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The Existential Crisis of the European Union

Published online by Cambridge University Press:  06 March 2019


In this paper, I put forward four theses and one coda. The theses can be summarized as follows:

Thesis one (section B): Five crises, not one. The European Union is not undergoing one crisis, but is instead suffering several simultaneous, interrelated, and intertwined crises—crises, which are global, not exclusively European. Put differently, the subprime crisis turned the economic, financial, fiscal, macroeconomic, and political structure weaknesses of the Western socio-economic order into at least five major crises.

Special Issue - Regeneration Europe
Copyright © 2013 by German Law Journal GbR 


1 Jose Manuel Durao Barroso, President of the European Commission, (Dec. 9, 2012), available at Barroso seems to have become a glamorous intellectual watcher, as he has referred to this trend repeatedly. Either the President or his ghost writers used it at least in three previous occasions: Jose Manuel Durao Barroso, President of the European Commission, Speech Before the European Parliament (Feb. 2010), available at; Jose Manuel Durao Barroso, President of the European Commission, Speech Before the European Parliament (Oct. 2010), available at; Jose Manuel Durao Barroso, President of the European Commission, Speech Before the European Parliament (March 2011), available at ( Scholar

2 See Robinson, Joan, 2 Collected Econ. Papers 1, 17 (1980). “The purpose of studying economics is not to acquire a set of ready made answers to economic questions, but to avoid being deceived by economists.” Id. Google Scholar

3 Gauchet, Marcel, La Démocratie D'une Crise à L'Autre 42 (2007).Google Scholar

4 By the deep constitution of the European Union I mean the collective of national constitutions (usually referred to in the Community law jargon as “the constitutional law common to the Member States,” or the “common constitutional traditions”). This collective is reflective of the underlying social and economic fundamental norms that underpin the regulatory ideal of the Social and Democratic Rechtsstaat. Google Scholar

5 On non-decisions, see generally Strange, Susan, Casino Capitalism 29–59 (1986). See also, Susan Strange, States and Markets (2d ed. 1988).Google Scholar

6 See Eichengreen, Barry, The European Economy since 1945 (2008).Google Scholar

7 The only exceptions to this rule have been countries that engaged into the wildest form of financial and fiscal excesses. We know now—and we should have known all along—that doping growth through an inflow of foreign capital is highly likely to lead to financial bubbles and later misery.Google Scholar

8 See Crouch, Colin, The Strange Non-Death of Neo-Liberalism (2011); Wolfgang Streeck, The Crises of Democratic Capitalism, 71 New Left Rev. 1, 5–29 (2011).Google Scholar

9 Eichengreen, , supra note 6, at 16.Google Scholar

10 Heitger, Bernard, The Scope of Government and Its Impact on Economic Growth in OECD Countries (Kiehl Inst. for World Econ., Working Paper No. 1034, 2001), available at Scholar

11 Tanzi, Vito & Schuknecht, Ludger, Public Expenditure in the 20th Century 34 (2000).Google Scholar

12 Id. at 38.Google Scholar

13 Id. at 41.Google Scholar

14 See generally Block, Fred L., The Origins of International Economic Disorder (1977); Robert Lesson, Ideology and International Cooperation: The Decline and Fall of Bretton Woods (2003); Robert Brenner, The Economics of Global Turbulence (2006).Google Scholar

15 See generally Strange, supra note 5; See also Susan Strange, Mad Money (1998).Google Scholar

16 This point was presciently made by Strange. See generally Strange, supra note 5. More recently, see generally Cassidy, John, How Markets Fail (2010); Nicholas Dunbar, The Devil's Derivatives (2011); Anat Admati & Martin Hellwigg, The Bankers’ New Clothes (2013).Google Scholar

17 If one is allowed to use the fashionable Euro-jargon, risk assessment ceased being regarded as a matter of discretion based on knowledge and experience, and began to be regarded as a matter of the mechanic application of the rules written into the economic models. See generally Dunbar, supra note 16; Mary Mellor, The Future of Money (2010); Scott Patterson, The Quants: How a Small Band of Math Wizards Took Over Wall Street and Nearly Destroyed It (2010); Michael Lewis, The Big Short (2010); Michael Lewis, Boomerang (2011); Emanuel Derban, Models Behaving Badly (2011); Gillian Tett, Fool's Gold (2009).Google Scholar

18 See generally Mellor, supra note 17.Google Scholar

19 See generally Michael Hudson, The Bubble and Beyond (2012).Google Scholar

20 The financial crisis of 2006 and 2007 has revealed the extent to which these premises were simply false. But because financialization had become pervasive and enduring in time, it had basically turned the financial sector into a deadweight loss for the economy as a whole. That was true throughout the period, but was covered up by the appearance of buoyancy in financial activities and investments.Google Scholar

21 For an analysis based on a historically sophisticated and nuanced understanding of the role of finance in the economy, see generally Amato, Massimo & Fantacci, Luca, The End of Finance (2012), partially followed by Amato, Massimo & Fantacci, Luca, Come salvare il mercato dal capitalismo: Idee per un'altra finanza (2012).Google Scholar

22 Despite the fact that not only its long-term effects, but also its short-term effects, were deleterious. It suffices to consider the implications that asset inflation has had in the geographical configuration of cities—in particular, the radicalization of the processes of spatial segregation.Google Scholar

23 See generally Block, , supra note 14; Eric Helleiner, States and the Reemergence of Global Finance (1994).Google Scholar

24 The “recovery” of international financial markets that rendered organizationally possible the financialization of the economy and the financial crisis created the conditions for undermining the cognitive basis of tax states. A development seen with calculated ambivalence by the Commission since the 1960s, as the Euromarkets were at the same time unregulated, and thus a challenge to the European Communities as a polity in the making, and powerful forces of integration of financial markets in Europe, breakers of the national barriers to the creation of “deep and liquid” financial markets operating across borders.Google Scholar

25 Tax havens were never external challenges or threats to the European, American, and Japanese financial system, but the creatures of the European, American, and Japanese financial systems. See generally Ronen Palan et al., Tax Havens: How Globalisation Really Works (2010); Alain Deneault, Offshore Paradis Fiscaux et Souveranité Criminelle (2010); Nicholas Shaxson, Treasure Islands (2011); Richard Brooks, The Great Tax Robbery (2013); Richard Murphy, Over Here and Under Taxed (2013)Google Scholar

26 See e.g., S⊘rensen, Peter Birch, From the Global Income Tax to the Dual Income Tax: Recent Reforms in the Nordic Countries (Econ. Policy Research Unit, Working Paper No. 1993 - 7), available at On the recent German debate, see generally German Council of Economic Experts, Dual Income Tax (2008).Google Scholar

27 See generally Tax Amnesties (Jacques Malherbe ed., 2011).Google Scholar

28 On light touch financial regulation, see Krippner, Greta R. Capitalizing on Crisis: The Political Origins of the Rise of Finance, Cambridge: Massachussets, Harvard University Press, 2011. The 2009 review of the British Financial Services Authority (the so-called Turner Review, available at is a scathing criticism of that approach to financial regulation. The geographical implications of light touch regulation, fundamental from a tax perspective, are considered by Wójcik, Dariusz, ‘The Dark Side of NY-LON: Financial Centres and the Global Financial Crisis', 50 (2013) Urban Studies, forthcoming (advanced online publication, doi 10.1177/0042098012474513). The very light taxation of the so-called “non domiciled” persons (the “non-doms”) is a complementary element in the British strategy of maximisation of tax revenue through the attraction of financial activities into London. The tax treatment of non-doms is heavily criticized in the Christian Aid report Death and Taxes: The True Toll of Tax Dodging, available at Google Scholar

29 See generally Dijk, Michiel van, Francis Weyzig & Richard Murphy, The Netherlands: A Tax Haven Amsterdam (2007). See also, the reports on the different EU Member States in the Financial Secrecy Index, Financial Secrecy Index, Tax Justice Network (2009), On the relationship between tax evasion and financial deregulation, see generally Jean de Maillard, L'arnaque: La finance au-dessus des lois et des règles (2011). In the run up to the third phase of monetary union, the European Commission wrote different reports and put forward several initiatives on harmful tax competition, see Communication From the Commission to the Council Towards Tax Co-Ordination in the European Union: A Package to Handle Harmful Tax Competition, COM (1997) 495 final (Oct. 1, 1997), available at: The reports, which were far from radical, were shelved. On the literature, see generally Bratton, William W. & McCahery, Joseph A., Tax Coordination and Tax Competition in the European Union: Evaluating the Code of Conduct on Business Taxation 28 Common Mkt. L. Rev. 677 (2001); Kiekebeld, Ben J., Harmful Tax Competition in the European Union: Code of Conduct, Countermeasures and EU Law (2004). On tax competition in the EU, see generally Pinto, Carlo, Tax Competition in the European Union (2003).Google Scholar

