlenecks and supporting zero-emission transport. To accompany those changes, the workforce must also be requalified towards green skills. The provisional agreement on the Commission proposal reached between the European Parliament and the Council in December 2022 set up that at least 30% of resources distributed under REPowerEU must be allocated to measures having a cross-border or multi-country dimension or effect. Moreover, the co-legislators agreed on establishing measures to tackle energy poverty and to support vulnerable households, SMEs and micro-enterprises particularly affected by energy price increases.   

 

The REPowerEU objectives will be financed in three different ways. Firstly, by revenues coming from the Emission Trading System; secondly by redirecting unspent NGEU’s loans; and thirdly by channeling pre-allocated resources from shared management programmes. As to the new revenue, additional grants of up to 20 billion Euro will be made available. This amount comes from the auctioning of the Emission Trading System allowances. The amendments to Directive 2003/87/EC authorize the auctioning of the allowances for the period until 31 December 2026 and until the total amount of revenue has reached 20 billion Euro. This revenue will be available to the Recovery and Resilience Facility. Resources from the ETS, disbursed in the form of non-repayable support, represent an example of solidarity and economic redistribution within the EU that favors Member States most negatively affected by the energy crisis. To this purpose, the distribution criteria will consider their energy dependency rate and the share of fossil fuels in gross inland energy consumption.

 

As to the REPowerEU loans’ component, REPowerEU will allow the allocation of unspent NGEU’s loans to the new REPowerEU objectives. As known to date, not all 27 Member States requested NGEU’s loans within their National Recovery and Resilience Plans. For example, Germany’s recovery plan foresees only the request for grants. Notwithstanding, according to Article 14 of the Regulation establishing the RRF, those Member States may ask for support in the form of loans until August 2023. Indeed, those States have access to finance in the financial markets at very low interest rates because of their high credit ratings. As it is self-evident, they have no appetite for this type of financial support, which is provided by the EU only upon the achievement of ambitious targets and milestones set in the National Recovery and Resilience Plan. This explains why there are currently unspent loans within NGEU. Therefore, REPowerEU aims to mobilize these resources to those Member States that have the need due to their lower financial ratings. To this aim, Member States will have a limited period of time after the entering into force of REPowerEU to communicate to the Commission whether they intend to request additional loan support. Afterwards, the Commission must present an overview of the willingness expressed by the Member States and propose a plan for the distribution of the available resources.

 

The REPowerEU objectives will also be financed by a percentage of resources coming from other funds established by the Union standard budget, i.e. non NGEU-related. In other words, the REPowerEU will allow the redirection of pre-allocated funds to support new energy targets. This third way of financing the REPowerEU objectives is very innovative as it allows Member States to request to transfer resources under shared management programmes to the RRF. Those transfers consist in up to 12.5% of the national allocation under the Common Provisions Regulation (EU) 2021/1060, up to 12.5% of the national allocation under the European Agricultural Fund for Social Development. The Council has proposed the transfer to the RRF of all or part of a provisional allocation from the Brexit Adjustment Reserve. In this way, requesting Member States can pool European resources already allocated to them under different European spending programmes towards energy related targets. This exercise requires strategically orienting public expenditure in times of emergency.

 

The procedure for approving revised Recovery and Resilience Plans comprises different stages. First, Member States willing to receive additional funding to reach REpowerEU objectives are requested to submit an updated version of their National Recovery and Resilience Plan including a new REpowerEU chapter. Within the framework of the 2022 Country Specific Recommendations, the Commission has indicated actions needed to face the current energy crisis per each Member State. Any Recovery and Resilience Plan which includes a REPowerEU chapter must indicate reforms and investments energy related to be funded by the RRF, with corresponding new milestones and targets in compliance with the Country Specific Recommendations. It may also contain the scale-up of reforms and investments adopted in the previous version of the Recovery and Resilience Plan. Second, the Commission assesses the plans considering whether proposed reforms and investments are capable of contributing towards the diversification of Union’s energy supply and reduction of dependence on fossil fuels before 2030. Third, in the event of a positive assessment on a proposal from the Commission, the Council approves the Recovery and Resilience Plan by means of an implementing decision setting out reforms and investments to be enforced by the Member States and the financial contribution (see Article 19 of Reg 2021/241).

Although NGEU was built as a one-off operation, the current energy crisis is showing that it is flexible enough to accommodate new emerging needs. In particular, the RRF being based on an ordinary cohesion legal basis seems capable to survive well beyond the pandemic. As long as economic resources are channeled to the RRF, this new facility can accelerate investments and address common strategic objectives. The adoption of a plan such as REPowerEU proves that NGEU is a blueprint for further action as the functioning of the RRF is capable to be used again and again. It also shows the necessity for the EU to equip itself with tools to quickly react to unexpected shocks. It remains to be seen if NGEU will account to a mere temporary fiscal space, confined to Covid-19 and the current energy crisis, or rather a much needed permanent one to boost common strategic investments beyond the pandemic.

The Own Resources Decision as an Ultra Vires Act or a Violation of Constitutional Identity? An analysis of possible procedural scenarios

Benedikt Riedl, research assistant, lecturer and PhD candidate, LMU Munich

On March 26, 2021, the German Federal Constitutional Court (GCC) held that the Own Resources Resolution Ratification Act (ERatG) must not be executed by the Federal President for the time being.

The extent to which the Own Resources Decision could be an ultra vires act or a violation of the constitutional identity of the German Basic Law has already been presented on the Verfassungsblog and the European Law Blog. Since public interest in the outcome and furthest possible course of the proceedings is high, this article will also present the possible procedural scenarios.

Two possible ultra vires acts and a possible identity violation

First, however, the three most important substantive problems should be summarised once again. The Own Resources System could be an ultra vires act in two respects. Additionally, there is a connecting factor that could be seen as a violation of constitutional identity. Those who have already read the posts from the Verfassungsblog and the European Law Blog can skip straight to the heading "Third Problem: Violation of the overall budgetary responsibility of the German Bundestag".

Background: Own Resources Decision and Next Generation EU

The subject of the summary proceedings is the Own Resources Decision Ratification Act. This is the German law approving the financing of the European Union until 2027. It is the legal basis for the entry into force of the current Own Resources Decision of the European Union of December 14, 2020. The Own Resources Decisions of the European Union are based on Article 311 (3) TFEU and, in addition to other revenue, serve to finance the EU budget. The current Own Resources Decision enables the European Commission in Article 5 (1a) to take out loans of up to 750 billion euros with a term of up to 38 years. With these funds, the European Union intends to temporarily use 750 billion euros within the framework of its NextGenerationEU economic stimulus package to repair the immediate economic and social damage caused by the Corona pandemic. The most important instrument in this stimulus package is the Recovery and Resilience Facility, which will provide 627.5 billion euros in loans and grants to support reforms and investments in the countries of the European Union. Implementation of the economic stimulus packages by the European Union is only possible once all Member States have ratified the Own Resources Decision (Article 311 (3) sentence 3 TFEU).

The German Bundestag approved the Own Resources Ratification Act on March 25, 2021. The vote was preceded by a heated debate, during which the Minister of State at the Federal Foreign Office described the Own Resources System "as a necessary and overdue step towards a fiscal union".

