24 March 2016

British Influence: Euro ins and Euro outs - The UK Renegotiation Agreement

This briefing analyses the parts of the EU/UK renegotiation agreement relating to the euro, including protection for Single Market legislation, arrangements for future Eurozone bailouts and a safeguard mechanism that the UK government can trigger if it feels the agreement is about to be breached.

The euro parts of the renegotiation agreement

There are two parts of the agreement relating to the euro issue:

·       Section A (“economic governance”) of the Decision of the Heads of State & Government Concerning a New Settlement for the United Kingdom within the European Union;

·       A draft Decision of the Council of Ministers concerning banking union and further euro area integration to safeguard the position of Member States not in the euro which the Member States have undertaken to adopt. [...]

Section A of the Decision of the Heads of State & Government

The main points of this part of the agreement are:

· First, that UK businesses trading in the Single Market cannot be discriminated against because the UK is not in the euro;

· Secondly, that responsibility for supervising the financial stability of the UK remains in the hands of the Bank of England and the other UK financial authorities;

· Thirdly, that British taxpayers will never be required to pay for Eurozone bail outs; and

· Fourthly, that all discussions on matters that affect all EU Member States will involve all EU Member States, including the UK, not just members of the Eurozone.

[...]

This protects the UK (and other non-euro Member States) from attempts by euro countries to legislate against the interests of the non-euro Member States.  The importance of this point was demonstrated by the decision of the European Central Bank that clearing houses dealing with large volumes of euro transactions should be located inside the eurozone.  This amounted to discrimination against UK-based clearing houses, which resulted in a successful challenge to the measure in the European Court of Justice.  Without this judgment, the UK clearing houses would have been forced to relocate their euro business into the eurozone, threatening many jobs in London.

The Decision then turns to the rules for the operation of the eurozone, including those relating to banking and financial services.  Here it makes explicit that banking union and other regulatory measures applying to eurozone institutions only apply to them and not to non-eurozone Member States (unless they have chosen to opt into those measures).  This makes it absolutely clear that the UK authorities (including the Bank of England) remain responsible for the stability and regulation of our financial system. This does not prevent the eurozone taking necessary measures to protect its financial stability but such measures must not discriminate against non-eurozone Member States.

The third element of the decision relates to eurozone bailouts.  [...] The Decision states that non-eurozone countries cannot be made to finance such bailout mechanisms.  This gives legal force to the understanding reached in summer 2015 that the UK would not be responsible for financing any part of the bailout given to Greece and ensures that it cannot be required to contribute to any such bailout in future.

The final element in the Decision concerning the euro relates to the relationship between the Council of Ministers and the Euro Group.  [...]

This provision is designed to prevent the Euro Group from becoming a substitute body for the Council of Ministers for eurozone matters.  It must be right that eurozone Ministers have a forum to discuss issues related to the common currency but it must not be a forum for caucusing against the interests of non-euro Member States. [...]

Conclusion

In the longer-term, the parts of the UK’s renegotiation agreement relating to the relationship between the Member States in the euro and those outside may well prove to be the most important.  The danger of the eurozone states caucusing in a way that damages the interests of non-eurozone countries such as the UK is theoretical – there are often divisions between eurozone Member States on Single Market issues for example – but the possibility was there and it was important to get it addressed.  The legally binding nature of the agreement, and the commitment from the all 28 Member States that it will be incorporated in a future EU treaty, is an important safeguard and a worthwhile achievement of the renegotiation.

© British Influence