30 On Ireland, see generally McCabe, Conor, The Sins of the Father: Tracing the Decisions that Shaped the Irish Economy (2011). On Spain, see José Manuel Naredo and Antonio Montiel Álvarez, El modelo inmobiliario español, (2011)Google Scholar

31 The third strategy is clearly the less resilient, given not only its immediate sensitivity to an economic downturn, but also the fact that it is associated with the fostering of a particularly unsustainable economic model. The resilience of the first strategy clearly depends on the residual tax “ethics” of taxpayers. Of the two “exploitative” strategies, the one based on fostering a national tax evasion industry is probably the more robust, as it less prone to cyclical downturns and it does not entail massive contingent liabilities from the financial sector when and if it goes into trouble.Google Scholar

32 On the relevance of non-decisions, see generally Strange, supra note 5. On the structural economic background of the demise of Bretton Woods, see generally Brenner, supra note 14.Google Scholar

33 See generally Fritz Scharpf, Crises and Choice in European Social-Democracy (1991).Google Scholar

34 See generally Jeremy Leaman, The Bundesbank Myth (2001).Google Scholar

35 This was indeed a central argument in favor of moving from European Monetary System (EMS) to European Monetary Union (EMU):Google Scholar

“Unless new items are added to the agenda, the Community will be seeking to achieve the impossible task of reconciling (1) free trade, (2) full capital mobility, (3) fixed (or at any rate managed) exchange rates and (4) national autonomy in the conduct of monetary policy. These four elements form what I call an ‘inconsistent quartet': economic theory and historical experience have repeatedly shown that these four elements cannot coexist, and that at least one has to give way.”

Schioppa, Tomaso Padoa, The European Monetary System: A Long Term View, in The European Monetary System 369, 373 (Francesco Giavazzi, Stefano Miccosi & Marcus Miller eds., 1988). On the role of political decisions in the unleashing of finance, see generally Krippner, , supra note 28. On the European lead on liberalizing capital movements, see Abdelal, Rawi, Writing the Rules of Global Finance: France, Europe, and Capital Liberalization, 13 Rev. of Int'l Pol. Econ. 1, 1 (2006); Abdelal, Rawi, Capital Rules (2009).Google Scholar

36 On neoliberalism as a pragmatic political movement, see generally Harvey, David, A Brief History of Neoliberalism (2007); Harvey, David, The Enigma of Capital and the Crisis of Capitalism (2010); Dumenil, Gerard & Levy, Dominique, Capital Resurgent (2004); Panitch, Leo & Gindin, Sam, The Making of Global Capitalism (2012).Google Scholar

37 For a general narrative of the catalytic event, see generally Lybecj, Johan A., A Global History of the Financial Crash of 2007-2010 (2011).Google Scholar

38 See e.g., Trichet, Jean Claude, Address at the Ceremony to Mark the 10th Anniversary of the European Central Bank and the European System of Central Banks (June 2, 2008), available at (“The euro has been a remarkable success.”). Trichet was explicit in rejecting self-complacency, but in the list of the challenges facing the Union one finds none of the main challenges which it has been confronted since. See also Jean Claude Trichet, President of the European Central Bank, The euro@10: Achievements and Responsibilities, Remarks at the Ceremony of the European Parliament to Mark the 10th Anniversary of the Euro (13 January 2009), available at (“In recent months we have seen another benefit of the euro: the financial crisis is demonstrating that in turbulent financial waters it is better to be on a large, solid and steady ship rather than on a small vessel.”).Google Scholar

Would Europe have been able to act as swiftly, decisively and coherently if we did not have the single currency uniting us? Would we have been able to protect many separate national currencies from the fallout of the financial crisis? I believe that we can be proud of the reaction of European authorities, parliaments, governments and central banks. Together we have shown that Europe is capable of taking [sic] decisions, even in the most difficult circumstances.


39 On the “No Lehmann, no crisis” frame of mind in late 2008 and early 2009, see generally Neill Ferguson, The Lessons: A Lehman Deal Would Not Have Saved Us, Financial Times, Sept. 14, 2009, available at While Ferguson plays down the relevance of the non rescue of Lehmann, he does so against the current, describing in detail mainstream opinion on the matter. Let me only add that while it seems to me that Ferguson has a point, the reasons why he finds the failed rescue of Lehmann a non-decisive moment are very different from mine.Google Scholar

40 See generally International Monetary Fund, Global Financial Stability Report: The Quest for Lasting Stability (Apr. 2012), available at European banks have deleveraged considerably since 2007, but even after that they have barely reached the leverage levels of US banks in 2007. It goes without saying that such relative levels are not unrelated to the different role banks play in financial intermediation in the U.S. and in Europe. See TABLE 7 for the assets to GPD ratios, which are a good indicator of the problem.Google Scholar

41 For a Hayekian view, see generally Beckworth, David, Boom and Bust Banking (2012). For a (heterodox) Marxist view, see generally Foster, John Bellamy & Magdoff, Fred, The Great Financial Crisis (2009); Foster, John Bellamy & McChesney, Robert, The Endless Crisis (2012).Google Scholar

42 The IMF estimated the losses resulting from the collapse of the subprime market in the U.S. at 500 billion dollars, which is a relatively small amount by reference to the size of the global financial market International Monetary Fund, Global Financial Stability Report: The Quest for Lasting Stability (Apr. 2012), available at Admati and Hellwig point out that the bubble collapse caused losses six times that size (for a value of 3 trillion dollars). See Anat dmati & Martin Hellwig, The Bankers’ New Clothes: What's Wrong with Banking and What to Do About It 60–78 (2013).Google Scholar

43 The 2007 financial crisis ignited a series of crises that were far from limited to the European Union. Clearly the rest of the western world was also deeply affected. Areas of the world economy which seem to have been less affected, and even to have recovered from the 2008–2009 relapse by now, were, however, affected in the past by other financial crises closely related to the present one, and may indeed be affected in the future by new replicas of the underlying crises. Indeed, what was really shocking about the 2007–2008 crisis was not the pattern or sequence of the crisis (to a large extent a replay of previous financial crisis, with recent precedents in Russia, Asia, or South America) but that it affected the wealthiest core of the world economy.Google Scholar

44 The quartet of economic freedoms enshrined in the Treaties of the European Communities are the free movement of goods, the free movement of workers (now redefined as free movement of persons), the freedom of establishment and the free movement of capital. In line with the original design of Bretton Woods, free movement of goods was given a specific and more reinforced status (trade in goods was the key element in the opening up of national economies to other European economic actors), agricultural products were given a rather different status (under the Common Agricultural Policy, under which free movement followed considerable state intervention in the business and conditions of farming), and free movement of capitals was essentially limited to free movement of payment and for all other purposes conditioned in its actual realization to the taking of further integrative decisions. It was only in the 1980s that the Court of Justice worked out a rather similar legal framework for all economic freedoms. Free movement of capital was given full status as an economic freedom by a 1988 Directive. Council Directive 88/361, art. 1, 1988 O.J. (L 178) 5–8 (EC). As part of the package deal agreed to in Maastricht in 1992 towards the achievement of monetary union, free movement of capital was extended to and from third countries (in the implicit understanding that this will enhance the disciplinary potential of international financial markets over national fiscal policies). Undistorted competition completed the original economic constitution underpinning the Treaties with a view to curb the concentration of private power, which could distort the allocative and cognitive rules of markets. For a classical normative understanding, see Robbins, Lionel, Economic Aspects of Federation, in The European Rescue of the European Union 429, 429–445 (Edoardo Chiti, Agustín José Menendez & Pedro Teixeira eds., 2011).Google Scholar

45 See generally Strange, supra note 5.Google Scholar

46 On account of its lack of actual influence—as is generally thought to be the case of the Arab League, the Nordic Council, or the Council of Europe—or on account of the Union being a longa manus of some other polity or powerful actor—a smokescreen behind which the Member States hid themselves—or the Trojan Horse of some or another hegemonic design, and many other silly conspiracy theories.Google Scholar

47 See, e,g., Bendit, Daniel Cohn & Verhofstadt, Guy, For Europe (2012).Google Scholar

48 European institutions were largely very optimistic in the early days of the crisis, emphasizing the “protection” that the EMU extended to the Union:Google Scholar

EMU has improved the euro area's resilience against adverse external developments. In its first decade the euro area has been exposed to a series of external shocks associated with the global business cycle, the most significant being the bursting of the dotcom bubble and subsequent downturn in the US in the early 2000s. Nevertheless, the ensuing slowdown in the euro area at the beginning of the decade was considerably more muted than in comparable episodes prior to the adoption of the single currency. Today once again, the euro area appears protected from the worst of the present global financial turbulence. The anchoring of inflation expectations has contributed to this improved resilience, as have the reforms carried out under the Lisbon Strategy for Growth and Jobs and the renewed budgetary discipline since the SGP reform.

