Different Union, Greater Unity: Reflections on a Semester of Debates at NYU on the EU’s Concurrent Crises

The EU is facing four concurrent crises that may call into question its very existence: the EMU, Brexit, refugees, and terrorism.  This semester, the Jean Monnet Center for International and Regional Economic Law & Justice at NYU School of Law has had the privilege of hosting a series of fascinating seminars on these traumatic circumstances. Georgette Lalis, Senior Emile Noel Fellow, and Samuel Dahan, Emile Noel Fellow, have forwarded us this overview of those debates along with some provocative reflections of their own on the path forward.

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What has emerged from this semester's enriching debates at the Jean Monnet Center is that the EU is facing both circumstantial crises – the refugee and terrorism crises – but also, and more significantly, structural problems coming from within: Brexit and the EMU crisis.

The EMU crisis occurred as the result of the financial meltdown of 2008; but it is nevertheless an institutional crisis, predictable and indeed predicted, that resulted from flaws in the structure of the eurozone itself. While is it true that the EMU has succeeded in partially addressing these issues, the euro area is still faced with both an economic and a governance crisis. In a nutshell, the decision-making process in the euro area is unnecessarily complex, lacks transparency and democratic legitimacy, and calls into question the balance between Member States and European Institutions. We, the Emile Noel Fellows, are privileged to have the opportunity to conduct research on the legal aspects of the crisis and explore potential avenues of addressing the EMU’s flaws. Our research will eventually take the form of a Jean Monnet Working Paper.  

    While the Brexit crisis has very different causes from the EMU crisis, it is also a political deadlock that threatens the integrity of the EU as a whole. Brexit is the climax of a long and difficult British-European relationship in which the UK has always kept one foot outside the EU. A potential Brexit, let alone the threat it might represent to the integrity of the EU, would substantially change the nature of the UK’s membership in the EU (although the latter is already limited by important opt-outs.) From a reputational/formal standpoint, the departure of one of the EU’s strongest members would set a bad precedent and could trigger a domino effect, ultimately leading to deeper fractures in the Union. Much has been written on the economic effects of a Brexit for both the UK and the EU. It is clear to us, however, that a Brexit at this time would send a bad signal to the outside world concerning the cohesion of the EU. On Friday, February 12, former UK cabinet minister and Shadow Chancellor Ed Balls eloquently described the “backward relationship” between the UK and the EU in a discussion entitled "Brexit or Bremain? Britain’s Fraught Relationship with the EU.” While Balls made a strong argument in favor of ‘Bremain’, the outcome will only be known in June after the UK referendum.

As for the refugee and terrorism crises, while they clearly have an EU dimension, they are closely linked to outside factors and to national politics. Though public opinion often associates one with the other, it is important to emphasize that they have very different origins and implications. Both are the result of circumstantial/non-institutional pressures, and the juxtapositions between these two sets of crises leaves room for significant improvements in the situation through efficient coordination of national policies. Although the refugee and terrorism crises do not stem from European institutional flaws as such, they may well turn into an institutional nightmare if the Union doesn’t learn from its mistakes and mount a quick response to strengthen its immigration and security policy coordination.

Samuel Dahan, "Path-Dependent Deadlock: The Institutional Causes of the Euro Crisis"

With the arrival of a new cohort of Emile Noël Fellows at the Jean Monnet Center at NYU Law School, we were alerted that one of the new fellows, Samuel Dahan (Cornell and the French Conseil d'Etat), has co-authored a piece on the Euro Crisis that may be of interest to readers.  Entitled "Path-Dependent Deadlock: The Institutional Causes of the Euro Crisis," the abstract is below and the the full article can be downloaded from bepress.com.

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We argue that the characterization of the financial turmoil in the European Monetary Union as merely a sovereign debt crisis is inaccurate insofar as the deterioration of public finances represents the culmination of a process: legal and institutional flaws laid the ground for a public debt crisis. The institutional failure was the embedding of a unified monetary policy accompanied by a failure to introduce a coordinated fiscal and labor policy. The latent consequences of these flaws were brought into full view with the onset of the Global Financial Crisis. There was a lack of real convergence between the countries of the core (Germany) and the periphery (especially Greece, Ireland, Italy, Portugal and Spain, the so-called GIIPS.) This was exacerbated by the “one-size-fits-all” monetary policy, distorted fiscal policy, and the lack of a common approach to wage determination. In sum, instead of fostering learning and convergence, the asymmetric EMU design catapulted the GIIPS and Germany onto divergent growth paths, which ultimately translated into “destabilizing macroeconomic imbalances.” This analysis will draw upon knowledge-production systems and learning theories in order to contribute to a deeper understanding of the EMU crisis. In particular, we take a contextualized approach by examining the path-dependent evolution of the EMU and how institutional failures have turned the GFC into a sovereign debt crisis.

