The Final Shape of Europe

THE FINAL SHAPE

OF EUROPE FOR BETTER OR FOR WORSE – PROBABLY FOR BETTER INTRODUCTION History may well label 2000-2010 as Europe’s constitutional decade – a decade dominated by negotiations on an ultimately unachievable EU constitution. It will be viewed as ten years in which Europe’s leaders looked collective ambition in the face, feared what they saw and stepped back onto lower, if firmer, ground.

The agreement by the European Council at the end of June signaled the beginning of the end of nearly six years of institutional uncertainty in the European Union and prefigures two or three more of negotiation and national ratification.

Since the Laeken declaration in 2001, the EU’s leaders – through the Convention on the future of Europe, the constitutional treaty, its subsequent rejection by the French and Dutch referenda, and an ensuing period of divisive ‘reflection’ – have tried in vain to put in place a unified, transparent, efficient and democratic constitutional structure for the Union.

Now, out of the constitutional debris has emerged a more familiar EU end-product: a patched-up compromise framed in the impenetrable language for which the EU is justly famous. But the compromise has the virtue of existing. It has put the wheels back on the European wagon – even if they are not quite round. And the Merkel-Sarkozy duo, the ‘owners’ of this new compromise, have a vested interest in making it work and in imparting a new dynamic to the EU and its leadership.

That said, the EU’s new leadership has gone back to its trusted old elitist methods.

It has replaced a constitution with a mandate for an amending ‘Reform Treaty’: not a notion intended to resonate with the ‘man-in-the-street’, quite the opposite.

Transparency has given way to obfuscation. The constitution let the light in on the magic, and many people did not like what they saw.

This time, referenda are off the agenda (pace Ireland, Denmark and The Netherlands), although many elements of the constitution, now re-branded ‘the conclusions of the 2004 inter-governmental conference’, have remained.

Further re-opening of ‘constitutional’ matters seems unlikely in the next ten –

maybe 20 – years. Indeed, the pro-reform majority is unlikely now to let one or two recalcitrant member states slow them down again. In the event of another lost referendum, the onus will be on the member state concerned to resolve its relationship with the Union, rather than the reform agenda being once again halted for all.

So has Europe reached a high water mark and, with it, an institutional finalité ?

The answer, at this point, seems to be yes. And for most stakeholders in EU activities, this is accompanied by a sigh of relief. Liberated from the drag of big-picture navel-gazing, Europe will soon be able to return full focus to its policy priorities, such as the environment, energy, economic growth, employment, health and consumer protection – all within a stable (although as yet putative) framework.

But what will this framework look like under the Reform Treaty? And what is the outlook for this new, emerging Europe? The remainder of this briefing sets out the main changes to the functioning of the European institutions that will result from the IGC now being launched – together with some implications for doing business in the EU.

DISSECTING THE MANDATE FOR THE 2007 INTERGOVERNMENTAL CONFERENCE The mandate for the 2007 IGC agreed by Heads of State and Government at the Brussels European Council in June 2007 will be the “exclusive basis and framework for the work of the IGC” which starts 23 July.

The current Treaty on the European Union (TEU) keeps its name, while the Treaty establishing the European Community (TEC) becomes the Treaty on the Functioning of the Union.

The first change is that the distinction between “Union” and “Community”

will disappear, being replaced by a single “Union” with a single legal personality.

The mandate stresses that “the innovations resulting from the 2004 IGC” (that is, the Constitutional Treaty) “will be integrated into the TEU and the Treaty on the Functioning of the Union”. Unless specified otherwise, the institutional innovations contained in the Constitutional Treaty and referred to in the draft IGC mandate are to be integrated in the Reform Treaty without modifications.

The main modifications which are to be made to the provisions set out in the Constitutional Treaty concern: the respective competences of the EU and the member states and their delimitation the specific characteristics of the Common Foreign and Security Policy the enhanced role of national parliaments the Charter of Fundamental Rights a mechanism, in the area of police and judicial cooperation in criminal matters, enabling member states to go forward on a given act while allowing others not to participate.

