(1) The \‘blauer Brief\’ or blue letter is so-called in reference to the letter that German schools used to send to the parents of students in danger of failing.Google Scholar

(2) The Stability and Growth Pact (\‘The Pact\’) consists of Council Regulation (EC) No 1467/97 of 7.7.97., Council Regulation (EC) No 1466/97 of 7.7.97., and of the Resolution of the European Council of 17.6.97. The former Regulation entered into force on 1 January 1999; the latter on 1 July 1998.Google Scholar

(3) Kennedy, D., Form and Substance in Private Law Adjudication, 89 HARV. L.REV. 1685 (1976).Google Scholar

(4) The way in which tax legislation in Canada and the United Kingdom has been variously interpreted offers a clear example of such oscillation. (See S.W. Bowman, Interpretation of Tax Legislation: The Evolution of Purposive Analysis, 43 CAN. TAX J. 1167 (1995).Google Scholar

(5) A. v. Bogdandy, The Euro is Forcing the Realization of Political Union - and Perhaps a New Community, 14 G.L.J., para. 5 (2001), www.germanlawjournal.com Google Scholar

(6) Ibid. at para. 6.Google Scholar

(7) Ibid. Another observer draws a comparison to the United States: it has managed to successfully combine a common currency and uniform interest rates (i.e. a supraregional monetary policy) with different regional economic conditions by virtue of the mobility of its workforce and the tax-and-spend powers of the federal government. As he notes curtly, \“[c]learly, neither of these conditions obtains in Europe today\”. (L. Siedentop, DEMOCRACY IN EUROPE, p. 103 (2000)). Perhaps coincidentally or perhaps consequently, the Commission announced plans the day after ECOFIN\'s meeting to encourage workers to circulate within the Community more freely. The EU is seeking to facilitate the creation of a cross-border labor market similar to that in the U.S. (INTERNATIONAL HERALD TRIBUNE, 13 February 2002, p. 1; INTERNATIONAL HERALD TRIBUNE, 14 February 2002, p. 13.)Google Scholar

(8) Louis, J.-V., as quoted in Bogdandy at para. 6.Google Scholar

(9) The historical experience suggests caution in prognosticating the success of the EMU. Many unsuccessful attempts have previously been made to control the diverse political forces in the Member States that influence national economic and financial management within a stable, lasting Community framework. (T. Oppermann, EUROPARECHT (2nd. ed.), C.H. Beck: Munich, 1999, p. 354.) Moreover, as one newspaper editorial observed, \“had the pact been in operation over the past 15 years, both France and Germany would have been liable to pay fines on at least three occasions apiece.\” (ECONOMIST, 25 August 2001, p. 13.) Another described the terms of the stability pact as \“ambitious, if not idealistic\”, when viewed in light of historic government spending. (INTERNATIONAL HERALD TRIBUNE, 20 December 2001, p. 1.).Google Scholar

(10) Siedentop, p. 104.Google Scholar

(11) In examining and monitoring Member States\’ policies and performance, ECOFIN is to \“take into account the relevant cyclical and structural characteristics of the economy of each Member State\” (Preamble 14 Regulation 1466/97). Likewise, where the Commission prepares a report in accordance with Art. 104(3), it is to take into account all \“relevant factors\” (Preamble 11 Regulation 1467/97).Google Scholar

(12) Gloecker, G. et al., GUIDE TO EU POLICIES, Blackstone: London, 1998, p.283.Google Scholar

(13) Ibid., p. 283, 284, 289.Google Scholar

(14) These steps, in what another observer described as a \“complicated\” surveillance process (Oppermann, p. 357), may include: the forwarding of information by the Member State concerned to the Commission regarding economic developments; adoption of Commission report; formulation of Economic and Financial Committee opinion; Commission opinion and recommendation to ECOFIN; ECOFIN recommendation to Member State; Council publication of recommendation; Council notice to Member State; Council imposition of sanctions; Council intensification of sanctions; Council abrogation of some sanctions; Council abrogation of all outstanding sanctions; and all at stages, the possibility of the excessive deficit procedure being temporarily held in abeyance. The imposition of fines on fiscally irresponsible Member States has been described in the press as \“the nuclear option\”. (See, for example, Could the Euro\'s Nuclear Option ever be used?, ECONOMIST, 2 February 2002, p. 27.) This description - with a bit of journalistic licence - fits the unthinkability of fines that could run into the billions of euros. It also in its extreme language speaks to the nature of the measure as a last resort, when all else has failed.Google Scholar