Ultra vires review and identity review

The central question under EU law is whether the Own Resources Decision and the authorisation to incur debt violate the Treaties. If this is the case, this could constitute an ultra vires act of the European Union. The central question under german constitutional law is whether the Own Resources System affects the limits set by the overall budgetary responsibility of the German Bundestag and be incompatible with Art. 79 (3) of the Basic Law.

First, the question arises as to why a Member State‘s constitutional court can decide on this question of EU law at all. The starting point is the primacy of application of Union law over any national law – including constitutional law – which is recognised today by both the GCC and the ECJ. However, since its Costa/E.N.E.L. ruling, the ECJ has assumed an unconditional primacy of application, which follows from the special nature of Union law as a new, independent legal order. In contrast, the GCC, like all other European constitutional and supreme courts, does not derive the primacy of application from Union law itself but assumes primacy by virtue of the constitutional authorisation of the Member States.

Ultra vires review (i.e., review of authority by a constitutional court of a Member State), refers to whether the EU institutions have exceeded their authority in a sufficiently qualified and structurally significant manner. Several European constitutional and supreme courts have already declared Union acts to be ultra vires (e.g. Cohn-Bendit ruling in France, Holubec ruling in the Czech Republic, Ajos ruling in Denmark (also discussed here), PSPP ruling in Germany). In the specific case, the question is whether the Own Resources Decision is manifestly in violation of the Treaties. As far as the question of the legal basis is concerned, it can be assumed that the constitutional complaint will not be successful. The situation is different, however, concerning the questions of earmarking and liability risk.

First Problem: Sufficient legal basis and earmarking?

It is undisputed that Article 311 (3) TFEU is the legal basis under Union law for the European Own Resources Decision of 14.12.2020. According to this, the Council, acting unanimously in accordance with the special legislative procedure and after consulting the European Parliament, adopted a decision setting forth provisions governing the Union's own resources. However, according to Article 311 (3) sentence 2 TFEU, only the Union’s own resources can be introduced. The applicants argue that borrowed funds are not the Union‘s own resources. However, according to the wording of the contracts, only the Union’s own funds (own resources) and no external funds (external resources) could be raised. This is a very restrictive literal argument based on the differentiation between debt and equity capital in business economics. The ECJ, with its strongly teleologically oriented case law guided by the idea of effet utile, will most likely not follow this line of argument. Instead, it will probably endorse a broad understanding of “own resources“. Should the GCC follow the applicant's argumentation, a referral to the ECJ would be necessary in any case. There is no acte clair that would make a referral unnecessary.

However, the earmarking of the Own Resources Decision and the regulation establishing the Corona Reconstruction Fund is also important. According to Article 122 (1) and (2) TFEU, the European Union can take action with concrete measures using binding legal acts, for example, to grant a Member State financial assistance under certain conditions in the event of serious supply bottlenecks, natural disasters, or extraordinary events. The above-mentioned instruments of Union law within the framework of the NextGenerationEU economic stimulus packages and the Recovery and Resilience Facility are explicitly based on this provision. The critical point here is whether the economic stimulus packages are only aimed at overcoming the immediate consequences of Covid-19. Only if they remain limited to this exceptional case and comply with the narrow earmarking can they be based on the exceptional provision of Article 122 TFEU, which is to be interpreted narrowly in principle.

A system of “own resources“, which in this respect not only serves as a reconstruction programme but spills over into many other subject areas, would be difficult to reconcile with Article 122 TFEU. Germany, for example, plans to use 37% of the European Union's allocations for climate protection and 20% for digitisation (BT-Drucksache 19/27838). While the use of funds for digitisation can be directly related to the Corona emergency due to the lockdown consequences and the limited possibilities of direct contacts between people, this is not the case for the use of funds for climate protection. It is not apparent why by far the largest share of Corona aid should be spent on climate protection, which has no connection to the Corona pandemic. On the contrary, if the pandemic has any "positive" effects, they have to do with the world climate. Of course, investments in climate protection can also create jobs. But it is doubtful whether this is still sufficiently directly related to combating the Corona consequences. For this reason alone, the GCC will also take a very close look at the earmarking of the European Union's Own Resources Decision. Here, the constitutional complaint has a realistic chance of success.

Second Problem: Violation of the prohibition of mutual liability?

Moreover, a violation of Article 310 and Article 125 TFEU by the Own Resources Decision and the legal acts implementing the NextGenerationEU reconstruction fund is not unlikely. From these norms follows the Union principle that the Member States act autonomously in their fiscal policy and must not mutually assume responsibility for their respective liabilities. Article 125 (1) TFEU contains the so-called "no bailout clause" in this respect. According to this, financial equalisation between the Member States is prohibited in Union law. Neither is the Union liable for the liabilities of Member States nor are Member States liable for the liabilities of other Member States.

The possible liability volume and the liability period are very critical here. Due to the long duration of the loans, future federal parliaments will be bound to the Own Resources Decision until 2058. No one will seriously assume that regular and recurring waves of crises will not occur in Europe until the last repayment instalment in 2058. New aid packages will also be put together in the next crises, as has always happened in the recent past. In this respect, the Own Resources Decision could mark the European Union's first step toward a fiscal union. The Corona emergency could be exploited to make a fiscal union inevitable through the normative power of the de facto. Instead of going down the path of amending the Treaties, the Member States and the EU seem to be attempting to form a fiscal union within the framework of budget planning.

The decisive question is whether Germany alone would be fully liable for 750 billion euros if necessary. If there are insufficient safeguards in the European Union's own resources system, a violation of Article 125 TFEU is inevitable. Finally, the lack of economic transparency in the procurement of funds is also problematic. Where and how will the European Union raise 750 billion euros in debt? Which institutions will provide the loans? Does the European Commission have a free hand in this?

A closer look at the Own Resources Decision can provide some answers, at least for the time being.

Article 9 (4) and (5) of the Own Resources Decision initially appear reassuring. It follows that if there are insufficient EU budgetary resources to repay the debt, the European Commission will first make up this financing shortfall by active treasury management and, if necessary, by recourse to short-term financing on the money market. Only if these possibilities are not sufficient can the Commission, as a last resort, require the Member States to make the shortfall provisionally available in proportion to their respective contribution to the EU budget. This proportionate interim financing seems to exclude, at least formally, liability according to the motto "one is liable for all".

The same pro rata provision of funds applies if a Member State cannot meet its share of the debt repayment. The defaulting Member State remains obliged to pay its financing share of the debt repayment. It can be concluded that this is not an assumption of liability in the true sense of the term, as funding from the remaining Member States is only temporary and not final. Legally, the defaulting Member State remains responsible and liable for its share of the financing and must pay it as soon as possible. It is a fact, however, that some Member States may not be able to make these payments.

However, Article 9 (6) of the Own Resources Decision reveals through several references (Article 6and Article 3 (1) and (2) the enormous extent of the liability risk for each member state. Currently, according to Article 3(1) of the Own Resources Decision, the total amount of “own resources“ available to the Union for annual appropriations for payments must not exceed 1.40% of the sum of the gross national income of all Member States. In the future, from 2028, according to Article 6, the annual “own resources“ ceiling will be raised by a further 0.6 percentage points until 2058. This may sound like little, but in reality, it is much more. This is confirmed by the following example calculation for Germany. According to the Federal Statistical Office (Destatis), the gross national income in Germany in 2020 was 3,427 billion euros. This would result in a liability sum for Germany of 0.6% of the gross national income with 20.5 billion euros (exemplary for the year 2020) per year. According to Art. 5, the borrowing of 750 billion euros is at 2018 prices and is subject to a fixed deflator of 2% per year. Therefore, a total debt of the European Union of up to €820 billion must be expected by 2026. With a repayment term of 31 years (from 2028 to 2058), the liability sum for a member state like Germany could amount to up to 770 billion euros in the worst case. This would effectively lead to a fiscal union.

