Year LIV, 2012, Single Issue, Page 10

 

 

The Fiscal Compact,
The European Stability Mechanism
And a Two-Speed Europe:
Institutional Proposals
For a Government of the Eurozone
 
GIULIA ROSSOLILLO
 
 
The signing of two treaties — the Treaty on Stability, Coordination and Governancein theEconomicandMonetary Union (also known as the fiscal compact) and the Treaty establishing the European Stability Mechanism (ESM) — has opened up a new phase in the process of European integration that sets the stage for the creation of a two-speed Europe. Indeed, for the first time ever in this process, a treaty reached between only some EU member states will come into force without having to be ratified by all the countries that signed it: the fiscal compact was signed by 25 of the 27[1] EU member states and will become effective following its ratification by just twelve eurozone countries. Moreover, under the Treaty establishing the European Stability Mechanism, which is a treaty that has been signed and will also be ratified only by states belonging to the euro area, new institutions for governing the eurozone (e.g. a Board of Governors able in some circumstances to take majority decisions) are starting to take shape.
These developments provide a clear demonstration of the will of some states to push ahead towards closer forms of integration even without the consent of the states that are opposed to such advances; at the same time it adds a new piece to the gradually emerging picture of the eurozone as the framework in which to create forms of political integration in Europe. It should not be forgotten, of course, that the two treaties are closely interlinked, given that only states that have ratified the fiscal compact will be eligible for aid from the ESM.
 
Criticisms of the Fiscal Compact Based on Comparison of the Community Method and the Intergovernmental Method.
 
Leaving aside the content of the fiscal compact (whose ratification implies acceptance of considerable restrictions on national budgetary sovereignty), it is, in the main, the method used by the states that signed the treaty that has prompted widespread criticism, both from those who think the community method should always be used, and from those who see the non-participation of two member states and the possibility of bringing the treaty into force through its ratification by only twelve eurozone countries as a clear indication of the desire of some member states to exclude others from the integration process.[2]
Criticisms of this kind hinge on the often highlighted distinction between the community method, seen as truly supranational, democratic and able to ensure that the common interest prevails over that of the member states, and the intergovernmental method, considered to be founded on the states’ pursuit of their own, sometimes conflicting, interests and designed to exclude the participation of supranational institutions. This distinction is, however, rather artificial and not supported by the text of the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TEFU), or by the real workings of the Union. In truth, the so-called community method is not so much the antithesis as a refinement of the intergovernmental method:[3] the extension of qualified majority voting within the Council, the Commission's role as a mediator, and the existence of a European Court of Justice (ECJ) are all factors that favour the reaching of forms of compromise between the member states; and compromise indeed continues to be an essential component in the functioning of the Union.[4] The Treaty revision mechanism itself provides a clear demonstration of this. Indeed, art. 48 TEU states that Treaty amendment, whether by means of the ordinary or the simplified revision procedures, requires the unanimous consent of the states, expressed by ratification procedures or by a unanimous decision of the European Council.[5]
Therefore, had the procedure laid down in art. 48 TEU been used in order to adopt the provisions contained in the fiscal compact, it would have been essential to secure the agreement of all the member states, and the revision procedure would, essentially, have been intergovernmental in nature.
The crux of the matter and the difference between the procedure laid down by art. 48 and the establishment of a treaty outside the framework of the mechanisms provided for in EU law lies in the fact that whereas the procedure set out in art. 48 TEU would have required the agreement of all the member states, the reaching of an international agreement outside the Treaties has made it possible to arrive at a text signed only by the states that shared its principles and also a determination to find more advanced forms of mutual cooperation. This is a significant difference, given that the need to reconcile widely divergent views, and in particular to reach a compromise with Great Britain’s strongly anti-European stance, would, under the terms of art. 48 TEU, undoubtedly have resulted in the adoption of a text without any real substance, or even in the failure to reach an agreement at all.
 
The Fiscal Compact, European Stability Mechanism and Institutional Balance of the EU.
 
