From discipline to stability
The legal framework for Eurozone financial assistance and its impact on the constitution of the European Union.
Kandidatnummer: 229 Leveringsfrist: 10.11.2019 Antall ord: 51 762
2 Innholdsfortegnelse
1 Introduction. Background. Methodology ... 5
1.1 Introduction ... 5
1.2 Background. The EU and the Euro – From financial crisis to constitutional crisis. ... 5
1.3 The European Union as a constitutional legal system. ... 6
1.4 Observing the impact of financial assistance on the constitution of the European Union ... 8
1.5 Method of interpretation. ... 10
1.6 Delimitations ... 12
1.7 The structure of the thesis ... 13
2 The pre-crisis constitutional settlement and its constraints on financial assistance ... 14
2.1 Introduction ... 14
2.2. The central provisions ... 16
2.2.1 The exclusive mandate of the European Central Bank (ECB) ... 16
2.2.2 The prohibitions on monetary financing and privileged access ... 20
2.2.3 The coordination and surveillance of Member State economic and fiscal policy ... 21
2.2.4 The restriction on financial assistance ... 24
2.2.5 The competence to provide Union financial assistance ... 28
2.3 Concluding observations ... 29
3 The Financial assistance programs as challenge to the pre-crisis constitution ... 31
3.1 Introduction ... 31
3.1.1 Aim of the chapter ... 31
3.1.2 Factual background. The four “mechanisms” of financial assistance ... 32
3.1.3 Materials. Terminology ... 34
3.2 Governing law and jurisdiction ... 36
3.2.1 Introduction ... 36
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3.2.2 EFSM. EU law. ... 36
3.2.3 ESM. International law. ... 37
3.2.4 EFSF and GLF. English contract law with a “hybrid” character. ... 38
3.3 The structure of the financial assistance mechanisms. Commitments and competences ... 42
3.3.1 The Greek Loan Facility (GLF) ... 42
3.3.3 The European Financial Stabilisation Mechanism (EFSM) ... 44
3.3.4 The European Financial Stability Facility (EFSF) ... 47
3.3.5 The European Stability Mechanism ... 52
3.4 The link between assistance and policy conditionality ... 57
3.4.1 Sources of conditionality ... 57
3.4.2 Content and dynamics of the conditionality ... 61
3.4.3 Legal status of the conditionality ... 63
3.5 Summary. Areas of possible conflict with the pre-crisis constitution ... 65
3.5.1 The structure of the mechanisms. Commitments, tasks and competences. ... 65
3.5.2 The commitments of the Member States in light of Article 125 (1) ... 66
3.5.3 The new competences of the Member States in light of the Union’s competences ... 69
3.5.4 The commitments of the Union in light of Articles 125 (1) and 122 (2) TFEU ... 70
3.5.5 The new tasks and competences of the Union in light conferral, institutional balance and fundamental rights ... 71
4 Financial assistance before the Court of Justice ... 72
4.1 Introduction. Aim and structure of the chapter. ... 72
4.2 The content and scope of “monetary policy” ... 74
4.2.1 The questions raised ... 74
4.2.2 The Courts approach ... 75
4.2.3 Discussion and preliminary conclusions ... 77
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4.3 Financial assistance and Article 125 (1) ... 81
4.3.1 The question raised ... 81
4.3.2 The Courts approach ... 82
4.3.3 Discussion and conclusions. ... 85
4.4 The prohibition on monetary financing ... 91
4.4.1 The question raised ... 91
4.4.2 The Courts approach ... 92
4.4.3 Discussion ... 92
4.5 The question of “pre-emption”. Member state encroachment on Union competence in economic policy ... 93
4.5.3 Discussion and conclusions ... 96
4.6 Conferral and institutional balance. Use of Union institutions in inter se financial assistance mechanisms ... 98
4.6.1 The questions raised ... 98
4.6.2 The Courts approach ... 99
4.6.3 Discussion and conclusion ... 102
4.7 Financial assistance conditionality and the Charter of Fundemental Rights ... 107
4.7.1 The questions raised ... 107
4.7.2 The Courts approach ... 109
4.7.3 Discussion and conclusion ... 115
5 How financial assistance changed the EUs constitution. ... 118
6 References ... 123
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1 Introduction. Background. Methodology 1.1 Introduction
This thesis is an inquiry into the relationship between sovereign debt, economic governance and law in the European Union (EU), focusing on responses to the sovereign debt crisis in the Eurozone from 2010 onward. Our research question is:
How did the financial assistance programs of the euro crisis impact the constitution of the European Union?
In this chapter we will present a brief outline of the background for our inquiry (section 1.2), explain why we conceptualize the EU legal system as a constitutional system (section 1.3) and how we observe the ways in which the financial assistance programs may impact the constitution of the European Union (section 1.4). We will also clarify the methods we use to interpret the legal materials we are analyzing (section 1.5), as well as the matters which fall outside the scope of our inquiry (section 1.6). Finally, we will provide an overview of the structure of our thesis (section 1.7).
1.2 Background. The EU and the Euro – From financial crisis to constitutional crisis.
The EU remains among the most complex and wide-reaching international and supranational legal systems in the world, involving (at present) 28 Member States. Its foundational legal underpinnings are two treaties; the Treaty on the European Union (TEU),1 and the Treaty on the Functioning of the European Union (TFEU).2 While the EU is by now a 52 year old organization, a new layer was added to the Union in the beginning of January 2002. A common currency, the euro, was introduced as legal tender in twelve EU Member States – which became known as the Eurozone.3 The legal framework for the Eurozone had been erected by the 1992 Treaty on European Union, the Maastricht Treaty,4 which created the institutional basis for the economic and monetary union (EMU).
1 Treaty on European Union (2012), OJ C 326, 26.10.2012, p. 13–390
2 Treaty on the Functioning of the European Union (2012), OJ C 326, 26.10.2012, p. 47–390
3 European Central Bank, website, ‘Use of the euro’. At present, the Eurozone consists of 19 of the 28 EU Member States;
Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. Additionally, Andorra, Monaco, San Marino and the Vatican have adopted the euro as their national currency by virtue of specific monetary agreements with the EU.
