In last November, José Manuel Barroso announced two desperate initiatives to avoid the collapse of the eurozone. One of them, called the “green paper” calls for joint Eurobonds. Second–and a logical continuation of the first–is the proposed supervision, not using the word ‘control’* , of the national budgets by the European Commission. In the end, it is not too different from the idea to introduce a ‘European semester’ – proposed by the Commission (2010) a year before. But the idea, like its forbearer, does not go down well with Angela Merkel, chancellor of the Germany, who “is strongly against the idea and has also declared that only a treaty change can impose enough rules to ward off another disaster” (Charlemagne, 2011).
Indeed, a treaty change could address number of fundamental questions about the European Monetary Union governance. For one, incorporating the Commission’s ‘comprehensive package’ that includes supervision of budgets, screening of macroeconomic imbalances and the imposition of clear cut sanctions on those violating the Stability and Growth Pact, could possibly solve the euro crisis. Furthermore, a treaty change could fix the ridiculous situation where European Central Bank cannot–it can be argued–buy** the Member States’ governments’ bonds due to the ‘no bailout’ clause introduced in the Maastricht Treaty and therefore has to rely on a special purpose vehicle called European Financial Stability Facility***. This is important because, as the Economist emphasises (2011), “The only institution that can provide immediate relief [in case of financial emergency] is the ECB”. Hence, what is required, is a treaty change, that would enable ECB to fulfil its broader role as the European central bank.
The problem with treaty change, of course, is that EU treaty negotiations are notoriously difficult. Although Hubert Legal (legal adviser to the Council of the EU) and his colleagues have been innovative–his draft of the intergovernmental treaty to fix the eurozone would come into force once nine members of the euro zone (more than half, that is) have ratified it and those who do not “would come under severe political pressure to choose whether they want to stay in or out of the euro” (The Economist, 2011)–the problem, in my opinion, lies somewhere else.
What necessary is a substantial change in underlying treaties that would ease this negotiation and ratification problem. In fact, answer to the Lenin question is a specific exit mechanism form the eurozone (and, arguably, from the EU too). Currently, all of the 27 members have to ratify treaty changes proposed and some countries (Ireland) either have to or sometimes want to ratify treaty changes by referendums. There is of course, nothing wrong with a referendum as such, but at the moment the question asked on one is “Are you willing to accept this agreement or would you like to take gamble where, with very high probability, you get a better deal**** and with very low probability, you will ruin everything?”.
Failure to ratify amendments in a referendum (or in parliament) should automatically initiate negotiations on how the country should technically exit from the Eurozone (or the EU; depending on the issue at stake). After few months of preparations, the question of whether to ratify the treaty change that was rejected earlier or whether to exit (on terms negotiated by now), should be asked. Although, this is a rather Machiavellian way of pushing through amendments, it should not be frowned upon. All treaty changes still require the unanimity in the European Council. Nor should the break-up of the EU be feared much. The only country whose exit from the Eurozone could possibly gather popular support is Germany where referendums are constitutionally forbidden.
Footnotes
*Proposal, gives, the Commission the right to “recommend” changes to national budgets before these budgets are submitted to the scrutiny of national parliaments.
**The ECB has actually bought government bonds too since May 2010 although this could face serious legal challenge in German’s Constitutional Court (Nello, 2011, p. 254) and place Bundesbank as the largest ECB member into very preciular situation where its domestic legal ruling will prohibit it from fulfilling its obligations to ECB.
***Form legal perspective, EFSF is basically a publically owned sovereign debt hedge fund based in Luxembourg City.
****I would argue that this is what essentially happend with Lisbon Treaty and Irish referendum.