There is nothing in international law to prohibit some of the states parties to a treaty from together entering into another treaty that modifies the relations between themselves as established by the first treaty. In particular, according to art. 41 of the Vienna Convention on the Law of Treaties, “Two or more of the parties to a multilateral treaty may conclude an agreement to modify the treaty as between themselves alone if: a) the possibility of such a modification is provided for by the treaty; or b) the modification in question is not prohibited by the treaty and: i) does not affect the enjoyment by the other parties of their rights under the treaty or the performance of their obligations; ii) does not relate to a provision, derogation from which is incompatible with the effective execution of the object and purpose of the treaty as a whole.”[6]
What this provision means, applied to the concrete case of a treaty agreed between some EU member states outside the mechanisms laid down by the founding Treaties, is that the agreement reached must not affect the rights and obligations, stemming from their EU membership, that are vested in the states that are not parties to the said treaty. Therefore, in order to ensure that the fiscal compact treaty, the ESM treaty and any future developments of these agreements do not create problems of compatibility with EU law, the institutional structure of the Union and the acquis need to remain basically unchanged.[7]
A similar principle, albeit referring to relations between EU law and international agreements reached between EU and third-party states or international organisations, has been reiterated repeatedly by the ECJ,[8] which on various occasions has ruled draft agreements with third-party states to be incompatible with EU law precisely because they would have changed the institutional balance of the EU. In the ECJ’s Opinion 1/76[9] it is, in fact, already stated that “the conclusion of an international agreement by the Community cannot have the effect of surrendering the independence of action of the Community in its external relations and changing its internal constitution by the alteration of essential elements of the Community structure as regards the prerogatives of the institutions, the decision-making procedure within the latter and the position of the member states vis-à-vis one another.”
Under this premise, in Opinion 1/91,[10] the ECJ, called upon to advise on the draft agreement on a European Economic Area, concluded that the creation of a judicial institution responsible for interpreting the provisions of the said agreement could potentially have affected the allocation of responsibilities as defined in the Treaties and the autonomy of the Community legal order, given that it would have implied a violation, by the EU member states, of their undertaking “not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein.”
On the basis of similar arguments, in Opinion 1/09, the ECJ concluded that a draft agreement on the creation of a European and Community Patents Court (PC)[11] could not be considered compatible with the provisions of the Treaties given that the PC would, within the sphere of its exclusive competences, effectively have replaced the national judges and thereby altered the preliminary ruling procedure provided for in art. 267 TFEU.
The crucial importance attached, in EU law, to safeguarding the Union’s institutional structure, competences and institutions also emerges in the provisions on enhanced cooperations. Indeed, according to art. 326 TFEU, these must comply with the Treaties and with EU law and must respect the competences, rights and obligations of the member states not participating in them.
 
The Schengen Agreement, Enhanced Cooperations and Benelux Union: Points for Reflection on a Two-Speed Europe.
 