4 Treaty on European Union, OJ C 191, 29.7.1992, p. 1–112
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In September 2008, the U.S. investment bank Lehman Brothers filed for bankruptcy in New York City, marking the beginning of a global financial and economic crisis.5 The precise chain of causes that led from a banking crisis in the U.S. to a sovereign debt crisis in Europe remains contested.6 What is undisputed is that several Eurozone Member States saw rapidly rising debt- to-GDP ratios, caused by higher debt servicing costs, “bailouts” of national financial sectors,7 pre-existing fiscal imbalances8 and reductions in economic activity.9 By the end of 2009, commentators and politicians alike had begun to worry that these debts threatened not only the solvencies of certain Eurozone Member States, but the viability of the common currency itself.10 The crisis prompted a number of responses from the Union and the Eurozone Member States.
The legal basis for Union surveillance and sanction of Member State economic and fiscal policy was expanded, while the European Central Bank made unprecedented interventions in financial markets. In addition, five Eurozone Member States – Greece, Ireland, Spain, Portugal and Cyprus – received financial assistance with attached economic policy conditionality (“financial assistance programs”) from the EU and other Eurozone Member States between 2010 and 2018.11 It is this third response that is the object under study in this thesis.
1.3 The European Union as a constitutional legal system.
It follows from the research question that we aim to find out how financial assistance programs impacted the constitution of the Union. It is not uncontroversial to assert that EU law is a constitutional system. One might argue that the EU is not a self-legitimizing order, relying instead on the legitimacy of the constitutional systems of its Member States.12 Furthermore, there are allegedly democratic deficiencies in the structure of the Union that might be at odds
5 Financial Times (2008)
6 Some commentators focus on the lack of fiscal discipline, see Wyplosz (2013), e.g p. 3. Other accounts focus on the structural flaws in the Eurozone’s legal and political structure itself, see e.g. Stiglitz (2016); Mody (2018). Others again argues that the over-leveraging of Eurozone banks was part of a global phenomenon of unsustainable growth in the financial sector, in which the specifics of Eurozone policy and structure were not primary culprits, though they contributed to making the recovery difficult, notably Tooze (2018). Tooze succinctly notes that: “[v]iewed against the wider canvas of the global crisis stretching from Wall Street to Seoul, the troubles of Greece and Ireland were not unusual, and we do not need to refer to idiosyncratic features of eurozone governance to explain them” (p. 328).
7 See e.g. Giavazzi and Baldwin (2016). Commenting on Ireland, the authors note that “[d]espite having a very low debt-to- GDP ratio going into the crisis, this extra dollop of debt – together with the fear in the markets – pushed Ireland over the sustainability edge” (p. 42).
8 Giavazzi and Baldwin (2016) p. 52.
9 Giavazzi and Baldwin (2016) p. 38.
10 Reuter, Spiegel Online (2009)
11 In addition, bilateral loans were provided by non-Eurozone Member States in some cases. These transfers will not be addressed in this thesis.
12 See Grimm (1995) p. 290-91.
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with some normative conceptions of constitutional law.13 Despite such reservations, legal theorists have long referred to the founding Treaties and basic principles of EU law as a
“European constitution”, and analyzed the Treaties and their relationship with EU legislative acts and the national law of the Member States using constitutional theory.14 The CJEU have also referred to the Treaties as constitutional documents.15
An explanation for the constitutional conceptions in CJEU jurisprudence and legal scholarship is the fact that the EU is indeed a highly legalized hierarchical order, where political power, at least nominally, is exercised within the confines of a complex and multi-tiered network of legal rules. Constitutional legal theories thus offer valuable methodological tools for insight into the nature of this type of legal structure. It is such considerations that leads us, in this thesis, to adopt a constitutional perspective. The constitutional perspective, in particular, draws attention to how a legal system enables and constrains the exercise of legal competence, which is a major theme of this thesis.16 Competence, as used here, denotes the ability to create valid17 legal norms.18 The scope of a legal competence is defined by norms setting out the personal, procedural and substantive dimensions of the competence, answering when and by whom can ability may be exercised, and what norms can be created with it.19 Changes to the meaning of such norms alters the division of competences in legal systems.
When we refer to constitutional norms in this thesis, we mean the norms contained in the TEU, TFEU and the Charter of Fundamental Rights of the European Union (CFR).20 These Treaties owe their constitutional character to norms governing their relationship with secondary EU law, and law enacted by Member States. Due to the principle of EU law primacy, both national legislation and international law produced by Member States are invalid if in conflict with
13 See Grimm (2015) e.g. p. 465
14 Notable contributions include Weiler (1999); Stein (1981).
15 Case 294/83, Parti écologiste "Les Verts" v European Parliament, para. 23.
16 Arato (2013) p. 299-301.
17 There are numerous possible approaches to legal validity. It can be approached, inter alia, as judged by a Hartian “rule of recognition”, see e.g. Shapiro (2009) p. 4, or as compatibility with a Kelsenian “Grundnorm”, defined by its logical adherence to a hierarchical system of norms, see e.g. Hughes (1971) pp. 697–98. We do not engage with this underlying theoretical question, but assume that legal interperation can be used to discern whether or not norms are valid, see section 1.5.
18 We use the definition provided by Eng (1990) p. 627. This is, however, but one of several plausible application of the term.
For a presentation of other definitions, see Bulygin (1992) pp. 204-213.
19 Eng (1990) p. 636.
20 Charter of Fundamental Rights of the European Union, OJ C 326, 26.10.2012, p. 391–407.
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provisions of EU law.21 However, while the legal norms created by the Member States are subordinated to the EU law, they do – as a starting principle - not need a basis in EU law in order to legislate. The Member States have ceded competence in certain policy areas, in which they may only act on delegation from the Union.22 After the Lisbon Treaty,23 this is expressly stated in Article 2 (1) TFEU with regards to the Unions exclusive competence. Furthermore, the Member States are prohibited from legislating in designated areas if the Union has done so prior in accordance with Article 2 (2) TFEU.
Contrary to the national legal norms of the Member States, the legal acts produced by the Union do depend on a Treaty basis for validity. In accordance with the principle of conferral, Union legislative acts are only valid if the Treaties have conferred on the Union competence to adopt such acts. The principle of conferral extends to the division of competences between the Union bodies, the so-called “institutional balance”, which post-Lisbon is codified in Article 13 (2) TEU. Thus, the competence of the Union institutions is constrained by conferral both horizontally and vertically. Furthermore, the legislative competence of the Union is constrained by fundamental rights protections laid down in the CFR; it may not impose on the Member States an obligation to enact measures in violation of such rights. Historically, this constraint was a Court-created principle. 24 With the conclusion of the Lisbon treaty, the Charter was formally given equal legal status as the Treaties.25
1.4 Observing the impact of financial assistance on the constitution of the European Union
The fact that we aim to measure the “impact” of financial assistance on the EU constitution creates the need for a further clarification. The financial assistance programs were established through national legal systems, international law and EU secondary law, which are subordinated to the norms of the Treaties. A strictly formal approach to the doctrine of EU law primacy would lead to the conclusion that Treaty norms cannot legitimately change on account of new secondary legislation produced by EU institutions or Member States. Such implicit
21 Kellerbauer, Klamer, Tomkin (2019) p 19-20
22 Kellerbauer, Klamer, Tomkin (2019) p. 354.
23 Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community, signed at Lisbon, 13 December 2007, OJ C 306, 17.12.2007, p. 1–271.