European Commission, Economic and Financial Affairs, EMU at Ten: Successes and Challenges After Ten Years of Economic and Monetary Union 5 (2008), available at In early 2009, the President of the ECB was still depicting the actions of the ECB as a matter of avoiding “contagion,” referring to the USA in a polite fashion as “advanced economies” (which probably comprised the United Kingdom). See Jean Claude Trichet, Roundtable at the International Colloquium: Nouveau Monde, Nouveau Capitalisme, Feb. 9, 2009, available at The “American” character of the crisis also underlined Sarkozy's call to ‘refound capitalism.'” See Nicolas Sarkozy, Statement to the Press, Le Monde, Sept. 25, 2008, available at

49 We could certainly move from the role of the European Union in shaping the structural weaknesses of the socio-economic order into the forces shaping the choice of policies within the European Union, but that would imply shifting the analysis from one level to the other, a movement that can be applied to all institutional actors (the Member States of the European Union, the United States or Japan, or for that matter, the IMF or Goldman Sachs) and would not result in any special discharge of responsibility in the case of the European Union.Google Scholar

50 The analysis of the causes of the crisis, even when considering the structural failures or shortcomings of the constitutional framework of the European Union, especially of the EMU, is always made part of an overall argument that refers the shortcomings to the incompleteness of the process of integration. This is an immutable constant in all official documents. For further reading on this topic, see one of the first analyses of the crisis, Presidency Conclusions, Brussels European Council (2008); A Blueprint for a Deep and Genuine Economic and Monetary Union, COM (2012) 777 final/2 (Nov. 30, 2012). One is left wondering how to characterize the existing EMU if we need a deep and genuine one. Perhaps superficial and fake?Google Scholar

51 This seems to be, for example, the underlying analysis in Ulrich Beck, A German Europe (2013). See generally Jürgen Habermas, The Crisis of the European Union (2012). Habermas seems to have abandoned that understanding and favors a more nuanced approach, in which more Europe could be catastrophic if it is not the right kind of Europe. But see Jürgen Habermas, Address in Leuven (Apr. 25, 2013), available at, where not only a more benevolent assessment of the actions and policies of Council and Commission comes to the fore (technocratic bridging) and where the topos of incompleteness comes back.Google Scholar

52 If the solution to the crises is completing and deepening integration, the implicit premise is that had the European Union been more complete and deeply integrated, it would have been more resilient to the crises. But why should there be a direct relationship between integration and resilience? The original Treaties contained numerous safeguards, exit clauses, and emergency provisions. Many of which were eliminated in the name of further and deeper integration. This was clearly the case with the provisions regarding balance of payments crisis (see especially Article 108 in the original text of the Treaty Establishing the European Economic Community) Treaty Establishing the European Economic Community, Mar. 25, 1957, 198 U.N.T.S. 3, art. 108 [hereinafter EEC Treaty]. In the absence of economic convergence and political union, resilience is not increased, rather decreased, by eliminating flexibility.Google Scholar

53 On the general background, see Somek, Alexander, Individualism (2008); Alexander Somek, Engineering Equality (2011).Google Scholar

54 As is very well known, the phrase “ever closer union,” mentioned in the Preamble to the Treaty establishing the European Economic Community (“determined to lay the foundations of an ever closer union among the peoples of Europe”), has become established as a catchphrase with which reference is usually made to the need of always progressing in the direction of more Europe. Treaty Establishing the European Economic Community, Mar. 25, 1957, 198 U.N.T.S. 3, preamble [hereinafter EEC Treaty]. It is quite obvious, however, that, from a constitutional perspective, quantity has to take the back seat of quality.Google Scholar

55 See the anthology of ordo-liberalism thought in Germany's Social Market Economy: Origins and Evolution (Alan Peacock & Hans Willgerodt eds., 1989). See also Nicholls, A.J., Freedom with Responsibility (1994); Michel Foucault, Naissance de la Biopolitique (2004),especially the lectures of January 31st, February 7th, 14th and 21th, and of March 7th, all in 1979, and reproduced in pages 77 to 220; Mark Blyth, Austerity, Oxford: Oxford University Press, 2013, especially chapter 5. For the lack of attention in actual policy to the competition plank of ordoliberalism, see Oswalt-Eucken, Irene, Freedom and Economic Power: Neglected Aspects of Walter Eucken's Work, 21 J. Econ. Studies, 38, 38–45 (1994).Google Scholar

56 See generally Erhard, Ludwig, Germany's Comeback in the World Market (1954).Google Scholar

57 Probably the best theoretical account of this conception is to be found in Alan Milward, The European Rescue of the Nation-State (1992) and Politics and Economics in the European Union (2005).Google Scholar

58 See Minsky, Hyman, Keynes (2008); Scott Newton, J. M. Keynes and the Postwar International Economic Order 4 History Compass 308, 308–313 (2006); Benn Steil, The Battle of Bretton Woods (2013), which is however a trifle exceedingly focused on the pro-Soviet sympathies of White. A general descriptive introduction can be found in Allan H. Meltzer, Keynes on Monetary Reform and International Economic Order, in Monetary Economics in the 1980s (F. Capie & G. Wood eds., 1989). The locus classicus on the characterization of the postwar order as embedded liberalism can be found in John G. Ruggie, International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic System, 36 Int'l Org. 379, 379–415 (1982).Google Scholar

59 See EEC Treaty.Google Scholar

60 See EEC Treaty arts. 38.4, 39 (noting that free movement in agricultural products will be rendered possible by a common agricultural policy achieving a comprehensive set of objectives, shaping agricultural production according to certain socio-economic values).Google Scholar

61 See EEC Treaty art. 67, para. 1.Google Scholar

62 See id. at 67.2, para. 2.Google Scholar

63 See Ernest j. Haas, The Uniting of Europe: Political, Social, , and Economic Forces, 1950-1957 60–63 (1958).Google Scholar

64 See High Auth. of the Eur. Coal and Steel Cmty. [HAECSC], Rapport sur les problems poses par les taxes sur le chiffre d'affaires dans le marché commun établi par la commission d'experts institituée para la Haute Autorité [Report on the Problems Raised by the Different Turnover Tax Systems Applied Within the Common Market: Report Prepared by the Committee of Experts Set up under Order No. 1–53 of the High Authority], HAECSC Doc. 1057–53 (Mar. 5, 1953), usually referred to as the Tinbergen Report. See also Commission Decision No. 30/1953, art. 5, 1953 J.O. (C 109) (“[I]t shall be a prohibited practice within the meaning of Article 60 (1) of the Treaty to include in the price charged to the purchaser the amount of any taxes or charges in respect of which the seller is entitled to exemption or drawback.”).Google Scholar

65 See Directive 67/227/EEC, of the European Economic Community and of the Council of 11 April 1967 on the Harmonization of Legislation of Member States Concerning Turnover Taxes, 1967 O.J. (L 71) 1301; Directive 77/388/EEC, of the European Economic Community and of the Sixth Council of 17 May 1977 on the Harmonization of the Laws of the Member States Relating to Turnover Taxes—Common System of Value Added Tax: Uniform Basis of Assessment, 1977 O.J. (L 145) 1.Google Scholar

66 To be precise, the option for place of consumption (destination) as the connecting tax factor was supposed to be a “temporary” arrangement, so that in due course VAT would be collected at “source” (see the first two directives of 1967, supra, fn 60). The “temporary” arrangement has lasted for decades, and there is no good reason to think that it will be concluded soon. Indeed, the European Commission has now become favourable to taxation at destination for reasons of political expediency. See Communication on the future of VAT, COM (2011) 851 final, of 6 December 2011, available at: Google Scholar

67 The fashionable expression made popular by the Delors Commission with the 1985 White Paper on the completion of the internal market. See Commission White Paper on Completing the Market, COM (1985) 310 final (June 14, 1985) [hereinafter White Paper on Completing the Market].Google Scholar

68 Indeed, the Treaty establishing the European Economic Community was only specific on the four stages leading to the common market, or perhaps to be more precise, to the opening of national markets to economic agents of all Member States‥ Treaty Establishing the European Economic Community, Mar. 25, 1957, 198 U.N.T.S. 3,[hereinafter EEC Treaty]. On what a fully internal market would require, and how it was to be achieved, the founding Treaties were silent, if one leaves aside general open-ended principles and vague aspirations. See Treaty Establishing the European Economic Community, Mar. 25 1957, 298 U.N.T.S. 3.Google Scholar

69 Under such circumstances, it was only natural that, for example, personal taxes remained the exclusive competence of Member States, even if it was clear from the very first day that they should be Europeanized at some point if the aspiration of creating a single market was to be realized. In line with the general expectations concerning the political road to the internal market, it was assumed that there would be an actual transfer of effective taxing powers to the supranational level, preserving the capacity of public institutions—both European and national—of making use of personal income tax to raise most public revenue, redistribute income within the political community, and macro- and micro-manage the economy. In the meantime, economic integration should be pursued in such a way as to preserve the capacity of each nation-state to regulate, stabilize and correct each national economy. See Kurt Lipstein, The Law of the European Economic Community (1974), for the legal articulation of this understanding of the common market project.Google Scholar

