What it means
By the mid-2000s the EU had grown to include many more countries, and its decision-making rules had become hard to use. After an earlier attempt at a constitution failed, leaders agreed the Lisbon Treaty to modernise the system.
It amended the two founding treaties and renamed one of them the Treaty on the Functioning of the European Union. Several of its changes matter to business.
The treaty extended majority voting in the Council, so that more decisions no longer need every country to agree, and it increased the powers of the European Parliament in making laws. It also created a full-time President of the European Council and a High Representative for foreign and security policy, and gave the EU legal personality so that it can sign agreements.
The voting rule is a double majority. For most decisions a measure needs the support of at least 55% of member states, which must be at least 15, representing at least 65% of the EU population.
A blocking minority needs at least four countries, which stops the largest countries from simply outvoting the others. The treaty also introduced Article 50, which sets out how a member state can leave the union.
It sets a two-year negotiation period after notice is given, and the United Kingdom used it after its 2016 referendum. For companies, this gave a legal framework for planning around a withdrawal, including trade, regulation and financial services.
For finance professionals, the treaty matters because it underpins the rules for the single market, competition policy, the euro and fiscal coordination. It confirmed the framework for economic and monetary union and shaped the way the union responded to later crises, though the euro's main architecture comes from earlier treaties.
Anyone reading EU financial regulation will see references to articles of the Treaty on the Functioning of the European Union.
In practice
Real-world examples.
Example
A multinational planning its European operations reads a new regulation and checks how it was adopted. Knowing that it needed a qualified majority helps the legal team judge whether it is likely to stay in force. The team also notes which parts of the rule member states may apply differently at home.
Example
A bank's compliance officer studies the rules for withdrawal from the union when reviewing the risks of doing business across the UK and the EU. The firm uses Article 50 timelines to plan contract changes. It lists which clients and contracts depend on cross-border permissions and prepares alternatives for each.
Example
A trade association lobbies the European Parliament on a new financial services law. It targets lawmakers because the treaty gave Parliament equal power with the Council over most legislation.
Formula
Calculation
A measure passes if (member states in favour / total member states) is at least 55%, with at least 15 states, and (population of those states / total population) is at least 65%.
Suppose the union has 27 members and a population of 450,000,000. The state test needs 0.55 x 27 = 14.85, so at least 15 states. The population test needs 0.65 x 450,000,000 = 292,500,000 people. A group of 20 states representing 280,000,000 people passes the state test but fails the population test, since 280,000,000 is below 292,500,000. A group of 16 states representing 300,000,000 people passes both.Case study
Seen in the real world.
Brandford Logistics is an illustrative, fictional freight company with operations in several European countries. Its finance director followed the debate on a proposed customs rule and wanted to know how likely it was to be adopted.
By checking the voting rules, the company worked out that a group of larger countries supporting the rule would not be enough, because they did not reach the required share of states. The company's lobbyists therefore focused on winning over a few smaller states.
In this illustrative case, the company planned for both outcomes and budgeted $400,000 for system changes in case the rule passed. When the rule was eventually softened, the company released the money back to the contingency fund. The finance director kept the voting analysis on file as a template for future rule changes.
Watch out
Common mistakes.
- Confusing the Lisbon Treaty with the Maastricht Treaty, which created the euro framework and the European Union itself.
- Assuming unanimity is needed for every decision, when many decisions now need only a qualified majority.
- Believing Article 50 is an instant exit, when it sets a negotiation period that can be extended only by agreement.
Questions
People also ask.
When did the treaty take effect?
It was signed in December 2007 and came into force on 1 December 2009 after being ratified by every member state.
What is qualified majority voting?
A system in which a measure passes if it has the backing of enough countries and enough of the EU population, rather than requiring everyone to agree.
Why does it matter for business?
It sets the way EU laws on trade, competition, finance and the single market are made, and it provides the legal route for a country to leave.
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