Third Problem: Violation of the overall budgetary responsibility of the German Bundestag

However, even if the new Own Resources System of the European Union is in order under European law, the German Ratification Act must not violate the constitutional identity of the German Basic Law. Also European Union legal acts are to be reviewed against the standard of the Basic Law if this is indispensably required to monitor the preservation of Germany's constitutional identity, which is guaranteed by Article 23 (1) sentence 3 in conjunction with Article 79 (3) of the Basic Law. And here, too, the constitutional complaint likely has good prospects of success.

The GCC anchors the protection of the overall budgetary responsibility of the German Bundestag directly in Article 79 (3) of the Basic Law. The unalterable core area of the principle of democracy is violated if the German Bundestag is deprived of its parliamentary budgetary responsibility by a measure of the European Union to the extent that it or future federal parliaments can no longer exercise the budgetary right on their own responsibility. This also includes the prohibition to be jointly liable for the decisions of third parties with consequences that are difficult to calculate.

The question of the violation of the overall budgetary responsibility of the German Bundestag is strongly related to the second problem. Here, too, the question is whether Germany is exposed to incalculable liability risks. In the ESM ruling, the GCC had decided that the principle of democracy is only respected if the Bundestag remains the place where decisions on revenues and expenditures are made on its own responsibility. This decision also deals with international and European liabilities. In this ruling, the GCC had not assumed a violation of budgetary responsibility because the payment obligations assumed with the ESM Treaty did not exceed €190 billion, and liability beyond this was excluded by a joint declaration of the ESM members that was binding under international law.

Accordingly, one possible safeguard that the GCC could demand in the case of the Own Resources System ist he adoption of a protocol declaration that excludes the obligation to make additional contributions to repay the EU debt incurred under the Recovery and Resilience Facility.

An analysis of possible procedural scenarios

Starting point: Hanging decision

The decision of the GCC of March 26, 2021, is a so-called "hanging decision" (i.e., the decision only applies provisionally until the GCC has decided on the application for a temporary injunction). This is, therefore, "urgent preliminary legal protection " for particularly urgent cases where there is a threat of a fait accompli up until a decision is made on the urgent application. However, this also means that the decision of March 26, 2021, has not even been the penultimate word in this matter. The decisions on the preliminary legal protection and, in particular, on the merits of the case, are still pending. It will therefore take even longer for the court to decide on the constitutionality of the Own Resources Ratification Act.

So far, three things are still pending: (1) The statement of reasons for the hanging order. The GCC's order so far only states "The statement of reasons will be submitted later". (2) The preliminary legal decision on the urgent appeal. (3) The decision on the constitutional complaint on the merits.

First procedural problem: When will the statement of reasons be submitted?

We can only guess as to when the GCC will submit the reasons for its hanging decision. There have been no previous constitutional rulings on the matter. At the administrative court level, there have already been several hanging decisions. However, not much can be deduced from these that would apply to the constitutional summary proceedings. This is because these requirements do not apply without restriction to interim legal protection in constitutional complaint proceedings. In any case, it cannot be ruled out that the GCC will only submit its statement of reasons with the decision on the preliminary legal protection itself. 

Second procedural problem: Preliminary legal protection

In the meantime, the GCC will be able to clarify the open legal and factual questions concerning any safeguard mechanisms of the European Union's Own Resources System and how funds are raised, at least to the extent that a preliminary decision will be possible within the framework of a weighing of consequences. A preliminary injunction would be in effect for six months and could be renewed. The standard of review is different than in the main proceedings. It is about a weighing of consequences: "the consequences that would arise if the preliminary injunction were not issued but the application in the principal proceedings were successful must be balanced against the disadvantages that would arise if the preliminary injunction sought were issued but the application in the principal proceedings were unsuccessful". This also takes into account the public interest and the interests of third parties. Nonetheless, a preliminary injunction cannot be considered if principal proceedings are inadmissible or manifestly unfounded from the outset. The fact that the hanging decision was issued indicates that the emergency application has a chance of success and is not manifestly futile.

It will also be interesting to see how long it will take the court to issue a decision on preliminary legal protection. In the ESM proceedings, the GCC ruled on the interim injunction within three months after the oral hearing. Since the ESM proceedings also dealt with liability risks for the Federal Republic of Germany, it could be similar in this case. Likewise, a decision on the interim proceedings now pending could take just under three months.

Third procedural problem: Possible question for referral to the ECJ

The GCC will likely refer one or more questions to the ECJ. These would concern the substantive problems addressed above. Through the referral question, the GCC could persuade the ECJ to safeguard and contain the Own Resources Decision under European law.

In para. 118 of the PSPP judgment, the GCC stated the following: "Where an ultra vires review or an identity review raises questions regarding the validity or interpretation of a measure taken by institutions, bodies, offices and agencies of the European Union, the Federal Constitutional Court, in principle, bases its review on the understanding and the assessment of such a measure as put forward by the CJEU. However, this no longer applies where the interpretation of the Treaties is simply not comprehensible and thus objectively arbitrary (see paras. 112 and 113). "

This means that the GCC will generally accept the interpretation of the ECJ after a question of referral unless this is " simply not comprehensible ". The reason for this is the division of tasks between the courts. The ECJ is responsible for interpreting Union law, while the GCC interprets the GG (which, however, also includes Article 23 (1) sentence 2 in conjunction with Article 79 (3) in conjunction with Article 20 (1) and (2) of the Basic Law). This harsh choice of words is thus nothing other than a broad standard of review by the GCC. It serves to protect the ECJ's monopoly of interpretation of Union law.

Fourth procedural problem: Decision on the merits of the case

Two questions are then decisive for the likelihood of the decision on the merits: (1) Will the GCC refer the question to the ECJ? (2) If so, how will the ECJ answer the question?

If the GCC does not submit a question for referral to the ECJ, it is highly unlikely that there will be a further decision on the main case to the detriment of the Own Resources System. The reason for this is that since its Honeywell decision, the GCC has only interpreted the ultra vires control in a way that is friendly to European law, which includes a prior referral to the ECJ.

Should the GCC refer the matter to the ECJ, which seems likely, it will rely on its decision. The more convincing the justification of the interpretation of European law turns out to be and the sooner it limits the liability of the Member States, the less likely it is that the GCC will activate ultra vires review or identity review.

As a result, it is up to the ECJ to avoid an ultra vires decision or activation of identity control by providing a convincing answer and ensuring liability barriers. This is how interaction within the European constitutional court network functions. As long as the democratic feedback of the EU at least also happens via the Member States, an interplay between court actors of both levels (EU, Member States) is also necessary as a procedural safeguard.