The pressing need to find a solution able to reconcile the necessary advance of some states towards true political integration with the safeguarding of the EU’s institutional balance makes it necessary to reflect upon the forms of differentiated integration developed within the European Union setting to date, or at least those that might provide useful insights to this end: enhanced cooperations, the Schengen Agreement and the Benelux Union.
These are, in fact, three very different phenomena: whereas enhanced cooperations are envisaged by the Treaties, the Schengen Agreement was conceived outside the Treaties and only later incorporated into the EU legal framework. The Benelux customs union, on the other hand, was an earlier form of integration.
As regards the first two phenomena, it must be emphasised that, from a substantive point of view, neither enhanced cooperations nor the Schengen Agreement are comparable to a hypothetical government of the euro area because they are forms of differentiated integration that concern very specific aspects of integration. Nevertheless, for the purposes of our analysis there are some useful insights to be drawn from the debate triggered by the incorporation of the enhanced cooperation formula into the Treaties, and from the different cooperation arrangements that were reached between the Schengen and EU institutions.
In the case of enhanced cooperations, which are a form of differentiated integration expressly envisaged by the Treaties, the EU legislator has, of course, taken care to ensure that they do not affect the institutional balance of the Union. Indeed, before an enhanced cooperation can be established it must be verified that the objectives it intends to pursue cannot be achieved by the Union as a whole, that it falls within the framework of the Union's non-exclusive competences, that  it complies with the Treaties and with Union law, and that it has been authorised by the Council.
Therefore, whereas the fiscal compact is an international agreement that has been reached between some EU member states outside the framework of the institutional mechanisms provided for in the Treaties, the enhanced cooperation formula has been fully incorporated into these Treaties, meaning that these cooperations have to respect the mechanisms provided for therein.
Despite this fundamental difference, there is an aspect worth reflecting upon, and it concerns the role of the EU institutions within an enhanced cooperation. Indeed, according to the Treaties, an enhanced cooperation, once established, does not need its own autonomous institutional structure, but is required, rather, to make use of the Union’s institutions. However, since an enhanced cooperation, by definition, involves only some of the member states, the Treaty makes provision for voting by only part of the Council: “All members of the Council may participate in its deliberations, but only members of the Council representing the member states participating in an enhanced cooperation shall take part in the vote.” (art. 330 TFEU).
No such provisions are, instead, in place for the European Parliament and Commission, both of which intervene, in their full composition, in decisions on enhanced cooperations, a solution that at least as far as the European Parliament is concerned was hardly the obvious one to adopt. In fact, the possibility (currently discussed in relation to the idea of a two-speed Europe) that the European Parliament could, in some cases, operate with a restricted composition entered the debate back in the 1990s, leading some commentators[12] to point out that a solution like the one adopted for the Council would have been more logical for the Parliament, too. In fact, whereas the Parliament has an only marginal role in the setting up of an enhanced cooperation, it can play an important role in its subsequent implementation: this point is illustrated by the fact that the implementation of enhanced cooperations can require acts adopted according to the ordinary legislative procedure, in other words according to a procedure that involves the participation, on an equal footing, of both the European Parliament and the Council. The fact that the whole Commission intervenes in decisions on enhanced cooperations has, instead, met with less objection,[13] as the nature and configuration of this institution seem to make it impossible for it to operate in restricted