70 See generally Scharpf, Fritz W., The Joint Decision Trap: Lessons from German Federalism and European Integration, 66 Pub. Admin. 239 (1988), for a key part of the joint decision trap.Google Scholar

71 See Leaman, , supra note 34; see also Scharpf, Fritz W., Crisis and Choice in European Social Democracy (Ruth Crowley & Fred Thompson, trans., 1991).Google Scholar

72 See generally Grin, Gilles, The Battle of the Single European Market: Achievements and Economic Thought 1985-2000 (2003).Google Scholar

73 See White Paper on Completing the Market, supra note 67; see also Communication from the Commission Concerning the Consequences of the Judgment Given by the Court of Justice on 20 February 1979 in case 120/78 ('Cassis de Dijon'), 1980 O.J. (C 256) 2, 3.Google Scholar

75 See, e.g., Pelkmans, Jacques, European integration: Methods and Economic Analysis 25 (3d ed. 2006).Google Scholar

76 This forms the core of the spillover mechanism, described by Haas, supra note 63. The argument of the spillover is the background of the key Neumark report of 1962. See generally Rapport du Comité Fiscal et Financier = Report of the Fiscal and Financial Committee, Archive of European Integration (1962), available at Scholar

77 See generally Delors, Jacques, Mémoires (2004); Rawi Abdelal, Capital Rules: The Construction of Global Finance (2007).Google Scholar

78 Case 120/78, Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein, 1979 E.C.R. 649 [hereinafter Cassis de Dujon case].Google Scholar

79 See id. ¶ 15.Google Scholar

80 See id. ¶ 13, 14.Google Scholar

81 Paradoxically, , the European Court of Justice, not long after, explicitly rendered the foundational role of the said common constitutional law. The transformation of economic freedoms was given constitutional salience by the fact that the legal services of the Council, Commission, and European Parliament (regarding the law-making process) and the European Court of Justice and national European courts (regarding the adjudication stage) have come to accept that economic freedoms are the fundamental yardstick of European constitutionality; in other words, these freedoms are the substantive values according to which the validity of all European norms (derivative supranational norms and all national norms, including constitutional norms) are to be assessed. It is true that fundamental rights are also said to be a key part of the substantive constitutional law of the European Union, and that should be expected to make them part of the European canon of constitutionality. However, the peculiar synthetic constitutional path followed by the Union accounts for the fact that this is not the case. Fundamental rights were not originally included in the Treaties, an omission that has justified the case law of the Court that limits their salience to the review of the European constitutionality of supranational norms and decisions. That implies that they are part of the constitutional yardstick only in these cases. In such a way the ECJ seems to avoid claiming to be the ultimate guardian of constitutional values, as national courts can keep playing that role regarding fundamental rights. Such an outright claim would be hard to sustain given the lesser democratic legitimacy of European constitutional law vis-à-vis national law. But even if less obvious, the claim to guardianship of the economic freedoms—and of the economic freedoms and not of fundamental rights in the same way—is actually even more problematic when juxtaposed to the claim of total primacy of Union law.Google Scholar

82 See Council Directive 88/361/EEC, 1988 O.J. (L 178) 5.Google Scholar

83 See EEC Treaty, art. 56, ¶ 1 (establishing the European Economic Community) as amended by the Treaty of Maastricht, “[w]ithin the framework of the provisions set out in [that] Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.” Treaty of Maastricht, Feb, 7, 1992, 1992 O.J. (C 191). See also EEC Treaty art. 56., ¶ 2 (“[A]ll restrictions on payments between Member States and between Member States and third countries shall be prohibited.”).Google Scholar

84 See Case C-76/90, Säger v. Dennemeyer, & Co. Ltd, 2008 E.C.R. I-4221; Case C-55/94, Gebhard v. Consiglio dell'Ordine degli Avvocati e Procuratori di Milano, 1995 E.C.R. I-4165; Case C-415/93, Union Royale Belge des Société de Football Association ASBL v. Bosman, 1995 E.C.R. I-4921. See Case C-163/94, Criminal Proceedings Against Sanz de Lera and Others, 1995 E.C.R. I-4821 (providing an example after the entry into force of Directive 88/361, supra note 82).Google Scholar

85 See Case C-438/05, Intl. Transp. Workers’ Fed'n v. Viking Line ABP, 2007 E.C.R. I-10779; Case C-341/05, Laval un Partneri Ltd. v. Byggnadsarbetareförbundet, 2007 E.C.R. I-11767; see also Case C-346/06, Rüffert v. Niedersachsen, 2008 E.C.R. I-1989; Case C-319/06, Comm'n of the Eur. Comty. v. Luxembourg, 2008 E.C.R. I-4323.Google Scholar

86 See generally Nicol, Dany, The Constitutional Protection of Capitalism (2010).Google Scholar

87 On the structural deficit, see generally Fossum, John Erik & Agustín José Menéndez, The Constitution's Gift: A Constitutional Theory for a Democratic European Union 222ff (2011).Google Scholar

88 See generally Bordo, Michael D., The Bretton Woods International Monetary System: An Historical Overview, in A Retrospective on the Bretton Woods System 3, 3–108 (Michael D. Bordo & Barry Eichengreen eds., 1993); Dani Rodrik, The Globalization Paradox: Democracy and the Future of the World Economy (2011).Google Scholar

89 Simultaneously, , the reserve role of the US dollar was bound to be questioned by the very success of the dollar. The more dollars that were kept in non-US hands, the less credible the US gold convertibility pledge would become. That lack of credibility out of success was already nurturing currency instability in the mid-1960s. There was a clear consciousness of the limits of Bretton Woods at the European Commission. See Memorandum of the Commission on the Action Programme for the Community for the Second Stage, at 11, ¶ 128, COM (1962) 300 final (Oct. 24, 1962).Google Scholar

But monetary policy is of vital importance to the Common Market from another point of view. From the end of the transition period on, if not even sooner economic union will involve fixed rates of exchange between Member States with very narrow limits on the variations allowed. Any major modification would so much upset the trade of countries no longer protected by any customs barrier, and, because of the guaranteed Community intervention price for grain and other basic agricultural products, would cause such sudden changes in prices of farm products and therefore in farm incomes also, that the Common Market itself could be imperiled.

Id. See also Council Decision 64/300/EEC, On Cooperation Between the Central Banks of the Member States of the European Economic Community, 1964 O.J. (77) 1206; Council Decision 64/301/EEC, On Cooperation Between the Member States in the Field of International Monetary Relations, 1964 O.J. (77) 1207; Declaration 64/306/EEC, of the Representatives of the Governments of the Member States of the European Economic Community, Meeting within the Council of 8 May 1964 on the Prior Consultations Between Member States in the Event of Changes in the Exchange-Rate Parities of Their Currencies, 1964 O.J. (78) 1226. But see Ivo Maes, Economic Thought at the European Commission and the Creation of EMU (1957-1991) (Dipartimento de Economia, La Sapienza, Working Paper No. 2, 2009) available at

90 See generally Eichengreen, Barry, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (2011).Google Scholar

91 See generally Saccomanni, Fabrizio, Managing International Financial Instability: National Tamers Versus Global Tigers (2008).Google Scholar

92 See generally André Szász, The Road to European Monetary Union (1999); Stefan Collignon, Monetary Stability in Europe (2002); David Marsh, The Euro: The Battle for the New Global Currency (2009, 2nd edition 2011).Google Scholar

93 German unification unleashed these two destabilizing forces some months after the signature of the Maastricht Treaty and during its convoluted ratification process. When the massive public expenditure resulting from the specific way in which reunification was managed overheated the German economy, the Bundesbank raised its interest rates and forced the rest of the States Members of the ESM to adopt deflationary policies unsuited to their economies. The liberalization of capital movements implemented in 1992 as part of both the single market completion project and as a preparatory step for monetary union facilitated speculative flows that revealed the structural limits of the ESM.Google Scholar

94 See Marsh, , supra note 92.Google Scholar

96 See Sparve, Robert, Central Bank Independence Under European Union and other International Standards, in European Central Banks: Legal Aspects of the European System of Central Banks, 271 (Liber Amicorum & Paolo Zamoni Garavelli eds., 2005).Google Scholar

97 See generally Smaghi, Lorenzo Bini, Il Paradosso dell'Euro: Luci e Ombre Dieci Anni Dopo (2010) (providing an outstanding rationalization of rigeur in fiscal policy).Google Scholar

98 Indeed, what the French-German episode of the 2000s revealed was not the lack of willingness of the big countries to play by the rules, but rather the very nature of the said rules.Google Scholar