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THE FINAL SHAPE

OF EUROPE AMENDING THE CONSTITUTIONAL TREATY – WHERE DID THE JUNE 2007 EUROPEAN COUNCIL INNOVATE? THE COUNCIL’S VOTING SYSTEM As has become the norm, most attention at the June 2007 Summit focused on the Council of Ministers’ voting method. This European Council was different, however, in that this time only one member state, Poland, sought to re-open the carefully crafted compromise which had been reached in 2004. Poland did not win itself any friends – or respect for that matter – with the strength of its assault on the double majority voting system enshrined in the draft Constitutional Treaty.

Ultimately, the way out for EU leaders faced with an uncompromising Poland was the tried and tested formula of delay and transition: a deal was brokered (significantly not by Germany, the Council Presidency, but by a combination of Nicolas Sarkozy, Tony Blair and Jean-Claude Junker) whereby the double majority voting system will only apply fully from 2017 – with a transitional period between 2014 and 2017 during which a member state may request that the old voting system be used.

Under the Reform Treaty’s double majority voting system a measure will pass if 55% of member states support it, representing at least 65% of the EU’s population. This is fairer and simpler than the present system, which discriminates against larger countries (other than Spain and Poland).

ENHANCING THE ROLE OF NATIONAL PARLIAMENTS As in the Constitutional Treaty, for the first time national parliaments are to get a formal role in EU law making. First, national parliaments are to be given eight weeks to examine draft legislative measures

prior to them being placed on a Council agenda for adoption.

Second, a reinforced control mechanism will be introduced whereby national parliaments may contest draft legislative measures by a simple majority of votes allocated to national parliaments and require the Commission to “justify why it considers that the draft complies with the principle of subsidiarity”. This would then trigger a new procedure whereby Council and Parliament would be required during the first reading of legislation to consider the compatibility of the proposal with the principle of subsidiarity – with just 55% of the members of Council or a simple majority in Parliament able at this stage to veto the legislative proposal entirely.

Additionally, in the area of judicial cooperation, the possibility for a single national parliament to be able to halt the use of the passerelle to move to co-decision for family law will be enshrined in the treaty.

In practice these provisions will probably count for little in the vast majority of cases. With only one or two exceptions, national parliaments are hardly renowned for their ability to stay in touch with EU issues and they are highly unlikely also to be able to galvanize a common view across many national parliaments – and if they were, then certainly the legislative act in question would in any case be highly controversial and subject to significant political and public debate to which national parliaments would probably add little.

On the other hand, it is not entirely unrealistic to envisage that, in the future, well organized campaigns across Europe could use these provisions to challenge EU action.

THE KEY INSTITUTIONAL CHANGES AND TIMETABLE 2007 22 June 2007

23 July 2007

European Council IGC launched adopts mandate for IGC

October 2007

2008

Adoption of the new Treaty at the informal Summit in Lisbon?

EP expected to put forward proposal on its future composition

2009

June 2009

Summer 2009

October 2009

European elections

Nomination and election of Commission President 2009-2014

Nomination of the 2009-2014 Commission

Election of President of European Council

EP investiture of the new Commission after parlimentary hearings

TREATY RATIFICATION

Provided that the Reform Treaty is ratified by the end of 2008 and can enter into force before the European Parliamentary elections (as it is expected) in June 2009, the timetable of the main institutional changes should be as follows:

EUROPEAN COMMISSION Between 2009-2014: one Commissioner per member state as now, including its President and the High Representative of the Union for Foreign Affairs and Security Policy From 2014: the Commission will consist of a number of members corresponding to two thirds of member states, including its President and the High Representative of the Union for Foreign Affairs and Security Policy (unless the European Council acting unanimously changes this number).

Selection will be based on a system of equal rotation between the member states. This system will be established by a European decision adopted unanimously by the European Council.

