European Stability Mechanism before the ECJ

Irish independent TD (MP) Thomas Pringle’s case against the European Stability Mechanism has reached the Court of Justice in Luxembourg, referred there for interpretation on 3 questions by the national court. The 3 questions, are:



(1) Whether the European Council Decision 2011/199/EU of 25th March 2011 [PDF] breaches the EU Treaties or general principles of EU law (i.e. is it valid law?);

(2) Whether Eurozone Member States are entitled to enter into extra-EU Treaties on the Euro, and if this infringes on the EU’s exclusive competence over the Euro; and

(3) If, should the European Council decision be ruled valid, Member States are only allowed to enter into (ratify) the ESM Treaty following its entry into force (1st January 2013)?


The case will be very important for 3 reasons. First, it will help decide if the stability mechanism is compatible with EU law; second, if non-EU treaties can be used to change the governance of the Eurozone or if the EU’s exclusive competence over the Euro means that the EU treaties would have to be changed; and third, the extent to which the European Council can amend the EU Treaties. All obviously important not just for solving the economic crisis, but for how the EU and the Eurozone is governed generally.


RTÉ has reported that all 27 of the court’s judges will sit on the panel for this case – an unprecedented for a case referred to the court by a national court. On the proceedings before the court, RTÉ reported:

“Michael Cush SC for Ireland said the ESM amendments were "fully compatible with the treaties".

He countered that the ESM "will not affect the union's exclusive competence regarding monetary policy for the euro area nor will it increase the limited competence that it has in respect of the coordination of the member states' economic policy."

Thomas Henze, a lawyer for the German government, said there was no indication of any infringement of EU law.

He countered Mr Rogers' assertion that the ESM should not have been ratified when the relevant treaty, the Fiscal Treaty, did not come into force until January.

[...]

After three hours and 30 minutes of questioning, the ECJ Judges asked legal representatives to stand over their statements.

Most of the questioning of the bench was focused on the oral statements from the European Commission and the European Counsel, although Mr Rogers was called to clarify and justify his arguments on several occasions.”

The ruling is expected by the end of the year in what could be a landmark judgment.

The Fiscal Stability Treaty

We've got our new Fiscal Stability Treaty (which you can read here). Frankly, it's hard to know how to approach it, given the fact that I've posted about it when it came out and on the problem it poses for the European left. Not much has changed in terms of the general aims and principles of the compact. Also there's a great summary of the text over at the European Union Law Blog:

"The provisions are intentionally vague in order to avoid any conflict with the enhanced powers of the EU post-Lisbon. The only meaningful instrument is the sui generis infringement procedure in case a participating Member State has failed to apply the automated deficit correction mechanism. However, this procedure is substantially weakened by the fact that Member States, and not the European Commission, must petition the ECJ. This will happen only in extraordinary circumstances and with great unease.

In addition the provisions on economic coordination are totally bland. I fail to understand how these texts may enhance economic policy coordination – they are restating existing opportunities in EU law."

I agree. We already have the Stability and Growth Pact part of the EU treaties, and the "6-pack" of legislation passed at the end of 2011 essentially tightened up the Economic and Monetary Union - which is already having an effect on national politics and budgetary policy in Belgium. Apart from enforcement mechanisms, the treaty offers little that is new: no Eurobonds, no expanded role for the ECB, nothing on investment - coordinated or otherwise - or any firm kind of economic strategy that would back up the vague mentions of growth as a goal. Good thing the treaty has the cumbersome title of "Treaty on Stability, Coordination and Governance in the Economic and Monetary Union" - if they'd called it a treaty on fiscal union they might as well have tied their credibility up in a bag and drowned it in a well.