 

Photo credit: Ronald Kunze, via Wikicommons Media

Should the EU sanction its Member States for breaches of rule of law and human rights? Part 2: The Application of Ordinary EU law

Professor Steve Peers, University of Essex

Should the EU sanction its Member States for systematic breaches of human rights and the rule of law – and if the answer is yes, how should it do so?

This is the second of three blog posts discussing this issue. The first post examined the formal process set up to sanction Member States to this end: Article 7 TEU. As I discussed there, this process – which could lead to suspension of some aspects of EU membership for a Member State – is highly political, with a very limited role for the EU courts, and is very difficult to apply. However, in the last year or so, ‘ordinary’ EU law has been used to challenge Member States for such breaches instead. This blog post is an overview and discussion of how this alternative process works. A third blog post will discuss the broader constitutional dynamics and historical context of sanctioning Member States.

The EU court process

Before looking more at the details of how ordinary EU law is being used to address general concerns about human rights and the rule of law, it’s necessary to summarise the key features of the relevant parts of the CJEU’s jurisdiction.

First, the infringement procedure allows the Commission (or a Member State) to take a Member State to the CJEU to argue that it is infringing EU law as such. The Court’s ruling in such a case is binding on the Member State concerned, but does not strike down a national law as such. If requested, the Court can order interim measures against a Member State while such a case is pending.

 

Secondly, the ‘preliminary ruling’ process (Article 267 TFEU) provides that any national court can ask the CJEU about the interpretation of EU law, if necessary to decide a case pending before it. These latter cases often concern an individual arguing that a Member State has not applied EU law correctly. The CJEU’s answers to the questions are binding on the national court, which resumes its proceedings after the CJEU’s judgment and decides on what remedy to apply – which could involve disapplying national law. 

Compared to Article 7, these are not just different processes (judicial, rather than essentially political) with a different remedy, but have in principle a much narrower subject-matter: the application of EU law as such, not the values of the European Union (as discussed in the first blog post). It’s literally the difference between building a bypass without doing an environmental impact assessment, and locking up the leader of the opposition. (Of course it’s always possible, as an homage to Douglas Adams, that an unauthorised bypass construction turns out to be an ironically clunky foreshadowing of more drastic developments to come).

Having said that, as I noted in the first blog post, there are times when an issue falls within the scope of both ordinary EU law and general human rights breaches. First of all, in some cases there are very specific links between the Article 7 process and ordinary EU law issues. Secondly, there are cases concerning the general protection of human rights and the rule of law where the Article 7 process and the ordinary EU law process can and do run in parallel, as the CJEU implicitly confirmed in June in its first ruling on Polish judicial independence (discussed further here). (See also the Advocate-General’s opinion in a further pending case against Poland, para 73). I’ll examine these two categories of cases in parallel.

Specific links: Asylum and the European Arrest Warrant

The two areas where specific links already exist between the Article 7 process and ‘ordinary’ EU law are asylum and the European Arrest Warrant.

Asylum

As regards asylum, the explicit link is not with EU asylum legislation, which concerns asylum applications by non-EU citizens – although systematic human rights breaches can have an impact there (see below), but to the protocol to the EU Treaties, which in principle rules out asylum claims by EU citizens.  

According to this protocol, since human rights are well-protected in the EU, ‘Member States shall be regarded as constituting safe countries of origin in respect of each other for all legal and practical purposes in relation to asylum matters’. Therefore, asylum applications by EU citizens ought to be rejected automatically in other Member States except where: (a) a Member State derogates from the ECHR on an emergency basis pursuant to Article 15 ECHR; (b) ‘if the procedure referred to Article 7(1) of the Treaty on European Union has been initiated and until the Council, or, where appropriate, the European Council, takes a decision in respect thereof with regard to the Member State of which the applicant is a national’; (c) ‘if the Council has adopted a decision in accordance with Article 7(1) of the Treaty on European Union in respect of the Member State of which the applicant is a national or if the European Council has adopted a decision in accordance with Article 7(2) of that Treaty in respect of the Member State of which the applicant is a national’; or (d) if a Member State decides to consider an asylum application unilaterally in an individual case, subject to certain limits.

Of these four cases, the second and third explicitly link to the Article 7 process. In short, asylum applications by EU citizens are admissible either if a ‘yellow card’ sanction process is pending, or if the EU institutions have issued either a yellow card or a red card to a Member State. As discussed in the first blog post in this series, while no yellow cards or red cards have ever been issued, a yellow card process is pending against both Poland and Hungary. It follows that Polish and Hungarian citizens can already apply for asylum in other Member States – a surprisingly underappreciated point.

One reason that this possibility has been overlooked is because of the parallel existence of free movement of persons. There’s no Iron Curtain across the EU, far from it: Poles and Hungarians who are annoyed with their governments can simply move to another Member State if they meet the fairly liberal criteria to move under free movement law, and doubtless some disgruntled Polish and Hungarian citizens have moved within the EU (or to non-EU countries, on the basis of those countries’ immigration laws) for such reasons.  

The relevance of the possibility to make asylum claims would only apply in limited circumstances: where the person concerned moved beforehand (see a CJEU judgment from last year on a Croatian citizen with refugee status, discussed here); where the citizen does not qualify under free movement law because of lack of a job or support; where a transitional restriction on free movement after accession to the EU applies; or where the EU citizen is resisting a European Arrest Warrant (which was indeed the reason why the asylum protocol was originally added to the Treaties in the 1990s in the first place: to override asylum claims which were being made in order to defeat extradition requests).   

In the event of a crisis involving many thousands of EU citizens fleeing a Member State (cf Hungary 1956), the Protocol would come into its own, as many of those concerned would lack jobs or support. Odd as it might sound, EU asylum law would not apply to such a case, since it only applies to non-EU citizens; there would perhaps be some ad hoc arrangements quickly agreed to determine responsibility and eligibility, possibly applying EU asylum law by analogy.

European Arrest Warrant

So far, the CJEU has not been asked about the asylum protocol. However, it has been asked many times about the European Arrest Warrant (EAW) and human rights. Some of these cases concern detention conditions (see the line of cases discussed here), or independent prosecutors (see discussion here), but one judgment, the LM ruling of 2018 (discussed here), specifically addresses the application of the EAW where there are broader concerns about the rule of law in the State issuing warrants (in this case, Poland).  

According to the CJEU in that case, the preamble to the EAW law, which states that this law can only be suspended if an Article 7 ‘red card’ is issued, meant that the courts had to defer to the absence of a decision by the EU’s political institutions, and could not suspend the law as a whole by themselves. However, the courts could still consider whether there was a breach of the rule of law in individual cases, taking account of the arguments about a systemic problem with the rule of law in the issuing State which had been put before the EU institutions in a pending ‘yellow card’ proceeding (which was already underway against Poland).

Systematic human rights problems and ordinary EU law

The most important group of cases on this point relate to the independence of the judiciary, and consist largely (but not entirely) of cases concerning Poland. In its June judgment on the first of these cases, an infringement action concerning early retirement ages for the Supreme Court (discussed here), the Court of Justice confirmed that the requirement of respect for judicial independence is inherent in Article 19 TEU, which describes the EU judicial system, including the role of national courts. In doing so it clarified its earlier judgment on the Portuguese courts (discussed here), in which concern about judicial independence arose in the context of salary cuts which were the consequence of austerity linked to EU law.

