25 Nov The Eurozone Crisis Is Also a Governance Crisis – Isn’t It?
Over the last few months, as the eurozone crisis has gathered steam, I have wondered what the crisis means for the governance structures of the EU. One answer is, not much — the political leadership will somehow muddle through as it always does, on the basis of discretionary deals among the national leaders of European states. Then the institutional arrangements will be adjusted after the fact to reflect whatever happened in the politics of the event.
In that case law, in the sense of legally binding governance arrangements, is epiphenomenal on political contingency which, in this case, is contingent upon relations with the financial markets, which is to say, upon the willingness of lenders to continue to lend and roll over debt. Even something as apparently legally binding as the ECB’s charter turns out not to be legally binding on any ordinary reading of it. On this account there’s not a lot to say from the standpoint of governance theory or institutional governance arrangements because the EU’s lawyers will not know how to (re-)arrange the legal furniture until afterwards. The role for the governance lawyers is the lawyer-as-scribe; the legal rules are post-hoc and revisable according to the contingencies of politics.
This does not seem to me a plausible way of looking at the role of legal rules; if it were, it seems unlikely to me that European states would have been lent this amount of money by investors globally. Why not? Because investors don’t like to lend into discretionary legal regimes, for obvious reasons. But leave that aside. I have raised these points before, and have been nonplussed by how little commentary there is by European public lawyers on the question of institutional design, exit from the Eurozone, etc. This, even as it appears from various leaked documents that various important national and EU agencies are indeed privately trying to plan for various contingencies. Presumably they do so as legal experts inside governments and Brussels bureaucracy who must devise new structures of rules, institutions, and law and, just as crucially, a way from here to there (if that is what happens) – and a way that best preserves institutional legitimacy and minimizes what might be catastrophic economic disruption if institutions break down and fail.
If there is regular commentary by the academics and intellectuals in the EU, I would be grateful to hear about it and find out where to read it. I read Peter Lindseth closely, and David Bosco at Multilateralist is always good, but I cannot find a lot of constitutional design voices in Europe weighing into this. I would have thought that the same community of academics that produce much scholarship on constitutionalism in the EU would tell us what the legal and institutional options are. Martin Holtermann, commenting here on my earlier posts, has done as good a job in a few paragraphs as I’ve read, giving an account of how the discretionary summitry is all okay within governance structures of the EU. But I would like to read more and in much more depth; if you can tell me where it is, I would be grateful. I am not an EU lawyer or theorist of the EU; I don’t pretend to know all of this stuff myself.
What worries me is that when I pose this question to some very smart EU scholars I know, there is a shrug as if to say, this isn’t about the stuff of political governance or “real” constitutionalism at all — this is just about money and the institutions that manage money. Whether Greece is in or out of the euro is not all that important; the euro is not all that important, it’s just a currency. The real EU is not about money, it’s about values. The law that matters to EU constitutional theory is not about the ECB, but instead the European Court of Human Rights. No matter what happens to credit ratings, the Eurozone banking system, Greece or even Italy in the sense of in or out of the eurozone, the ECJ and ECtHR will continue to issue rulings on rights and values issues, and those are what actually matter. One can have a sanguine attitude toward the economic aspects — and indeed not have any understanding of them — and still regard governance of the EU as same as it ever was, because the things that make the EU the EU are its ideals and values, not mere money.
I caricature my friends, no doubt. But caricature or not, this strikes me as dubious at best. As we (residual) marxists like to say, money is never “mere.” Of course money, banking, credit, etc., are at the heart of the governance project, because they structure the material — and, come to it, the moral and spiritual — conditions of the rest of it. Are these conditions really unrelated to the legitimacy, weight, impact and force of such institutions as the ECtHR? Now, I do understand a reluctance to opine, particularly in an academic, as distinguished from immediate policy, way on events that are unfolding now and are quite uncertain at this moment. Fair enough. But I don’t even see much policy discussion of what all this stuff is supposed to mean in terms of legal governance, at least in the places I would normally consult.
One is tempted to conclude, at this point, that the political theory of the EU today is being written by financiers and financial analysts in their credit reports. They are anxious, after all, only secondarily about markets. They are primarily anxious about governance and structures of governance — because the markets are trying to figure out whether the institutions of the EU and its members are serious about their legal and political commitments, and in what ways and to what extent. The state of the markets depends upon the state of these several institutions. And the state of the institutions — given that the legal rules and their application is apparently deeply in flux, unless one simply assumes that the rule of law is whatever discretionary action European leaders decide upon this week — is a matter of conjuring forward the political theory of these institutions.