24 Famous examples include Case 29-69 Erich Stauder v City of Ulm - Sozialamt, para. 7.
25 Art 6 (1) TEU: “The Union recognises the rights, freedoms and principles set out in the Charter of Fundamental Rights of the European Union of 7 December 2000, as adapted at Strasbourg, on 12 December 2007, which shall have the same legal value as the Treaties”.
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constitutional change has nonetheless been an important feature of the history of EU law.
Joseph Weiler, in his influential 1991 article “The Transformation of Europe”,26 argued that the deepest transformations of the EU legal order up to that point had occurred through implicit change of primary law. Weiler outlined processes of implicit change in the early days of the community which led to, inter alia, a broadening of the scope of Union involvement in areas not explicitly covered by the Treaties. Such transformation began with institutional practice, which received explicit or implicit blessing of the Member States, and then formal recognition by the CJEU.27
Weiler centered his conception of transformation on an underlying equilibrium between “Exit”
and “Voice” for the Member States – as the space for the Member States of opting out of supranational norms (Exit) decreases, the need for their ability to affect the content of those norms becomes stronger (Voice).28 Ioannidis, applying parts of the framework established by Weiler to the developments of the euro crisis, places “moral hazard” in place of Exit and Voice, a concept around which to organize a “narrative” of transformation.29 Ioannidis is concerned with the concept of “internal moral hazard” in relation to financial assistance; the question of whether “international assistance has an effect on the policies of recipient countries, which might take less care to adopt measures that could prevent a crisis”.30
We do not aim to construct a such “narrative” of the bailouts and the European constitution.
We are nonetheless informed by these approaches in one important way: our concern is not whether the financial assistance programs violated EU primary law. Such a binary approach would risk leading to dead ends, as Weiler and Ioannidis both have noted: either one concludes that the bailouts were, and still are, illegal under EU law, or one fully accepts that both Union institutions and Member States acted within their competences.31 Instead, as a starting assumption, we accept that while the meaning of legal norms change as a result of formal
26 Weiler (1991)
27 See Weiler (1991) p. 2446. Weiler comments on the “tacit acceptance” from the CJEU in note 120. A recent example of an analysis of how informal institutional change contributes to constitutional development is provided in a study of institutional development and rule-change in the IMF in the 1980s by Kentikelenis and Babb (2019). The authors mention the alleged transformation of Article 125 (1) TFEU through the euro crisis as an example of such
“clandestine” institutional change (p. 1750).
28 Weiler (1991) p. 2412.
29 Ioannidis (2016) p. 1245. Moral hazard refers to the concept in economics according to which risk-sharing leads to non- optimal behavior due to the knowledge of externalization of costs, see e.g. Stiglitz (1983) p. 6.
30 Ioannidis (2016) pp. 1246-1247.
31 Ioannidis (2016) pp. 1240-41. Similarly, Weiler (1991) p. 2446-47;
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procedures, they may also change through re-interpretation. Such implicit legal change can be studied as a response by legal subjects and courts to external factors, but – as Weiler explained – it may also be understood on its own terms, in how the legal system internally justifies change, seemingly “insulated” from other social systems.32 This thesis concerns the latter.
Substantively, our focus will be the Treaty norms that regulate competences over economic and monetary policy in the Eurozone. The division of competences over decision-makning regarding economic and monetary policy in the Eurozone is determined by the Eurozone- specific provisions introduced by the Maastricht treaty, but are also affected by EU legal norms of a more general character. We see no reason to insulate a “Eurozone constitution” or a
“macroeconomic constitution” from the remaining body of EU primary law.33 Further, we do not make an assumption that the Treaty norms regulating the economic and monetary union establishes a particular economic order, or an “economic constitution”, as that term has been applied in the study of the common market.34
1.5 Method of interpretation.
Our analysis of Treaty norms will be based on the recognized means of interpretation of EU law, which is above all based on the jurisprudence of the CJEU.35 As established in van Gend
& Loos, EU law constitutes “a new legal order of international law”.36 Though primary EU law originated with international treaties, the sui generis nature of the legal order is mirrored by a mode of interpretation distinct from the method applied to international law. The methodical starting point of EU law interpretation is to establish an objective meaning of the provisions as written. It is widely held – both in legal theory and by the CJEU – that provisions of EU law may not be interpreted in opposition to their clear and literal meaning.37 However, the CJEU
32 Weiler (1991) p. 2410.
33 Tuori (2015) distinguishes between a “macroeconomic” and “microeconomic” constitution; the microeconomic constitution regulating the relationship between the Member States and its subjects, (primarily rules concerning the four freedoms and competition), while the macroeconomic constitution consisting of the rules regulating the governance of economic and monetary policy in the Eurozone (p. 178). Tuori is clear, however, in stating that the euro crisis has had constitutional implications beyond the “macroeconomic constitution”, see, inter alia, p. 174.
34 The possible pitfalls of reading the Maastricht settlement as an ordoliberal economic constitution is addressed in Joerges (2014) ‘Brother, Can You Paradigm?’ pp. 771–74.
35 The degree to which the CJEU “owns” the Treaties and EU law in general is not problematized in this thesis. Where there is available case law from the CJEU, its reasoning will be treated as indicative of a valid methodical approach. For a pluralist critique of this “monist” perspective, see Davies (2018) p. 359.
36 Case C-26/62, van Gend & Loos, p. 12
37See e.g. Case C-220/03, European Central Bank v Federal Republic of Germany, para 31; Lenaerts and Gutiérrez-Fons (2013) pp. 8-9.
