'Euro crisis law' before the EU Court of Justice

The transformation of European economic and political governance patterns (the EU’s constitutional constellation) occurred step by step through what the European University Institute in Florence has named the ‘Euro Crisis Law‘. The German court had asked whether the European Central Bank had overstepped its monetary policy competence with the Outright Monetary Transactions programme (OMT), and interfered with the powers of the Member States in the sphere of economic policy. On 16 June 2015, the Court of Justice of the EU (CJEU) found the ECB’s programme to be legal.

The importance of this response must not be under-estimated; however, this importance is, hélas, in my view, anything but positive. In this post, I will (I) comment on the Gauweiler judgment as I see it, (II) explain both why and how it consummates the development of Europe’s “crisis law”, and (III) evaluate what has happened.

I. Comment on the Gauweiler judgment

As I see it, the Union’s highest court gave its legal blessing to a deep and problematic transformation of the economic constitution. This transformation came about through the responses of European politics to the financial crisis. In its previous Pringle decision of 27 November 2012, the CJEU had approved the “union method” with its turn to a new alliance of intergovernmental and expert crisis management which aims at the stabilisation of the Eurozone as a whole. But it had never been so transparently clear that the Court supports the establishment of a technocratic regime with unlimited discretionary powers and without credible accountability.

II. Why and how the Gauweiler judgement consummates the development of Europe’s “crisis law”

What we observe is a strengthening of European powers. “More Europe” used to signal progress of the integration process. But the kind of transformation that we are now exposed to is a response that documents a dilemma rather than a praiseworthy accomplishment. It attests to nothing less and nothing better than the inability of European politics to remain faithful to the commitment to the project of a democratic mode of European governance, to the respect of human and social rights, and to a law-mediated legitimacy of the integration project.

This discomforting reading of the state of the Union rests upon an analysis of the crisis and its institutional dynamics, an analysis which is situated beyond the confines of the integration theories upon which European studies have relied to date. In a nutshell: it is by now widely held that the separation of monetary policy from fiscal and economic policy, which the Maastricht Treaty established, constituted a design failure of the Economic and Monetary Union (EMU). The move to a common currency should have been accompanied by the establishment of political union, we read over and over again. This is anything but a consolidating message, however. The defence of national powers in the realms of fiscal and monetary policy by the Member States cannot really be called irresponsible. “The legislature not only commands the purse, but prescribes the rules by which the duties and rights of every citizen are to be regulated.” What Alexander Hamilton had stated in No. 78 of the Federalist Papers back in 1788 defines an essential of a constitutional democracy.

The Europeanisation of democratic rule as a pre-condition of Monetary Union was utterly inconceivable back in 1993. What the Maastricht Treaty has instead brought about is an irresolvable ‘diagonal’ conflict constellation. To explain this briefly: the socio-economic conditions, political orientations and cultural legacies of the Member States were – and still are – not uniform. The implications of this diversity are threefold: for one, the differences between the fiscal and economic policies both within and beyond the Eurozone rest upon good democratic reasons. It follows that the single monetary policy which the ECB has to deliver cannot fit anyone. And it was hence neither surprising nor ‘wrong’ that the Union was empowered only with a competence to co-ordinate national policies, and the Stability and Growth Pact of 1997 was not cast in hard rules. Monetary policy cannot claim supremacy with respect to fiscal and economic policy.

These problems could be kept latent for a short while. But conflicts were bound to break out when in the course of the financial crisis American rating agencies and ‘the markets’ became aware of Europe’s socio-economic diversity, and then adjusted their grading of national economies and their credit conditions accordingly. ‘Lo spread’ between the interest rates of Eurozone members widened steadily, and became unsustainable until a break-up of the common currency seemed imminent in 2012. At that point Mario Draghi stepped in with his legendary announcement of 26 July in London: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” The markets calmed down. The ‘stability of the Eurozone as a whole’ was sustained.

Not to everybody’s liking, we have to add. Ever since the controversy over the ratification of the Maastricht Treaty constitutional complaints are being filed with theBundesverfassungsgericht against any further Treaty amendment, often by the ever same complainants. Herr Gauweiler, a Christian Social Union (CSU) member of the German Parliament, the Bundestag, is the most prominent among them. This time he was supported by the left-wing Parliamentary group Die Linke and another 11,692 complainants. This looks, and was, quite spectacular. But nobody could, and hardly anybody did, anticipate that the German Court would strive for the destruction of what Mario Draghi had accomplished. “Lieb’ Vaterland magst ruhig sein, Fest steht und treu die Wacht am Rhein!” The emotional and nationalist Lied from 1840 conveys the message that the German Fatherland need not worry about its arch enemy because it is so strongly guarded by its watchposts along the Rhine. Draghi’s strong statement protected the Euro at least for the time being. But who is the guardian of Europe’s constitutionalism? The unconventional financial rescue operation came at the cost of major collateral damage.

III. Evaluation of what has happened

Draghi’s intervention was a measure that did not accept – but instead corrected – the operation of the financial markets. It revealed an understanding that we cannot place our trust in the disciplining functions which the stability philosophy of the EMU had expected the markets to exercise. The action announced by the ECB and Draghi was not foreseen within the EMU framework, neither legally nor conceptually. This is not in itself unusual and problematic. What is so discomforting is the lack of a political infrastructure and an institutional framework in which democratic political contestation could have legitimated the correction or improvement of what had been ratified.

Mario Draghi could not – and did not – invoke such a mandate. This is why he transformed the political failure and malfunctioning of the common currency into an epistemic challenge, which required sophisticated expertise, rather than political deliberation and legal changes; the kind of challenge he defined was instead accessible and manageable only by the ECB. What else could he have done? But did the CJEU really have no alternative other than to legalise Draghi’s move?

To cite Alexander Hamilton again: “The judiciary, from the nature of its functions, will always be the least dangerous to the political rights of the Constitution” while “the Executive not only dispenses the honors, but holds the sword of the community.” The alliance between the “sword” and the “least dangerous branch” is not a holy one, but it is a threat to the integrity of law. Two judges of the Second Senate of the Bundesverfassungsgericht had delivered Dissenting Opinions in which they pleaded that the complaints brought against the ECB’s OMT programme be rejected as inadmissible. Did they do a better service to the law? Not even this is certain. If the judiciary remains silent, Europe’s constitution has no guardian.

This text was first published on Britain-Europe, the UCL European Institute’s blog.