So they, the financiers, are conjecturing the possible governance futures of the eurozone and the EU. They are market analysts reluctantly turned political theorists because it is political theory that suggests one path or another for the application of legal regimes that appear to be much less determinate than once thought. For George Soros, the move from one to the other is natural and logical; for most credit analysts and hedge fund managers, this is a strange turn indeed. If you have places to point me for analysis of the governance issues, I would be grateful to find out.
Nice post but this, ‘The law that matters to EU constitutional theory is not about the ECB, but instead the European Court of Human Rights’ is incorrect.
I am afraid for answers you will have to look to EU law journals (European Public Law, European Law Journal, the German EuZW) and books, the blogosphere seems not to have much to offer. There is http://eutopialaw.com/, an eu law blog by the Matrix Chambers, but more for practicioners. Then, for current information and some opinion/analysis there is http://www.euractiv.com/euro-finance and http://euobserver.com/.
As to your point, I guess we do have some sort of governance “crisis” or “problem”, simply because the Treaties do not include a contingency plan for a financial crisis of the current proportions and the control mechanisms proved inadequate. This is based on serious design flaws of the TFEU. Take the deficit rules in Art. 126 TFEU for instance. Countries are obliged not to exceed certain deficit levels. If they do, they need to reduce them to appropriate levels or they may face sanctions. However, sanctions are not automatic but require a decision of the Council, i.e. a political body. The decision of the Council is not justiciable, so if the Council decides not to do anything (as happened before with Germany and France), the Commission cannot force it. Secondly, the measures the Council can take are inadequate so solve a deficit problem, as they require the state to pay fines when it should be counting every penny.
The shift of power from the Commission to the Council and the Member States (or, as you say in Eurospeak, the shift from the “Community method” to an inter-governmental method) has been furthered by the lack of adequate emergency procedures in the Treaties and thus the need for ad-hoc-measures. The first Greek bail-out has been partly sanctioned by Art. 122 TFEU, which allows the Union to help a Member State in case of an emergency with money from the central budget. Some argue that this was a breach of the TFEU, since Art. 122 is designed for emergencies such as natural disasters, not a home-made debt crisis. But this only amounts to 60 billion Euro. Most of the money comes from the EFSF, which is a private company incorporated under the laws of Luxemburg and which in turn is credited by the Eurozone Member States via a loan agreement and an intercreditor agreement, both governed by English law. So this is a purely intergovernmental matter outside of the EU-framework. Again, some argue that this circumvents the no-bailout-clause of Art. 125 TFEU (if Art. 125 indeed contains a no-bailout-clause). Next, there is the planned ESM, which is designed to be some kind of a European IMF. There is no Treaty provision for it, so Merkel wants to insert a new Art. 136(3) into the TFEU. Yet the proposed ESM will not be an organ of the EU, but a separate international organisation and Art. 136(3) will simply allow Member States to join. So the design of the ESM is being worked out purely on an inter-governmental level, the Commission (and even the the non-Eurozone EU Member States) have no part in it.
To sum up, we not only have a debt crisis on our hands, but also a power struggle between the Commission and the Eurozone Member States, which has been provoked by the flawed design of the Treaties.
Sniff: Apologies if I wasn’t clear. Yes, I agree that of course the law of the economic structures of the EU, all of them, matter to constitutional theory. I was trying to lightly sum up what I sense from conversations is a sort of view among public law lawyers that what happens in areas such as the instituions of human rights will not be affected by what happens to the instituional arrangements in economic matters. I agree with what I take as your view above – surely they are all interlinked. My friends should not be so sanguine.
Dear Ken,
Since you say that you would like to know about voices by public lawyers that have addressed this issue as a constitutional and governance question I hereby send you the link to a op-ed I published a few months ago:
http://www.project-syndicate.org/commentary/maduro1/English
As you can see, there are EU public law scholars who have, at least tried, to shape the debate in a different direction, stressing its governance dimension!
bw
Miguel
A Bad Haiku on the EU
The EU muddles through
the next crise
That is to bring it to its knees
When Ben is making haiku on the eurozone, we know things are in a bad way! Thanks for the links above – I do follow the academic journals on this, but of course it takes time for things to work through to publication – which is at it should be if it is supposed to be serious and reflective. At this stage, I’m interested in how academics and policy people see EU institutions and treaties as policy and institutional design issues, admittedly in the present moment of crisis.