This treaty does nothing to address the crisis, and it's only preventative in the sense that it aims to ensure that Member States don't continuously rack up debt. While this might prevent a future Greece/Italy crisis, it would be totally useless in an Irish-style crisis where budgets were balanced or in surplus before the crash and collapse in tax receipts. "Stability" is the key word. The treaty is designed to maintain the stability of a currency union which is made up of members who have joined having met the criteria and stuck to the criteria once inside the club. It does nothing to provide a mechanism for resolving crises, but rather the deficit correction ethos is directed towards isolating any crisis and protecting the stability of the currency union as a whole. It won't work, and it's hard to see how it could be politically attractive without being balanced with more fiscal solidarity - a transfer union. That's not to say that some budget discipline isn't necessary to promote stability in the good times and to build trust between Member States, but without a true fiscal union this trust isn't reciprocated and so the treaty is of questionable political and economic value.

Institutional politics and the UK

It's clear from the treaty that the Commission and ECJ will be involved under the treaty. The European Parliament and national parliaments will be involved via some sort of meeting with representatives of their relevant committees - how this works in practice is simply not mentioned - and the European Parliament president will be invited to talk at some EuroSummits. The President of the EuroSummits (yes, a president will be elected for the same 2.5 years as the European Council presidency currently held by Van Rompuy) will organise the summits (held 2x a year and after European Council summits) and report back to the European Parliament.

Clearly the European Parliament only has a slight consultative role, and it's demands for policies for economic growth have been ignored. Given that it's new president has made fighting for the EP's position under these issues a key part of his presidency, the Parliament might reject the treaty and try to weaken political support for it.

The treaty also leaves Cameron in an odd position. I've written about the strangeness of the British demands regarding the single market before, but we should be clear about one point: nothing in this treaty (or in the possible treaty within the EU) affects the single market legally. If the treaty had have been part of the EU treaty system is wouldn't have changed the single market legally. The British concern for national influence and the financial market is essentially about political and institutional influence.

The UK won't block the use of EU institutions - Cameron has confirmed this, though he points out that he will be on the look out to ensure that there is no abuse that would damage the British national interest. I have no idea what practical policy or action this would refer to as all single market legislation has to be voted on within the EU structures. One possibility would be that the UK would try to ensure that the Eurozone countries didn't discuss single market issues in their meetings, but it would be a bit hard to enforce in practice as ministers and heads of state and government could discuss these issues at the meetings without having them on the official agenda. However, the UK is helped by the fact that EuroSummits will take place after European Council summits, so this limits their potential as a platform for countries to agree and discuss issues in advance without the UK. On the other hand, as it isn't a signatory to the treaty, the UK won't have a right to be involved in the EuroSummits unlike other non-Euro participating countries.

Overall the UK hasn't gained anything by using it's veto,* and hasn't lost out legally from using it either. It's in good will, influence and future participation in negotiations and debates that it has lost. How big of a loss depends on the future of the Fiscal Stability Treaty...


*And using it prematurely at that, given that denying use of the EU treaty system would be a bigger threat later on in negotiations - it's hard not to get the impression that Cameron doesn't know the first thing about the practical aspects of negotiation...

Ireland's Euro-diplomacy (and Debate)

Last night's Tonight with Vincent Browne debated the Irish government's (and Taoiseach Enda Kenny's) ability to negotiate in the EU. Key to this was an exchange in the Dáil where Michael Martin (the Leader of the Opposition) questioned Kenny's approach at the December summit for not meeting with David Cameron. Kenny replied that he'd been at the EPP pre-summit meeting in Marseilles, and he'd spoken to him by phone.

It was a very strange point to make - that Kenny was incompetent at negotiations because he didn't meet with Cameron, when it's Cameron who's opted out of the EPP (which controls the Council, Commission and is the largest party in the European Parliament), and that Cameron's own skill in negotiations has been seriously questioned since the December veto. The implication seems to be that a clever Irish premier would have been able to steer the British PM right and keep him in negotiations (though if having the pro-EU Lib Dems and a Deputy with plenty of personal European connections couldn't keep Cameron in negotiations, it's hard to see how Kenny could have).