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recognizes the need to read Treaty provisions and EU legislative acts in the context in which it is written, as part of a larger system of norms.38 While utilizing legal provisions (either EU law, international law or national law of the Member States) to establish context, adding to the clear and literal meaning of a provision, is well established, the CJEU historically have refrained from using external sources such as the preparatory works,39 a practice which is seemingly changing.40
In addition to, and often in conjunction with, interpreting a provision in light of its context, the perceived object and purpose of a provision is an accepted source of interpretation of the Treaties.41 However, the CJEU does not restrict itself to rely on the purpose of the provision concerned when establishing its true intent and purpose, but may utilize a more distinct interpretative feature – a “particular systemic understanding of the EU legal order that permeates the interpretation of all its rules” – what Maduro refers to as “meta-teleological reasoning”.42 This has led to the CJEU using systemic principles and purposes when establishing the meaning of individual provisions, highlighting the degree to which contextual and teleological interpretation intertwine.43 While some overarching principles have explicit textual anchorage in the Treaties, such as the telos of “ever closer Union”,44 others – such as the principle of legal certainty or the autonomy of EU law – are constructed from perceived common values, combined with a systemic reading of primary law. As a consequence, the provisions we interpret in this thesis are analyzed – both in their pre-and post-crisis incarnations – not only as individual provisions, but as part of a wider system of norms that affects the understanding of individual provisions.
38 Lenaerts and Gutiérrez-Fons (2013) pp. 17-23.
39 Opinion of Mr. Advocate-General Mayras, Case 2-74, Jean Reyners v Belgian State, p. 666.
40 Case C-583/11 Inuit Tapiriit Kanatami and Others v European Parliament and Council of the European Union para. 59;
Case C-370/12 Thomas Pringle v Government of Ireland and Others, para 135. See Miettinen and Kettunen (2015) p. 145; Lenaerts and Gutierrez-Fons (2013) pp. 23-31.
41 Nial Fennelly (1996) pp. 664–79. Fennelly refers to teleological interpretation as the “characteristic element” of the Courts interpretative method (p. 664).
42 Maduro (2007) p. 5.
43 The intersection between contextual and teleological interpretation can be exemplified by the Courts approach in Case 26/62 van Gend en Loos (p. 12). When establishing the meaning of Article 12 EEC, the CJEU made use not only of the wording of relevant provisions in light of each other, but of the “spirit” and the “general scheme” of the Treaty. The Court, determining the “objective of the EEC Treaty” as a whole being the establishment of the Common Market, which is of “direct concern” to interested parties of the Community, thus reached the conclusion that the Treaty not merely creates mutual obligations between the contracting states, but also its citizens To substantiate this, the Court invoked the phrase “peoples” in the preamble to the Treaty, and the establishment, through the Treaty, of institutions which dispositions affects the citizens of the Member States.
44 TEU preamble recital (13)
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In addition to interpreting EU law, we will interpret legal instruments governed by international law and English contract law, as these legal systems were used to construct the financial assistance instruments. The methodology particular to interpretation of these bodies of law will be discussed when we present these instruments in chapter 3.
1.6 Delimitations
The scope of the thesis as outlined above precludes an analysis of several concurrent measures undertaken by the EU and the Eurozone Member States during the euro crisis. As a response to the euro crisis, the ECB introduced several monetary policy measures, which might be considered a form of financial assistance.45 We will not describe in detail the measures undertaken by the ECB in the financial markets, nor fully explore their constitutional implications. A similar delimitation is made against amendments of, and additions to, the Stability and Growth Pact,46 along with the multilateral measures of the Euro Plus Pact47 and the Treaty on Stability, Coordination and Governance (TSCG).48 The cumulative effect of these EU and intergovernmental measures was a considerable strengthening of economic coordination and surveillance in the Eurozone.49
The primary reason for delimitating against these measures is the sheer volume of the material that would have to be analyzed in order to present a coherent study. We have instead prioritized in-depth review of the financial assistance programs and their constitutional implications. These delimitations come with some caveats, however, as adjudication on the validity of the monetary policy measures of the ECB concern Treaty provisions which interpretation is central to our research question.50 Thus, although not a focus of study, the intertwined constitutional implications of the financial assistance programs and the measures introduced by the ECB
45 The most notable measures have been the announcement of the so-called “Outright Monetary Transactions” (OMT), that the ECB would buy debt from vulnerable Member States with attached policy conditionality, see ECB, Press Release (06.09.2012). and the “Asset Purchase Programs” under which ECB bought volumes of securities from vulnerable Eurozone Member States between 2015-2018, see ECB, website, ‘Asset Purchase Programme’. Klaus Tuori (2016) considers both of these measures having redistributive effects between the Member States, even though the OMT- program was never activated – the mere announcement of the policy “tied the Member States’ creditworthiness together” (p. 866).
46 We refer here to the legislative acts commonly referred to as the Six-Pack, enacted in 2011: Regulation 1173/2011; Regulation 1174/2011; Regulation 1175/2011; Regulation 1176/2011; Regulation 1177/2011; Directive 2011/85/EU, and the so- called Two-Pack enacted in 2013: Regulation 473/2013; Regulation 472/2013.
47 European Council (2011) – Annex I – The Euro Plus Pact: Stronger Economic Policy Coordination for Competitiveness and Convergence.
48 Treaty on Stability, Coordination and Governance in the Economic and Monetary Union
49 Hinarejos (2015) pp. 29-32.
50 In particular the prohibition on so-called “monetary bailouts” laid down in Article 123 TFEU.
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necessitates the mentioning of the latter. Similarly, as the so-called “Two-Pack” legislation directly concerns the economic policy conditionality attached to financial assistance, certain aspects of this secondary law will be analyzed.
Further, we will not seek to describe in detail the impact of the financial assistance programs on the national constitutional orders in the Eurozone.51 The involvement of the International Monetary Fund (IMF) in Eurozone financial assistance programs will be addressed only as far as tasks allocated to it under the financial assistance programs warrant interest.52 The parallel IMF assistance provided to Eurozone Member States is not a subject of this thesis.
The thesis also precludes interdisciplinary readings of the constitutional impact of the Eurozone financial assistance programs. We do not aim to account for in detail the relationship between European law, politics and economy.53 However, there are not always clear-cut distinctions between legal and political consequences resulting from legal change. The law-politics relationship is therefore to some degree inescapable, as an important purpose of constitutional analysis is indeed to draw such distinctions. An instructive approach to that delineation has been offered by Kaupa, who distinguishes between which policies EU law prescribes, and which policies legal change politically reinforces.54 Our thesis concerns primarily the former, not the latter, and we draw this distinction by adhering to legal interpretation, not a broader interdisciplinary analysis.