99 See Council Directive 88/361/EEC, 1988 O.J. (L 178) 5. Cf. Sideek Mohamed, European Community Law on the Free Movement of Capital and EMU, Dordrecht: Martinus Nijhoff, 1999, pp. 240ffGoogle Scholar

100 Ståhl, Kristina, ‘Free movement of capital between Member States and third countries', 13 (2004) EC Tax Review, pp. 4756, at p. 52 and Hindelang, Steffen, Free Movement of Capital and Foreign Direct Investment, Oxford: Oxford University Press, 2009, p. 22. On the gritty-nitty of the negotiations, see Kenneth Dyson and Keith Featherstone, The Road to Maastricht. Negotiating Economic and Monetary Union, Oxford: Oxford University Press, 1999; Mazzucelli, Colette, France and Germany at Maastricht. Politics and Negotiations to create the European Union, New York, Garland Publishing, 1997, chapter IV.Google Scholar

101 Germany had also been the odd state out, having liberalized outgoing capital movements since the foundation of the Federal Republic. Incoming capital movements were, however, subject to regulation, and indeed flows of hot money were periodically discouraged in order to avoid their having an inflationary impact.Google Scholar

102 eLibrary Data, Int'l Monetary Fund, available at (last visited May 13, 2013).Google Scholar

105 According to the World Bank, the value of German exports was 50% of the GDP in 2010 (according to the IMF, the value was 48% in 2007, 42% in 2008, and 47% in 2009). See Exports of Goods and Services (% of GDP), The World Bank, (last visited May 13, 2013). Imports were at 45% in 2010 (42% in 2007, 37% in 2008, 41% in 2009). Id. Google Scholar

106 Bagnai, Alberto, Il Tramonto dell'euro, Reggio Emilia: Imprimatur, 2012 makes the point abundantly clear, and places it in the historical context of centre/periphery relations in financial terms (see especially pp. 134–64) Bagnai, who is a developmental economist (as Albert O. Hirschmann and Ha-Joo Chang, by the way) applies Frenkel and Rapetti's theoretical framework on financial crisis in developing countries to the core-periphery relationship within EMU. See Roberto Frenkel and Martin Rapetti, ‘A developing country view of the current global crisis: what should not be forgotten and what should be done, 33 (2009) Cambridge Journal of Economics, pp. 685–702. Indeed, it is interesting to note that the Maastricht Treaty made explicit reference to the obligation of European institutions of monitoring the evolution of the current account imbalances (See Article 3.A.3 of the Treaty of Maastricht: “These activities of the Member States and the Community shall entail compliance with the following guiding principles: stable prices, sound public finances and monetary conditions and a sustainable balance of payments“ (my italics). However, such an obligation was honoured in the breach, in view of the enormeous current account deficits accumulated by the PIIGS (all of them, and not only the “chronic” deficitarians such as Greece or Spain, but also Italy: See TABLE 10)Google Scholar

107 See Bagnai, , supra, fn 104. See also Giacché, Vladimiro, Titanic Europa, Reggio Emilia: Aliberti, 2011 and Marco Passarella and Emiliano Brancaccio, L'austerità e di destra e sta distruggendo l'Europa, Milano: Saggiatore, 2012.Google Scholar

108 National Accounts: GDP, eurostat (Apr. 25, 2013, 2:06 PM), available at And for Ireland, see generally Debt Part 2: Personal Debt Consequences, Spotlight 1 (2010), available at Scholar

109 Macroeconomic Imbalance Procedure, Econ. & Fin. Affairs, Eur. Comm'n, available at (last visited May 13, 2013).Google Scholar

110 Bank Capital to Assets Ratio (%), The World Bank, (last visited May 13, 2013).Google Scholar

111 Developing this argument fully would require a previously detailed analysis of the measures taken by the Union since 2007. See generally Agustín José Menéndez, De la Crisis Económica a la Crisis Constitucional de la Unión Europea (2012); Agustín José Menéndez, La Mutación Constitucional de la Unión Europea, 96 Revista Española de Derecho Constitucional 41, 41 (2012).Google Scholar

112 See generally Gangahar, Anuj & Jones, Adam, BNP Paribas Investment Funds Hit by Volatility, Fin. Times, Aug. 8, 2007,; Jean Eaglesham, Peter Thal Larsen, Chris Giles & Lina Saigol, UK to Guarantee Northern Rock Deposits, Fin. Times, Sept. 16, 2007,; Gillian Tett, John Gapper, Lawrence Summers & Chris Giles, The Big Freeze, Fin. Times, Aug. 3–6, 2008; Tett, Supra, fn 17, 167–89 (2009).Google Scholar

113 See Ferry, Jean Pisany & Sapir, André, Euro Area: Ready for the Storm, in The Euro at Ten: The Next Global Currency? 69, 69–83 (Jean Pisani-Ferry & Adam S. Posen eds., 2009) (“On the whole the euro is bound to live with this governance structure in the years to come. This does not mean that it is doomed to fail. In fact it has thrived in its first ten years of existence.”). Id. “The euro has provided price stability to previously inflation-prone countries. It has offered a shelter against currency crises. It has by and large been conducive to budgetary discipline. It has attracted five new members in addition to the eleven initial ones. And many countries in Europe wish to adopt it.” The gathering storm leads the authors to conclude in a more cautious key, however: Id. “Although we regard recent remarks on the possible exit or expulsion of those members from the euro area as pure fantasy, we acknowledge that the lack of clarity on how to resolve their debt problems is a source of worry.” Id. One of the many paradoxes of the crises is that the Fed ended up bailing out many big European banks. See Deutsche Bank, Credit Suisse Lead Traders of Fed's Mortgage-Backed Bonds, Bloomberg, Dec. 1, 2010, One of the many paradoxes of the crises is that the US institutions ended up bailing out many big European banks. See Mandel, Michael, ‘German and French banks got $36bn from AIG bailout', Business Week, 15th March 2009, available at; Jody Shenn, ‘Deutsche Bank, Credit Suisse Lead Traders of Fed's Mortgage-Backed Bonds', Bloomberg, 1 December 2010,; Bradley Keoun and Craig Torres, ‘Foreign Banks tapped Fed's secret lifeline most at crisis peak', Bloomberg, January 4th, 2011, at.; Shahien Nasiripour, ‘Fed opens books revealing foreign megabanks were biggest beneficiaries', Huffington Post, January 31st, 2011, A narrative account in Neil Irwin, The Alchemists, New York: Penguin, 2013, slightly updated in ‘How Ben Bernanke saved Europe's Banks’ The Globalist, May 12th, 2013, available at Scholar

114 See generally From Financial Crisis to Recovery: A European Framework for Action, COM (2008) 706 final (Oct. 29, 2008), available at Scholar

115 See generally Central Banks’ Aggressive Moves Stun Markets, Fin. Times, Aug. 9, 2007,; Michele Lenza, Huw Pil & Lucrezia Reichlin, Monetary Policy in Exceptional Times 13–14 (Eur. Cent. Bank, Working Paper No. 1253, 2010), available at; Jean-Claude Trichet, President, Eur. Cent. Bank, Speech Before the Hearing at the Economic and Monetary Affairs Committee of the European Parliament (Sept. 11, 2007), available at; Jean-Claude Trichet, President, Eur. Cent. Bank, Speech Delivered at the Award Ceremony on the Occasion of the “6. Karl Klasen Journalistenpreis,” The US Economy, the Euro Area Economy, and Their Central Banks (Dec. 7, 2007), available at; Bini Smaghi, Member of the Executive Board, Eur. Cent. Bank, Remarks at the Euro50-Natixis Breakfast Seminar, Financial Globalisation and Excess Liquidity (Oct. 21, 2007), available at It is perhaps not fully irrelevant—and it is at any rate very revealing—that the non-standard monetary measures came one week after the decisive lost battle on the exclusion of the ECB from the Treaty list of EU institutions. See generally Tobias Buck, Central Bank Chief Urges Change to EU Treaty, Fin. Times, Aug. 11, 2011, Scholar

116 See Lenza, Pil, & Reichlin, , supra note 111, at 20.Google Scholar

117 The Benelux states came to the rescue of Fortis after BNP withdrew from the negotiations to acquire Fortis en bloc (BNP will end up buying the Belgian share of the fractioning of Fortis, a decision that will have major political consequences in Belgium). While the Benelux governments were all smiles before the cameras, the ink of the deal was barely dry before there were serious accusations being exchanged on the bad faith and the unfairness of the costs borne by each state. On the convoluted history of Fortis, see generally Smit, Jeroen, The Perfect Prey: The Fall of ABN Amro, Or What Went Wrong in the Banking Industry (2009). On October 3rd, the governments of France, Belgium and Luxembourg came to the rescue of Dexia, a bank dragged down by its investments in the United States. See generally Francis van de Woestyne & Ariane van Caloen, Comment Sarkozy a Mangé Tout Crus les “p'Tits Belges,” Courrier Int'l, Dec. 11, 2008, The bank was to be recapitalized and the states were to underwrite its deposits. Intergovernmental bargaining was far from smooth. Id. Google Scholar