composition. However, whereas it is perhaps possible to accept the absence of provision for intervention of the Commission in restricted composition in relation to enhanced cooperations, on the basis that these are forms of cooperation that generally involve very specific, sectoral aspects of EU law, this lack of provision becomes much more questionable in the context of efforts to institutionalise the eurozone as a vanguard group within the EU. Indeed, even though the Commission, in theory, represents the interests of the Union as a whole, the nature of its relationship with the states emerges clearly from the states’ reluctance to accept being deprived of the power to appoint a commissioner: in fact, the European Council of December 2008 shelved the provision whereby the number of Commissioners making up the Commission should, as from 2014, be smaller than the number of member states.[14] Furthermore, were the eurozone to be given its own institutional structure, it is quite unthinkable that it could then be governed by a Commission appointed by a European Council, Council and European Parliament composed of representatives of all the member states. This would, in fact, fly in the face of themost fundamental principles of democratic representation.
Moving on to the Schengen Agreement, this is an international treaty signed outside the framework of EU law between only a few member states. It was established with the dual purpose of abolishing border controls between Schengen states, to allow free movement of people within this area, and of introducing uniform rules on external border controls, and it resulted in the creation of specific Schengen bodies. However, prior to its incorporation into the Treaties and this is the interesting point various kinds of links were set up between Schengen and the European institutions. In particular, the Commission and the General Secretariat of the Council sent observers to participate in the Schengen Executive Committee and various working groups. And the European Parliament had regular meetings with the various Schengen presidencies.[15] In short, Schengen amounted to a sort of cooperation agreement between several states that was created outside the Treaties but was somehow connected with the EU institutions, which, however, were neither changed by it nor assigned new competences.
While the two experiences described above provide some suggestions on how the eurozone might be given an institutional structure, the solution that perhaps comes closest to what might be envisaged is that of the Benelux Union which, despite constituting a form of differentiated integration that predated the EEC Treaty, emerges as particularly interesting for the purposes of the present analysis. Indeed, art. 350 TFEU states that “The provisions of the Treaties shall not preclude the existence or completion of regional unions between Belgium and Luxembourg, or between Belgium, Luxembourg and the Netherlands, to the extent that the objectives of these regional unions are not attained by application of the Treaties.” As pointed out by the ECJ,[16] this provision allows the Benelux member states to apply the rules in force within their union, derogating from those of the EU, whenever these rules are more advanced than the common market ones. In the Court’s view, the principle of uniformity of application and interpretation of EU law does not preclude the existence of this closer cooperation. It requires that common rules be attributed equal importance, but it does not prevent the creation of new rules for application in a smaller group of states.
The Benelux Union, furthermore, created its own Court of Justice, which is composed of the judges of the supreme courts of the participating states and empowered to seek preliminary rulings from the ECJ; at the same time, of course, the Benelux member states continue to be represented individually in the EU institutions.
It should be noted that although the ECJ has never extended the principles applied to the existence and operation of the Benelux Union to any other entity, it has never actually stated that they cannot be. In theory, therefore, it is not possible to rule out the formation, within the EU, of unions of states that have institutions of their own, and therefore do not need to use the EU institutions in order to function, and whose members are represented individually in the Union’s institutions.
 
