Thursday, 23 October 2008

Euro banknotes and coins IIIb: UK and Constitution Article III-186

Does Article III-186 of the Constitutional Treaty differ from Article III-78 of the draft Constitution with regard to the authorisation and issue of legal tender in the euro area (eurozone)?

First, we compare the texts.

Then, we look at what our legal materials have to say, with a special focus on the United Kingdom. Has the UK succeeded in creating valuable options, or did the government prepare for future storms by throwing the steering wheel into the sea?


Draft Constitution Article III-78 and Constitution Article III-186 texts compared

The IGC 2004 left the provision almost untouched. The Council of Ministers became the Council in the Constitutional Treaty, but this was a general choice of terminology.

The second paragraph was divided into two subparagraphs, making it somewhat easier to read, but the substance remained the same.


Although the results of the IGC 2004 were far from dramatic, we check if Article III-186 Constitution elicited any comments in our sample of legal materials.


Outside the euro area, the Swedish government memorandum ‘Fördraget om upprättande av en konstitution för Europa’ (Utrikesdepartemetet, Departementsserien (Ds) 2004:52; December 2004) described the signed Constitutional Treaty.

Before turning to the proposed new powers for the euro area, the Swedish government mentioned the technical questions regarding euro coins in passing, as one of the areas where the eurogroup already decides on its own (page 239):


Genom det konstitutionella fördraget kommer beslutsfattandet i euroområdet att stärkas. Redan i dag finns ett antal frågor där euroländerna själva fattar beslut, bl.a. sanktioner i stabilitets- och tillväxtpakten, växelkurspolitik och tekniska frågor som rör euromynten. Genom det nya konstitutionella fördraget kommer euroländerna att kunna samordna sin ekonomiska politik på ett mer formellt sätt. Artikel III-194 i det konstitutionella fördraget fastställer att euroländerna ska utarbeta riktlinjerna för den ekonomiska politiken och se till att dessa överensstämmer med de riktlinjer som har antagits för hela unionen.”


On the whole, here on page 172, the Swedish draft ratification bill ‘Lagrådsremiss ─ Fördraget om upprättande av en konstitution för Europa’ (2 June 2005) reiterated the remarks made in the memorandum mentioned above.



The government of eurozone Finland laid out the Constitutional Treaty in its ratification bill ‘Hallituksen esitys Eduskunnalle Euroopan perustuslaista tehdyn sopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta’ (HE 67/2006 vp). Even if the measures concern a detail ─ the denominations and the technical specifications of euro coins ─ this extract from the government’s text gives the impression that consulting the European Parliament is an addition to the EP’s powers (page 183):

”III-186 artikla, jossa määrätään setelien ja metallirahojen liikkeelle laskemisesta, vastaa SEY 106 artiklaa sillä lisäyksellä, että neuvoston tulee kuulla myös Euroopan parlamenttia ennen kuin se päättää metallirahojen yksikköarvojen ja teknisten määritelmien yhdenmukaistamisesta.”

The weakening of the EP’s position has been noted elsewhere, as we have indicated earlier.


The same remarks appear in Swedish in ’Regeringens proposition till Riksdagen med förslag om godkännande av Fördraget om upprättande av en konstitution för Europa och till lag om sättande i kraft av de bestämmelser i fördraget som hör till området för lagstiftningen (RP 67/2006 rd), with the Finnish government’s comments on page 187:

”Artikel III-186, där det bestäms om utgivningen av sedlar och mynt, motsvarar artikel 106 i EG-fördraget med det tillägget att rådet skall höra även Europaparlamentet innan det beslutar om harmonisering av valörerna och de tekniska specifikationerna för mynt.”

Elsewhere, the description oft he EP’s role is explained more clearly.



Klemens H. Fischer, in ‘Der Europäische Verfassungsvertrag‘ (Nomos, Stämpfli & Manz, 2005), only made the observations that „Artikel III-186 EUVV korrespondiert mit Artikel 106 EGV“ and „Artikel III-186 EUVV korrespondiert mit Artikel III-78 VVE“ (page 317).


United Kingdom

According to Article 4 of the Protocol (No 13, in the Constitutional Treaty) on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland as regards economic and monetary union, the Constitution’s Article III-186 did not apply to the UK.