The following principles are required to apply: the difference between the total number of terms of office held by nationals of any given pair of member states may never be more than one and the demographic and geographical range of all member states shall be reflected.

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The European Council proposes the candidate for President of the Commission to the European Parliament acting by qualified majority and “taking into account the elections to the European Parliament and after having held the appropriate consultations”. The European Parliament “elects” the President of the Commission by a majority of its component members – if the required majority is not obtained a new candidate is to be proposed by the European Council within one month.

The list of other Commissioners is to be adopted by Council by common accord with the Commission President-elect. The Commission President, the High Representative and the other members of the Commission will be subject as a body to a vote of consent by Parliament, following which the Commission will be appointed by the European Council, acting by qualified majority.

The High Representative will be a Vice President of the Commission and be appointed by the European Council by qualified majority with “the agreement of the President of the Commission”. He will also chair the Foreign Affairs Council (see also further in article).

2010

judicial cooperation in criminal matters and on police cooperation, the mutual recognition of judgments, minimum rules on the definition of criminal offences and sanctions, the European Public Prosecutor, and police cooperation.

THE LEGALLY BINDING CHARTER OF FUNDAMENTAL RIGHTS The Reform Treaty will make the EU’s Charter on Fundamental Rights (originally negotiated in 2000), legally binding on European legislation – and only European legislation. Despite British hyperbole about the implications of the Charter and its potential effects on the UK, the Charter was never going to give the EU any new law-making powers – and it is explicit in guaranteeing rights only “in accordance with Union law and national law and practices”.

THE NEW “DOUBLE-HATTED” HIGH REPRESENTATIVE FOR FOREIGN AFFAIRS AND SECURITY POLICY The Reform Treaty will also finally resolve the problem of how to combine the roles of the Commissioner for External Relations (currently Benita Ferrero-Waldner) and the High Representative for CFSP within the European Council (currently Javier Solana). The new position will be called High Representative for Foreign Affairs and Security Policy, rather than EU Foreign Minister, after vociferous UK objections to the original title – though that country’s last minute attempts to change the job description failed.

The Charter will not figure in the Reform Treaty but will receive a cross reference explicitly stating that it will have the “same legal value as the Treaties”. The UK has formally opted out of the application of the Charter within the UK and within its national judicial systems.

A unilateral declaration about the Charter was also made by Poland, specifying that it will not affect the right of member states to legislate in the field of public morality, family law, the protection of human dignity and respect for human physical and moral integrity.

The High Representative will be supported by a new External Action Service (comprising EU diplomats from the Council and Commission and from national governments) and will be the permanent chair of the Foreign Affairs Council. He or she will speak for the EU externally, instead of the current trio of Solana, Ferrero-Waldner and the Presidency’s foreign minister.

JUSTICE AND HOME AFFAIRS – ENHANCED COOPERATION À LA CARTE While justice and home affairs sees a very large increase in qualified majority voting, member states will gain the possibility of applying an “emergency brake”, whereby discussion will be suspended pending discussion in the European Council. In the area of justice and home affairs, a new mechanism will also be established that will make it easier for a smaller group (a third of member states) to go forward with measures while allowing others not to participate. This will apply to

2011

2012

2013

2014

Europe’s new ability to speak with one voice on foreign and security policy will be an important step forward. But, designing the form, functioning and structure of the External Action Service is set to become a major headache over the coming years. And the IGC will need to settle when the first High Representative is to serve from: 2009 or 2014?

1 April 2014

June 2014

Summer 2014

Double majority voting system enters into force: 3 year transition period

European elections

Commission nominated under new Treaty provisions (18 members)

2015

2016

2017

1 April 2017

Full double majority voting system in Council applies

TRANSITION PERIOD FOR COUNCIL VOTING SYSTEM

EUROPEAN PARLIAMENT

EUROPEAN COUNCIL AND PRESIDENT OF THE EUROPEAN COUNCIL

Until 2009: 785 members

The European Council, which henceforth formally becomes an EU institution, will elect the President of the European Council by qualified majority for a two-and-a-half year term, renewable once. The President of the European Council shall not hold national office.