The Transition towards a Federal Core within the Union. 
 
The examples of differentiated integration here illustrated offer some useful points for reflection with regard to the crucial problem now facing European integration, in other words the need to find formulas able, on the one hand, to provide effective responses to the clear crisis in which the integration process is now mired, and on the other, to overcome the states’ reluctance to take the federal leap forwards, and thus relinquish their sovereignty to a democratically legitimate European government. Even the governments in which there is greater awareness of the risks implicit in the current crisis of European integration find themselves in the difficult position of having to reconcile the need to the provide the quick answers demanded by public opinion, rocked by the economic crisis, with the need to introduce austerity measures to prevent the crisis itself from resulting in the collapse of the single currency.
In this setting, with its rapid and constant developments, it is extremely difficult to predict how the situation will evolve and what future scenarios will emerge. It is possible to imagine that the EU might shrink to encompass only the eurozone countries, with the area outside it (the member states that do not use the euro) becoming a sort of free-trade area. Were this to happen, today’s EU institutions would become the institutions of the new federal European Union and it would make sense to introduce direct election of the President of the Commission, an idea already advocated in several quarters. If, indeed, the EU and the eurozone were to become one and the same, it would be necessary to address the problem of giving the institutional structure of the new Union a democratically  legitimate government, and the direct election of the president of this government (the Commission) would be the first step in this direction.
However, such a scenario still seems a long way off, and to propose, in today’s 27-member EU, direct election of the President of the Commission, in the hope that this might prove to be an antidote to the crisis, is simply unrealistic. The pressing problem at the moment is how to give the eurozone a government, thereby resolving the paradox of having economic policy decided at national level while monetary policy is decided at supranational level. As long as this paradox remains unresolved, direct election of the President of the Commission by the citizens of the 27 member states would not constitute a step towards institutionalisation and democratisation of the eurozone, given that a government of this area could, by definition, be democratically legitimated only by the citizens of the countries that belonged to it.
The need to equip the eurozone with the instruments that will allow it to tackle the crisis and start evolving into an entity of a federal nature could be met by creating — as a first step, not a definitive solution — an independent agency for sustainable development;[17] this Agency, designed to fund growth projects and capable of finding the financial resourcesnecessaryfor its own activity, would be independent of the national governments and thus unconditioned by electoral constraints and considerations.
It is thus a matter of understanding, in the light of past experiences of differentiated integration, how to ensure that this Agency really does constitute a step in the direction of the creation of a federal government and how best to frame its relations with the EU institutions.
As regards the first of these aspects, the main question concerns the framework in which to set the Agency, and it is a question closely tied up with that of the mechanism through which a body of this kind should be brought into being. If the Agency is conceived as an instrument to help those member states wanting to resolve the structural problems of the eurozone to escape from the mere imposition of budget constraints and move towards a real solution to the crisis, then the obvious framework for its creation is that of the fiscal compact and European Stability Mechanism, and the states that have ratified or will ratify these treaties. In other words, the Agency would serve to complete the ESM and the fiscal compact: whereas the latter contains only constraints and budgetary discipline measures, the Agency would look after the question of growth. Indeed, even though art. 1 of the fiscal compact talks of sustainable growth, employment, competitiveness and social cohesion, these are all objectives that are merely set out in this treaty, but not achievable through its provisions.
In the abstract, the same result could be obtained by setting up an enhanced cooperation between the states that have signed up to the ESM and fiscal compact. A solution of this kind, however, would have several drawbacks.
First of all, there is the fact that an enhanced cooperation can be authorised only after it has been established that its objectives cannot be achieved by the Union as a whole. In addition, it must be supported by a majority of 14 Commissioners, approved by an absolute majority by the European Parliament, and authorised through a qualified majority vote in the Council. All these are difficult objectives, given that a qualified majority in the Councilcan be reached only through the agreement of most of the states (it takes just four states to provide the blocking minority of 91 votes[18]) and the Commission is traditionally rather hostile to forms of differentiated integration.[19]
The second drawback is the fact, already pointed out, that only the Council has the faculty to intervene in enhanced cooperations in restricted composition, whereas both the European Parliament and the Commission each act as a whole. This effectively means that Commissioners and MEPs from states not involved in the enhanced cooperation would be able to intervene in its functioning.
These circumstances could complicate the mechanism for creating the Agency and also make it a weak and   ineffective body.
These limits could instead be overcome if the Agency were based, like the fiscal compact and the ESM, on a treaty concluded outside the institutional mechanisms of the European Union, in other words, if it were born of an international treaty between the states parties to these two agreements.
In this setting, the European Parliament (or more precisely the MEPs of the states parties to the treaty establishing the agency) would play a key role. First of all, to prevent the Agency from becoming a permanent body, rather than a transitional entity serving to advance towards the creation of a true political government of the eurozone, its founding treaty might be made to incorporate a provision along the lines of the one included in the EEC Treaty (1957) which allowed the European Parliament to draw up proposals for its own election by direct universal suffrage[20] that gives the European Parliament in restricted composition (i.e. the MEPs of the states ratifying the fiscal compact treaty, the ESM treaty and the treaty establishing the agency) the power to call a convention for the purpose of giving the eurozone a true executive body, and thus lays out the procedures for appointing a democratically legitimate government.
Furthermore, since the Agency would manage its own resources, this would inevitably throw up the question of its democratic control, which in this case too could be exercised by the MEPs of the States that ratified its founding treaty.[21]
As regards the relations between an Agency conceived along these lines and the EU institutions, it would be useful, precisely in order to ensure the preservation of the Union’s existing institutional structure (a need already underlined), to envisage, as with the Schengen Treaty, some form of coordination with the EU institutions.
The Agency would obviously be a provisional solution as the creation of this body would not lead to a federal government of the eurozone. Its value, however, lies in the fact that it could turn out to be not just an instrument for responding to the (urgent) need to accompany austerity with growth, but also a sort of test bench for trying out new institutional solutions with a view to transforming the eurozone into a true federal state.