118 That decision was taken the night of the 29th of September 2008 in a closed doors meeting between Taoiseach Cowan, Chancellor of the Irish Exchequer Lenihan, and the CEOs of the six big Irish banks. The decision was rushed through the Irish Parliament and approved with barely a debate on October 2, 2008. For the bill of September 30, see Credit Institutions (Financial Support) Bill 2008 (Bill No. 45/2008) (Ir.) available at For the statute, see Credit Institutions (Financial Support) Act 2008 (Act No. 18/2008) (Ir.) available at Article 6 of the statute gives the Chancellor of the Exchequer the power to decide on the transfer of all assets she sees fit from the Banks to the Exchequer. Id. at art. 6. This implied authorizing the assumption of contingent liabilities twice the Irish GDP at 2008 value (which was perhaps “inflated” by the bubble), or what is the same, an amount equal to that of six years of public spending, taking 2009 as the reference year (public expenditure was in that year 34.1% GDP). Id. On the political background of that wild fiscal night, see generally Simon Carswell, The Big Gamble: The Inside Story of the Bank Guarantee, Irish Times, Sept. 25, 2010, Scholar

119 See generally Press Release, Council of the European Union, Immediate Responses to Financial Turmoil: Council Conclusions - Ecofin Council of 7 Oct. 2008, available at; Council Directive 2009/14, of the European Parliament and the Council of 11 March 2009 Amending Directive 94/19/EC on Deposit-guarantee Schemes as Regards the Coverage Level and the Payout Delay, 2009 O.J. (L 68) 3, available at Presidency Conclusions of the Council of the European Union, No. 14368/08 of 16 Oct. 2008, Conclusion 4, ¶ 5, available at (“European rules must … be implemented [to] … meet[] the need for speedy and flexible action. The European Council supports the Commission's implementation … of the rules on competition policy, particularly State aids, while continuing to apply the principles of the single market and the system of State aids.”). See also Commission Staff Working Paper: The Effects of Temporary State Aid Rules Adopted in the Context of the Financial and Economic Crisis, at 3, SEC (2011) 1126 final (Oct. 5, 2011), available at; Communication on the Application of State Aid Rules to Measures Taken in Relation to Financial Institutions in the Context of the Current Global Financial Crisis, 2008 O.J. (C 270) 8–14; Communication on the Recapitalisation of Financial Institutions in the Current Financial Crisis: Limitation of Aid to the Minimum Necessary and Safeguards Against Undue Distortions of Competition, 2009 O.J. (C 10) 2–10; The Communication from the Commission on the Treatment of Impaired Assets in the Community Banking Sector, 2009 O.J. (C 72) 1–22; Communication on the Return to Viability and the Assessment of Restructuring Measures in the Financial Sector in the Current Crisis Under the State Aid Rules, 2005 O.J. (C 195) 9–20.Google Scholar

120 See generally A European Economic Recovery Plan, COM (2008) 800 final (Nov. 26, 2008), available at Scholar

121 For the German response to the crisis, which emphasizes the German recipe for reducing the destruction of employment by means of subsidization of working time reductions, see generally Intl. Inst. for Labour Studies & Intl. Labour Org., Studies on Growth with Equity: Germany, A Job-Centered Approach (2011), available at See also the report of the European Trade Union Institute: Isabel Schömann and Stefan Clauwert, The crisis and national labour law reforms, Bruxelles: ETUI, 2012, available at Scholar

122 See generally European Univ. Inst., Hungary: A Comprehensive Country Report 14 (2008), available at; Nicholas Kulish, Crisis Comes to Hungary, N.Y. Times, Oct. 19, 2008,; Tony Barber, Hungary Rescue a Bid to Contain Crisis, Fin. Times, Oct. 29, 2008,; Robert Anderson, Latvia to Receive €7.5bn in Financial Aid, Fin. Times, Dec. 19, 2008,; Thomas Escritt, Romania to Receive €20bn of IMF-Led Aid, Fin.Times, Mar. 25, 2009, Scholar

123 For details of the composition of the variable coalitions of the financial willing, see generally supra note 107 and accompanying text.Google Scholar

124 The key document is the policy paper presented at the Madrid ECOFIN meeting of April 15. See generally Alberto Alesina, Fiscal Adjustments: Lessons from Recent History (2010), available at; Alberto Alesina & Silvia Ardagna, Tales of Fiscal Adjustment, 13 Econ. Policy 489, 498 (1998); Alberto Alesina & Silvia Ardagna, Large Changes in Fiscal Policy: Taxes Versus Spending (Nat'l Bureau of Econ. Research, Working Paper No. 15438, 2009), available at For a devastating criticism, see generally Jaime Guajardo, Daniel Leigh & Andrea Pescator, Expansionary Austerity: New International Evidence (Int'l Monetary Fund, Working Paper No. 158, 2011), available at See generally Olivier Blanchard & Daniel Leigh, Growth Forecasts and Fiscal Multipliers (Intl. Monetary Fund, Working Paper No. 1, 2013), available at Scholar

125 For the report by the independent Group of Experts (the so called De Larosière report), see generally The HighLevel Group on Fin. Supervision in the EU, Report (Feb. 25, 2009), available at This was followed by a paper of the Commission. See generally Communication on the European Financial Supervision, COM (2009) 252 final (May 27, 2009), available at Scholar

126 See generally Regulation 1093/2010, of the European Parliament and the Council of 24 November 2010 Establishing a European Supervisory Authority (European Banking Authority), 2010 O.J. (L 331) 12–47; Regulation 1094/2010, of the European Parliament and the Council of 24 November 2010 Establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), 2009/79/EC, 2010 O.J. (L 331) 48; Regulation (UE) 1095/2010, of the European Parliament and the Council of 24 November 2010 Establishing a European Supervisory Authority (European Securities and Markets Authority), 2010 O.J. (L 331) 84; Directive 2010/78/UE, of the European Parliament and the Council of 24 November 2010, 2010 O.J. (L 331) 120.Google Scholar

127 See generally Regulation 1092/2010, of the European Parliament and the Council of 24 November 2010 Establishing a European Systemic Risk Board, 2010 O.J. (L 331) 1; Regulation 1096/2010, of the Council of 17 November 2010 Conferring Specific Tasks upon the European Central Bank Concerning the Functioning of the European Systemic Risk Board, 2010 O.J. (L 331) 162.Google Scholar

128 See Regulation 1092/2010, supra note 121, at art. 1, 3, 16.Google Scholar

129 See generally Press Release, European Union, Statement by the Heads of State or Government of the European Union (Feb. 11 2010), available at (“Euro area Member states will take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole. The Greek government has not requested any financial support.”); Press Release, European Union, Statement by the Heads of State or Government of the Eurozone (Mar. 25, 2010), available at (“Euro area member states reaffirm their willingness to take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole, as decided the 11th of February.”). As part of a package involving substantial International Monetary Fund financing and a majority of European financing, Euro area member states are ready to contribute to coordinated bilateral loans. This mechanism, complementing International Monetary Fund financing, has to be considered ultima ratio, meaning in particular that market financing is insufficient. Any disbursement on the bilateral loans would be decided by the euro area member states by unanimity subject to strong conditionality and based on an assessment by the European Commission and the European Central Bank. We expect Euro-Member states to participate on the basis of their respective ECB capital key. The objective of this mechanism will not be to provide financing at average euro area interest rates, but to set incentives to return to market financing as soon as possible by risk adequate pricing. Interest rates will be non-concessional, i.e. not contain any subsidy element. Decisions under this mechanism will be taken in full consistency with the Treaty framework and national laws. See generally Smoke and Mirrors, The Economist, Mar. 31, 2010,; Press Release, Statement on the Support to Greece by Euro Area Members States, Brussels European Council (Apr. 11, 2010), available at (“Euro area Members States have agreed upon the terms of the financial support [for] Greece, when needed, to safeguard financial stability in the Euro area as a whole. Members States are ready to provide … bilateral loans centrally pooled by the European Commission [and] including International Monetary Fund financing.”); Directorate-General for Economic and Financial Affairs, The Economic Adjustment Programme for Greece (May 2010), available at Scholar

130 See generally Press Release, Brussels European Council, Economic and Financial Affairs, Brussels European Council (May 9–10, 2010), available at; Regulation 407/2010, of the Council of 11 May 2010 Establishing a European Financial Stabilisation Mechanism, 2011 O.J. (L 118) 1. For framework agreement of the European Financial Stability Facility of June 7, 2011, see Acuerdo Mardco de la Facilidad Europea de Estabilizacíon Financiera [Framework Agreement of the European Financial Stability Facility] 76137 (B.O.E. 2011, 164) (Spain), available at For the incorporation of the special purpose vehicle, see Eur. Fin. Stability Facilty, Statuts Coordonnes suite à un Constat D'Augmentation de Capital (Dec. 6, 2011) available at Scholar

131 See generally Decision ECB/2010/5, of the European Central Bank Establishing a Securities Market Programme, 2010 O.J. (L 124) 8; Press Release, European Central Bank, ECB Decides on Measures to Address Severe Tensions in Financial Markets, (May 10, 2010), available at (“To conduct interventions in the euro area public and private debt securities markets (Securities Markets Programme) to ensure depth and liquidity in those market segments which are dysfunctional.”). The Press Release continues,Google Scholar

The objective of this programme is to address the malfunctioning of securities markets and restore an appropriate monetary policy transmission mechanism. The scope of the interventions will be determined by the Governing Council. In making this decision we have taken note of the statement of the euro area governments that they 'will take all measures needed to meet [their] fiscal targets this year and the years ahead in line with excessive deficit procedures' and of the precise additional commitments taken by some euro area governments to accelerate fiscal consolidation and ensure the sustainability of their public finances. In order to sterilise the impact of the above interventions, specific operations will be conducted to re-absorb the liquidity injected through the Securities Markets Programme. This will ensure that the monetary policy stance will not be affected.


