Euro-myths

I’ve posted less than I planned this week. As I mentioned in the introduction page for this blog, I’m currently training to become a barrister, and I had my two final assessments this week. In fact, I’m writing this on Friday on a train to Manchester after having handed both assessments in at 1pm! Next week I will be back to full blogging capacity.

Over the weekend I’m going to upload two posts, of which this is the first. In this post I want to deal with two common myths about the euro and the UK, and in the second post I plan to point to some specific examples of how the EU benefits us on a day-to-day basis.

There are two myths about the UK and the euro that I want to clarify in this post.

Claim 1: the UK will be forced to join the euro if it stays in the EU.

I nearly choked on my breakfast when I read this one. The position on this is really simple, the UK cannot be forced to join the euro.

How do I know this? It’s in the EU’s Treaties.

Protocol 15 of the Treaty on the Functioning of the European Union reads:

“Unless the United Kingdom notifies the Council that it intends to adopt the euro, it shall be under no obligation to do so.

Those of you that read this post will know that the Treaty on the Functioning of the European Union is one of the Treaties that governs how the EU works, and it cannot be changed without the consent of every Member State of the EU.

Even if the UK government decided to join the euro, they could not do so without our consent. A provision of UK law, the European Union Act 2011 states that should the UK government choose to join the euro, this decision would have to be put to a referendum.[i] Incidentally, I cannot see the UK making the decision to join the euro – I personally think I have more chance of being selected to play for England in the Qatar World Cup (I couldn’t resist a football related analogy – I am so excited that the Euros have started!)

So – the UK cannot be forced to join the euro, and even if our government chose to join, it could not happen without the consent of the UK public via a referendum.

Claim 2: the UK will be forced to contribute to further euro country bailouts if we stay in the EU

I found out about this one when I was sent a photo of a Leave campaign leaflet. This one isn’t true either. The BBC recently fact-checked this and found it to be false, and I’ve outlined some of the reasons for this below.

In the past, the UK has contributed to euro country bailouts via certain programmes set up by the EU. However, the position is different now…

The primary means of granting aid to Euro countries is via the European Stability Mechanism – we are not a part of this and cannot be forced to contribute to it

In 2011, the Member States of the EU whose currency is the euro (I will refer to them as the euro countries below) agreed to set up something called the European Stability Mechanism. This is now the primary means of providing financial assistance to euro countries who are experiencing or threatened by financing difficulties. This mechanism was set up by an International Treaty. We are not a party to this Treaty and as such we cannot be forced to contribute to this mechanism.[ii]

Could aid be granted to euro countries by any other means?

Concerns were raised that another provision of EU law (Article 122(2) of the Treaty on the Functioning of the European Union) could be used as a basis to grant aid to Euro countries especially through something called the European Financial Stability Mechanism (EFSM). There was a huge debate about this in 2015 surrounding the Greek bailout. There are two important points which show that the UK would not be required to contribute money to aid granted via these methods:

  1. Aid granted in this way comes from the EU’s budget (or borrowing against that budget), and not directly from the UK.[iii] So this is not a case of the UK being forced to contribute directly to a bailout. However, I accept that part of the EU’s budget is made up of contributions from the UK. This is dealt with by my second point…
  1. In 2015, EU law on the European Financial Stability Mechanism (EFSM) was amended to read that, where grants are made to euro countries:

    “… the granting of [EU] financial assistance shall be conditional upon the enactment of legally binding provisionsguaranteeing that the Member States whose currency is not the euro are immediately and fully compensated for any liability they may incur as a result of any failure by the beneficiary Member State to repay the financial assistance in accordance with its terms.”[iv]

    In plain English – if the EFSM is used to provide aid to euro countries, this can only be granted if legally binding provisions are put in place to ensure that non-euro countries are immediately and fully compensated if the country being given aid does not repay it.

This might seem a bit technical, so to summarise: grants made under Article 122 or the EFSM come from the EU’s budget and not from the UK directly, and if aid is granted to euro countries via the EFSM, it must be subject to guarantees to ensure that non-euro countries are immediately and fully compensated if the country being given aid does not repay it.

The UK’s renegotiation with the EU

All of this is further reinforced by David Cameron’s renegotiation with the EU this year. As part of this renegotiation, all Member States of the EU agreed that if the UK remains in the EU:

“Emergency and crisis measures designed to safeguard the financial stability of the euro area will not entail budgetary responsibility for Member States whose currency is not the euro

Appropriate mechanisms to ensure full reimbursement will be established where the general budget of the [EU] supports costs, other than administrative costs, that derive from the emergency and crisis measures referred to in the first subparagraph.”[v]

Again to translate this into plain English – this means the UK would not be required to contribute to any future bailouts (the first paragraph) and if the EU were to decide to use its own funds (which are partly made up of contributions by the UK) these will be reimbursed (the second paragraph).

There was quite a lot of discussion about whether various parts of the UK’s renegotiation with the EU are legally binding. In short, this part is legally binding under international law.[vi] When this part of the deal was agreed, all Heads of State or government of the EU Member States declared that it is “legally binding, and may be amended or repealed only by common accord [i.e. consent] of the Heads of State or Government of the Member States of the European Union.”[vii]

So – we cannot be forced to join the Euro, and if we remain in the EU we will be protected from liability for Euro country bailouts. It remains open to the UK to choose to contribute, but that would be our government’s choice.


Footnotes (AKA things for the super keen)

[i] See section 6.

[ii] http://www.esm.europa.eu/pdf/ESM%20Treaty/20150203%20-%20ESM%20Treaty%20-%20EN.pdf

[iii] See a judgment of the General Court of the European Union in Case T-450/12 Alexios Anagnostakis v European Commission. See paragraph 49: “It has also been held that the subject matter of Article 122 TFEU is solely financial assistance granted by the Union and not that granted by the Member States” (http://curia.europa.eu/juris/celex.jsf?celex=62012TJ0450&lang1=en&type=TXT&ancre)

[iv] http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32015R1360

[v] http://www.consilium.europa.eu/en/meetings/european-council/2016/02/EUCO-Conclusions_pdf/

[vi] http://eulawanalysis.blogspot.co.uk/2016/02/the-final-ukeu-renegotiation-deal-legal.html

[vii] http://www.consilium.europa.eu/en/meetings/european-council/2016/02/EUCO-Conclusions_pdf/ at p.2

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