Crucially, in this first judgment about Poland, the Court confirmed that no specific link to a particular EU law is necessary in order to argue that a Member State has infringed the principle of judicial independence. In effect, Article 19 TEU is a free-standing rule of EU law: arguments about judicial independence are inherently linked to specific EU laws, because EU law depends upon an independent national judiciary for its enforcement. However, the Court did not clarify whether Article 19 TEU only applies where there is a systematic problem with judicial independence (as the Advocate-General’s opinion argued), or could also be invoked in disputes about a specific incident.

A second infringement case against Poland, concerning early retirement ages for the ordinary courts, is also pending. An Advocate-General’s opinion in this case argues that the Commission’s claims are mostly well-founded, along similar lines to the first judgment (update: the Court’s judgment in this case, ruling against Poland, was released on November 5). A third batch of cases, referred from the national courts, concerns judicial disciplinary proceedings. In this case, an Advocate-General’s opinion argues that the case is linked to specific EU law, rather than Article 19 TEU as a free-standing rule, but that in any event Poland is again breaching EU law. The remedy is for the national courts to disapply the offending national law if necessary (judgment is due November 19). A fourth batch of cases might be inadmissible, in the opinion of an Advocate-General. A third infringement case, with a request for expedited proceedings, was brought in October. Furthermore, a number of other cases referred from Polish courts are pending, as summarised here.

A number of cases concerning specific EU law points have been brought against Hungary. In particular, the Commission has brought infringement actions concerning: the independence of the central bank (withdrawn), age limits for judicial retirement (successful; linked to age discrimination law, not Article 19 TEU as such), independence of the data protection authority (successful; discussed here); the removal of the Central European University (pending; an Advocate-General’s opinion is due in November); NGO funding (pending); systematic problems with the asylum system (pending); and withdrawal of food from irregular migrants (at the ‘reasoned opinion’ stage). These cases don’t explicitly raise systemic arguments about Hungarian protection of the rule of law – but their sheer volume, and the broader political context, notably as regards the independence of regulators, reflects some of the broader concerns that led the European Parliament to trigger the Article 7 process against Hungary.  

As regards Romania, a series of recent cases sent to the CJEU query whether the post-accession process of checking Romanian compliance with its obligations related to civil and criminal judicial cooperation has some legal effect, in order to address concerns about the rule of law in that country.

Moving away from specific countries, issues arise regarding EU funding. Should Member States with a questionable record in protecting the rule of law be hit in the pocketbook? That’s what the Commission suggested in a proposal relating to the next multi-annual EU budget, which would sanction Member States financially if a systemic deficiency in the rule of law ‘affects or risks affecting the principles of sound financial management or the protection of the financial interests of the Union’.

The EU Council legal service has concerns about the EU’s legal power to adopt this proposal, which have been rebutted by Professors Kelemen, Lane Scheppel, and Pech. The legal service’s view is that the proposal would breach the exclusivity of the Article 7 process. In my view, while I have legal doubts about the notion that the EU has general power to sanction Member States financially for breaches of the rule of law outside that process, this proposal is more tightly drawn than that: it only applies where there is a link between the rule of law deficiencies and the EU’s financial interests. To put it bluntly, it’s possible that corrupt officials or politicians might be shielded by biased judges. In that light, and taking account of the subsequent CJEU judgment finding that a lack of judicial independence is intrinsically linked to the application of EU law, it should follow by analogy that the EU has the power to adopt this proposal. However, it remains to be seen whether it is de facto blocked as part of a broader quid pro quo when agreeing the EU’s next multi-annual budget.  

Comments

As I noted in the first blog post, the use of ‘ordinary’ EU law means to address rule of law concerns, instead of the Article 7 process, could be a means of addressing those concerns by conventional means, given that some perceive Article 7 as a kind of ‘nuclear button’. Certainly it has its advantages compared to the Article 7 process, as it avoids the obvious reluctance of Member States to condemn each other in that context. Its use as a route to ensure the rule of law is strengthened by the CJEU’s willingness to assert jurisdiction over concerns about judicial independence more broadly. However, outside specific links with EU law and the issue of judicial independence, it might prove hard to use the ordinary EU legal system to deal with a number of concerns about the political system in a Member State besides those issues.

There’s also a risk that once national courts are ‘packed’, it’s too late to expect them to send questions to the Court of Justice. The Commission can still bring infringement actions, but these have less direct impact on the national legal process. And the Commission could in turn be ‘captured’ by those deferential to governments. At present, there are robust challenges to Member States as regards the rule of law via both national courts and the Commission – but it took awhile for the Commission to get going, and its willingness to be active in this field cannot be taken for granted.

If both national courts and the Commission are ‘captured’, there might still be some pressure from the courts of other Member States. But, for instance, placing indirect pressure via EAW cases has its limits: the CJEU has ruled out a general suspension of the EAW system except where Article 7 has been invoked, and anyway 'we won’t send you these fugitives' may not be too much of a threat; the issuing Member State might just think 'Fine, you’re welcome to them'. It might be legally difficult (for instance, due to lack of jurisdiction) or expensive for the requested State to try the fugitives instead, and in any event if the issuing State has problems with the rule of law, how could one trust a sentence handed down there, or evidence supplied by its legal system for the purpose of a trial in the requested State instead?  

So addressing the rule of law by conventional means has its strengths, but also its limits. And either Article 7 or the use of ordinary EU law raises more fundamental questions about the nature of the EU and its relations with Member States – to which I will return in the final blog post in this series.

Barnard & Peers: chapter 9

Photo credit: Steve Peers

Hard Brexit Benefits? Change Britain’s £24 billion of unicorns

Professor Steve Peers

On Boxing Day, the pro-Leave group ‘Change Britain’ produced a ‘report’ (actually a press release with an annex) claiming £24 billion worth of benefits from a ‘hard Brexit’ – leaving the EU without participating in the single market or customs union. This claim was widely repeated uncritically by the press – although a later critique of the economics by Jonathan Portes was published, and the economic analysis in the report was also fisked by Sam Bowman.

Their comments cover a lot of ground, but it’s worth standing back and looking at the report as a whole – and at how poor the debate over Brexit has become.

The report produces its £24 billion sum from three sources: a) no further contribution from the EU budget; b) future trade deals; and c) cutting back ‘red tape’. Let’s look at each of these in turn, and then note what the report neglected to mention.

EU budget contributions

The report starts with the UK’s contribution to the EU budget: £19 billion if the UK budget rebate is not counted; £14 billion if the rebate is taken off; and £10 billion if the amount spent from the EU budget in the UK (on things like farm subsidies, research and regional development) is deducted. Change Britain accepts that the possible savings are £10-14 billion.

So this necessarily admits that the £19 billion figure – which was the basis for the £350 million/week number ‘on the side of the bus’ during the referendum – was a lie all along. It was a lie because as I point out here, with further details and links, the rebate money is never ‘sent’ to the EU, and the UK has full control over how that rebate money is spent and whether the rebate is retained in future.

Starting by admitting (albeit only indirectly) that they previously told a huge lie is not a good beginning for the report’s authors, since it puts the credibility of anything else they say in question. But let’s give them the benefit of the doubt and examine their other claims separately.

Cutting back ‘red tape’

The report estimates possibly several billion pounds savings from scrapping some EU laws – concerning the issues of air pollution, animal welfare, data protection, GM foods, chemicals regulation, air passenger compensation, battery pollution and company law. These estimates should have been accompanied by numerous health warnings.