The UK Foreign and Commonwealth Office (FCO) ‘White Paper on the Treaty establishing a Constitution for Europe’ (Cm 6309, September 2004) mentioned economic and monetary union (EMU) stating the existence of the protocol. The government then proceeded to say that it was, in principle, in favour of a successful single currency. If other member states proved the success and the British ‘economic tests’ were met, the government might propose joining. The promise of a referendum was the real clincher (page 28):

”Economic and Monetary Union

The UK’s Protocol makes clear that the UK is under no obligation to join the single currency.The Constitution does not change the terms of this Protocol. In principle the Government is in favour of UK membership of a successful single currency; in practice the economic tests must be met. If the five tests were passed, and the Government recommended joining EMU, it would be put to a vote in Parliament and then to a referendum of the British people.”


Five economic tests

The five economic tests, to precede any political decision, can be found on the web page ’Single Currency ─ Economic & Monetary Union (EMU)’ of BERR (Department for Business Enterprise and Regulatory Reform):

“1. Are business cycles and economic structures compatible so that we and others could live comfortably with euro interest rates on a permanent basis?
2. If problems emerge is there sufficient flexibility to deal with them?
3. Would joining EMU create better conditions for firms making long-term decisions to invest in Britain?
4. What impact would entry into EMU have on the competitive position of the UK's financial services industry, particularly the City's wholesale markets?
5. Will joining the EMU promote higher growth, stability and a lasting increase in jobs?”

The referendum promise is repeated by BERR even today, the proponents of direct democracy having dealt parliamentary sovereignty and government operability a fatal blow.

Given the toxic atmosphere, it is hard to imagine a financial and economic meltdown of such proportions that the United Kingdom could adopt the single currency on the existing premises, irrespective of the internal economic tests (largely met already).

But self-incapacitation has an external side, too. If Britain suffered and economic catastrophe, it would most likely flunk the (external) convergence criteria.


Convergence criteria

As a reminder, here are the four EMU convergence criteria at headline level:

Price stability
No excessive deficit

Interest rate convergence

Exchange-rate participation without devaluation

Since we are dealing with the Constitutional Treaty, we look at the corresponding version of the Protocol (No 11) on the convergence criteria (OJ 16.12.2004 C 310/339):



DESIRING to lay down the details of the convergence criteria which shall guide the Union in taking decisions referred to in Article III-198 of the Constitution to end the derogations of those Member States with a derogation,

HAVE AGREED upon the following provisions, which shall be annexed to the Treaty establishing a Constitution for Europe:

Article 1

The criterion on price stability referred to in Article III-198(1)(a) of the Constitution shall mean that the Member State concerned has a price performance that is sustainable and an average rate of inflation, observed over a period of one year before the examination, that does not exceed by more than 1,5 percentage points that of, at most, the three best performing Member States in terms of price stability. Inflation shall be measured by means of the consumer price index on a comparable basis, taking into account differences in national definitions.

Article 2

The criterion on the government budgetary position referred to in Article III-198(1)(b) of the Constitution shall mean that at the time of the examination the Member State concerned is not the subject of a European decision of the Council under Article III-184(6) of the Constitution that an excessive deficit exists.

Article 3

The criterion on participation in the exchange-rate mechanism of the European Monetary System referred to in Article III-198(1)(c) of the Constitution shall mean that the Member State concerned has respected the normal fluctuation margins provided for by the exchange-rate mechanism of the European Monetary System without severe tensions for at least the last two years before the examination. In particular, the Member State shall not have devalued its currency's bilateral central rate against the euro on its own initiative for the same period.

Article 4
The criterion on the convergence of interest rates referred to in Article III-198(1)(d) of the Constitution shall mean that, observed over a period of one year before the examination, the Member State concerned has had an average nominal long-term interest rate that does not exceed by more than 2 percentage points that of, at most, the three best performing Member States in terms of price stability. Interest rates shall be measured on the basis of long-term government bonds or comparable securities, taking into account differences in national definitions. The statistical data to be used for the application of this Protocol shall be provided by the Commission.

Article 6

The Council shall, acting unanimously on a proposal from the Commission and after consulting the European Parliament, the European Central Bank, and the Economic and Financial Committee referred to in Article III-192 of the Constitution, adopt appropriate provisions to lay down the details of the convergence criteria referred to in Article III-198 of the Constitution, which shall then replace this Protocol.


In short, when the United Kingdom signed the Constitutional Treaty, the UK government not only rejected entering the third stage of economic and monetary union (EMU) and adopting the euro currency immediately, but practically eliminated its chances of ever doing so, however pressing the need.

What difference does an additional referendum promise make, then chancellor Gordon Brown might have argued.


The next instalment turns to the IGC 2007 and the Lisbon Treaty.

Ralf Grahn