[1] The treaty was not signed by Great Britain and the Czech Republic.
[2] On this point, see J-C. Piris, The Future of Europe. Towards a Two-Speed EU?, Cambridge, Cambridge University Press,2012, p. 6 and 66, in which the difference between a “two-speed Europe” and a “two-class Europe” is underlined. The Treaty establishing the European Stability Mechanism did not cause such controversy since it was, in a way, “authorised” by the recently amended art. 136 TFEU, which states that “The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.
[3] In this regard, see P. Magnette, Le régime politique de l’Union européenne, 3. éd., Paris, Presses de Sciences Po, 2009, p. 38.
[4] As underlined by P. Magnette, Le régime politique…, op. cit., p. 109 onwards, “ainsi conçue, la supranationalité n’est pas destinée à remplacer la coopération intergouvernementale, elle vise au contraire à la rendre possible.” Also on this point, see J-P. Jacqué, Le nouveau discours sur la méthode, Notre Europe, September 2011.
[5] Par. 5 of art. 48 TEU states that “If, two years after the signature of a treaty amending the Treaties, four fifths of the member states have ratified it and one or more member states have encountered difficulties in proceeding with ratification, the matter shall be referred to the European Council.” However, not only does this provision delay the decision on the entry into force of the amended Treaty, it actually does not appear to substantially change anything, given that the decision of the European Council will be taken unanimously or by consensus, and it is hard to imagine that the states that have not ratified the Treaty will agree to its entry into force only in those that have proceeded with its ratification.
[6] With regard to this provision, see N. Quoc Dinh, “Evolution de la jurisprudence de la Cour internationale de La Haye relative au problème de la hiérarchie des normes conventionnelles”, in Mélanges offerts à Marcel Waline, Paris, LGDJ,1974, p. 215 onwards; M. Zuleeg, “Vertragskonkurrenz im Völkerrecht. Teil I: Veträge zwischen souvränen Staaten”, in German Yearbook of International Law, 1977, p. 246 onwards. As noted by E. Roucounas, Engagements parallèles et contradictoires, Recueil des Cours, 1987-VI, vol. 206, p. 21 onwards, in particular p. 227 onwards, some international treaties, such as the United Nations Convention on the Law of the Sea (Montego Bay, 1982), expressly stipulate that some of the states parties to the treaty may change or suspend the treaty provisions in their relations with each other. Similarly, according to the statute of the ILO, a number of member states may together enter into an agreement pertaining to matters within the competence of the organisation.
[7] Referring to the Vienna Convention on the Law of Treaties, J-C. Piris (The Future of Europe…, op cit., p. 137) notes that “an additional treaty would not require the consent of other EU member states, on condition that their interests are not harmed and that the EU treaties as well as the EU law adopted on their basis remain fully applicable.”
[8] Art. 218 (11) TFEU states that “A member state, the European Parliament, the Council or the Commission may obtain the opinion of the Court of Justice as to whether an agreement envisaged is compatible with the Treaties. Where the opinion of the Court is adverse, the agreement envisaged may not enter into force unless it is amended or the Treaties are revised.”
[9] Opinion of 26 April 1977, 1/76.
[10] Opinion of 14 December 1991, 1/91. Following changes to the EEA draft agreement, in particular modification of the system of judicial supervision, the Court, again called upon to assess its compatibility with the Treaties, ruled that it was indeed compatible with Community law, thereby allowing it to be concluded (Opinion of 10 April 1992, 1/92). As remarked by the Court in this Opinion, guaranteeing the autonomy of the Community legal order means not changing the nature of its competences or those of its institutions. This in turn implies that the mechanisms designed to ensure uniform interpretation of the rules of an international agreement to which the EU is party must not have the effect of obliging the EU and its institutions to interpret in a given way the provisions of EU law touched on by the said agreement. On the concept of autonomy of the Community legal order, see T. Lock, “Walking on a Tightrope: the Draft ECHR Accession Agreement and the Autonomy of the EU Legal Order”, in Common Market Law Review, 2011, p. 1025 onwards, especially p. 1028 onwards.
[11] Opinion of 8 March 2011, 1/09.
[12] In this sense, see H. Bribosia, “Différenciation et avant-gardes au sein de l’Union européenne”, in Cahiers de droit européen, 2000, p. 57 onwards, especially p. 72. Bribosia maintains that in the creation of a true federal core it would be inevitable to think in terms of a Council and European Parliament with a variable composition (p. 75). On this point, also see C. Guillard, L’intégration différenciée dans l’Union européenne, Brussels, Bruylant, 2006, p. 150.
[13] See, however, J-C. Piris, The Future of Europe…, op. cit., p. 57 and p. 117 onwards.
[14] U. Draetta, Elementi di diritto dell’Unione europea, Parte istituzionale, V ed., Milano, Giuffré,  2009, p. 125.
[15] On this point, see C. Guillard, L’intégration différenciée…, op. cit., p. 165 onwards.
[16] Judgment of 16 May 1984, 105/83, Pakvries BV.
[17] See D. Moro, “The Eurozone and an Independent Agency for Sustainable Development. How to Reconcile a Development Policy for the Eurozone with EU Budgetary Policy”, in The Federalist, 54, n.1 (2012), p. 23 In the sense that the creation of an agency independent of the national governments could provide a solution, temporarily at least, also see M. Devoluy, L’Euro est-il un échec?, Paris,La Documentation française,  2011, p. 52. 
[18] As laid down by art. 16.4 TEU, as from 1 November 2014, qualified majorities will be calculated using a different method, no longer using the weighting of votes. However, the reaching of a majority will still depend on the agreement of a large number of states; indeed, the provision specifies that the blocking minority must include at least four member states.
[19] On this point, see J-C. Piris, The Future of Europe…, op. cit., p. 81.
[20] Art. 138 TEEC.
[21] J-P. Piris, The Future of Europe…, op. cit., p. 128 onwards, suggests, as a third avenue, the direct election of a smaller European Parliament.

 

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