The aim of this chapter is to analyze how a specific constitutional regime dealt with an impending financial emergency. To assess the constitution’s constraining effects on the legislator’s margin of choice within an economic crisis, we will focus on the Portuguese constitutional case law that has reviewed austerity measures.1 For this purpose, we define “austerity legislation” as law that was adopted to cope with budgetary deficit reduction following the great recession and that affects individual rights and freedoms.2

We begin by briefly describing the domestic and international events that lead to the adoption of several packages of austerity and the formal financial rescue program. In section III, we go through the crisis constitutional case law. The Portuguese Constitutional Court (CC) has dealt with financial emergencies since its early days. After reviewing that initial jurisprudence, we analyze the case law on austerity which comprises not only legislation enacted before the bailout, but also the policies required by the formal program.

The constitutions of most liberal democracies contain provisions that constrain governmental action in relation to economic policy. Some provisions grant citizens rights: For example, Americans enjoy a right under the US constitution’s Contract Clause, prohibiting states from impairing the obligation of contracts. Most constitutions also provide individual rights protections against uncompensated and arbitrary taking of property. Structural provisions of constitutions also affect economic policy, sometimes by limiting government action directly, rather than through the claims of citizens. For example, balanced-budget rules constrain fiscal decision-making, as do legislative supermajorities required by some constitutions for financial decisions. Such structural provisions have spread in recent years, especially in response to the great recession of 2007 and 2008.

By the end of the nineteenth century the vast majority of Latin American constitutions had presidents with a relatively high degree of autonomy from congress in the operation of government, reactive legislative power, and little or no power to promote legislative change. This design has changed radically; gradually in the early decades of the twentieth century, and more rapidly after the expansion of electoral democracy in the region since the late 1970s. One salient feature of this transformation is that whereas the government powers of presidents have generally decreased, their powers in the legislative arena, in particular to promote legislative change, have increased.

The constitutions of most liberal democracies contain provisions that constrain governmental action in relation to economic policy. Some provisions grant citizens rights: For example, Americans enjoy a right under the US constitution’s Contract Clause, prohibiting states from impairing the obligation of contracts. Most constitutions also provide individual rights protections against uncompensated and arbitrary taking of property. Structural provisions of constitutions also affect economic policy, sometimes by limiting government action directly, rather than through the claims of citizens. For example, balanced-budget rules constrain fiscal decision-making, as do legislative supermajorities required by some constitutions for financial decisions. Such structural provisions have spread in recent years, especially in response to the great recession of 2007 and 2008.

The American constitutional law of political economy underwent significant transformations in the years between the Wall Street Crash of 1929 and the Allied victory in World War II. Both state and federal power to regulate economic activity were enhanced substantially. The reasons for these developments have been explored at length in a voluminous literature. 1 This chapter considers the role that conditions of economic crisis might have played in cases involving judicial review of economic regulation.

In the wake of the financial crises of 2008–09, liberal democracies passed a wave of constitutional amendments to require that revenues be brought in line with spending. Most notably, in 2012 the vast majority of the EU member states adopted the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (the “EU Fiscal Compact”) that introduced the so-called “Golden Rule,” also explicitly suggesting (for the first time) that Member states should incorporate the balanced budget rule within their national constitutions (Adams, Fabbrini, and LaRouche 2014). 1 This seemingly pro-cyclical response drew plenty of criticism among scholars, even as others celebrated it as a necessary bit of austerity and discipline.

In the Anglo-American tradition, but certainly also beyond, constitutionalism is often associated with safeguarding a broad sphere of individual liberty against encroachment by public power. In his seventeenth-century manifesto against tyranny, John Locke famously depicted the sovereign as a fearsome lion, far more powerful than the petty varmints it was meant to control, and therefore ever-ready to devour them. 1 Liberals have since prized resilient institutional structures that conquer the authoritarian odds. Being constantly on guard against “the encroaching spirit of power,”2 they rejoice whenever sovereign power is “effectually restrained from passing the limits assigned to it.”3 In this sense, the purest function of a liberal constitution is thought to be bridling the sovereign’s prerogatives, firmly delineating the sphere of individual liberty in respect of which the state and its organs “shall make no law.”