1.7 The structure of the thesis
The remaining portion of the thesis will be devoted to answering how the euro crisis impacted the constitution of the European Union. Chapter 2 contains a reconstructive effort at describing the constitutional settlement regulating the economic and monetary union, as understood from its inception at Maastricht up until the euro crisis, with a particular focus on the constraints it put on financial assistance in the Eurozone. Chapter 3 contains a description and analysis of the instruments which formed the legal basis for Union and inter se financial assistance in the Eurozone, and a discussion of their compatibility with the pre-crisis constitutional settlement.
51 For a comprehensive comparative analysis of impact in three crisis-struck Member States, see Fasone (2014). For country- specific accounts of national constitutional implications, see Coutinho (2016) pp. 120-24 (Portugal); Marketou, in de Witte, Kilpatrick and Beukers (Eds.) (2017) (Greece).
52 The IMF provided financial assistance in tandem with the Eurozone Member States and the EU, see IMF, Factsheet (2016) pp. 2–3.
53 It has been argued that euro crisis governance has been the domain of raw politics, and/or technocracy, to the detriment of the rule of law. For the former, see Beck (2014) especially pp. 561-562. For the latter, see Scicluna and Auer (2019) especially pp. 1425-26.
54 Kaupa (2017) p. 33.
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Chapter 4 contains an analysis of how the CJEU reconciled the instruments which formed the legal basis for Union and inter se financial assistance in the Eurozone as described in Chapter 3 with primary law. Chapter 5 contains our conclusions.
2 The pre-crisis constitutional settlement and its constraints on financial assistance
2.1 Introduction
The purpose of this chapter is to provide an overview of the central treaty provisions establishing the legal framework of the economic and monetary union, and analyze the extent to which these provisions were interpreted as constraints on the competence of the Union and the Member States to provide financial assistance in the Eurozone. The analysis is based on the assumption that the constitutional provisions regulating economic and monetary union was substantively stable between the creation of the EMU and the euro crisis, despite certain numerical and procedural adjustments from Maastricht, via the Amsterdam55 and Nice treaties,56 to the Lisbon treaty. This assumption appears to be a common one in legal theory.57 Accordingly, when describing the pre-crisis constitution, we will refer to the Treaty provisions as amended by the Lisbon treaty. Where there are substantive nuances between the different incarnations of the provisions, such nuances will be addressed.
Apart from two notable exceptions that are but indirectly relevant to our inquiry,58 there were no cases brought before the CJEU concerning the interpretation of these central provisions prior to the euro crisis. Hence, our reconstruction of the pre-crisis constitution cannot rely on authoritative statements from the CJEU. We have at our disposal the recognized means of legal interpretation of Union law. The textual aspects of the interpretation will be conducted by applying a “normal” literal reading of the provisions. Being a reconstructive effort, however, the contextual and (meta-)teleological arguments we present will be grounded in historical
55 Treaty of Amsterdam amending the Treaty on European Union, the Treaties establishing the European Communities and certain related acts, Official Journal C 340, 10/11/1997, p. 0001 – 0144
56 Treaty of Nice amending the Treaty on European Union, the Treaties establishing the European Communities and certain related acts, signed at Nice, 26 February 2001, Official Journal C 080, 10/03/2001, p. 0001 - 0087
57 See Touri (2015) p. 178 (note 11); Craig (2013) 'The Lisbon Treaty' p. 458; Smits (2007) p. 1618.
58 In Case C-11/00, Commission of the European Communities v European Central Bank (OLAF) the CJEU ruled on, inter alia, the scope of the independence of the ECB. In Case C-27/04, Commission of the European Communities v Council of the European Union, the CJEU ruled on the ability of the Council to disregard recommendations from the Commission under the excessive deficit procedure based on Art 126 TFEU, and the ability of the Council to establish procedures outside Art 126 TFEU and Regulation (EC) 1467/97.
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sources, based on the understanding of interpretative actors of the time. This includes secondary law and institutional behavior predating the euro crisis, as such behavior may highlight the understanding of Union institutions regarding the scope and content of their respective constitutional mandates. Additionally, we will describe pre-crisis academic literature, shedding light on how scholarly observers at the time understood the relevant provisions. To the degree that we reference post-crisis scholarly contributions, we are referring to retrospective observations, or analyses that has helped us identify points of textual or historical relevance, such as Treaty commentaries.59
It should be noted, however, that the pre-crisis scholarly contributions on the legal content of these provisions seems to have been of limited depth. This may be a result of a relative consensus on the content and scope of the provisions,60 but also of the fact that their authors could not foresee all the legal problems that would arise from a sovereign debt crisis within the monetary Union.61
Reconstructing the meaning of the Treaty provisions on the basis of these sources is not an exact science. Further, as any system of legal rules, the pre-crisis constitutional system regulating the economic and monetary union were to a degree ambiguous. We will discuss such ambiguities without seeking to provide any “right answers” concerning their interpretation. On the contrary, the ambiguity is itself an important object of study, as it forms part of the constitutional framework under which the central actors in the euro crisis operated.
The chapter will proceed as follows: in section 2.2, we will describe the central provisions on monetary and economic governance introduced by the Maastricht Treaty. In section 2.3 we attempt to reconstruct the system formed by these provisions, and outline the perceived constraints posed by it on the ability of states and the Union to financial assistance in the Eurozone.
59 In the retrospective category, we should mention in particular Castillo Ortiz (2017) and Ioannidis (2016).
60 Castillo Ortiz (2017) p. 250. Referring to Article 125 (1) TFEU, Ortiz notes that the content and scope of the provision “was once uncontroversial”.
61 An admission to this fact was provided by the Managing Director of the ESM, Klaus Regling, who at the time of the Maastricht negotiations was Chief of the International Monetary Affairs Division at the German Ministry of Finance.
In a speech delivered in 2019, Regling stated that: “it was not foreseen that a euro area country could lose access to market financing. In other words, it was unthinkable that a member state of the Economic and Monetary Union (EMU) would ever find itself on the brink of default”, see Regling, Speech (2019).
16 2.2. The central provisions
2.2.1 The exclusive mandate of the European Central Bank (ECB)
Prior to the introduction of the Maastricht treaty, the Union had no common currency, and, unsurprisingly, no unitary monetary policy.62 One of the objectives of the Maastricht Treaty was to create an institutional basis for the euro, by, inter alia, creating the legal underpinning for a European central bank. The Maastricht treaty established the European Central Bank (ECB), at the head of a European System of Central Banks (ESCB or “the Eurosystem”).63 The ECB was tasked with “defin[ing] and implement the monetary policy of the Union” pursuant to Article 127 (2) first indent TFEU. After the introduction of the Lisbon treaty, the monetary policy of the Eurozone was explicitly designated as an “exclusive competence” of the Union in accordance with Article 3 (1) TFEU.
