[Francesco Montanaro is a dual PhD candidate at Bocconi University (Milan) and Pantéon-Assas University (Paris).]
Saving the Euro at any cost. This imperative drove the EU and EU Member States’ response to the sovereign debt crisis. Following an incremental pattern, they adopted a number of measures that culminated in the conclusion of the European Stability Mechanism (ESM) Treaty and in the adoption of the Outright Monetary Transactions (OMT) program. The ESM Treaty established a permanent crisis resolution mechanism – endowed with full legal personality – that provides financial assistance to Euro area Member States with particularly troubled public finances. However, Eurozone Member States that benefit from this financial assistance are subject to strict conditionality. The OMT program is a measure enacted by the European Central Bank (ECB) to restore an appropriate monetary transmission system. The program consists in the purchase of Eurozone Member State government bonds on the secondary market. Again, the implementation of such a program is conditional upon the fulfilment of the ESM adjustment plans.
These measures were challenged before the Court of Justice of the European Union (CJEU). In both cases, the Court assessed, among other issues, whether these measures violated the division of competences between the Union and the Member States set out in the EU Treaties. In this respect, it is worth remembering that Article 3 of the Treaty on the Functioning of the European Union (TFEU) stipulates that the Union has exclusive competence over monetary policy, while Member States retain the power – which is nonetheless subject to the duty of coordination under Article 121 of the TFEU – to design their economic policies. According to Article 127 of the TFEU, the European System of Central Banks –i.e. the European Central Bank and the national central banks- conducts the monetary policy of the Union with the aim of maintaining price stability. This assessment, however, is everything but straightforward, as both measures have a “hybrid” nature. On the one hand, although the ESM officially aims to provide financial assistance to Eurozone Member States, it also produces effects similar to a monetary policy measure by affecting the amount of Euros in circulation. On the other hand, the OMT program, while ensuring the correct functioning of the monetary policy transmission system, it also impacts on Member States economic policies through the imposition of macroeconomic conditionality. Faced with these issues, the Court scrutinised such measures by looking at their “declared” objectives. In Thomas Pringle v. Government of Ireland, it observed that, although the ESM may produce some indirect effect on price stability, its main purpose remains the stability of the Eurozone. Consequently, it should be considered as an economic policy measure falling within the sphere of competence of EU Member States (para 56). By the same token, in Peter Gauweiler and Others v Deutscher Bundestag, the Court found that the OMT program primarily aims at ensuring the stability of prices by pursuing the ‘singleness’ of the monetary policy and safeguarding an appropriate transmission system (paras 50-51). Therefore, this measure does not exceed ECB’s competence, even though it also foists austerity measures on Eurozone members and seeks to ensure Eurozone stability.
That being said, the Court’s formalistic approach ultimately allowed the Court to circumvent the somewhat artificial division of competences laid down in the EU Treaties. Given the “hybrid” nature of the measures at issue, spillovers are inevitable: the ESM and the OMT program ultimately pursue monetary policy as well as economic policy objectives. However necessary and unavoidable this approach may seem, it leads to a de facto modification of the EU economic and monetary governance. Notably, it might be argued that the Court conferred a sort of “super-constitutional” ranking on the Euro that in effect override division of competences set out in the Treaties.
However, contrary to what one might expect, such a de facto “super-constitutional” ranking could in the long run undermine the Euro and the EU. As noted above, these emergency measures are combined with adjustment plans that may remove important economic policy choices from Member States’ competence. Although officially involved in their negotiation, Member States to which these plans will apply generally have a weak bargaining position. Thus, they are likely to accept the requests of their counterparties, namely the ECB, the Commission, and the International Monetary Fund. Yet, this might elicit their resistance in the long run. For one thing, Member States’ governments might decide to delay or even discontinue the implementation of the tough adjustment plans attached to the ESM and the OMT program thereby putting at risk their Eurozone and EU membership. The recent Greek referendum on the “bail-out agreement” with creditors represented an unprecedented “act of resistance”, even though Greek government accepted very tough bailout conditions somehow betraying polls verdict a week after the referendum. This referendum constitutes nonetheless an important precedent that might lead other EU Member States to resort to popular vote when facing hard loan conditions. And it cannot be excluded that more powerful and sizeable Member States would manage to withstand EU institutions and creditors’ pressure.
Furthermore, this rather extensive interpretation of the EU Treaties might give rise to the opposition of national judges. In this regard, it is worth mentioning that, in Gauweiler and Others v Deutscher Bundestag, the German federal constitutional in its request for a preliminary ruling made clear that it would have applied the CJEU’s decision only if the latter had met a number of conditions. As is evident, this approach might result in the refusal to apply the preliminary ruling of the Luxemburg Court.
Altogether, these forms of Member States’ resistance not only could bring about a conflict between the EU legal system and the national ones, but also jeopardise the existence of the single currency and, ultimately, that of the European construction. In other words, the de facto “super-constitutional” ranking of the Euro may turn to be its main weakness. Consequently, far from representing a long-term solution, it should prompt Member States to amend the EU Treaties.
Two equally difficult options lie ahead: either a deep overhaul of the EU economic and monetary governance or an orderly “dismantlement” of the single currency. It is time for Europe to take a clear-cut decision in order to solve the still on-going sovereign debt crisis whilst preserving the balance of powers in the Union and ensuring the democratic legitimacy of its decision-making process.