Much more serious is the sense that the Irish government has no European vision or policy because it's absorbed in questions over the EU/IMF/ECB deal. There has been some debate in the media over Ireland's European direction (including the suggestion that Ireland should consider focusing less on aligning itself with a Britain that's flaky on European issues), but politicians haven't been able (or willing) to take up the debate on what kind of Eurozone/EU they want. This really goes for the opposition as well as the government, because the opposition has been focusing on criticising the government for this lack, while not coming up with much itself.

It's a serious defect in our politics that we've not been willing to have a robust debate on the kind of EU and Euro that we want. Do we want Eurobonds and a transfer union? Would we be willing to be major contributors to other Member States under those same conditions in any future crisis 30 years down the road? If we argue for investment-tempered austerity, we should ask ourselves the question: would we be willing to loan billions to, say, Slovakia, in order to invest in its infrastructure to revive its economy and reduce its deficit? Under what conditions, and with what common political institutions?

Without politicians (and enough citizens) taking up this debate, we'll probably find ourselves voting in a referendum a few months from now on the new fiscal compact, rushing ourselves through a low-quality debate and being asked to decide on a fundamental question of Ireland's European direction...

The Troubles of the New Fiscal Compact

Yesterday I wrote about the left and the new fiscal compact, and I've noted that the centre-left PES seems to be hoping that the French and German elections will help replace our current Merkozy with a PES version. EUObserver has reported that a majority of the French public (52%) are opposed to the (as yet undrafted) EU deal on fiscal union, largely following left-right lines. The Socialist challenger for the presidency, Francois Hollande:

"...announced that he would renegotiate the document.

"If I am elected president, I will renegotiate the agreement to put what it lacks today," he told RTL.

He said that he would “add what is missing”, mentioning he would push to include intervention from the European Central Bank, the creation of eurobonds and a financial relief fund.

“Finally, there must also be growth,” he added. “Without growth, we will not reach any of our objectives of deficit reduction.”

The Frenchman attacked the core concept of the new agreement, a ‘golden rule’, or balanced budget amendment that should be inscribed into constitutions, in effect preventing future governments from exercising expansionary fiscal policies.

Asked about the golden rule, the candidate said he would not vote for it “under this logic”."

While not all of the troubles fall along clearly drawn left-right battlelines, I think it's fair to say that it would be a mistake to read in a support for the UK negotiating position, as the issues seem to be based around the content of fiscal union rather than either the question of having a fiscal union or voting arrangements for regulating the financial services. Apart from the right-left divide is the concern of the non-Eurozone countries, like Hungary, that it would lead to tax harmonisation even outside the Eurozone. I don't know if this is being discussed (it wasn't mentioned in the deal produced last week), but it seems unlikely that there will be tax harmonisation even for the Eurozone, given so many Eurozone members are against it.

But the main issues will be those Hollande has highlighted: how much solidarity there should be in fiscal union. Merkel is kidding herself (or talking up the value of the deal for her domestic audiance) if she thinks that the deal on the table means political union - the greatest challenge to the deal will come from the push against the maintanence of the German sacred cows of retaining the ECB's current role and the ruling out of Eurobonds. However, it is doubtful that these ambitious goals could be won as well as removing the "golden budget rule" (who knows, maybe any financial relief fund would be sold as a counter-balance to national austerity brought about by the golden rule). The question is whether this pressure (and that of the markets) will force the negotiations to move further and further away from the starting points agreed on this month...

The Left and the New Fiscal Compact

The new fiscal compact is all about discipline. Eurozone states will need to keep their debt and deficits under control and this will be supervised by the Commission. The compact has come in for a lot of criticism already for two reasons - it's too austerity focused (making keynesianism policies difficult if not impossible), and it doesn't address the immediate crisis. This has lead to calls for the left to take the fight to the EU and queries over the democratic desirability of the deal. But what can the left do?

The urgency of fiscal union and the necessity of discipline

To some extent discipline is necessary. If there's going to be a currency union with fiscal solidarity (Eurobonds, the ECB playing the role of the lender of last resort, etc.), then Member states need to be relatively sure that they're not signing an open-ended agreement to support the spending plans of other Eurozone countries without any say or safeguards from the moral hazards that might arise.

