ANALYSIS:TWO YEARS after the coming into force of the Lisbon Treaty, the question of treaty change is firmly on the EU agenda. German chancellor Angela Merkel regards change as necessary to avoid a repeat of the fiscal profligacy that defines the current euro crisis from a German perspective.

For Ireland, treaty change is an unwelcome procedural response to problems that are very real. Notwithstanding improvements in the economy, the depth of Ireland’s vulnerability cannot be disguised.

So how then should Ireland approach this issue? There are four possible legal and political ways to deal with treaty change.

First, the euro zone member states might opt for a Schengen solution. That is to base treaty change on a classical international treaty limited to the euro zone states. This would allow governance of the euro zone without involving states that are not members of the currency union.

This approach would be unpopular with the non-euro states and would be outside the institutional framework of the EU.

The second option is to use the enhanced co-operation provisions of the Lisbon Treaty, article 20. There has been provision in EU treaties for enhanced co-operation since the enactment of the Treaty of Amsterdam but these were never used until this year.

The council authorised enhanced co-operation on a unitary patent title in March; 25 of the 27 member states are involved. Furthermore, in July a decision was taken to use enhanced co-operation involving 14 states in relation to divorce. Neither measure is equal in significance to enhanced co-operation for the euro zone but the provisions are there to be deployed. Enhanced co-operation has merit in that all member states are involved in the deliberations and the EU institutions exercise a role.

The third option is treaty reform that is tightly focused on economic governance in the euro zone but without opening other sections of the treaties.

The fourth is a federal approach that would aim for a major revision of the treaties involving a convention and intergovernmental conference.

Options three and four would involve all 27 members of the EU in the negotiations; option four would involve lengthy negotiations and subsequent ratification.

A full-blown convention and intergovernmental conference would be very risky at this juncture given the worsening of the euro crisis.

Options three and four would require the consent of all EU member states, including the UK. Given the domestic constraints on David Cameron, the UK is likely to argue for some concession, perhaps in the area of social policy, in return for treaty change.

The Irish Government should examine options one to three to assess the merits of each pathway. It should be particularly vigilant concerning the Schengen approach given that Ireland was not involved in those negotiations.

If the German government wants to reach agreement on an unrealistic timeframe, this should be resisted. European treaties become part of the Irish Constitution if ratified and hence require careful negotiation. The negotiations should not drag on but neither should they be concluded with unseemly haste.

The focus of treaty change has been well-signalled as the creation of a fiscal union to underpin the currency union. This, however, is not a classical fiscal union characterised by a sizeable federal budget that will act to absorb shocks in the euro area.

The history of EU finances is a history of limited EU budgetary capacity and there is no evidence that the political conditions exist to change this. In fact, the cleavage between the net contributors and net beneficiaries of the EU budget has sharpened over the last 10 years.

What is at issue in these negotiations is the strengthening of rules and institutions on domestic budgetary and fiscal policies. The Maastricht Treaty identified economic and fiscal policy as the “common concern” of the member states. Treaty change will be designed to ensure that institutions and rules give teeth to the “common concern”of the member states. Put simply, this means that national fiscal policies will be subject to deliberation with partners, and penalties will exist for those who breach agreed benchmarks. There is much to play for because the rules and processes that govern a fiscal union could take many forms.

The Irish Government should ask the newly created Fiscal Advisory Council to examine what options might suit Ireland.

It also needs to enhance bilateral engagement with all member states to assess where it might find like-minded states.

There remains considerable disagreement between France and Germany on the way forward. Germany is more open to giving EU- level institutions a role including the European Court of Justice, while France wants to maintain surveillance at an intergovernmental level. The latter would not suit small states. It is preferable that there is a supranational dimension to the rules and processes. That said, I do not think that the European Commission on its own should drive the process.

There is considerable merit in the creation of a European fiscal council with representation from the commission and the European Central Bank that would engage with the euro zone states on their budgetary strategies. It would be more independent of the member states than the commission and would bring expertise to bear on the key issues.

Given the speed with which the agenda is proceeding, the Government needs to create a team with responsibility to prepare for the negotiations and to assess where Ireland should place itself in any emerging agreement. Inevitably France will try to use this opportunity to put corporation tax on the agenda. This can be handled with relative ease but should not become the sole focus of Irish attention. Ireland is not without negotiating power going into these discussions, particularly given the requirement to have a referendum on any significant treaty change. It may be possible to link treaty change to the sustainability of the Irish debt. It is an opportunity that should not be lost.