First, as Portes points out, these estimates (and the trade estimates), taken with the estimates on contribution savings, mix up several different things: public finances and business costs. Adding the numbers together is economically incoherent.

Secondly, most or all of the ‘red tape’ referred to has a non-economic value: many people prefer cleaner air, more privacy and better treatment of animals, for instance, quite apart from the impact on GDP. There may, in any event, be indirect economic costs from pollution and less secure data, among others.

Thirdly, in some cases there may be savings to business but not the overall economy. Take air passenger compensation: if passengers are not compensated for delayed flights, the airlines save money – but passengers no longer have that compensation money to spend. True, airlines might pass their savings on to passengers in general – but still the passengers who previously received the compensation money will no longer be getting it. Either way, how would the overall economy benefit? The same goes for cuts to workers’ holiday pay and other worker benefits that business groups sometimes campaign for (though not on this occasion): cuts will save businesses money, but how will the corresponding cuts in workers’ spending power make the economy as a whole better off?

Fourthly, some of the laws concerned are related to market access to the EU – most obviously, the biggest proposed saving, data protection law. As I discuss here, EU data protection law limits data transfers from non-EU countries without an ‘adequate’ level of data protection. Scrapping that law (which would be complicated anyway by the right to privacy in the ECHR and the separate Council of Europe data protection Convention) would mean limits on market access to the EU. This would surely have an impact on the economy. 

Future trade deals

The report claims that the UK would generate exports to non-EU countries by signing its own trade deals. It calculates these increased exports by taking EU estimates of the trade effect of new deals with certain countries and assuming that the UK would benefit from 15% of that increase, because the UK has 15% of the EU’s trade with non-EU countries. As Bowman points out, this is nonsense: the percentage of EU trade with non-EU countries which is held by the UK varies widely and depends on many factors.

Moreover, country where the biggest possible trade benefit exists in the ‘asked for a trade deal’ list – Korea – already has a trade deal with the EU, under which UK trade has already increased. (The EU document which the Change Britain report links to even refers to the EU/Korea deal as being in force already. Change Britain either a) did not read this document – which it uses as a key source – and is moreover ignorant of the EU/Korea deal generally; or b) it is simply telling a blatant lie.)

So while it’s theoretically possible that the UK could sign a better trade deal with Korea than the EU did, the benefit of that deal would not be anything like the £25 billion claimed. Certainly, the report provides no evidence of this. Indeed, the UK will be worse off re exports to Korea after Brexit unless it convinces Korea to agree to a UK-only version of the existing deal.

Moreover, several other countries referred to in the report have agreed a trade deal with the EU which is not in force yet: Canada and two ASEAN states (Vietnam and Singapore). Others are negotiating with the EU (USA, India, Japan, Mercosur, several other ASEAN states). The report’s estimates could therefore only be valid if (a) the EU trade deals agreed or under negotiation are respectively either not ratified or not agreed; and (b) the UK is able to negotiate trade deals with those states.

Note that trade deals are not that easy to negotiate or ratify: the US has also had trouble doing a trade deal with the Mercosur states in South America, and the Change Britain report itself notes that the trans-Pacific trade deal might not be ratified. The report also fails to refer to the obvious increase in imports from the countries concerned that would follow from such trade deals. Finally, it one reason there is no EU/India trade deal is a dispute between the UK and India during the talks. Obviously Brexit will not solve that problem.

In any event, if the UK stayed in the single market but fully left the customs union (like Norway), it could still sign its own trade deals with non-EU countries. 

Costs of leaving

The report says nothing about costs of leaving the single market – estimated at 4% of GDP by the IFS, for instance. Maybe those forecasts are incorrect, but the Change Britain report doesn’t even acknowledge their existence, never mind try to rebut them. In practical terms, for instance, how much will it cost to hire extra customs officers after leaving the customs union, or extra border guards and other immigration staff after ending free movement of people? In Change Britain’s fantasy world, these people must be invisible, or work for free.

Conclusion

An interesting coda to the Change Britain report: late last night, Michael Gove, the head of the official Leave campaign, went on Twitter to debate with Jonathan Portes about it. Portes repeatedly asked Gove to confirm if he had read the report, and Gove repeatedly avoided answering. Instead he demanded Portes first tell him how he voted in the referendum. How is that relevant to a debate over the issues?

And how can Gove assert simultaneously that he is certain Brexit will be economically beneficial and sneer that he is tired of ‘expert’ economic forecasting? The Change Britain report – or any other economic assessment of Brexit – necessarily involves making some hypothetical assumptions. The alleged ‘savings’ from red tape reduction and new trade deals both rely on such assumptions. So Gove is in effect taking the effect of Brexit on faith, assuming without evidence (since he won’t debate the issue in detail) that the ‘experts’ he agrees with must be right about the future, and the ‘experts’ he disagrees with are wrong about it. That’s not an argument against experts; it’s just confirmation bias. To be fair, though, the number on the side of the bus wasn’t confirmation bias. Rather, it was a lie.  

Scribbled without numeracy by incompetent interns; published without scrutiny by hungover journalists; cheered without irony by back-stabbing politicians. Six months after the referendum vote, the debate over Brexit deserves better than this report. We can only cross our fingers for 2017.

Barnard & Peers: chapter 27

Photo credit: Imgur

EU Referendum Briefing 1: Can the UK control the EU’s future if it stays a member?

Steve Peers

During the EU referendum campaign, a number of arguments have been made that staying in the EU is risky, because of possible future developments of the EU itself. While there will always be someone somewhere who says they would like to see an EU army, or some development related to the single currency, such an expression of opinion is meaningless by itself.  The fundamental issue is whether the UK could control such developments – either by vetoing them or opting out.

So what’s the worst that can happen? In this post, I’ll examine in turn the main alleged risks to staying in the EU. As we’ll see, in every single case the UK has control, either by an opt-out or a veto. In other words, none of these things can happen without the British government’s consent. Nearly all of them would also need our Parliament’s consent. And the large majority – all the fundamental possible changes to the EU that many are concerned about – would actually need the consent of the British public in another referendum. (Anyway, there's nothing to stop the UK holding another referendum on EU membership in future, if it wanted to).

All of these safeguards for UK control of further developments of the EU exist in the current law of the EU – as I will show in detail. None of them are first created by the renegotiation of EU membership agreed this February.

I’ll look at seven issues where the UK has control over future EU developments:

a) defence;

b) transfers of power;

c) new Member States, including Turkey;

d) taxation;

e) non-EU immigration, asylum and criminal law;

f) the single currency; and

g) the EU budget, including the UK rebate.

There's also an earlier blog post on the controversial issue of the planned EU/US trade deal (TTIP) and the NHS. 

a)      EU Defence and foreign policy

The UK has control over EU defence and foreign policy measures because they are in principle taken by unanimous vote, with only limited exceptions. On foreign policy in general, Article 31 TEU says:

Decisions under this Chapter shall be taken by the European Council and the Council acting unanimously, except where this Chapter provides otherwise.

The exceptions are where there has been a prior act or request of EU Presidents and Prime Ministers (who act by consensus), or where the EU is implementing a prior act already agreed by unanimity, or where the EU appoints a ‘special representative’. However, there is a kind of ‘emergency brake’ in all these cases:

If a member of the Council [ie a Member State government] declares that, for vital and stated reasons of national policy, it intends to oppose the adoption of a decision to be taken by qualified majority, a vote shall not be taken.