The problem is that this new fiscal compact offers no real solidarity: it's essentially a Stability and Growth Pact Plus. The economic hopes behind the deal were pinned on the reaction of the ECB, and whether it would act more as a lender of last resort (it would have been better if this was part of the deal, rather than a hoped-for side effect). The deal expresses an intention for future fiscal solidarity, but it doesn't define what the possibilities are or set a time frame for them. That said, there's 3 months to negotiate the actual treaty so the crisis and negotiations could take twists and turns that force the Eurozone to look more closely at fiscal solidarity. Still, for all the urgency for greater solidarity to make the Eurozone more politically and economically credible, some level of discipline is necessary to underline the necessary trust for the system to work. Any alternative articulated by the left needs to take account of this.

The options for fiscal union seem to be: do nothing (which doesn't seem an option, but is the default if the deal falls apart), fiscal discipline, or fiscal discipline plus some form of solidarity (from a changed ECB role to Eurobonds and a common growth strategy). The argument runs that the bail-out countries need investment and growth plans and that the new discipline entrenches the failed austerity. But where would the money come from to invest in the bail-out countries and in the countries on the edge of bailed-out-dom? The markets won't accept the level of borrowing necessary, so there would need to be more solidarity and support across the Eurozone to encourage growth. (Not to mention rhe need for democratic controls through national and the European parliaments). There needs to be a coordinated response, and therefore any alternative has to be backed up by a political coalition that could win support to advance its solution across the Eurozone. Success in simply opposing the new fiscal compact would merely keep us in the same position we're in now: there needs to be a viable alternative.

Does the Left measure up to this?

Simply put: no, not really. The Party of European Socialists (the centre-left bloc of parties) has criticised the lack of Eurobonds and changes for the ECB:

"PES interim-President, Sergei Stanishev, argued that the important elements missing from the summit decisions are granting the European bailout fund a banking licence, introducing eurobonds, introducing a financial transactions tax, and a "real plan" for investment and growth.

[...]

The European Central Bank (ECB) has also been given the possibility to provide ‘technical support’ for the European Financial Stability Fund (EFSF) and buy bonds only on secondary markets. The European Stability Mechanism is set to start in July 2012.

In summary, this draft plan is a clear and historical signal of what a Conservative majority in Europe means for ordinary people. In the past, the European Union succeeded because any advance on the single market or on monetary union was always balanced by improvements in social Europe. This is not the case this time. The absence of a growth strategy and solidarity is striking.

There is a huge risk that the absence of proposals on Eurobonds, on an EFSF banking license, and on a coherent Investment strategy, could lead to an absence of public support."

Despite making the right noises, there doesn't seem to be a full vision for what needs to be done and what shape it will take. Though the Europarties tend to be quite coherent in the European Parliament, they have a dismal track record at forming the basis of promoting new political arguments or shaping a political coalition around established arguments.

Within the Eurozone countries discussion will turn to the benefits of the deal versus the loss of sovereignty. If the choice isn't to be between the compact and what we have now, the opposition will have to organise around a credible alternative. But then there's never been a political demand within the national parties for a stronger common platform - and even with the best will in the world it would be hard to construct one ad hoc at the moment. But perhaps the PES could act as a link between centre-left parties to transmit ideas and to help some sort of consensus emerge slowly as the crisis progresses (and it's got a long way to go yet). It will be a miracle if the left can build a common theme and European alliances they can point to form a basis to their opposition, but it's necessary to form a constructive opposition.

Anyone willing to place their bets?

Unreasonableness and the Rebate

While political battles are being waged over Cameron's veto, there seems to be at least one point of consensus within Britain: that the demands on the protection for financial services were reasonable. The Labour party hasn't set out exactly what it would have done (it says it would have stayed at the table and achieved a better deal, though it's hard to run a "what-if" scenario since the Cameron government's relations and those of a Labour government with the other 26 Member States over the last few months would need to be taken into account), but it seems that Labour basically supports the government's position on the treaty changes it was seeking, and that such changes were reasonable.

