EU institutions such as the European Court of Justice will have the power to enforce rules in the euro zone's new fiscal pact, struck at a summit last week, because the existing EU treaty gives them that right, EU officials said on Tuesday.
All the EU's member states except Britain agreed at the summit to back a new compact on tighter enforcement of budget rules among the 17 countries that share the euro, a move to help restore confidence in the public finances of the currency bloc.
Britain, which is not in the euro, blocked a deal to enshrine stricter discipline in the EU treaty, forcing Germany and France to strike a looser agreement among 26 of the EU's 27 states via what is known as an intergovernmental treaty.
This raised doubts among some economists and politicians about the extent to which EU community institutions — the executive European Commission and the European Court of Justice (ECJ), the EU's highest court — could police and enforce a fiscal treaty that does not include all EU countries.
British Prime Minister David Cameron, isolated by the rest of the EU, originally indicated that Britain could oppose any steps to use institutions such as the ECJ in the agreement, but has since softened that position, saying in parliament on Monday that he would look at proposals with an "open mind".
Whether Britain tries to pick a fight with the rest of the EU may not matter, however, with officials saying there will be no legal problem in using EU institutions in the new pact.
"This formula has some handicaps, but we will try to overcome them, and I think we will need a large interpretation of the role of institutions and others, as we did it in the past," European Council President Herman Van Rompuy, who chaired last week's summit, told reporters after the summit.
Officials said that because the fiscal pact does not break much new ground in terms of rules compared to what already exists in various EU legal acts, the institutions could use powers they already have under the Lisbon treaty.
The key changes involve making sanctions quasi-automatic for countries that breach existing debt and deficit limits, and giving euro zone authorities the power to reject national budgets and order them to be redrafted to meet EU targets.
"As long as you do not ask the European Commission to do things that are outside the scope of the current treaty, it is perfectly okay for the Commission to do what it is asked to do," one senior EU official said.
EXISTING POWERS
"All the work the Commission will be required to do under the intergovernmental treaty is already provided for by the European Treaty, therefore there will be no problem," the EU official said.
"If there would be a conflict between the intergovernmental treaty and the EU treaty, the European treaty would apply. But the intergovernmental treaty will be written in a way to make sure there are no conflicts," the official said.
Van Rompuy, speaking in the European Parliament in Strasbourg on Tuesday, signalled the same.
"The intergovernmental treaty has to respect the EU treaty. We will respect the acquis (the body of EU law) from the internal market. And it will be no discrimination," he said.
Under the new fiscal agreement, EU countries commit to establish as a law in their own constitutions that they should have a balanced budget over the course of the economic cycle.
They also agreed that the European Court of Justice would have the power to check if they meet their objectives. Van Rompuy said on Tuesday this was possible under article 273 of the current EU treaty. That article reads:
"The Court of Justice shall have jurisdiction in any dispute between member states which relates to the subject matter of the treaties if the dispute is submitted to it under a special agreement between the parties."
Officials said the logic for using EU institutions for the fiscal treaty would be the same as applied to the European Stability Mechanism (ESM) treaty — another intergovernmental agreement which sets up the euro zone's permanent bailout fund.
The ESM treaty employs the European Commission and the European Central Bank as key players in the process of obtaining financial aid by euro zone members in the form of monitoring, providing opinion and signing memoranda of understanding.
CONCERNS MISPLACED
Under the agreement last week, euro zone countries would face even more automatic sanctions than now for breaking the EU deficit limit of 3 percent of GDP as only a qualified majority of euro zone ministers could stop sanctions being imposed.
Some bankers and economists were concerned Germany would not honour penalties as part of an intergovernmental treaty according to a ruling by the German Constitutional Court from September, which said such agreements could not trump national parliamentary budget sovereignty.
But euro zone officials said those concerns were misplaced because the penalties would be imposed by the revised Stability and Growth Pact, which came into force on Tuesday, not by the intergovernmental treaty.
"The fact that most of the things that have been agreed for the intergovernmental treaty already exist in some form in EU legislation means there will be no problem with implementation and execution," a second senior EU official said.
"The added value of the intergovernmental treaty is that it increases the political weight of the commitment of member states to all of this through an act of a higher order."
The official said some elements of the future fiscal treaty that were not yet part of EU laws would be introduced through secondary legislation, like regulations.
This could apply to the commitment to provide advance notice to other euro zone states of planned debt issuance, or to introduce automatic adjustment procedures in national laws in case a country misses its balanced budget or debt targets.
The new, more automatic voting procedure on sanctions for EU budget rule breakers, agreed on last week, could not be easily introduced into EU law, the second official said.
That's because the Lisbon treaty requires a qualified majority of ministers needed to support sanctions rather than a qualified majority needed to stop them — the essence of the new "automatic" character of the penalties.
But the official noted that under the revised Stability and Growth Pact, voting rules were already more "automatic". Since Britain is a signatory to that revised pact, it will be difficult for it to object.