Dan Kelemen in "Foreign Affairs" on Why the Eurozone Needs a Syriza Victory

Network member and contributing editor R. Daniel Kelemen (Rutgers), writing with Alexandra Filindra (Illinois-Chicago), has a new article on Foreign Affairs entitled "Party on, Tsipras: Why the Eurozone Needs a Syriza Victory."  The first paragraph is below and the remainder of the article can be read here.

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On August 20, just hours after Greece received the first tranche of its 86 billion euro bailout and just seven months after he assumed office, Greek Prime Minister Alexis Tsipras resigned his post and effectively triggered new elections, scheduled for September 20. Tsipras’ sudden resignation has raised concerns that the political uncertainty surrounding new elections will further damage Greece’s ailing economy and slow down the reform process to which Greece has committed itself as a condition of its EU bailout. [continue reading here]

New member blog (Hennette Vauchez & Vauchez): "Do You Law?" on Libération

New network members Stéphanie Hennette Vauchez (Paris-Nanterre) and Antoine Vauchez (CNRS/Paris 1) have a new blog on law on the French daily Libération that readers should check out.  Entitled Do You Law? Politque, Justice, Libertés, the blog explores "cette vie sociale et politique qui gît dans le droit."

In addition, we also wanted to alert readers that Antoine Vauchez was recently interviewed in Libé regarding the Eurozone crisis.  That interview -- «La BCE, la Commission et la Cour de justice doivent s’ouvrir au débat public» -- can be found here.

The Greek Crisis: Commentary by Nicolaïdis, Kelemen, Müller, and Ackerman

As the fast-moving Greek crisis moves into a new phase, we wanted to alert readers that several network members have been active commentators on the crisis to date.  On the eve of the referendum, Kalypso Nicolaïdis (Oxford), together with Othon Anastasakis, posted "YES, for our dignity" on the Britain & Europe website. In Foreign Affairs, Dan Kelemen (Rutgers) published "Allegory of the Caving: A New Deal for Greece?"  Also in Foreign Affairs, Jan-Werner Müller (Princeton) published "The Merkel Method: Germany and the Greek Crisis".  Additionally, friend of the network Bruce Ackerman (Yale), published "Germany's Failure of Vision" in the New York Times.  Please let us know of other items so we can bring them to the attention of Europaeus readers.

OMT Forum: Alicia Hinarejos on 'Gauweiler' and the legality of the OMT programme

Network member Alicia Hinarejos (Cambridge) has passed on this new contribution to our OMT Forum, which originally appeared on EU Law Analysis and which we are cross-posting here by permission.

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On the 16th of June the Court of Justice delivered its decision in the Gauweiler case, concerning the legality of the Outright Monetary Transactions (OMT) programme of the European Central Bank (ECB). The Court considered the programme compatible with EU law. The decision has important implications for the powers of the ECB, the constitutional framework of the EU’s Economic and Monetary Union, and for the relationship between the Court of Justice of the EU and the referring court, the German Federal Constitutional Court. This was the first time that the German court asked for a preliminary ruling, and it remains to be seen whether the reply given by the Court of Justice will be to the national court’s liking.

Background

The ECB is in charge of conducting monetary policy for the euro area and its role is very narrowly defined in the Treaties. This role, however, has evolved and expanded substantially in recent years, as the ECB has announced or adopted various ‘non-standard’ measures in response to the euro area sovereign debt crisis. The OMT programme is one of these measures: it was announced in September 2012 in a press release and, so far, it has never been used.

The idea is that the ECB will buy government bonds from euro countries in trouble, i.e., when nobody else buys these bonds, or their yield is becoming so high that the Member State will not be able to cover interest payments on newly issued bonds, thus having no more access to credit and risking default. Crucially, the Treaty prohibits the ECB from acquiring government bonds directly (Art 123 TFEU) as this would amount to monetary financing, or becoming a direct lender of last resort to a Member State. Instead, the ECB would buy government bonds in the secondary market—that is, from a party that has bought these bonds first from a Member State—rather than from a Member State directly. While the ECB has already done this before, with the OMT programme there would be an added formal element of conditionality, as the Member State in question would need to obtain financial assistance from the European Stability Mechanism or the EFSF and comply with its conditions (i.e. macroeconomic reforms negotiated between the Member State and the troika: the Commission, the ECB, and the IMF).