132 See generally A Strategy for Smart, Sustainable and Inclusive Growth, COM (2010) 2020 final (Mar. 3, 2010), available at The Strategy will largely be overcome by the move towards a revamped coordination of macroeconomic policies as a part of the European Semester (in the form of the monitoring and resolution of macroeconomic disimbalances).Google Scholar

133 Council Implementing Decision of 7 December 2010, on granting Union financial assistance to Ireland, OJ L 30, of 04.02.2011, pp. 3439. and Council Implementing Decision of 30 May 2011, amending Implementing Decision 2011/77/EU on granting Union financial assistance to Ireland, OJ L 147, of 02.06.2011, pp. 17–19, Memorandum of Economic and Financial Policies,; Technical Memorandum of Understanding,; Memorandum of Understanding on Specific Economic Conditionality, Scholar

134 See generally Decision 2011/344/EU, of the Council of the European Union of 30 May 2011 on Granting Union Financial Assistance to Portugal, 2011 O.J. (L 159) 88; Memorandum of Understanding, Council of the European Union (May 18, 2011), Scholar

135 This was agreed by Germany and France in October 2010. See generally Quentin Peel, George Parker, Joshua Chaffin & Ben Hall, Germany Confident of “Crisis Resolution” Deal, Fin. Times, Oct. 20, 2010, It was then agreed upon by the European Council. See Presidency Conclusions, Brussels European Council (Apr. 20, 2011), Scholar

136 See generally Presidency Conclusions, supra note 129; Regulation 1173/2011, of the European Parliament and of the Council of 16 November 2011 on the Effective Enforcement of Budgetary Surveillance in the Euro Area, 2011 O.J. (L 306) 1; Regulation 1174/2011, of the European Parliament and of the Council of 16 November 2011 on Enforcement Measures to Correct Excessive Macroeconomic Imbalances in the Euro Area, 2011 O.J. (L 306) 8; Regulation 1175/2011, of the European Parliament and of the Council of 16 November 2011 amending Council Regulation (EC) No 1466/97 on the Strengthening of the Surveillance of Budgetary Positions and the Surveillance and Coordination of Economic Policies, 2011 O.J. (L 306) 12; Regulation 1176/2011, of the European Parliament and of the Council of 16 November 2011 on the Prevention and Correction of Macroeconomic Imbalances, 2011 O.J. (L 306) 25; Directive 2011/85/EU, of the European Parliament and of Council of 8 November 2011 on Requirements for Budgetary Frameworks of the Member States, 2011 O.J. (L 306) 41; Regulation 1177/2011, of the European Parliament and of the Council of 8 November 2011 Amending Regulation (EC) No 1467/97 on Speeding Up and Clarifying the Implementation of the Excessive Deficit Procedure, 2011 O.J. (L 306) 33. For drafts, see generally Proposal for a Regulation on Common Provisions for Monitoring and Assessing Draft Budgetary Plans and Ensuring the Correction of Excessive Deficit of the Member States in the Euro Area, COM (2011) 821 final (Nov. 23, 2011); Proposal for a Regulation on the Strengthening of Economic and Budgetary Surveillance of Member States Experiencing or Threatened with Serious Difficulties with Respect to their Financial Stability in the Euro Area, COM (2011) 819 final (Nov. 23, 2011).Google Scholar

137 See generally Ministerio de Economia y Competitividad, (last visited May 13, 2013).Google Scholar

138 See generally The Second Economic Adjustment Programme for Greece, European Economy Occasional Papers (2012), available at Scholar

139 The draft Memorandum of Understanding, as it stood on April 9th, 2013, can be found here: The “new” debt sustainability analysis by the European Commission, of April 12th, 2013, can be found here: Two splendid analyses of the rather convoluted Cypriot affair are Willem Buiter, Ebrahim Arhabari, Giada Giani and Jürgen Michels, ‘Cyprus is systematically important: it changed the rules of the game', 10 April 2013,; James Meek, ‘The Depositor Haircut', 35 (2013) London Review of Books, 9 May 2013, available at Scholar

140 A synthetic background note on the state of the play in Slovenia by Cardiff García, Ftalphaville, 24 April 2013, at Scholar

141 See generally Presidency Conclusions, Brussels European Council (Apr. 20, 2011),; Treaty Creating the Stability Mechanism, May 11, 2010, 2010 O.J. (L118) 1 [hereinafter ESM Treaty], available at Scholar

142 See generally Atkins, Ralph, ECB Resumes Bond-Buying Scheme, Fin. Times, Aug. 4, 2011,; Richard Mine, Intervention Fails to Quell Nerves, Fin. Times, Aug. 4, 2011,; Quentin Peel, Bond Move Deepens ECB Divide, Fin. Times, Aug. 7, 2011, Scholar

143 See generally Release, Press, European Central Bank, Technical Features of Outright Monetary Transactions (Sept. 6, 2012), available at The same day the ECB announced laxer criteria on collateral. See generally Press Release, European Central Bank, Measures to Preserve Collateral Availability (Sept. 6, 2012), available at Scholar

144 See generally Presidency Conclusions on Completing EMU, Brussels European Council (Oct. 18, 2012), available at Scholar

145 See generally Towards a Single Market Act: For a Highly Competitive Social Market Economy, COM (2010) 608 final (Oct. 27, 2010).Google Scholar

146 See generally Monti, Mario, A New Strategy for the Single Market: At the Service of Europe's Economy and Society, Report to the President of the European Commission (May 9, 2010), available at Scholar

147 Single Market Act: Twelve Levers to Boost Growth and Strengthen Confidence, “Working Together to Create New Growth,” COM (2011) 206 final (Apr. 13, 2011).Google Scholar

148 Single Market Act II: Together for New Growth, COM (2012) 573 final (Oct. 3, 2012).Google Scholar

149 See Financial Markets in Early August 2011 and the ECB's Monetary Policy Measures, Eur. Cent. Bank Monthly Bulletin 47 (Sept. 2011), available at Google Scholar

150 The moment that banks made use of the free movement of capital to engage in cross-border activities, macroprudential supervision cannot be effective at the national level. National regulators lack the cognitive basis, leaving aside the banks not disclosing fully their activities, for example, for those activities channeled through tax havens—Northern Rock being a very fitting example in that regard—national regulators lack the local knowledge essential in assessing the risks banks are engaging into by operating outside of the national jurisdiction. They may also lack the resources to combine macroprudential supervision with their role as being the lenders of last resort of the banks. The Irish government thought it had the means to prop up the Irish banking system, but sooner rather than later it discovered the catastrophic consequences of having done so.Google Scholar

151 As a result, the ECB has already mutated into an explicit political actor, no matter how much the institutional rhetoric tries to maintain the fiction of the detached and almost autonomous bank. Political clout comes hand in hand with increased political fragility. Not only does absorbing the solvency risk of Member States through the acquisition of sovereign debt generate a new solvency risk, that of the ECB itself, but the accrual of micro-prudential supervisory powers will force a general reconsideration of the institutional position of the ECB. The fact that the model of the autonomous central bank is being seriously questioned in other non-European states, such as Japan or even Britain, may come to play its part in the European debate.Google Scholar

152 Treaty on Stability, Coordination, and Governance, Mar. 2, 2012, [hereinafter The Stability Treaty].Google Scholar

  1. 1.

    1. The European Commission is invited to present in due time to the Contracting Parties a report on the provisions adopted by each of them in compliance with Article 3(2). If the European Commission, after having given the Contracting Party concerned the opportunity to submit its observations, concludes in its report that such Contracting Party has failed to comply with Article 3(2), the matter will be brought to the Court of Justice of the European Union by one or more Contracting Parties. Where a Contracting Party considers, independently of the Commission's report, that another Contracting Party has failed to comply with Article 3(2), it may also bring the matter to the Court of Justice. In both cases, the judgment of the Court of Justice shall be binding on the parties to the proceedings, which shall take the necessary measures to comply with the judgment within a period to be decided by the Court of Justice.Google Scholar

  2. 2.