From 2009: the 2004 IGC agreed that the maximum number of MEPs be fixed at 750, with a minimum of 6 MEPs per member state. Under the 2000 Nice treaty, Spain and Poland were over-represented in Council but under-represented in Parliament. The definitive composition of the European Parliament will be fixed by a decision of the European Council adopted by unanimity and “with Parliament’s consent”, on the basis of a proposal by Parliament. The European Council invited Parliament to submit such a proposal by October 2007.

An outstanding question regards when the new composition of Parliament will enter into force – 2009 or 2014. Parliament will no doubt argue that its new composition should enter into force simultaneously with the new Council voting procedures (i.e. 2014) and not in advance.

From 2009: the Presidency of configurations of the Council of Ministers, other than for Foreign Affairs, will be held by member states in turn as now, on the basis of equal rotation, in accordance with conditions to be established by the European Council by qualified majority. Though not mentioned in the mandate for the forthcoming IGC, presumably the 2004 agreement will hold for the Reform Treaty: that the presidency of the Council’s configurations will alternate among pre-established groups of three member states (or “team presidencies”) for a period of 18 months, with two team members supporting the one actually in the chair. In the case of the Foreign Affairs Council, the High Representative of the Union for Foreign Affairs and Security Policy shall preside.

COREPER will be chaired by the member state chairing the General Affairs Council, and the Political and Security Committee by a representative of the High Representative.

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OF EUROPE POLICY INNOVATION IGCs – and the institutional reform which results from them – are essentially about reforming the EU’s system of governance. But institutional reform of course also impinges on and frequently itself leads to policy change. Indeed, far from being of only theoretical – or even theological – interest, the EU’s institutional architecture is frequently critical when it comes to achieving policy goals beneficial to Europeans, be they in the form of businesses, citizens or other organizations.

The completion of the single market resulted from the Single European Act in the mid-1980s, Economic and Monetary Union from the Maastricht Treaty in the early 1990s, and a new focus on justice, security and home affairs came in the wake of the Amsterdam Treaty in the late 1990s. The Constitutional Treaty, rather than having been likely to have led specifically to policy innovation, was more about setting out clearly, for the first time, the boundaries of national, EU and shared competences.

Policy initiatives identified by the Heads of State and Government for attention during the process of drafting the Reform Treaty include: a reference to the spirit of solidarity between member states regarding access to energy supplies measures for the monitoring, early warning and combating of crossborder health threats will only be able to be so-called “incentive measures” – that is, as now, not subject to harmonizing legislation – and therefore a distinct step backwards from the Constitutional Treaty

a declaration will be appended to the Reform Treaty clarifying the relationship between the internal market and pharmaceutical licensing, effectively constraining – if not reigning in – the EU’s possibility to act in the area of health as opposed to the internal market and assuaging those Member States reluctant to have Europe help them in health matters energy policy, specifically the promotion of interconnection of energy networks becomes an objective of EU policy – while harmonizing legislation will not be possible in space policy the current treaty article allowing for Council (unanimously with consultation of Parliament) to extend the jurisdiction of the Court to intellectual property right disputes is to remain – this being another limitation of codecision and qualified majority voting in comparison with the Constitutional Treaty.

The Reform Treaty will also lead to the mutual recognition of court judgments, minimum rules on the definition of criminal offences and sanctions, the creation of a European Public Prosecutor, police cooperation and judicial cooperation in criminal matters being singled out for a new form of enhanced cooperation.

Here, where the European Council cannot reconcile opposition to a measure from one or more member states but where at least a third of member states nevertheless want to move forward they will be able to do so but in a variegated way with reluctant member states (i.e. the UK) left behind.