The applicants before the German Court argued that the ECB had overstepped its Treaty role by creating a programme that should be viewed as a tool of economic, not monetary, policy; it was also alleged that the programme violated the prohibition of monetary financing. In an exercise of ultra vires jurisdiction, the German Constitutional Court’s preliminary response was to consider the OMT programme illegal under EU law. For the first time ever, the national court then referred the case to the CJEU. In the referring court’s view, the Court of Justice might either declare the OMT scheme contrary to EU law, or provide a more limited interpretation of the programme that is in accordance with the Treaties. The German Court provided certain indications as to what those limits should be, and it went on to state that whether the OMT scheme could eventually be held to violate the constitutional identity of the German Basic Law would depend on the CJEU’s interpretation of the scheme in conformity with EU primary law.

The case was sensitive for various reasons: although not yet used, the mere announcement of the OMT scheme played an important role in getting the euro area out of the acute phase of the crisis, and offers a credible defense against similar future scenarios. A declaration of illegality, or the placing of substantive limits on the programme, could have jeopardised post-crisis recovery. Additionally, the reference was the first ever submitted by the German Constitutional Court, and its tone was quite bold; there was, and is, clear potential for conflict between the two courts, with consequences unknown for EMU. Moreover, the case touches on the nature and legitimacy of the role of the ECB as an independent expert, and on the dichotomy between the original, rule-based conception of EMU and the evolving, more policy-oriented EMU that rose out of the crisis.

OMT Forum: Herwig Hofmann on the CJEU's Response to the BVerfG in 'Gauweiler'

New network member Herwig Hofmann (Luxembourg) has posted a working paper on SSRN entitled 'Gauweiler and OMT: Lessons for EU Public Law and the European Economic and Monetary Union'. Herwig has graciously agreed to post a condensed version of the paper's argument here, as part of a forum on the OMT dispute before both the German Constitutional Court, the Bundesverfassungsgericht (BVerfG), and the Court of Justice of the European Union (CJEU). We hope to have additional contributions to the forum in the coming days.

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Do exceptional situations make exceptionally good or exceptionally bad law? This is an old question often asked anew – especially in the context of the post-2008 economic crises travails of the European Economic and Monetary Union (EMU). The legal disputes which resulted from differing opinions about how to solve the crises and also how, incidentally, to improve the EMU’s governance have reached the Court of Justice of the European Union (CJEU). The most prominent case to date is the so-called Gauweiler case, a preliminary reference procedure initiated by the German Constitutional Court, the Bundesverfassungsgericht (BVerfG). I discuss this case in more fully argued working paper available on SSRN, 'Gauweiler and OMT: Lessons for EU Public Law and the European Economic and Monetary Union'.

Gauweiler concerns the legality of the decision of the Governing Board of the European Central Bank (ECB) of September 2012 on so called ‘Outright Monetary Transactions’ (OMT). This case is significant for legal integration in the EU since, although it is the first instance in which the German BVerfG has ever taken advantage of the preliminary reference procedure (Article 267 TFEU), the reference by the BVerfG was formulated in very terse words. Essentially, the reference asks for clarification about the legality of the ECB’s OMT decision. But that reference is not formulated in terms of a dialogue between Courts, each respecting the other’s distinctive powers. Instead, the BVerfG explains why it considers the ECB’s decision to be ultra vires of its mandate and asks the CJEU essentially to confirm this interpretation warning about potential consequences in its assessment of the ‘constitutional identity’ of the Federal Republic of Germany. Inherent in the reference is a thinly veiled threat not to accept the exclusive competence of the CJEU to review the legality of EU law and, instead, to unilaterally hold an act of an EU institution to be invalid within a Member State of the EU. The BVerfG reinforced its sceptical position of the primacy of EU law over the law of Member States by recalling in its decision for preliminary reference its case-law concerning the limits it perceives are set for the Federal Republic of Germany’s integration in the European Union. In its decision, it refers to and further interprets the scope of its own case-law making reference inter alia to its judgments concerning the Treaty of Maastricht, the Treaty of Lisbon and in Honeywell, as precedent for its questions to the CJEU.