    2. Where, on the basis of its own assessment or that of the European Commission, a Contracting Party considers that another Contracting Party has not taken the necessary measures to comply with the judgment of the Court of Justice referred to in paragraph 1, it may bring the case before the Court of Justice and request the imposition of financial sanctions following criteria established by the European Commission in the framework of Article 260 of the Treaty on the Functioning of the European Union. If the Court of Justice finds that the Contracting Party concerned has not complied with its judgment, it may impose on it a lump sum or a penalty payment appropriate in the circumstances and that shall not exceed 0,1 % of its gross domestic product. The amounts imposed on a Contracting Party whose currency is the euro shall be payable to the European Stability Mechanism. In other cases, payments shall be made to the general budget of the European Union.Google Scholar


153 This renders theoretically possible that the ECJ would fine a Member State on account of a constitutional decision adopted after a wide majority of the citizens approve a constitutional reform. The heightened democratic legitimacy of the latter decision is no obstacle—I insist, in theory—to the ECJ fining the said state.Google Scholar

154 The involvement of the IMF was controversial from the very beginning. A precedent was set when Hungary, Latvia and Romania were assisted in 2008 and 2009. Instead of providing the assistance on its own, the Union sought the cooperation of the IMF, other international financial institutions, and a variable set of partners. The German Minister of Finance was opposed to IMF involvement within the Eurozone, but the German Chancellor was apparently favourable. The controversy remains, with different rationales for the IMF to withdraw. Compare, for example, Ousmene Mandeng, ‘IMF must quit troika to survive', Financial Times, 17 April 2013, available at; and Matina Stevis, ‘ECB official sees eventual end to IMF involvement in Euro Crises', Wall Street Journal, 8 May 2013, Scholar

155 As it results from the amended version of Regulations 1496/97, 1497/97, and the new one on the correction of macroeconomic imbalances, the imposition of sanctions is not conditioned to the inaction of the Member State, not even to the Member State not following the recommendations of the Commission as endorsed by the Eurogroup. Indeed, the new Stability Treaty foresees the introduction of automatic mechanisms of fiscal correction, which would have to be implemented in a purely mechanical way. See The Stability Treaty, supra note 145. Indeed, the new Stability Treaty foresees the introduction of automatic mechanisms of fiscal correction, which would have to be implemented in a purely mechanical way. See Article 3.1 e: “in the event of significant observed deviations from the medium-term objective or the adjustment path towards it, a correction mechanism shall be triggered automatically. The mechanism shall include the obligation of the Contracting Party concerned to implement measures to correct the deviations over a defined period of time” and Article 3.2: “The Contracting Parties shall put in place at national level the correction mechanism referred to in paragraph 1(e) on the basis of common principles to be proposed by the European Commission, concerning in particular the nature, size and time-frame of the corrective action to be undertaken, also in the case of exceptional circumstances, and the role and independence of the institutions responsible at national level for monitoring compliance with the rules set out in paragraph 1. Such correction mechanism shall fully respect the prerogatives of national Parliaments”. The common principles were outlined on June 2012, ‘Common principles on national fiscal correction mechanisms', COM (2012) 342 final, of 20.6.2012,. There is a clear relation between the very idea of automatic correction of deficits with the two new regulations further transforming the constitutional framework of fiscal policy within the Eurozone. The two regulations are on the process of being published at the time of closing this paper, so reference is given here to the text as adopted by the European Parliament, very likely to be the one corresponding to the final text: ‘Regulation of the European Parliament and of the Council on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area', available at; ‘Regulation of the European Parliament and of the Council on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability', available at Scholar

156 Danes and Swedes were asked whether they favored their country joining the Monetary Union. Denmark had negotiated a permanent opt-out at Maastricht, but had been de facto anchored its monetary policy to that of the ECB (resulting in a de facto fixed parity with the Euro). Sweden does not have an opt-out. In both cases, the incumbent governments favoured joining, but in both cases the outcome was clearly negative. See Martin Marcussen & Mette Z⊘lner, Monetarism and the Masses: Denmark and Economic Integration in Europe, 38 Cooperation & Conflict 101, 101 (2003); Lee Miles, Sweden: “Hitchhiking” and the Euro Referendum, 39 Cooperation & Conflict 201, 201 (2004).Google Scholar

157 See Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the European Communities, Dec. 13, 2007, 2007 O.J. (C 306) 1 [hereinafter Treaty of Lisbon].Google Scholar

158 The First Eurozone European Council (Euro Summitt) took place on October 12, 2008. See Declaration on a Concerted European Action Plan of the Euro Area Countries, European Union (Oct. 12, 2008), Somehow paradoxically, Gordon Brown, then Prime Minister of a non-Eurozone country—Great Britain—is widely believed to have played a key role in the creation of the Eurozone European Council, and did participate in its first session. The Eurozone European Council has been “codified” by Article 12 of the Stability Treaty. See The Stability Treaty, supra note 145, art. 12. Its rules of procedure were adopted in March 2013. See Rules for the Organization of the Proceedings of the Euro Summits, Council of the European Union (Mar. 14, 2013), Scholar

159 Technically speaking, the aid was granted by means of bilateral, even if coordinated, loans from each Member State to Greece. This purely bilateral character of the agreement has resulted in some Member States (such as Spain and Italy) incurring in actual costs to lend to Greece, resulting from the lower rates applied to Greece than those at which they can lend at international markets. See generally Directorate-General for Economic and Financial Affairs, The Economic Adjustment Programme for Greece, supra note 123.Google Scholar

160 See Treaty of Lisbon, supra note 149, art. 136, ¶ 3 (“The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”).Google Scholar

161 For the Bruges speech of Merkel, where she enumerated the main contours of the Union Method, see Angela Merkel, Fed. Chancellor of Ger., Speech at the Opening Ceremony of the 61st Academic Year of the College of Europe in Bruges (Nov. 2, 2010), available at Scholar

162 See Treaty, ESM, supra note 134, art. 3, ¶ 2 (“The Contracting Parties shall put in place at national level the correction mechanism referred to in paragraph 1(e) on the basis of common principles to be proposed by the European Commission, concerning in particular the nature, size and time-frame of the corrective action to be undertaken.”).Google Scholar

163 The ideology of competitiveness is well illustrated by the annual competitiveness report. For 2012, see generally European Commission, Competitiveness Report 2012: Reaping the Benefits of Globalization (2012), available at The implications in terms of labor and social policies were clearly revealed by Draghi in March 2013. See generally Luke Baker, Draghi Lectures Euro Zone Leaders About Labor Costs, Reuters, Mar. 15 2013, available at For the very revealing powerpoint presentation, see generally Draghi, Mario, Presentation at the Euro Summit: Euro Area Economic Situation and the Foundations for Growth (2013), available at Scholar

164 See Fossum, & Menéndez, supra, fn 87, chapter 4.Google Scholar

165 Ibid, concluding chapter.Google Scholar

166 During the Laeken process, as might be remembered, it was unclear whether the citizens of Member States, and Member States only, should be represented. What about applicant states such as the 12 states that were set to become Members by then? What about the associated half, if not more, Member States, such as the EEA states? What about Turkey? Even worse, there was no clear answer to the question of how the representatives should be elected. Having no answer to this question that could be used as the basis for electing the Convention, the issue was avoided by a complex combination of titles of indirect representation. The price to be paid was that the Convention could not vote—and no constitutional convention can be a serious decision-making body without voting.Google Scholar

167 The procedure followed by Spinelli in 1984, the election of a new European Parliament and the writing of a draft constitution there, later ratified by all national parliaments, seems the less controversial option, but would only work if the whole European Union, the whole constituency of the European Parliament, were to be reconstituted.Google Scholar

168 That is, of secession being requested by one of the richest region within the country, in the name of the “fiscal exploitation” of that region by the “central state,” usually under the combined claim that the state wastes too much money, and that there is a trifle too much redistribution to poorer regions. A similar socio-economic template prevails in the Flemish and the “Padanian” cases (Padania standing for a variable chunk of Northern Italy which always includes Lombardia and Veneto).Google Scholar

169 See Case C-370/12, Pringle v. Ireland, 2012 EUR-Lex CELEX LEXIS 370 (Nov. 27, 2012), available at The case resulted from an Irish preliminary reference resulting from Mr. Pringle challenging the European constitutionality (the validity according to Union constitutional law) of the Treaty establishing the European Stability Mechanism.Google Scholar

170 The metaphor has come to be used extensively. See Offe, Claus, ‘The EuroTrap', European Law Journal, forthcoming September 2013; Juan Francisco Martín Seco Contra el Euro, Barcelona: Península, 2013.Google Scholar

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