(15) Oppermann, p. 357.Google Scholar

(16) The ECOFIN opinions from the 12.2.2. meeting were deliberately placed in the public domain. (Minutes of the 2407th Council Meeting - ECOFIN - Brussels, 12 February 2002, p. 6. Available on line at: http://europa.eu.int/comm/press_room/index.htm; hereinafter \“Minutes\”.)Google Scholar

(17) The report issued by the Commission per Art. 104(3) EC Treaty is first subject to analysis by the Economic and Financial Committee, which shall formulate an opinion (Art. 104(4) EC Treaty). The Commission is to take fully into account this analysis when in turn addressing an opinion and recommendation to ECOFIN in accordance with Art. 104(5) and (6) EC Treaty (Art. 3(2) Regulation 1467/97). The Economic and Financial Committee was proposed by the French \“to be a political counterweight to the independent ECB [European Central Bank], a formal \‘Stability and Growth Council\’ or \'gouvernement economique\'\” (Gloecker, p. 284.). In the event, the Committee, nicknamed the Euro-Group, was given a limited mandate, namely to carry out miscellaneous supervisory, advisory, and preparatory tasks on behalf the Commission and ECOFIN (Art. 114(2) EC Treaty); it is \“without real teeth\”. (Ibid.) The Committee seems to have played no more than a formal role in the formulation of the ECOFIN opinion on Germany\'s updated Stability Programme, judging by the way in which the Committee is mentioned - or rather not mentioned - in the official press release from the ECOFIN Meeting of 12.2.2. (See in particular the preamble and footnote 4 of the same.)Google Scholar

(18) ECOFIN was also forced to decide on the budgetary situation of Portugal in keeping with early-warning mechanism. In light of the relative unimportance of that Member State\'s economy - and therefore of any judgment on its government\'s policies - to the euro-zone, the Portuguese case did not garner much attention (and will be given little here) in comparison to the German. Indeed, ECOFIN\'s decision on the German budgetary situation likely determined its decision on the Portuguese. \“[T]he ministers could hardly be seen bashing a poorish small country while sparing a richer big one.\” (ECONOMIST, 16 February 2002, p. 31.)Google Scholar

(19) It is ironic, as newspaper reports never failed to point out, that it was Germany that faced a reprimand as it was Germany that had insisted on the Pact in the first place. The German government had wanted to ensure that their national tradition of monetary prudence would not be threatened by a currency union with Mediterranean countries, which had a reputation for weak currencies, inflation, and fiscal irresponsibility. The German government had also been traditionally opposed to the French idea of \'gouvernement economique\', a euro-zone economic government, which would serve as a political counterweight to the independent ECB and Commission. It is true that Germany\'s recent insistence on a flexible approach to the Pact and on the prerogative of ECOFIN to decide on its application represent dramatic changes in policy. There is nothing more than irony, however, in this turn of events - above all no policy prescriptions. The Pact\'s historical development should not be allowed to determine its future application. The hitherto strongest advocates of fiscal discipline now find themselves in budgetary difficulty essentially through no fault of their own and understandably seek a looser interpretation of the Pact. (As J.M. Keynes famously replied to a critic who accused him of intellectual inconsistency, \“when the facts change, I change my opinion. What do you do, Sir?\”) Reference to the origins of the Pact are worthwhile only in so far as they highlight the fact that the sanctions mechanism of the excessive deficit procedure represents a political compromise that at French insistence fell short of the self-triggering, automatic mechanism that the German government sought. (DIE WELT, 5 February 2002, p. 9.)Google Scholar

(20) INTERNATIONAL HERALD TRIBUNE, 19 January 2001, no page citation at hand.Google Scholar

(21) INTERNATIONAL HERALD TRIBUNE, 13 February 2001, p. 11.Google Scholar

(22) As quoted in Ibid‥Google Scholar

(23) As quoted in Ibid‥Google Scholar

(24) As quoted in Ibid‥Google Scholar

(25) ECONOMIST, 21 July 2001, p. 23.Google Scholar

(26) ECONOMIST, 25 August 2001, p. 13 and 60. The newspaper argued that the failure to let automatic stabilisers take effect smacked of \“1930s-style self-flagellation.\” It would worsen rather than alleviate the economic downturn.Google Scholar

