EU: On the Road to a Tallin Treaty?

You’ve probably never heard of the “Tallinn Treaty,” have you? There’s a good reason for it, though, which is that it doesn’t actually exist yet. (See TG’s recent coverage of Greece here)

But if I’m right, the Tallinn Treaty of 2018 will be the successor to the Lisbon Treaty, and it will solve just about all of the European Union’s current panoply of problems, including Greece.

An unhappy 10th anniversary

Ten years ago, in 2005, the European Union was in disarray, coming to terms as it was by the recent referendum defeats in both France and the Netherlands on the question of the ratification of the draft EU Constitution.

Back in those days, (i.e. in contrast to the recent Greek referendum), it took relatively more time for policy-makers to ignore the will of their people.

Indeed it wasn’t until two years later, on the 50th anniversary of the signing of the original Treaty of Rome, that the so-called Berlin Declaration resolved to seek a “renewed common basis” for the European Union in time for the European Parliamentary elections that were scheduled for 2009.

It was called the Berlin Declaration because, as fate would have it, it was issued during Germany’s turn in the rotating EU Presidency. By the time its Presidency was wrapping up in June 2007, the main parameters of the next Treaty change were all but agreed, and an Intergovernmental Conference was launched.

By December, the work of the Conference was done.

Germany may have done the heavy lifting, but it was Portugal’s turn as President by then, and so the final treaty would be known as the Lisbon Treaty. (Stefan Kornelius’ excellent authorised biography of Angela Merkel has more detail on the Lisbon Treaty renegotiation and Germany’s role in it.)

2015: The year of Greece

Ten years on, here we are in the middle of 2015. But the European Union is still in a state of crisis. Admittedly, the focus of the current crisis is only one particular country, Greece.

However, Greece isn’t the only country that’s finding itself under excessive government debt, a significant surplus of unemployed labor and a shortfall in terms of progress on structural reform.

And while its exit from the eurozone was avoided in the latest last-ditch talks, talk of an eventual ‘Grexit’ refuses to go away, particularly if Greece still hankers after any nation for debt relief.

Is it time for a new treaty?

When it comes to the UK, it can be forgiven on the basis of much of its recent behavior and rhetoric for dismissing its now long-standing call for EU Treaty change as coming, at least somewhat, “from the cheap seats.”

On the other hand, many of its long-standing concerns about the long-term viability of the Euro in the absence of a political union (which it doesn’t want) have, well, been largely validated.

By the way, it wasn’t just the UK that had its doubts about the Euro. The German economics establishments did too, including the venerable Bundesbank.

In other words, given what has ultimately transpired in the eurozone of late, it isn’t just the UK government that would want to see the current EU treaties amended at some future point. But the question is, when?

Many EU roads lead to 2017

The next UK Presidency of the Council of the European Union is scheduled for the second half of 2017. It’s at the same time as the deadline for UK’s ‘In-Out’ referendum, by the way, and that is no coincidence.

Look more carefully, though, and you might note that a number of other important events are scheduled to take place on or around 2017. For example:

• German Chancellor Angela Merkel faces re-election sometime toward the second half of 2017;
  French President François Hollande faces re-election in the second quarter of 2017
• The Fiscal Compact (which the UK previously vetoed) faces re-consideration by the end of 2017, with a view (as it states in Article 16 of its own Treaty) to being consolidated within the main EU Treaties at that point
• The eurogroup President will be up for renewal at the end of 2017
• EU Council President Donald Tusk faces re-election in 2017.

In proposing a balanced budget amendment in the UK, as Chancellor George Osborne did recently, the road to unblocking the UK veto on the Fiscal Compact was very much unblocked, at least potentially. That’s probably no coincidence either, just in case you are wondering.

What happens next?

Here’s a prediction for you, based on all of the above.

In March 2017, coincident with the 60th anniversary of the signing of the Treaty of Rome, what will become known as the Valletta Declaration will take place (Malta will hold the EU Presidency at this point in time).

It will commit the EU to finding a “renewed common basis” (a.k.a. Treaty) in time for the scheduled European Parliament elections in 2019. Such a Declaration, by that time, will suit German Chancellor Merkel (seeking one more term as Chancellor) and French Presidential hopeful Nicolas Sarkozy, both of whom will win their respective elections as 2017 progresses.

Sometime in the first half of 2017, the UK’s ‘In-Out’ referendum will take place, with a victory for the ‘In’ vote by a margin of 63-37, or around that. By the time the UK’s EU Presidency comes to a close in the second half of 17, a new Intergovernmental Conference will be launched.

This will ultimately see the Fiscal Compact incorporated into the EU Treaties (with British agreement), one of which (there are two, remember) will drop the commitment to an “ever closer union” in its preamble.

Having been re-elected in his 2015 general election, Spain’s Finance Minister Luis de Guindos will succeed eurogroup President Jeroen Dijsselbloem when the latter’s new two and a half year term comes to an end.

And the EU Council Presidency will pass from Donald Tusk to Mark Rutte, who will have relinquished his position as Dutch Prime Minister some time before then. Wrapping things up in March 2018, EU leaders will gather in Estonia to sign the Tallinn Treaty, the Lisbon’s Treaty successor.

There will be something in it for everyone. It’s actually more or less the only positive way forward for Europe, if you think about it.

And Greece?

But what about Greece? Well, it will finally have its drachma back sometime before 2020 and it will get its debt relief in the time-honored tradition of a currency devaluation.

The only thing I don’t know yet is whether its currency change will come as a result of the forthcoming Treaty change, or in the run-up to it (hence “sometime before 2020”).

In any event, though, one final bit of Treaty change to note will be deletion of the onus on non-Euro countries to adopt the Euro at the earliest opportunity, which – in the end – will facilitate a Greek re-denomination inside the EU.

Now, who said economists never give clear forecasts!