But today the Commission President Barroso told the European Parliament that Britain's demands were unreasonable and would have threatened the internal market.


Unreasonable Demands?

Financial services are part of the internal market, and are covered by Article 114 TFEU. This article provides for the regulation of the internal market, and the legislative procedure is the ordinary legislative procedure (i.e. the Commission proposes, and the Council and Parliament have an equal say in amending and passing the legislation). Britain wanted to insert a protocol which would grant every Member State a veto if the regulation was concerned with the financial services sector. Because every Member State would have a veto, the British government argues that it wasn't merely seeking to protect the City or asking for special treatment for itself.

However, this does threaten the legal and political basis of the internal market. To make it harder to regulate one sector of the internal market is to privilege one sector of the internal market over all other sectors. While it may be technically correct that Britain wouldn't be legally privileged over the other Member States, this would have created a separate legal procedure for introducing regulations for a separate sector of the market, so it would have introduced a legal division in the treaties between financial services and the rest of the internal market.

Then there's the political concept of the internal market. That internal market legislation is passed by majority voting is not only necessary to ensure that legislation can be passed at a pace that more closely reflects the pace of innovation in the market (compared with unanimity - we don't want to return to the days of waiting years for a single regulation to be passed), but also this politically underlines the mutual trust between the Member States in each other as they work on the internal market. If legislation is passed by qualified majority vote, then everyone has to work together to get legislation passed (and can't simply oppose all legislation outright to get its way) and Member States also have to be sensitive to the needs of the others (in other words: if you outvote me here, I'll outvote you there, so let's not play the zero-sum game). By introducing special protections for parts of the market that have been identified as a key interest by one Member State, in political terms you are privileging that Member State over the others in the overall internal market negotiations, and weakening the trust that is supposed to underwrite the market.

So Barroso was right to say that what Britain was asking for was unacceptable (or at least that it would be unacceptable for other Member States). Why should the financial sector be treated differently to other parts of the internal market? Should Germany have a protocol so there's a veto in the area of environmental policy when it comes to the car industry? Why shouldn't economic sectors of interest to other Member States be more protected? Because the more you reverse the integration in the internal market, the more you break up that market. Similarly, most other Member States see the social chapter as protecting their welfare states from a race to the bottom while entrusting their economies to the competition of the internal market. Yes the UK is one of the most committed Member States to free markets and a liberal internal market. But it fails to see how these trade-offs are part of the "Single Market Pact" sometimes, and how unacceptable its position can appear to others. If you can't understand the position of those you negotiate with, then you don't stand a good chance in negotiations.

It should also be noted that there are plenty of EU regulations that only set minimum standards, above which Member States may regulate more heavily. It should be easy to negotiate this minimum standard approach, rather than pitch for a full legal division of the internal market.

Finally, Barroso claims that he tabled a motion that should have met key British demands on protecting the internal market from a Eurozone caucus:

"In search of compromise, I tabled a clause providing, in the EU treaties, that any measures adopted by the Council and applying to the euro area only, must not undermine the internal market including in financial services. Unfortunately this compromise proved impossible."

The Rebate

Joseph Daul, the leader of the European People's Party group in the European Parliament, said:

"I believe that the British rebate should be put into question. Our taxpayers' money should be used for things other than rewarding selfish and nationalistic attitudes."

For the UK, the rebate is like the EP's Strasbourg seat for France or the protection of the low corporation tax for Ireland. For Britain the rebate is a question of fairness: otherwise it would contribute more to the EU, which isn't fair as others get back more in the Common Agricultural Policy.