(27) ECONOMIST, 21 July 2001, p. 23.Google Scholar

(28) As quoted in FINANCIAL TIMES, 13 November 2001, p. 8.Google Scholar

(29) FINANCIAL TIMES, 22 November 2001, p. 1. The ECB officials quoted said that Member State governments should nonetheless continue to adhere to the goal of achieving fiscal balance over the medium term and to comply with the requirement that deficits not exceed three per cent.Google Scholar

(30) INTERNATIONAL HERALD TRIBUNE, 20 December 2001, p. 1.Google Scholar

(31) Ibid‥Google Scholar

(32) As quoted in Ibid‥Google Scholar

(33) See, for example, ECONOMIST, 25 August 2001, p. 13 and 60.Google Scholar

(34) FINANCIAL TIMES, 29 January 2002, p. 1.Google Scholar

(35) Portugal, whose projected deficit is lower than Germany\'s at 1.8% of GDP, received a critique of government fiscal policies as well as an early warning from the Commission. The Portuguese government was accused of having behaved irresponsibly by pursuing expansionary policies.Google Scholar

(36) ECONOMIST, 2 February 2002, p. 27.Google Scholar

(37) As quoted in FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 5 February 2002, p. 1.Google Scholar

(38) As quoted in ECONOMIST, 2 February 2002, p. 27. \“Credibility\” said the Commissioner elsewhere, \“means that one keeps one\'s promises and observes the rules, especially in trying times.\” (As quoted in DIE WELT, 8 February 2002, p. 4.)Google Scholar

(39) As quoted in DIE WELT, 6 February 2002, p. 5.Google Scholar

(40) Again this assumes to some extent what is to be proven: it assumes namely that the Pact is worth upholding. As one newspaper put it, however, \“[s]ome economists think that the pact was always a stupid idea: the sooner Europe is shot of it the better.\” (ECONOMIST, 2 February 2002, p. 27.) The problems that would allegedly result from one Member State\'s lack of fiscal discipline in the context of collective responsibility - i.e. higher interest rates and greater default risk - are from this point of view vacuous. Financial markets could hold a spendthrift Member State responsible for their debts without affecting the euro-zone\'s fortunes as a whole: markets could charge the Member State a risk premium for their lending and default risk remains with the Member State issuer per Art. 103 EC Treaty. Critics of the Pact argue furthermore that Member State governments have by means of the \'straitjacket\’ lost their ability to manage their economy according to national conditions and preferences: e.g. to boost the economy at the expense of widening the deficit in times of economic slowdown.Google Scholar

Other observers consider these economic critiques too theoretical: the Pact exists (and will in the absence of realistic alternatives be around for the foreseeable future). They investigate instead its effects on government policy making. Political economists believe that the 3% deficit reference value \“has become a powerful excuse not to engage in tax cuts\”, as hoped by its drafters, \“but potentially a temporary source of deficits.\” (WALL STREET JOURNAL, 13 February 2002, p. A6.) It can also be used to support demands on the ECB to lower interest rates, \“when governments feel that interest rates are too high, slowing growth and raising the government\'s borrowing costs\” (Ibid‥)Google Scholar

Other critics take a functional approach. They point out that it makes little sense to penalize a Member State for an excessive deficit by imposing additional debt upon it through the fines sanction. In the alternative, they note the historical tendency of many of the Member States who would sit in judgment to spend more than they collect in taxes themselves and conclude that \“there\'s good reason to doubt the trigger would ever be pulled.\” (Ibid‥) A final group adopts the most pragmatic perspective on the Pact. What is important is the public expectations engendered by the Pact, and in particular the effect it has on the euro\'s credibility in the financial markets. Opinion on the merits of the Pact is, however, divided here as well. Queried one observer about the euro\'s recent drop against the US dollar, \“is this really what is moving markets at the moment? [… E]ven if traders were interested in Germany\'s deficit, this would be a minor factor compared to the main driver of exchange rates: potential returns. […T]he variable is not new debt but the country\'s overall growth prospects.\” (FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 7 February 2002, p. 5.)Google Scholar

(41) As quoted in INTERNATIONAL HERALD TRIBUNE, 2 February 2002, p. 1.Google Scholar

(42) As quoted in DIE WELT, 5 February 2002, p. 11.Google Scholar

(43) As quoted in FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 5 February 2002, p. 1.Google Scholar

(44) As quoted in FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 7 February 2002, p. 1.)Google Scholar