CONCLUSION The mandate given to the forthcoming IGC is unique in terms of the specific details set out by Heads of State and Government in advance of its launch. This is not to say however that the forthcoming IGC will be a simple ratification of decisions already taken. Far from it. Portugal, as president of the Council during the IGC will have its work cut out building compromise across the most radical and comprehensive reform of the EU’s treaties ever. All this in the most compressed timescale, in the greatest glare of publicity and with the widest range of potential disagreement.

Assuming all goes to plan, the final agreement should provide Europe with long term political stability and reliability – both key conditions for future economic growth. In particular, the political roadblock of the past six years will finally be torn down allowing the EU to focus once again on policy. The new EU of 27 members will also have

a more efficient framework in which to operate: more majority votes in Council, a single and legal personality, as well as clearer competences.

The new treaties will also provide Europe with stronger common political values, both within the EU member states themselves and towards the outside world. Contrary to the diatribes, primarily in the British press, the abolition of free competition as a goal for the Union will have little or no practical effect, free competition being merely a tool to achieve economic growth, not an EU goal in itself. The Commission’s extensive powers in competition-related matters were created and consolidated under the old treaties, none of which defined an EU competition goal. The texts framing those powers remain untouched. But it nevertheless sends a powerful signal about the kind of Europe the summiteers aspire to – especially Sarkozy.

“WHAT HAS COMPETITION DONE FOR EUROPE?” The French President’s rhetorical question at the June European Council continues to resonate. Time alone will reveal the practical impact of Nicolas Sarkozy’s success in ensuring the removal of “free and undistorted competition” from its draft status as an objective in the EU Reform Treaty.

Will it mean weaker enforcement of competition policy in the future?

In narrow legal terms, the answer should be “no”, simply because “free and undistorted competition” never has been an EU Treaty objective, but rather a policy for achieving stated objectives (e.g. economic growth etc.). Moreover, the response of the Commission, guardian and enforcer of EU competition, has been to obtain the inclusion of a protocol re-emphasizing the importance of undistorted competition for the internal market. Thus, it could reasonably be argued, a Reform Treaty with a special protocol devoted to competition policy will leave the EU with a stronger attachment to competition policy than that currently set out in the applicable provisions of the Nice Treaty.

And yet, legalities aside, the withdrawal of the proposed phrase “free and undistorted competition” remains an undoubted political gesture that is difficult to ignore, coming as it has from on high. It can be used by those so inclined to invoke summit-level support for ‘economic patriotism’. It allows the European Council’s position on competition policy to be

characterized as a clear signal that, in the broader EU scheme of things, competition is indeed of only relative significance.

So in what ways might the summit brouhaha influence the application of competition policy in practice? Three areas seem susceptible: State Aids – an area of competition where the Commission’s authority has traditionally been least effectively exercised – looks particularly vulnerable. The potential for political leverage has always been significant: witness the success of Sarkozy’s special pleading when he was French finance minister in the Alstom affair. Invoking subsidiarity, political leverage will be enhanced rather than diminished as a result of the summit’s signal, and will prove a tough test of the Commission’s strengthened commitment to face down illegal subsidies.

Energy Liberalisation: what price now? Significant unbundling of distribution and production in the sector’s dominant players, for which Commission proposals are awaited in the autumn, looks a more turbulent prospect than it did before. The political pressures on Andris Piebalgs and Neelie Kroes will be ratcheted up.

Finally, mergers: economic analysis of the impact of new business structures on future market outcomes, the very stuff of EU merger control, might on occasion be subtly affected by politically-driven perceptions. For example, what will be the attitude towards mergers which might create, strengthen or protect ‘European champions’? What might competition policy do for Europe then?

Contact: Robert Mack, CEO Burson-Marsteller Brussels / David Earnshaw, Chairman Burson-Marsteller Brussels

37 Square de Meeûs 1000 Brussels

Holmes Award 2006

Tel: +32 2 743 66 11 Fax: +32 2 733 66 11

www.bmbrussels.eu

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