But times have changed since Thatcher demanded Britain's money back. Back then the EU was a club of fairly wealthy countries, but now it has expanded to include the former post-communist, Warsaw Pact countries. During the negotiations for the "Big Bang" enlargement - which the UK was a huge supporter of - the question of the British rebate was raised. With 10 new Member States joining, which would all be poorer than the then-current members, there would be greater pressure on the EU budget to cover the structural funds and CAP costs. Would Britain, who supported this enlargement so much, not either give up or reduce its rebate to help cover the costs of greater solidarity with the new members? No. In fact there was the sad situation where Poland had to ask how much more the new members would have to pay to make membership a reality. Because the EU budget cannot be based on debt, so other countries have to fund Britain's rebate.

Of course it's not as simple as saying that Britain should have surrendered its rebate at that point. It's not to say that there are not other interests that are protected in the EU budget and that these shouldn't be seriously negotiated over. But it is an odd policy to drive forward enlargement, while demanding the EU budget to remain static on the one hand, and defending the British rebate on the other. If Britain is to make the case for the fairness of the rebate, it will have to move on from the arguments of Thatcher.

The key point is that the EU is a compromise. The internal market isn't something that can be viewed in isolation, and it is a mistake of British politics that the EU is often only presented in that way. Without the solidarity with poorer regions, opening them up to the competition from the more advanced economies is a hard sell. A minimum level of solidarity is required to ensure that the welfare states and the communities in Member States won't be too negatively affected by the downsides of the internal market - and in some countries where euroscepticism is mainly on the left it is argued that the EU is neo-liberal and there isn't enough solidarity. So when discussing the internal market, social policy and the budget, we need to have a more nuanced and fuller idea of the fairness that's required in the EU for even a minimalist internal market to work.

Post-Veto Politics

Britain has lost influence and friends in the EU due to the veto, but it doesn't mean that the UK won't get another chance to sit around the negotiating table because the new fiscal compact is far from a done deal.

Isolated Britain

First of all, how Britain has isolated itself needs to be recognised. When it comes to treaty renegotiation, Britain has a bad hand to play. Though the Tory right have talked up the crisis as an opportunity to renegotiate the UK's EU position and the possibility of leading a group of non-Eurozone countries. Both ideas are - and have proven themselves to be - ridiculous. The crisis makes it more likely that governments under pressure will try to circumvent an obstructive Britain in the rush to save the Euro than waste time opening up non-Euro areas of the Treaties. Most of the non-Eurozone countries either see themselves as future Eurozone members (most of them are legally obliged to eventually join), or see buying into the deal as a cheap way of ensuring influence (it has no affect on non-Eurozone members after all.

Second, though Britain wasn't arguing for major renegotiation of the treaties (e.g. on social policy powers), the UK's demands weren't as reasonable as they are now being presented. Under the present Treaties there is already a veto on introducing measures such as a financial transaction tax, so Cameron's veto doesn't add any extra protection in this area. On other financial regulations (decided by qualified majority voting, but in practice never previously passed without UK consent) we need to be clear that the UK was asking for special treatment of the financial services compared to other parts of the internal market. Why should financial services be treated differently and not any of the countless other economic interests of the other 26 Member States? Ironically France ending up standing up for the integrity of the internal market against Britain! In any case, Britain's demands could have probably been accomodated in practice during the normal legislative negotiations rather than tampering with the internal market as a concept.

It's not hard to see why the UK found itself without support for its position at the summit.


The New Fiscal Compact

Though Britain has damaged its own interests and alliances, it could try to repair them and it could find itself at the negotiating table again soon. The new fiscal compact only focuses on fiscal discipline, and doesn't touch on the role of the ECB or on the possibility of Eurobonds. Reassuring Germany over discipline without a trade-off on fiscal solidarity makes the deal harder to sell, and it could still fail. Some elements of solidarity might emerge over the course of negotiations between now and March (we all know that more happens in a week than in a year for the EU in this crisis).