(45) DIE WELT, 7 February 2002, p. 5.Google Scholar

(46) See, for example, the argument of one newspaper editorialist. The chancellor \“wants a show of force so that he can run his election campaign as a man able to stand up to the \‘bureaucrats in Brussels\’ rather than as a scolded schoolboy. That is why he is picking a fight with the European Commission\”. (FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 7 February 2002, p. 1.)Google Scholar

(47) FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 8 February 2002, p. 1. Apparently this French opinion was widely shared among Member State governments. The finance ministers anguished about whether their German counterpart, whom they all rate highly, really deserved to be admonished. (FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 6 February 2002, p. 2.) In this context, the responsible Commissioner did not help his cause by going out of his way to tout the German as a model finance minister. (FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 7 February 2002, p. 5.)Google Scholar

(48) FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 7 February 2002, p. 1.Google Scholar

(49) As quoted in INTERNATIONAL HERALD TRIBUNE, 9 February 2002, p. 1.Google Scholar

(50) Ibid‥Google Scholar

(51) DIE WELT, 6 February 2002, p. 8. For example, French officials explained that an early-warning would make no sense because until now the German finance minister\'s policies had been correct. (DIE WELT, 6 February 2002, p. 5.) Observers speculated that France was fearful of the Commission gaining too much power over the Member State governments should it be able to effect its will. France was also said to be expecting a quid-pro-quo from Germany in the form of Germany\'s support for its candidate to replace to the outgoing ECB president.Google Scholar

(52) Ibid‥ In the event, Austria, Belgium, Finland, and the Netherlands sided with the Commission\'s recommendation. (ECONOMIST, 16 February 2002., p. 31.)Google Scholar

(53) DIE ZEIT, 7 February 2002, p. 6. See also DIE WELT, 12 February 2002, p. 11.Google Scholar

(54) FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 11 February 2002, p. 1. (editorial) \“If Berlin continues to treat breaches of the rules as trifles [and] to subject the Commission and its partners to political blackmail […] the grand experiment that is the euro will fail.\” It is true that the German chancellor thought of the Community in terms of \'Animal Farm\', where some Member States are more equal than others. Someone who did so much good did not deserve to be reprimanded. He argued that \“a cow that gives good milk must also be stroked.\” Germany was too often exploited by the Community, as the contributor of the greater share of the EU budget, as the financial backer for enlargement, as the engine of economic reform for it to be treated as a delinquent. (As quoted in DIE WELT, 11 February 2002, p. 5.) The German foreign minister added that Germany was too big and too important for the EU to be so treated: it would not be \“right\”. (As quoted in INTERNATIONAL HERALD TRIBUNE, 13 February 2002, p. 1.) Such arguments may have had some influence on Brussels. A fortnight after the ECOFIN meeting, the Commission announced that the contribution that Germany would be required to make to the EU 2002 budget would be reduced. The Euro 2.3 billion lesser contribution was considered to be a \“first step in the right direction\” to keep Germany from exceeding the deficit reference value, said the Budget Commissioner. (As quoted in FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 28 February 2002, p. 1.)Google Scholar

(55) FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 11 February 2002, p. 1. (lead article)Google Scholar

(56) INTERNATIONAL HERALD TRIBUNE, 12 February 2002, p. 11.Google Scholar

(57) FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 13 February 2002, p. 1. (lead article)Google Scholar

(58) See, for example, FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 13 February 2002, p. 1. (editorial)Google Scholar

(59) INTERNATIONAL HERALD TRIBUNE, 12 February 2002, p. 1.Google Scholar

(60) As quoted in Ibid.Google Scholar

(61) Minutes, p. 7, 8.Google Scholar

(62) Whether Germany will be able to meet the balanced budget target of 2004 has been a matter of intense speculation and calculation in the meeting\'s aftermath. (See, for example, INTERNATIONAL HERALD TRIBUNE, 13 February 2002, p. 14.) At a minimum, all observers seem to agree that the government has set itself an ambitious target.Google Scholar