And please understand that this is not by way of misplaced schadenfreude; this meltdown is bad for everyone everywhere. I’m just trying to understand this at the level of institutional governance theory, and it does seem weird to me to see much of the analysis coming from people with stakes in the credit markets, belatedly trying to figure out what the bond contracts they are holding actually mean in relation to actual political and legal institutions.
The European construct is an idea. The European idea is a construct.
Europe is a young man on a Vespa riding down the street saying “Ciao!” (Eddy Izzard).
Let us smoke greek cigarettes, sip Bordeaux at a sidewalk cafe in Paris and say to each other “There is no meaning!” as the light of the day fades and we people watch.
The Europe of leaders is not the Europe of the students in my Szeged class hailing from Moldova, Latvia, Turkey, and France (through Erasmus) and Hungary and learning the Common Law of Contracts. Europe is not the Europe of institutions. Europe is the Europe of the peoples – knitting together a crazy quilt in an imperfect way that is better than wars.
Europe is also … the Europe of leaders, the Europe of institutions, and the Europe of ideas. Do not focus too closely on one part or one misses the whole even if there are holes in the European space.
Like the banker who had as collateral accounts receivable owed to the Grateful Dead – what exactly is backing my loan? An idea – Europe. I guess the Europe of the bankers!
Best,
Ben
Kenneth,
I’m not sure that I understand what you’re looking for. Obviously there is analysis like the one mentioned by my – let’s go with colleague – prof. Maduro above. The most famous one in recent weeks is by Joshka Fischer, also on Project Syndicate:
http://www.project-syndicate.org/commentary/fischer67/English
Such analysis is not uniquely the province of jurists; when you’re re-writing a constitution, you can do whatever you like as long as it is legitimate. And legitimacy is a political issue, not legal. What European law specialists can do is point out where there is and is not a need for a Treaty change. Behind closed doors, that’s what the Council has Mr. Legal for (the successor to Jean-Claude Piris, who actually wrote the Lisbon Treaty, in the sense of turning the political agreement into legal language). However, for many of the main proposals on the table today, it is perfectly clear that they require a Treaty change. (Or a change in the ECB’s statutes.) In that situation, law scholars have no particularly privileged position. They can make their proposals just like everybody else.
Is this the kind of answer you were looking for?
Martin – I don’t know quite what I mean, to be honest. Mostly I’m struck by seeing bunches of hedge fund managers suddenly taking a deep interest in and opining on the political and legal structures underlying the Eurozone and more broadly the EU, and trying to bet on what amount to theories of governance into the future. Numbers of them have emailed me since I posted this on Volokh and it got picked up somewhere; let’s just say that it’s odd to have a hedge fund manager trying to figure out how to play the eurozone … asking what I thought Habermas would say. That’s no doubt unusual even for hedge fund managers in a crisis, and no doubt too just trying to impress me, but still.
I’m going to try and reformulate this as another post, and incorporate a couple of comments from friends who emailed about this as well. But … the first I will do when I can get to my computer is fix the number of “n”s I put in your name!
Ken,
Your instincts are correct — the problem is fundamentally one of governance and legitimacy. As you suggested in your review of my book here a while back, the key question with regard to supranational power in the EU is “legitimate for what?” The governance crisis in the EMU right now is a consequence of legitimacy overreaching, if you will. The Eurozone countries set out on a course of conduct that demanded a range of policy tools that presupposed a willingness and/or capacity of its members to engage in fiscal transfers or mutualization of debt obligations that was in fact way beyond the actual willingness of the Eurozone countries to do (indeed, if the BVerfG is any guide, beyond also their constitutional capacity to do).
The article linked by Miguel is helpful on the question of European governance, but it is also telling. For Miguel:
“Quite simply, EU politics has not kept pace with the scope and level of the Union’s problems. This is what the EU’s democratic deficit really means: No EU member state has yet to fully internalize the consequences for their democracy of the interdependence generated by integration.”