The Union exclusive competence is delegated to the ESCB in accordance with Article 282 (1) TFEU. The Treaties mandated the ECB to take, in accordance with Art 282 (4) TFEU,
“measures” “necessary“ to carry out a range of tasks laid down in Arts 127 to 133 and 138 TFEU, as well as in the ECB statutes.64 The Treaties defined the “basic tasks” of the ESCB as being to; define and implement the monetary policy of the Union; conduct foreign-exchange operations consistent with the provisions of Article 219 TFEU; hold and manage the official foreign reserves of the Member States; and promote the smooth operation of payment systems.65 In order to ensure price stability, and fulfill these specifically enumerated tasks, the ECB statutes described a number of instruments available to the ESCB, including: to issue currency,66 to enact regulations ensuring efficient payment systems,67 and to conduct operations in the secondary sovereign bond markets.68 However, the wide task of “defining and
62 Tuori (2015) p. 178. The introduction was, however, a culmination of efforts toward a common currency introduced in the 1970s, with the more notable contributions being the Werner Report (1970) and the Delors Report (1989). Both reports advocated a strengthening of the economic and fiscal coordination as a necessary component of a complete economic and monetary union, see Werner Report (1970) p. 26 (B) and Delors Report (1989) pp.17-18. For a brief overview of the road toward the EMU, see Delivorias (2015) pp. 2–3.
63 Article 282 (1) TFEU applies to all EU Member States. The central banks of the EU Member States are part of the European System of Central Banks (ESCB). However, the non-Eurozone Member State central banks retain the competence to enact monetary policy independent of the ECB.
64 Protocol (No 4) on the Statute of the European System of Central Banks and of the European Central Bank, OJ C 202, 7.6.2016, p. 230–250, as annexed to the TEU and the TFEU.
65 Article 127 (2) TFEU
66 Article 128 (1) TFEU, Protocol (No 4) Article 16.1
67 Article 22 Protocol (No 4) on the Statute of the European System of Central Banks and of the European Central Bank
68 Article 18.1 Protocol (No 4) on the Statute of the European System of Central Banks and of the European Central Bank
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implementing the monetary policy of the Union” indicated that the pre-crisis constitution did not exhaustively enumerate all measures available to the ECB.
A precise definition of “monetary policy” competences, and thus the content and scope of the exclusive Union competence contained in Arts 3 (1) c) and Art 127 (1) TFEU, was not written into in the Treaties. However, the “primary objective” of the ESCBs monetary policy would be to ensure price stability.69 Other objectives to be pursued by the ESCB, such as the “support [of] the general economic policies in the Union”, was to be conducted “without prejudice” to maintaining steady and low inflation.70 This was understood by contemporaries to mean that price stability should take precedence over any other social or economic priorities.71 Thus, the constitutional mandate of the ECB, contrary to a system with dual (or more) objectives, was
“chained” to the maintenance of price stability.72 The term “price stability”, also not defined by the Treaties, was determined by the ECB Executive Board. In 1998, the Governing Council of the ECB adopted a definition of price stability as “a year-on-year increase in the Harmonized Index of Consumer Prices (HICP) for the euro area of below 2%”.73 Hence, second to no other objective, the ECB was to pursue an inflationary target of below two per cent.
The personal and procedural aspects of the ECBs competence provided context for the determination the substantive scope of its mandate. The personal aspects of the implementation of monetary policy were clear: the monetary policy of the Eurozone was to be a supranational, apolitical endeavor, pursued by a technocratic system of national banks directed by the ECB Governing Council. The Governing Council consisted of the ECB Executive Board (the president and vice-presidents of the ECB), appointed by the Council,74 and the directors of the national central banks in the Eurozone, appointed by national authorities.75
69 Article 127 (1) TFEU, Article 282 (2) TFEU
70 Article 119 (2) TFEU
71 Herdegen (1998) pp. 21-22. Herdegen describes price stability as a Grundnorm of the monetary Union. See also Smits (1996) p. 330.
72 As a point of comparison, the U.S. Federal Reserve pursue several endeavors of de jure equal importance. Section 2 (a) of the U.S. Federal Reserve Act state that “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates” (our italics). This provides the Federal Reserve with a high degree of “goal independence” – it has “considerable scope in deciding on its priorities”, see De Haan and Eijffinger (2000) p. 395.
73 ESCB, Press Release (13.10.1998) para. 2. In 2003 the Governing Council specified that its intended policy is to maintain inflation rates below, but close to, the 2 % benchmark over the medium term, see ECB, Press Release (08.05.2003).
74 Article 11.1 Protocol (No 4) on the Statute of the European System of Central Banks and of the European Central Bank
75 Article 10.1 Protocol (No 4) on the Statute of the European System of Central Banks and of the European Central Bank
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The Treaty provisions conferring the exclusive mandate of monetary policy on these institutions were accompanied by provisions constraining the ability of other institutions to influence the ECB when carrying out its mandated obligations. According to Art 130 TFEU, the ECB and its subsidiary national central banks were not to be influenced by EU or Member State public bodies, and the latter were forbidden from influencing the ECB or the national central banks.
Should the Member States wish to influence the operations of the ESCB, they would have to resort to changing either the Treaties or the ECB statutes.76 Similarly, an alteration of the primary objective of the ECB require a formal Treaty amendment.
Adjudicating on, inter alia, the independence of the ECB, the CJEU noted that there was a clear link between the primary objective of the ESCB – price stability – and its Treaty mandated independence from political influence. As stated by AG Jacobs in his Opinion in the OLAF case, the
“…independence thus established is not an end in itself; it serves a specific purpose. By shielding the decision-making process of the ECB from short-term political pressures the principle of independence aims to enable the ECB effectively to pursue the aim of price stability and, without prejudice to that aim, support the economic policies in the Community as required by Article 105(1) EC”.77
This line of argument was supported by the CJEU, which stated that
“Article [130 TFEU] seeks, in essence, to shield the ECB from all political pressure in order to enable it effectively to pursue the objectives attributed to its tasks, through the independent exercise of the specific powers conferred on it for that purpose by the EC Treaty and the ESCB Statute”.78
Herdegen similarly noted the relationship between the independence of the ECB and its primary objective.79 So did the ECBs Chief Economist between 1998 and 2006, Otmar Issing. Issing,
76 As part of EU primary law (Article 51 TEU), the Statutes must be changed in accordance with the procedures laid down in Article 48 TEU. Article 129 (3) TFEU, however, provide for a simplified revision procedure, according to which the Parliament and the Council revise the Statutes based on a proposal from the ECB. Furthermore, according to Article129 (4) TFEU, the Council may adopt provisions referred to in specified articles in the Statute through secondary legislation, acting on a proposal from the Commission or a recommendation from the ECB. Thus, any changes to the legal underpinnings of the ECB not enacted according to Art 48 TEU would be the result of a process initiated by the ECB and based on its recommendations.