(63) Minutes, p. 8, 9.Google Scholar

(64) Ibid., p. 29.Google Scholar

(65) INTERNATIONAL HERALD TRIBUNE, 13 February 2002, p. 1.Google Scholar

(66) As quoted in Ibid.Google Scholar

(67) As quoted in ECONOMIST, 16 February 2002, p. 31. The same newspaper predicted that the issue of the Pact\'s application would come up again because the Pact \“has not been dismantled and it has not been improved very much either.\” When the issue does, \“the recent muddle will […] be repeated.\” (ECONOMIST, 16 February 2002, p. 12.) EU Enlargement may be the trigger to the Pact\'s reform. The economies of the applicant states continue to differ significantly from those of existing Member States. As such, the Pact may be difficult to apply without greater flexibility in interpretation after the applicant states adopt the common currency. (INTERNATIONAL HERALD TRIBUNE, 12 February 2002, p. 11.) Other observers argue that the prospect of increasing divergence should be occasion to strengthen the EU\'s ties, its rules and their enforcers. \“An enlarged Europe simply will not be viable unless it has strong institutions - above all a Commission - whose authority is binding and cannot be challenged.\” (FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 15 February 2002, p. 1.)Google Scholar

(68) FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 6 February 2002, p. 2.Google Scholar

(69) As quoted in FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 11 February 2002, p. 1.Google Scholar

(70) As quoted in FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 7 February 2002, p. 1.Google Scholar

(71) Ibid.Google Scholar

(72) WALL STREET JOURNAL EUROPE, 13 February 2002, p. A1. It should not be dismissed out of hand that there were political calculations at work in the Commission\'s behaviour, if not against the German government qua Social Democratic Party-Alliance90/The Greens coalition then qua Member State representative. The Commission may well have initially made a technical determination based solely on economic criteria in deciding that Germany risked an excessive deficit. Thereafter, it seems highly likely that the Commission took such a strong, uncompromising stance in drafting the letter and then refusing to reconsider its recommendation in order to establish a precedent not only in favour of the euro\'s credibility and the central bank\'s independence (INTERNATIONAL HERALD TRIBUNE, 13 February 2002, p. 1), but also in favour of the Commission itself. As one newspaper observed, it was of course inconceivable that any Member State would ever really be subjected to such a humiliation under the Pact, especially to its fines. Political considerations would dictate that \“[s]omehow a way would have to be found to get Germany off the hook.\” (ECONOMIST, 2 February 2002, p. 27.)Google Scholar

(73) Gros, D., Center for European Policy, as quoted in WALL STREET JOURNAL EUROPE, 13 February 2002, p. A1. The capital markets have yet to pass definitive judgment on Germany\'s budgetary position, though the blauer Brief brought the issue into sharp focus. The rating agencies are waiting to see how the situation develops before deciding whether to impose their own sanctions - namely a downgrade of the federal German government\'s debt from its top credit rating. (FINANCIAL TIMES, 6 March 2002, p. 2.) As many emerging countries have learned, the rating agencies\’ sanctions can constitute severe punishment.Google Scholar

(74) ECONOMIST, 16 February 2002, p. 31.Google Scholar

(75) For a selection of such opinions, see, for example, INTERNATIONAL HERALD TRIBUNE, 13 February 2002, p. 14.Google Scholar

(76) See, for example, \“Euro-zone purists say […] it is no longer clear just how binding the once iron-clad framework will be in the future.\” Ibid.Google Scholar

(77) T. Waigel, DIE WELT, February 2002, p. 12.Google Scholar

(78) WALL STREET JOURNAL EUROPE, 13 February 2002, p. A6.Google Scholar

(79) FRANKFURTER ALLGEMEINE ZEITUNG, 19 November 2001, p. 8.Google Scholar

(80) P. Malanczuk, Akehurst, Modern Introduction to International Law (7th. ed.), Routledge: London/New York, 1997, p. 5.Google Scholar

(81) Ibid., p. 6.Google Scholar

(82) WALL STREET JOURNAL EUROPE, 13 February 2002, p. A6; DIE WELT, 5 February 2002, p. 9.Google Scholar

(83) Minutes, p. 8.Google Scholar

(84) As the arrangements now stand, coordination between the different levels of government is affected through a financial planning committee composed of representatives from each. It meets twice a year to discuss budgetary policy and is allowed to render policy recommendations. The committee\'s recommendations are not binding on the governments and fiscally irresponsible governments suffer no consequences for their non-observance, not even public warning. (FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 12 February 2002, p. 5.) As ECOFIN sharply observed, \“the mechanism enshrined therein [in the Budget Principles Act] is not yet sufficient to guarantee compliance with mutually agreed objectives by all levels of government.\” (Minutes, p. 7.)Google Scholar

(85) FRANKFURTER ALLGEMEINE ZEITUNG (English Edition), 12 February 2002, p. 5.Google Scholar