Analysis: The maze behind EU "treaty change"
BRUSSELS (Reuters) - If there are two words that tense the jaws of European policymakers and prompt a concerned sucking of teeth, they are treaty change.
Like a nervous driver being told mid-route that he needs a different map if he's going to get where he's going, no one is sure whether the outcome will be road rage, a car crash or a smoother, if longer, journey.
So when German Finance Minister Wolfgang Schaeuble spoke his mind during a meeting in Dublin on April 13 and said a change to the EU's treaty was necessary if Europe was to build a fully-fledged banking union, there was more than a little angst in the corridors of Brussels.
In Schaeuble's view, banking union - originally a three-step plan to create a single eurozone banking supervisor, a unified system for resolving problem banks and a single deposit-guarantee scheme - only makes sense if there are strict rules for restructuring and winding up bad lenders.
Since those are not explicitly laid out in existing law, some changes would have to be made to the fundamental underpinnings of the union, he argued.
"If we want European institutions for that," said the lawyer, who measures his words carefully, "we will need a treaty change."
As with all pronouncements from Schaeuble over the past three years of crisis, the first question on policymakers' lips was whether he was speaking for himself, as he often does, or if his views were shared by Chancellor Angela Merkel and represented a new red line.
In this case, the answer remains unclear. Merkel has not expressed a definitive position on the issue, at least not in public, and senior officials in Brussels who have regular contact with Berlin say they are still unsure how to read the signals emanating from the chancellery.
But in a sign that she has her doubts about the direction policy is moving in, especially ahead of elections in September when she will seek a third term, last week Merkel ruled out the deposit-guarantee part of the banking plan "for now".
WHAT DOES GERMANY WANT?
That in itself was not a huge surprise.
The idea of a fund where euro zone countries effectively cross-guarantee one another's deposits was always going to make Germany and other northern European countries queasy, as it could mean them bailing out a string of shaky, highly indebted banking systems to the south.
But it was the first time Merkel had been so explicit and again raised doubts about her overall commitment to banking union, which many see as the most important initiative Europe has undertaken to resolve the crisis.
So what does Germany want? Does it really want treaty change, or is Schaeuble just bringing it up to stall on banking union? And if Germany were to get treaty change, would it suddenly like banking union more?
When quizzed, hesitant policymakers in Brussels - after clenching their jaws and sucking their teeth - shrug apologetically. They wish they knew what Germany really wanted.
But they do know two things: German elections are coming up and Germany's constitutional court will probably have to be consulted, especially on the single resolution scheme.
"Germany has always had cold feet about banking union," says one EU official, convinced that Berlin is determined to stall until after the September 22 vote, if not long beyond.
Yet the reason why the words "treaty change" cause so much consternation is not so much down to the nitty-gritty of banking union. It's about the interplay of member states and the very real risk that a minor opening of the treaty leads to a full-scale renegotiation of all 27 nations' ties to the union - the dreaded opening of Pandora's Box.
The European Commission has said it is "100 percent sure" that it has the legal grounds to implement banking union without changing the treaty.
But if Germany is convinced otherwise and other member states take its line, it may be impossible to move ahead without biting the bullet and tinkering with the fundamental law, a trying and cumbersome process that, depending on how it is done, can take up to 18 months or more.
That immediately raises questions of timing.
ELECTIONS CLOUD TIMING
If Germany is in election mode until September, no serious discussions on either banking union or treaty change can take place until the end of the year, at the earliest.
But the next round of European Parliament elections will be held in May 2014 and the European Commission and European Council will be reappointed only a few months later, making it all but impossible to have progress on any substantive issue until the new leadership is in place.
That moves the debate into early 2015, which puts it in close proximity to Britain's next election, expected in the spring of that year.
Prime Minister David Cameron has already promised voters a referendum on Britain's membership of the EU, as long as he is reelected and once he has renegotiated the UK's relationship with the rest of the union - a promise already causing consternation from Berlin to Budapest.
Cameron's "renegotiation" is another way of saying "treaty change". But what Cameron wants from an altered treaty is very different from Germany, let alone France, Italy, Poland or the Netherlands, most of whom are deeply ambivalent about the issue.
Schaeuble knows that. And so while his mentioning treaty change in Ireland earlier this month may genuinely have been about laying the proper legal groundwork for the future of banking union, it is equally likely that it was a good way of kicking up a storm that delays banking union until well after September's election and perhaps long after.
No wonder officials in Brussels are clenching their jaws and sucking their teeth.
(Writing by Luke Baker)
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