29 April 2013

Reuters: The maze behind EU "treaty change"

Since those are not explicitly laid out in existing law, some changes would have to be made to the fundamental underpinnings of the union, Schäuble argued. "If we want European institutions for that", said the lawyer, who measures his words carefully, "we will need a treaty change".

In a sign that she has her doubts about the direction policy is moving in, especially ahead of elections in September when she will seek a third term, last week Merkel ruled out the deposit-guarantee part of the banking plan "for now". The idea of a fund where eurozone countries effectively cross-guarantee one another's deposits was always going to make Germany and other northern European countries queasy, as it could mean them bailing out a string of shaky, highly indebted banking systems to the south. But it was the first time Merkel had been so explicit and again raised doubts about her overall commitment to banking union, which many see as the most important initiative Europe has undertaken to resolve the crisis.

"Germany has always had cold feet about banking union", says one EU official, convinced that Berlin is determined to stall until after the September 22 vote, if not long beyond. Yet the reason why the words "treaty change" cause so much consternation is not so much down to the nitty-gritty of banking union. It's about the interplay of Member States and the very real risk that a minor opening of the treaty leads to a full-scale renegotiation of all 27 nations' ties to the union - the dreaded opening of Pandora's Box.

The European Commission has said it is "100 per cent sure" that it has the legal grounds to implement banking union without changing the treaty. But if Germany is convinced otherwise and other Member States take its line, it may be impossible to move ahead without biting the bullet and tinkering with the fundamental law, a trying and cumbersome process that, depending on how it is done, can take up to 18 months or more.

If Germany is in election mode until September, no serious discussions on either banking union or treaty change can take place until the end of the year, at the earliest. But the next round of European Parliament elections will be held in May 2014 and the European Commission and European Council will be reappointed only a few months later, making it all but impossible to have progress on any substantive issue until the new leadership is in place. That moves the debate into early 2015, which puts it in close proximity to Britain's next election, expected in the spring of that year.

Schäuble knows that. And so while his mentioning treaty change in Ireland earlier this month may genuinely have been about laying the proper legal groundwork for the future of banking union, it is equally likely that it was a good way of kicking up a storm that delays banking union until well after September's election and perhaps long after.

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