The argument, it seems to me, is fundamentally a functional one: Europeans need to create institutional and political capacity commensurate with the functional demands of integration. But this functional argument misreads the historical character of institutional change. Political-cultural conceptions of legitimacy — i.e., understandings of where democratic and constitutional government should “rightfully” exist — also play a huge role in the process of contestation and (potential) settlement in the process of institutional change over time. And history shows that there is simply no guarantee that institutional change will always or necessarily conform to functional demand, particular where those functional demands are a consequence of political choices that, over time, begin to appear increasingly questionable to the broader population.
Something’s gotta give at that point, and this, I would suggest, is what is happening in the Eurozone. Whether in the wealthier core or in the less competitive periphery, the the peoples of the various member states of the EMU have increasingly come to realize precisely the costs of monetary union, not merely in terms of overall economic stability, but also in terms of democracy and constitutionalism in a historically recognizable (i.e., national) sense. And the governance crisis results precisely from the fact that the executive and technocratic (i.e., administrative) character of EU governance cannot in itself rightfully make the necessary engagements.
Of course, numerous thoughtful public law scholars (Miguel Maduro prominently among them) have worked hard to articulate a theory of democracy and constitutionalism “beyond the state” that is commensurate with integration’s functional demands as they understand them. But articulating a theory is one thing, and seeing it realized as a lived political-cultural reality is quite another. If Europe’s “democratic deficit” were simply a problem of the lack of alternative conceptions of legitimacy, then the EU’s governance problem would have been solved a long time ago, because so many fascinating conceptions of supranational democratic and constitutional legitimacy have been on offer.
These conceptions, alas, have not taken political-cultural root, even if the functional demand for some new form of denationalized governance in the EU, commensurate with the integration’s many ambitions, are so great. The Eurozone crisis is a case in point. It reflects the core problem with the EU, as I’ve extensively described it elsewhere (see, e.g., here, here, and here): the disconnect between integration’s actual or needed regulatory power, on the one hand, and the scope of its underlying political-cultural legitimacy to sustain that regulatory power, on the other.
One cannot simply wave a magic wand and have the political-cultural (and hence legal and constitutional) obstacles to greater integration simply disappear. Economists love to point out that the actual fundamentals of the Eurozone, if aggregated, are actually pretty good — so why not just do the necessary political integration and be done with the problem? This is your classic “assume a can opener” argument, because it ignores the extent of European reluctance to pay the price, in terms of national democracy and constitutionalism, that such political integration would entail. The reason why the “Community method” has given way to intergovernmentalism (combined with national parliamentary and judicial assertiveness) is that the Eurozone crisis demands the legitimation that only national-level constitutional bodies can provide — hence the utter marginalization of the European Commission and the ECJ in this process.
This does not mean that the situation might not change, and fast. The functional demands of the current crisis may well become so acute that Europeans will be forced to let go of their political-cultural reservations, and thus attempt to construct a new form of collective democratic and constitutional legitimacy for the EU that is genuinely worthy of the name, rather than the pale version (at best) that is currently celebrated by many EU theorists, to which your post alludes. But another outcome is just as likely: the dismantling or radical scaling-back of the EMU itself, an eventuality that is looking increasingly more likely, in the absence of some serious action by the member states.
all best,
-Peter
@Peter: Very true. The “non-functionalist” outcome will continue to be on the table for the very simple reason that, if the people are allowed to vote, they will vote against further integration in virtually every EU Member State. The victims of the crisis will vote against because they don’t want austerity – regardless of whether it is necessary – and the countries that are currently paying the bill will vote against because the people don’t want to pay for other people’s sins – regardless of whether it is necessary. (And the Brits will vote against because, well, because they’re Brits.)
And that is the uncertainty, looking forward: the members of the Council are exposed to two opposing sources of pressure: on the one hand, they want to do what is necessary, and on the other hand they want to “obey” their voters. (Or at least not upset them too much.) This tension is resolved a little through elections, even though such elections only bring people to power who will end up doing much the same thing as the politicians they replaced.
(Which is why elections in Greece aren’t a very helpful idea. Note also the paradox of Spain, where the indignados were so unhappy with Zapatero that they ended up electing a centre-right government instead.)