Also the majority voting ‘shall not apply to decisions having military or defence implications’. It’s also possible to apply majority voting to funding issues, but again there’s a military and defence exception (Article 41 TEU), and also there’s an exception for a Member State which chose to abstain on a proposal. The bottom line is that the UK is in control of whether it has to contribute to EU foreign policy funding.

So whether EU foreign policy relating to Ukraine or Russia (for instance) is a good idea or not, it has not been imposed on the UK government. Rather the government is in control, because it could have vetoed it. This means that if EU Member States can’t agree on an issue, there is no EU foreign policy on that issue, and they do as they like – as in the case of the Iraq War, for instance.

Some have raised the issue of the UK’s permanent seat on the United Nations Security Council. In fact Article 34(2) TEU refers to Member  States’ seats on the Security Council, not to any EU seat. The UK has control here, because it could veto any EU decision that required it to give up its Security Council seat, as part of its veto over any foreign policy matters. It’s suggested that the European Parliament wants that to happen, but the European Parliament has no role in EU foreign policy: Article 36 TEU says that it’s only consulted.

Anyway, a change to the UK’s Security Council veto  could only happen by means of a change to the UN Charter, and the UK has control over that: a veto, according to Article 108 of the Charter:

Amendments to the present Charter shall come into force for all Members of the United Nations when they have been adopted by a vote of two thirds of the members of the General Assembly and ratified in accordance with their respective constitutional processes by two thirds of the Members of the United Nations, including all the permanent members of the Security Council.

As for defence, can there be an EU army? Article 42(2) TEU says:

2. The common security and defence policy shall include the progressive framing of a common Union defence policy. This will lead to a common defence, when the European Council, acting unanimously, so decides. It shall in that case recommend to the Member States the adoption of such a decision in accordance with their respective constitutional requirements.

So the UK has control over any possible ‘common defence’, by means of its veto. And there’s more: the ‘constitutional requirements’ that would apply in the UK are not only parliamentary approval, but also a referendum, according to the European Union Act 2011. In general this law sets out a ‘referendum lock’ on further transfers of power to the EU, putting the British public in control over any future transfers. I’ll refer to this law again several times, since it sets many other limits on the development of the EU in future. It also requires a referendum before any British veto over foreign policy or defence is given up. 

b) Treaty amendments and transfers of power

It’s sometimes suggested that there might be future transfers of power from Member States to the EU, as part of the developing single currency project (perhaps following the so-called ‘Five Presidents Report’ on this issue) or for some other reason. This is sometimes presented as a 'superstate', or as an inevitable outcome of the EU's 'ever closer union' clause. However, the UK has control over these developments. First of all, the UK has an opt-out from the single currency, as discussed below. Secondly, it also has a veto over future Treaty amendments.

There are several ways to amend the EU Treaties, as set out in Article 48 TEU. They have two things in common: (a) the UK government has a veto over all of them (which it used in 2011, for instance); and (b) the British Parliament would have to approve each of them, either by voting in favour or deciding not to vote against.

But there’s more. The European Union Act 2011, first mentioned above, also gives control to the British public over any significant Treaty amendment, by means of a referendum. This would apply where the UK would drop nearly any veto. It would also apply to other transfers of powers to the EU from the UK, defined in detail as including:

a)      ‘the extension of the objectives of the EU’;

b)      any ‘conferring’ or ‘extension’ of any EU competences, including over ‘the co-ordination of economic and employment policies’ (an issue in the Five Presidents’ Report); or

c)       giving any EU ‘institution or body’ any power to give orders or impose sanctions upon the UK.

  

It’s been suggested that the UK gave up a veto relating to single currency and banking issues as part of the renegotiation deal. This isn’t true, as the deal didn’t amend the Treaties and Parliament has not amended the 2011 Act.

So the control over any transfer of power from the UK to the EU is threefold: the UK government, UK Parliament and the British public.

c)       New Member States

The rules on accession of a new Member State are set out in Article 49 TEU, as follows:

Any European State which respects the values referred to in Article 2 and is committed to promoting them may apply to become a member of the Union. The European Parliament and national Parliaments shall be notified of this application. The applicant State shall address its application to the Council, which shall act unanimously after consulting the Commission and after receiving the assent of the European Parliament, which shall act by an absolute majority of its component members. The conditions of admission and the adjustments to the Treaties on which the Union is founded, which such admission entails, shall be the subject of an agreement between the Member States and the applicant State. This agreement shall be submitted for ratification by all the contracting States in accordance with their respective constitutional requirements. The conditions of eligibility agreed upon by the European Council shall be taken into account.

So the UK controls whether a new country joins the EU, by means of a veto. The ‘constitutional requirements’ are an Act of Parliament in favour.

There has been some concern about new Member States joining the EU in future, but in order to join each new State must negotiate 35 chapters of detail about EU law. In 11 years’ of negotiations, Turkey has only agreed one out of those 35 chapters. It has not even opened many of them:

Moreover, the ‘conditions of eligibility’ include human rights standards, which Turkey doesn’t now meet. Cyprus would veto Turkish membership unless there’s a deal on the future of the island. The other countries applying to join have not agreed many chapters either.

In any event, the current Member States can insist on a long waiting period before the free movement of persons fully applies to new Member States. The majority of the Member States which joined the EEC/EU after it was founded (14 out of 22) have been subject to seven-year waiting periods before full free movement of people, and longer periods could be applied in future.

The UK veto over enlargement could only be dropped by a Treaty amendment, approved by the government, parliament and public under the European Union Act 2011.

d)      Taxation

The main taxes harmonised at EU level are VAT and excise taxes. EU law sets a minimum rate for these taxes: it’s 15% for VAT, subject to exemptions. It also defines their scope. The UK has VAT exemptions on things like books, basic foodstuffs and children’s clothes.

While VAT is sometimes depicted as if it is imposed by the EU upon the UK, in fact the UK has consented to all VAT laws, since law-making in this area is subject to unanimity. The rule currently appears in Article 113 of the Treaty on the Functioning of the European Union:

The Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation.

So the UK has control in this area, since it has consented to every VAT obligation and excise tax obligation set by EU law. It’s the UK’s own decision to set the rate of tax for VAT and excise taxes (taxes on alcohol, tobacco and petroleum) above the minimum level. Many people would like to see further exemptions from VAT, such as on tampons or environmental services; but it was the UK government that agreed to commit itself not to lower these rates. Actually, the UK government recently agreed to a renewal of the 15% minimum rate. In any event, the EU has recently agreed to a more flexible approach, which will allow VAT to be dropped on tampons and possibly a broader range of other products and services.

It follows from the existence of the veto that the UK has control over any future amendment to EU tax law in these areas, including any removal of any exemption, by means of its veto.

What about other taxes? There is little EU involvement in other areas of tax law. So, for instance, the UK is entirely free to set rates of personal income tax, National Insurance contributions, corporate taxation, council tax and many more. However, there is some limited EU involvement in cross-border aspects of corporate tax, such as the recent law which aims to tackle cross-border tax evasion.