77 Case C-11/00, Opinion of AG Jacobs, para. 150.
78 Case C-11/00, OLAF, para. 134
79 Herdegen (1998) p. 23. See also Pipkorn (1994) p. 281.
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reflecting on the accountability of the ECB, noted that the independence of the central bank required a trade-off80 in the form of a narrowly defined mandate:
“The more clearly and narrowly the mandate is defined, the easier it will also be in a democracy to justify the delegation of powers to an unelected body, since value judgements and trade-offs concerning several unranked objectives should naturally remain the preserve of democratically elected representatives”.81
The political insulation of the ECB notwithstanding, the independence was confined to the carrying out of its Treaty-mandated tasks, in pursuit of its Treaty-mandated objective(s), and that the limits of its competence were reviewable by the CJEU.82 Independence did not mean an exemption from the rule of law, nor from the principles of conferral or proportionality.83 The ECB thus occupied, from the very beginning, a unique position in the constitutional structure of the Union. It had a purpose-driven mandate without exhaustively enumerated tasks or competences, which it would execute with “enhanced independence”.84 In principle, however, its acts were reviewable for compatibility with the Treaties. Key to providing accountability and legitimacy for its actions, it seemed, was its narrow primary mandate of price stability.
Considering this, the ECBs exclusive competence over monetary policy in the Eurozone – and the corresponding incompetence of national governments – constrained the instruments available to both the Union and the Member States in times of crisis. First, financial assistance provided by Eurozone Member States could not include measures considered “monetary policy” as this would encroach on exclusive Union competence.85 Correspondingly, the content and scope of “monetary policy” (especially the delineation between “monetary policy” and
“economic policy”) would determine the legality of actions taken by the ECB. The legality of
80 The establishment of the ECB as an independent institution in the mold of the German Bundesbank was widely regarded as a concession by France, which expressed a desire for a less independent central bank with a mandate to pursue objectives other than price stability. A compromise was struck in which the independence of the central bank was secured, while its mandate was reduced, for all intents and purposes, to maintaining price stability, hampering its ability to pursue other endeavors free from accountability toward political actors, see Dyson and Featherstone (1999) p. 211.
81 Issing (1999) pp. 508-509.
82 Case C-11/00, OLAF, para. 135
83 Article 5 (1) and (2) TEU. The principle of conferred powers predated its explicit Treaty codification. The Lisbon Treaty merely “reaffirms the central principle that the EU operates on the basis of attributed competence”, see Craig (2013)
‘The Lisbon Treaty’ p. 158.
84 Tuori (2015) p. 179.
85 Article 2 (1) TFEU. Article 2 (1) was introduced by the Lisbon treaty, and affirmatively states that “exclusive competences”
means that the Member States may not “legislate or adopt legally binding acts” without permission, or under instruction, from the Union.
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measures enacted by the ECB to alleviate financial struggles of Member States would hinge on such measures being considered “monetary policy” measures.
2.2.2 The prohibitions on monetary financing and privileged access
Aside from the constraints posed by the principle of conferral and institutional balance, the ECB was prohibited from providing “monetary financing” of EU Member States. Article 123 (1) TFEU created a prohibition on “overdraft facilities” or “any other type of credit facilities” with the ECB or national central banks “in favor” of the Union and the “central governments” or
“public undertakings” of the Member States. Further, the provision prohibited “the purchase directly from them” by the ECB or national central banks of “debt instruments”.
In its wording, the prohibition concerned the direct purchase by the ECB of bonds issued by the Member States, and any providing of credit facilities favoring the Union or the Member States.
The provision was further specified in Council Regulation 3603/93. Article 1 of that Regulation defines “overdraft facility” as “any provision of funds to the public sector resulting or likely to result in a debit balance”. Additionally, although generally permitted by Art 18.1 of the ECB statutes, any operations by the ESCB in the secondary market should specifically “not be used to circumvent the objective of [Art 123 TFEU]”.86 The secondary market refers to the market in which financial institutions may liquidate bonds acquired from sovereign issuers in the primary market.87 Accordingly, the prohibition on direct purchase of Member State sovereign bonds extended to any measures in the secondary market amounting to a circumvention of the prohibition on primary market operations. This would be the case should the primary market be reduced to a mere conduit between the Member States and the ECB. Such a scenario might come to pass should the ECB operate in the secondary market in ways which encouraged actors to purchase bonds in targeted primary markets, thus reducing the debt servicing cost of the issuing Member State. Hence, apart from certain limited facilities,88 the provision laid down in Art 123 TFEU represented a strict prohibition on monetary financing by the ECB of public spending in the Member States.
A complementary rule was laid down in Art 124 TFEU prohibiting any “measure” not based on “prudential considerations” that established any form of “privileged access” for Union
86 Regulation 3603/93 (EC) preamble recital (7)
87 In order to raise funds, nation states issue bonds at auction to a preselected buyer-group, consisting of larger financial institutions. The state announces the date of the auction and the amount of debt instruments issued, see an example Bundesbank, Press Release (18.12.2018). The buyers in this primary market set the price at the auction. These institutions are then free to on-sell the debt instruments to other financial institutions in the secondary market.