A more drastic solution is referendums. Even though voters have a surprising ability to abstain from voting while still complaining, referendums forcibly put everyone back on the same page. They give the people ownership of the problem and its solution, especially if they are properly designed, for example by giving people different alternatives, the way Switzerland does. If the people of Greece don’t like the current deal with the EU, do they want the government to renegotiate, to leave the Euro, or to leave the EU entirely? Regardless of how they answer, the legitimacy problem is resolved, at least as to Greece. The people deserve to get what they want, right between the eyes.
As the reaction to the Greek referendum idea demonstrates, most European leaders will not go that far. However, they are still exposed to elections. Sarkozy has to run for re-election next year. Merkel has a few more years, but she can’t afford to lose too many state-elections. This is why the uncertainty continues, and why everyone is looking for the magic formula. Joschka Fischer’s article, that I linked to above, is an attempt to do exactly that. He’s proposing something he really doesn’t like – a European Senate – as a way of simultaneously improving the EU’s legitimacy and pushing forward with European integration. And in many ways he’s right; all it takes is some magic formula that resonates with voters that shows them that the powers that be take their concerns seriously. The only problem is that it is impossible to tell which formula will work. Probably, the answer is that it takes a formula that is both drastic enough to have substance, and that is then adopted with full commitment by a large number of influential politicians, who use their political skill to sell it to the people. Untill the politicians take such a risk, there will be no magic formula, no solution to the tension between what needs to be done and what the people want done, and no end to the uncertainty and the speculation.
Martin, thanks for this. I very much agree that further integration is going to need some serious backing by national executives, which is in fact in keeping with the pattern going back to integration’s inception (Alan Milward’s work is excellent on this).
But there is another player looming — the BVerfG — i.e., the German Federal Constitutional Court (FCC). The sort of integration advocated by Fischer et al. (Der Spiegel has a great series on this line of thinking, btw), would entail the sort of open-ended shift in normative power that the FCC has said is out of the question under the current Basic Law. This is why Merkel has focused on a “fiscal union” of a particular type, one that entails not open-ended commitments (e.g., debt mutualization) but better policing of member state budgets. This fits with the sort of “commitment mechanism” approach that the FCC has long accepted, in part because it fits nicely with understandings of legitimate delegation of power in the administrative state.
But what Fischer wants is a “magic formula” (nice phrase) that will allow integration to escape the need for ongoing democratic legitimation at the national level, in order to support a much broader, open-ended scope of normative power at the EU level. Fischer’s approach would presuppose a shift in democratic and constitutional legitimation to the EU level as well, and here I think it runs into real problems. First, referenda would be required in numerous member states, Germany included (the FCC has made that clear). And second, the issue would squarely be the displacement of national constitutional democracy by substitute forms on the EU level, a proposition about which skepticism is widespread, and not just among the Brits. To convince Europeans of that second point, my guess is that the formula would have to be “magical” indeed, more than merely the product of the “magical” thinking of Fischer, Habermas, et al.
The alternative need not be the disintegration of the EU, but rather a retreat to a level of normative power more commensurate with the scope of legitimacy that the EU actually enjoys and is likely to continue enjoying in the short and medium term. Will this disappoint many Euro-federalists? No doubt. But it is a much better strategy than the sort of legitimacy-overreaching that has pushed the Eurozone, and the broader integration project, into an existential crisis.
Incidentally, Ken, Kyle Bass of Boomerang fame recently made an appearance on the BBC’s Hardtalk that included comments relevant to your query. The key passage can be found here.
[…] an interesting discussion at the international law blog Opinio Juris with a post that asks “The Eurozone Crisis Is Also a Governance Crisis – Isn’t It?” Prof. Anderson’s post has led to an interesting exchange of comments, with contributions by […]
[…] Anderson has posted a thought-provoking article on the European crisis at Opinio Juris. Professor Anderson—not an EU specialist—argues that the crisis is fundamentally one of […]
Thanks for the wake-up call. I have noticed the awkward silence of European constitutionalists myself, and wonder where it comes from. Maybe it has something to do with the feeling that legal and institutional thought is beside the point right now, informal political agreements carrying the day.
Here’s a counter-example, though (in German):
http://foederalist.blogspot.com/2011/11/der-weg-aus-der-schuldenkrise.html?spref=fb
[…] from Opinio Juris (the comments there are very worth reading!) This was written by Guest Blogger. Posted on […]