This approach to formulating the preliminary ruling, a legal obligation for any court of a Member State of the EU ‘against whose decisions there is no judicial remedy under national law’ (Article 267 para 3 TFEU) can therefore not be seen as a long overdue normalisation of the relations between the CJEU and the BVerfG. The BVerfG as one of the last remaining constitutional courts of Member States instead of simply complying with its clearly defined obligations under the Treaties to submit in adequate cases questions for preliminary reference. Rather, it is formulated as ‘last warning’ by the BVerfG after which, if the CJEU does not fall in line with its approach, it would consider to radically challenge the constitutional order of the EU and, in effect, questioning the Union’s very existence as a constitutional order.

Book Announcement: Alicia Hinarejos, The Euro Area Crisis in Constitutional Perspective (OUP 2015)

Network member Alicia Hinarejos (Cambridge) has just published a new book with OUP.  Entitled The Euro Area Crisis in Constitutional Perspective, the book provides a comprehensive treatment of the complexities of European Economic and Monetary Union, and an account of the recent tribulations of the eurozone in the light of the key constitutional issues for the Union and the Member States alike.  The publisher's blurb is below; further information is available here.

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The euro area sovereign debt crisis has been the greatest threat to the euro since its inception, but the consequences of the crisis go well beyond the realm of macroeconomics: the crisis has cast doubt on the viability of a mechanism of integration such as the one envisaged in Economic and Monetary Union ("EMU"), and on the future of the European Union as a political project in the face of citizens' growing disaffection. The various responses to the crisis have not only altered the principles underlying EMU; they have also had a profound impact on the constitutional orders of the EU and its Member States.

This book focuses on the euro area crisis and its aftermath from a constitutional perspective. It provides a critical analysis of the workings and evolution of Economic and Monetary Union, the changes brought by the crisis and their broader effects, and the constitutional obstacles to integration in this area. Looking forward, it tackles the uncertain future of economic and fiscal integration and the challenges posed. This is a compelling and incisive account of some of the most significant developments and dilemmas facing the European Union since its creation.

Summer School: "Democracy and the Financial Crisis in Europe," Amsterdam, June 29 - July 3, 2015

Network member Gareth Davies (VU University Amsterdam) has written to announce a summer school for doctoral students between June 29 and July 3, 2015 at VU University Amsterdam on "Democracy and the Financial Crisis in Europe."  A short summary is below, and more information can be found here.  The deadline for applications is April 14, 2015.

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This one-week, full-time, intensive summer school is organized by ACCESS Europe and the VU University Amsterdam law school. ACCESS Europe is a co-operative venture between VU University and the University of Amsterdam, providing a platform for research and debate on Europe, the European Union and its Member States. It has recently been awarded Jean Monnet Centre of Excellence status.

The summer school will consist of a series of interactive seminars with leading scholars in law and political science. The 20-25 participants will explore the theme of "democracy and the financial crisis in Europe" from different angles, with plenty of opportunities to link it to their own research.

The Network on SSRN: Philomila Tsoukala on Household Regulation in the Crisis of European Integration

Network member Philomila Tsoukala (Georgetown) has posted a new article on SSRN, entitled “Household Regulation and European Integration: The Family Portrait of a Crisis.”  The article is forthcoming from the American Journal of Comparative Law and can be downloaded in full here.  The abstract is below.

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This article develops a theoretical framework for analyzing the regulation of the household and its effects on the economy. Incorporating insights from family economics, comparative family law, legal realism, political economy and feminism, it describes the array of different legal regimes that can affect household composition and function. The article then analyzes the case of Greece using this framework. It argues that the role of households organized as families was a central element in the Greek debt crisis, overlooked by scholars and policymakers alike. It identifies the host of legal regimes that helped consolidate families as the main providers of both welfare and employment and analyzes the consequences of this organization for Greece’s economy. Finally, the article argues that a household based analysis offers useful comparative insights in the context of the euro crisis and its management. More specifically, it elucidates how the structural reforms now required through the European Semester necessitate a dramatic transformation of basic schemes of welfare provisioning. It argues that without additional support these transformations are likely to fail or have dramatic unintended consequences.

Peter Lindseth: Equilibrium, Demoi-cracy and Delegation in the Crisis of European Integration (Corrected Version)

Network member Peter Lindseth (UConn Law School) has a new article out in the German Law Journal entitled "Equilibrium, Demoi-cracy and Delegation in the Crisis of European Integration".  The abstract is below.  A corrected version has been posted to fix errors inadvertently introduced by the editors without the author's approval.  The corrected version can be downloaded on SSRN here or the GLJ site here.