Still, if the deal collapses, the Eurozone might need to reform the EU institutions (democratic legitimacy might re-emerge as an issue: after all, it's the aim of Merkel's CDU to mae the Commission President a directly elected office), and therefore an all-EU treaty change with the UK participating. It might even be the case that another treaty change is needed since the current deal doesn't do enough to help solve the crisis. This would still not be a good opportunity to renegotiate the UK-EU relationship to a great extent - if anything the Eurozone governments would be more panicked and willing to use any means necessary to save the Eurozone, and the international pressure on the UK not to block a deal would be huge - but it would provide a means of restoring influence and relationships within the EU for Britain. We'll see if it gets this second chance.

The Veto

Cameron has played the UK's veto. Returning social policy powers to London wasn't on the table, but it seems that having a seat at the Eurozone meetings and opt-outs on financial services laws were. Ironically the former was to ensure that the Eurozone didn't start dividing up the internal market, while the latter would have, er, divided the internal market by providing one rule for the UK and another for the other 26...

In any case the UK has been left out of the negotiating room: the deal will be signed by 23 Member States, with others considering whether or not to sign up. Backing out of a deal was always going to upset the Eurozone countries, but it will be interesting to see how the UK's relations will develop with the other non-Eurozone countries. Sweden's foreign minister mocked the UK's position in a tweet:

"Worried that Britain is starting to drift away from Europe in a serious way. To where? In a strong alliance with Hungary."

The inclusion of these other non-Eurozone countries should be enough to ensure that the Eurozone doesn't go ahead on internal market matters without the rest of the EU (the Danish presidency will be particularly helpful in protecting the position of non-Eurozone members), though it probably does damage the short term influence of the UK in the EU.

Ireland's State of the Nation Address

Ireland's Taoiseach, Enda Kenny, made what is only the 6th state of the nation address on Sunday evening before the new government's first austerity budget (to be announced over Monday and Tuesday). Brian Cowen, the last Taoiseach, was criticised for not making an address, and was probably held back by the memory of another past Fianna Fáil Taoiseach, Charlie Haughey, who famously told the country to tighten its belt while he was far from doing the same in his own life. Ireland's also had some experience of austerity speeches that have been mocked:



Here's Enda's State of the Nation address:



Enda will probably get some credit for making the address, but the devil will be in the detail of the budget, and the debate that follows will be inevitably overshadowed by the actual changes and choices made by the budget. Ireland has been living under austerity budgets for so long that the further cuts and tax increases by the government will be increasingly painful: we've long run out of low-lying fruit.

From a Eurozone perspective, this is the first major signal that the Irish government will accept treaty changes, which it had been opposing as recently as Kenny's visit to Berlin two weeks ago. In many ways the Irish government has been so absorbed by the austerity plan and worried about running a referendum in this climate that it put a bit too much hope in a solution being found without treaty change (and it has raised some valid points about the lack of implementation of all the summit agreements so far). However, there needs to be a better Eurozone system for the currency to work, and treaty change is inevitable if the Euro is to survive. It's a pity that the Irish government's sights are set so low (its main red line is preventing (corporate) tax harmonisation), rather than focusing on putting forward what it wants fiscal union to look like for the whole Eurozone. How we run the Eurozone will effect how we work in the future, and how much solidarity we will want to show with other Eurozone countries (for example, would Ireland be happy with lending money as part of a bail-out to another country [post-current-crisis], under the strict deficit rules being discussed?).

Do we want Eurobonds - and not just for Christmas? How much fiscal policy should be set by the Commission/European Parliament/Council? Lately there has been more discussion about the role the ECB should play, but it does seem as if our politicians will only discuss what "Merkozy" proposes instead of insisting on common ownership. It's not all Merkozy, of course. All Eurozone members will need to agree on the way forward, and the Franco-German proposals are the starting point. But we need to have a better sense of public ownership in the other Eurozone states. The rise of more extreme parties has been most marked in the smaller Member States: if the next treaty change is to solve the crisis it will have to go far enough to create a credible Eurozone and appear just and inclusive enough to be accepted across the Eurozone. It's too much of a gamble for Merkozy to appear to push too far ahead with their own project and then risk rejection in the smaller states which could derail the Euro entirely...