88 Regulation (EC) 3603/93 Articles 4 and 5
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institutions or Member States to “financial institutions”. This provision would ensure that neither the Union nor the Member States would be able to circumvent the prohibition laid down in Art 123 TFEU by setting up private financial institutions from which they could attain favorable access. In order to prevent circumvention, it also forbade Member States from influencing private financial institutions in order to gain such access. Article 124 TFEU was specified in Regulation (EC) 3604/93. According to Article 4 of this Regulation, the term
“financial institution” was to be understood “rather broadly”,89 to include, inter alia, “credit institutions”, “insurance undertakings”, “investment firms” and “other undertakings the activities of which are similar to those of the undertakings referred to in the previous indents or the principal activity of which is to acquire holdings of financial assets or to transform financial claims”.90
Pipkorn deemed the rule laid down in Article 123 TFEU a prohibition on “monetary financing”, which today is the commonly used epitaph for the provision.91 It set out an important norm for the relationship between the Member States and the ECB: the commitment that the books of the central bank would not, “come hell or high water” – become an escape valve for financing government deficits.92
2.2.3 The coordination and surveillance of Member State economic and fiscal policy Despite the “Europeanization” of monetary policy, the Member States “retained … sovereignty in fiscal and economic policy”.93 However, the Member States committed themselves, according to Article 119 (1) TFEU, to pursue its economic policies in line with the “purposes”
set out in Article 3 TEU – which included, inter alia, having “a highly competitive social market economy”, aimed at “full employment and social progress”.94 Furthermore, the Member States were, in accordance with Article 119 (3) TFEU, to conduct their economic policies in in accordance with the “guiding principles” of “stable prices”; “sound public finances and money conditions” and “sustainable balance of payments”, as well as “with a view” to “contributing”
89 Geiger, Khan and Kotzur (2015) p. 590.
90 Regulation (EC) 3604/93 Article 4
91 Pipkorn (1994) p. 275.
92 Buiter and Kletzer (1990) pp. 5-7. The discussion of Buiter and Kletzer predates the signing of the Maastricht treaty, but is concerned with the contemporary debates on the creation of central banks independent from public scrutiny, staunchly committed to an anti-inflationary policy aimed at stifling inflation.
93 Touri (2015) p. 180.
94 Article 3 (3) TEU
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to the “achievement of the objectives of the Union” as they were laid down in Article 3 TEU in accordance with Article 120 TFEU.
In support of these objectives, competence was conferred on Union institutions to conduct surveillance of the economic performance of the Member States through the multilateral surveillance procedure (MSP), and to enact punitive measures under the excessive deficit procedure (EDP). Both of these Treaty-based control-regimes were specified in secondary law known collectively as the Stability and Growth Pact (SGP).95 The MSP, based in Article 121 TFEU, provided the Union with competences to monitor Member State compliance with the
“broad guidelines” formulated by the Council.96 If a Member State failed to comply with the guidelines, or jeopardized the “proper functioning of economic and monetary union”, the Commission could issue a warning to the Member State in derogation. Furthermore, the Council could issue “recommendations” to the Member State concerned, and decide to publicize such recommendations.97 Decisions to issue recommendations and to, if deemed necessary, make such recommendations public, were to be taken by a qualified majority of the Council in accordance with Article 288 (3) (a) TFEU, without taking into account the vote of the Member State concerned.98 Accordingly, the Union did not have at its disposal any hard-law competences to stifle unwarranted economic policies enacted by the Member State – the system relied on peer pressure and the “name and shame”-effect of publicizing Commission recommendations.99
The EDP, based in Article 126 TFEU,enabled the Union to enact punitive measures directed at Member States in derogation of certain defined fiscal benchmarks.100 Should the Council
95 The SGP was originally made up of a Council Resolution; Resolution on the Stability and Growth Pact (17 June 1997) and two Regulations; Regulation (EC) 1467/97 and Regulation (EC) 1466/97. Since the onslaught of the euro crisis, this secondary law-regime have been extensively modified, both through amendments and additions known as the six- pack and the two-pack, and by intergovernmental agreements concluded between the Member States such as the Euro Plus Pact and the TSCG. As stated in chapter 1, however, the concrete development of the fiscal policy regime falls outside the scope of this thesis.
96 Article 121 (1) cf. (2) TFEU
97 Article 121 (4) TFEU
98 Article 121 (4) subpara. (3) cf. (2) TFEU
99 Paul Craig (2013) 'The Lisbon Treaty' p. 319.
100 Article 126 (2) TFEU. The benchmarks were defined in Article 1 Protocol (No 12) on the Excessive Deficit Procedure. The reference values are 3% for the ratio of the planned or actual government deficit to GDP at market prices, and 60 % for the ratio of government debt to GDP at market prices. According to Article 126 (2) cf. (3) TFEU, the Commission hold discretionary competence to determine whether a derogation by a Member State from these values warrant the issuance of a report to the Council. The Council, in accordance with Article 126 (6) TFEU, then decides, on the basis of such a report, if there exists an excessive deficit. The ambiguous wording of the exemptions in Article 126 (2) left space for political bargaining within the Council.
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determine that there existed an excessive deficit in a Member State, it was provided with the competence to i) “invite” the European Investment Bank to “reconsider” its lending policy towards the Member State concerned, ii) “require” the Member State concerned to make a non- interest-bearing deposit of an appropriate size with the Union until the excessive deficit had, in the view of the Council, been corrected, and iii) impose fines” of an “appropriate size”.101 When establishing the existence of an excessive deficit, and initiating punitive measures, the Council were to act by qualified majority in accordance with Art 288 (3) (a) TFEU, without taking into account the vote of the Member State concerned.102 In Case C-27/04, Commission v Council,103 the Court held that the Council was not prohibited from disregarding the recommendations of the Commission, but that it could not itself determine an alternative procedure deviating from the one laid down in Article 126 TFEU and Regulation 1467/97. The decision to impose legal consequences according to the EDP was therefore subject to political discretion.
It was not fully clear whether the Member States had ceded the competence to coordinate economic policy to the Union as an “exclusive” or “shared” competence, under which the Member States might only coordinate their economic policies within the Union. Article 2 (3) TFEU, introduced by the Lisbon treaty, seemingly clarified that this was not the case. According to Article 2 (3) TFEU, the EU was expressly conferred competence to “coordinate” the economic policy of the Member States, in what seemed to be a sui generis form of Union competence which did not pre-empt Member State action outside the Union. Hence, the competence appeared neither “exclusive” (Article 2 (1) TFEU) nor “shared” (Article 2 (2) TFEU).104 The Lisbon Treaty also introduced Article 136 (1) TFEU, establishing a competence for the Eurozone Member States to adopt measures “specific to them” to “strengthening budgetary discipline” and to “adopt economic policy guidelines”.105 This Article created a de facto new institution – a distinct “Eurozone Council” – as only Eurozone Member States may vote on such measures in accordance with Article 136 (2) TFEU. Article 136 TFEU provided a basis for tighter fiscal and economic integration among the eurozone states.106
101 Article 126 (11) TFEU
102 Art 126 (13) TFEU
103 C-27/04, Commission of the European Communities v Council of the European Union, paras. 80-81
104 The character of the coordination-competence of the Union is disputed. For an introduction to the debate, see Jennerheim (2018) 23-25.
105 TFEU Article 136 (1) a) and b)
106 Craig (2013) ‘The Lisbon Treaty’, p. 320.