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As my work has argued previously, European integration enjoys an “administrative, not constitutional” legitimacy. This view is in obvious tension with the deeply-rooted conceptual framework—what we might call the “constitutional, not international” perspective—that has dominated the public-law scholarship of European integration over many decades. Although the alternative presented in my work breaks from that traditional perspective, we should not view it as an all-or-nothing rejection of everything that has come before it. The administrative alternative can be seen, rather, as providing legal-historical micro-foundations for certain theories that also emerged out of the traditional perspective even as they too are in tension with it. I am referring in particular to Joseph Weiler’s classic notion of European “equilibrium”—now updated as “constitutional tolerance”—as well as Kalypso Nicolaïdis’s more recently developed theory of European “demoi-cracy” on which this article focuses in particular. The central idea behind the “administrative, not constitutional” interpretation—the historical-constructivist principal-agent framework rooted in delegation, as well as the balance demanded between supranational regulatory power and national democratic and constitutional legitimacy—directly complements both theories. The administrative alternative suggests how the relationship between national principals and supranational agents is one of “mediated legitimacy” rather than direct control. It has its origins in the evolution of administrative governance in relation to representative government over the course of the twentieth century (indeed before). By drawing on the normative lessons of that history—notably the need for some form of national oversight as well as enforcement of outer constraints on supranational delegation in order to preserve national democratic and constitutional legitimacy in a recognizable sense—this article serves an additional purpose. It suggests how theories of European equilibrium and demoi-cracy might be translated into concrete legal proposals for a more sustainable form of integration over time—a pressing challenge in the context of the continuing crisis of European integration.

R. Daniel Kelemen and Anand Menon: Fight Club – When the EU’s Campaign Season Ends, The Real Political Battles Will Begin

Network member R. Daniel Kelemen (Rutgers) has published an article (with Anand Menon of King’s College London) in Foreign Affairs which may be of interest to readers.  The first two paragraphs are below and you may read the remainder here.

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It is the worst of times and the best of times for the European Union (EU). Support for European integration is at an all-time low. The continent’s economic recovery has been tepid at best. An entire generation in southern Europe has been scarred by youth unemployment rates ranging from 30 to 50 percent. Far-right and anti-EU parties are enjoying unprecedented levels of support in France, Greece, Hungary, the Netherlands, and the United Kingdom. Internationally, the EU has proved powerless to prevent Russian aggression in Ukraine. Internally, the EU has seemed equally incapable of arresting Hungary’s slide toward autocracy or halting the United Kingdom’s discussions about a possible exit. In short, the EU has rarely seemed feebler or less popular.


At the same time, however, the EU has managed to steer its way through the euro crisis, the greatest test in its six-decade history, while preserving the common currency and stabilizing the continent’s financial sector. Far from tearing the EU apart, as many had predicted, the crisis has enhanced Brussels’ authority over national economies in ways that would have been unimaginable five years ago. Internationally, Brussels has been leading ongoing negotiations with the United States over a remarkably ambitious trade deal.  And demonstrators in Kiev’s Euromaidan reminded the world of the continued allure of EU membership. Finally, despite recent decreases in public support for the EU, the most recent Eurobarometer survey shows that a majority -- 53 percent -- of European citizens remain confident about its future. [Continue reading here]

The “Rumble in Karlsruhe”: The German Federal Constitutional Court’s Historic OMT Case (Russell Miller)

Network member Russell Miller (W&L), on the I-CONnect blog, has recently weighed in on the German Federal Constitutional Court's decision last Friday on the ECB's OMT program.  Below are the opening paragraphs of his post and you can read the remainder here.

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A few years ago I was at a transatlantic policy event in Washington, DC.  It was the height of the Eurozone’s sovereign debt and banking crisis and there was palpable fear that that the Euro would crumble.  If the ten year old currency union were brought to its knees, it would be the result of a near-fatal one-two-punch.  The hard left-cross had been delivered by the profligate budgetary policies in the so-called “crisis countries.”  And the match-ending right-handed uppercut had come in the form of Germany’s almost-genetic revulsion towards monetary solutions in the face of debt difficulties.

There was very real concern that Europe’s dreadful handling of the crisis might have devastating economic effects around the world.  It was clear, however, that no proper conversation about the crisis could go forward without taking account of the role played by the German Federal Constitutional Court.  This bordered on the bizarre for many of the Americans involved in the discussion.  What does a domestic court have to do with European policy, many wondered.  And for those more sensitive to judicial activism in general, it was a question of the propriety of any role for any court in such high-stakes and highly-technical matters. [continue reading here]