The EU adopts these laws on the different legal basis of Article 115 TFEU:

Without prejudice to Article 114, the Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, issue directives for the approximation of such laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the internal market.

Again it can be seen that unanimity is the rule. So the UK has a veto. This veto is further protected by Article 114(2) TFEU, which says that the majority voting that normally applies to EU single market law does not apply to ‘fiscal provisions’.

Therefore the UK has control over any new EU tax that might possibly be proposed to fund refugee and migration costs, or upon pensions, or upon anything else. We can simply veto it.

Can these vetoes be removed? As discussed above, due to the European Union Act 2011, they can only be removed (in whole or part) if the Treaty is amended with the consent of the UK government and parliament, and the British public in a referendum.

e)      Asylum, non-EU migration and criminal law

The UK has an opt-out over EU laws on non-EU migration, criminal law and policing. This is set out in Protocol 21 to the Treaties.

As regards immigration and asylum, the UK opted out of most non-EU immigration laws, but opted in to the first phase of asylum laws from 2003-2005, using the veto which it had at the time to ensure that these laws did not require any change in UK asylum law. The only substantive EU asylum laws which the UK has opted in to since 2005 are the Dublin III Regulation (on returning asylum-seekers back to another Member State where they first entered) and the Eurodac Regulation (on fingerprinting asylum-seekers to that end). The UK opted out of recent EU laws on relocating asylum-seekers from Italy and Greece to other Member States.

The UK also has an opt-out from the Schengen system of open borders between Member States, and harmonised external border controls (see Protocols 19 and 20). This includes an opt-out from the EU laws on short-term visas (which concern stays of three months’ maximum). So the UK will not be covered by the proposed laws on waiving the short-term visa requirement for Turkish citizens, or for other countries (Ukraine, Georgia, Kosovo).

For the same reason, the UK will also not be covered by the proposed law on a European Border Guard. While this law originally provided for the border force to enter a Member State without its consent, that idea was dropped during negotiations. That would anyway not have applied to the UK; and in fact the EU court has ruled that the UK could not opt in to the EU law creating a border agency (the precursor to the proposed Border Guard law) even if it wanted to, without signing up to the whole of the Schengen system.

In the areas of criminal law and policing (which will be the subject of a separate blog post with more detail), the UK had a veto until 2009, when the Treaty of Lisbon came into force. Since that date, it has had an opt-out, which it has frequently used. In particular, it has opted out of the proposal for a European Public Prosecutor. Note that the EU’s police agency, Europol, is not a ‘federal police force’: the Treaty rules out ‘coercive powers’ for it, so it cannot arrest, question or detain people. Its main role is the analysis of police investigation data.

The abolition of the opt-outs on immigration and asylum, Schengen and criminal law would require a Treaty amendment subject to approval of the government and Parliament. The abolition of the Schengen opt-out would also require a national referendum, under the European Union Act 2011. So would participation in the European Public Prosecutor.

f) The Single Currency

The UK’s opt-out from the single currency appears in Protocol 15 to the Treaties. Point 1 reads:

1. Unless the United Kingdom notifies the Council that it intends to adopt the euro, it shall be under no obligation to do so.

This protocol does not expire at some point, as is sometimes suggested. Neither are ‘all Member States obliged to join the euro by 2020’. So the opt-out is valid for an unlimited period.

The protocol goes on to disapply the various EU law rules relating to the single currency. This has a number of implications. Due to the single currency opt-out the UK cannot be subject to austerity measures imposed by the ‘Troika’ that oversees bail-outs to Eurozone countries, since this only applies to states which adopt the single currency. Austerity policy in the UK is solely a decision made by our own government.

Furthermore the UK is exempt from some EU banking laws. Most notably it is not obliged to participate in the permanent bail-outs of Eurozone states. Only Eurozone states are involved in that, on the basis of a separate treaty. In fact the EU as such cannot adopt laws on permanent bail-outs, according to the EU court.

The UK could potentially be part of solely temporary bail-outs. But here the law was amended to provide a guarantee that the UK would get its money back in the event of any default.

g)      The EU budget – and the UK rebate

Of the money the UK in principle sends to the EU, there are two key features: a) a rebate, meaning some of that contribution is never sent at all; and b) some EU spending back in the UK. (For an overview, see here).

It’s often suggested that the rebate is not legally secure, and that the UK has no control over spending by the EU. Both suggestions are false.

The rebate is set out in the EU’s Own Resources Decision. This does not (as some suggest) have an expiry date (other Member States’ rebates will expire in 2020, but the UK rebate, and the law as a whole, will not). If the EU wants to amend this law, Article 311 TFEU applies:

The Council, acting in accordance with a special legislative procedure, shall unanimously and after consulting the European Parliament adopt a decision laying down the provisions relating to the system of own resources of the Union. In this context it may establish new categories of own resources or abolish an existing category. That decision shall not enter into force until it is approved by the Member States in accordance with their respective constitutional requirements.

It’s clear that the UK government can control the future of the rebate by means of a veto. Furthermore, so can Parliament, since the ‘constitutional requirements’ for the UK referred to mean that an Act of Parliament has to be passed for any amendment to the Own Resources Decision. These constraints have meant that the veto has stayed in place for over 30 years – although the UK government and parliament have agreed to some reduction in it over that time.

It’s clear that this rebate is not ‘conditional’, as is sometimes suggested. The UK has full control over the rebate money and can do entirely what it likes with it.

What about EU spending back in the EU? The basic rules on what the EU spends money on are set out in the law on the ‘Multi-Annual Financial Framework’. The latest such law is here. The UK does have control over the basic features of this law, because it has a veto over it, according to Article 312(2) TFEU:

2. The Council, acting in accordance with a special legislative procedure, shall adopt a regulation laying down the multiannual financial framework. The Council shall act unanimously after obtaining the consent of the European Parliament, which shall be given by a majority of its component members.

It’s also useful to put the EU budget contribution into broader perspective. It’s less than 1% of UK spending (the small red section of the graph below). So if the UK no longer paid the contribution, it would be like getting a pay increase from £400 to £404. The average taxpayer is paying 12p a day toward the EU.

Conclusion

As we have seen:

a)      The UK cannot be required to join an EU army without consent of the UK government, parliament and public;

b)      Treaty amendments require the consent of the UK government and parliament, and (if there’s any transfer of powers) the public;

c)       Accession of new Member States requires the consent of the UK government and parliament; it is a long way off for Turkey in particular and if it ever happens, will be subject to long periods of transition for workers to be admitted;

d)      The UK has a veto on tax issues; the UK government, parliament, and public would have to consent to dropping it;

e)      The UK has an opt-out from EU law on asylum, non-EU migration and criminal law; the UK government and parliament would have to consent to dropping it, and the public would have to agree to join Schengen or the European Public Prosecutor;

f)       The UK has an opt out from the single currency and other related issues, and could only join after the consent of the UK government, parliament and public;

g)      The UK has a veto over the basic EU budget revenue and spending rules, including the UK budget rebate; the veto could only be dropped with the consent of the UK government, parliament and public.

Of course, there are many other possible criticisms of the European Union. Some may be valid, and some not. But the argument that the UK government could be forced into any of the measures listed above is quite clearly false and scaremongering. All of the above possible developments are subject to the control of the UK government, and usually our Parliament and the general public besides.

Art: ‘The Scream’, Edvard Munch