My post on Europeanizing the Eurozone on I·CONnect.

My post on Europeanizing the Eurozone on I·CONnect.

"The combination of factual German dominance within the Eurozone and the constitutional nudge to maximize German citizens influence in Europe is, to say the least, dangerous."

Europeanizing the Eurozone
Tomas Dumbrovsky

The way the Greek debt crisis was handled in the last weeks has been a public relations nightmare. The more or less rational debate about different economic and political views has succumbed to the irrationality of harmed feelings, humiliation, revenge, and distrust. It has revealed the deep structural problem of European governance: its insufficient constitutionalization.  

The European integration process started as a promise for a constitutional federation, at the time meaning a post- and supranational community of European peoples. At this point many constitutional scholars raise their eyebrows (see Dieter Grimm’s recent article for one). Surely, dismantling the prevailing narrative of elitist integration and post-factum European Court of Justice driven constitutionalization of the EU Treaties would take too much space (in fact the post is too long already). Yet let me raise a few points that might help us think about what the abandonment of this promise has brought us.    

As is well known, the first serious blueprint for European integration, the 1950 Schuman Plan, saw the pooling of coal and steel production as “a first step in the federation of Europe.” This was not an elitist idealism. Opinion polls from the late 1940s indicated that popular majorities in the soon-to-be founding states France, Italy, Germany, Belgium, the Netherlands, and Luxembourg supported a federal Europe and the press echoed this mood. The Paris Liberté wrote that: “the evolution of the situation in Europe made the need for a federal union more and more evident.” The former U.S. Under-Secretary of State Sumner Welles applauded this change in the New York Herald Tribune: “One of the most heartening developments in Europe in recent months has been the rapid increase in the popular demand for the establishment of a European Federation.” The course towards genuine supranational governance based on parliamentary democracy was set as soon as the 1951 Paris Treaty established the Coal and Steel Community. The Assembly could be elected by direct universal suffrage and vote no confidence to the executive, the High Authority. These provisions, however, remained latent for decades.  

Subsequent developments have created two different narratives of EU governance. One of them tells us about the constitutionalization and parliamentarization of the Union through the Court of Justice and through the evolution of the European Parliament’s legislative and budgetary powers. The other has been about reinforcing the role of dominant member states in the course of integration from the Empty Chair crisis to the Luxembourg Compromise, to the establishment of the European Council, to the launching of the Economic and Monetary Union (EMU) governance. After much of constitutional scholars’ energy was spent on the former storyline, the Euro-crisis clearly revealed where power in the current Union truly rests. In the most federalized part of the European Union–the Eurozone–markets, world powers, and other interested parties are impatiently waiting for signs from the German Chancellery, the Bundestag, the German Constitutional Court, and the Bundesbank. The press conferences of Commission President Jean-Claude Juncker, EP President Martin Schultz, European Council President Donald Tusk, or the press releases of the Court of Justice get far less attention. Instead, German intrastate institutions are setting the tone of European integration, building support in their counterparts in a number of other EU member states. The only federal institution that has the potential to counterweight them is the European Central Bank under Mario Draghi’s leadership.  

To be fair, the present state of the Union is not (entirely) Germany’s fault; it is rather a structural issue. Since the late 1980s, the federal features of the European Union, and especially of the Eurozone, have advanced immensely, but its constitutionalization has been lagging behind. In this European federation, Greeks cannot have their debt restructured, because it is forbidden by the no-bailout clause of EU primary law; they cannot print their own money, because this is federal power; and they cannot be forced to exit the Union, because the Treaties do not know of such option. However, it is state not federal institutions that are setting the standards for how to deal with the Greek situation: from the conditional veto over the European Central Bank’s outright monetary transactions program by the German Constitutional Court to various guarantees to the German citizens that the Greek loans will be repaid.  

The roots of this asymmetrical federation can be traced back to the 1970s. The Luxembourg compromise that frustrated the Treaty-scheduled move to a qualified majority voting in a number of policy areas could not be sustained forever. Not only the compromise was illegal, but also inefficient. French President Valéry Giscard d’Estaing, in hopes to affirm France’s grip on the integration project, proposed to create a new super-institution–the European Council. Composed of the heads of state or government, the European Council would meet twice a year to make strategic decisions about the course of European integration, without any legal basis in the Treaties for decades. In 1997, at France’s request, its analogue for the Eurozone, the Euro Group, was established (legally recognized by the Lisbon Treaty ten years later). During the Convention on the Future of Europe, Giscard once again pushed for the restructuring of EU governance around the European Council. In the soon-to-be 25-member Union, the triumvirate of France, Germany, and the UK would naturally assume leadership, or so Giscard thought. However, the Euro-crisis, UK’s abstention from the third stage of the EMU, and the weakened position of France made the system backfire. Since, at least in the Eurozone, such a system inevitably favors the economically dominant regions, their local institutions, from assemblies to courts, are able to exert disproportional influence. The consequence is that “European” solutions must fit the local constitutions of pivotal states.  

The deal might have worked when France still dominated the European Council with its flexible constitution, constructive use of judicial review, relatively fluid party system, strong presidents, and less rigid monetary views, but once Germany took its place, the game changed (see Bruce Ackerman’s recent powerful comparison of the different constitutional paths these two regimes took). German intrastate institutions now unilaterally set the limits on what is possible on the European level. While Angela Merkel is able to put Slovakia or Finland in line with a relative ease, she has to invest much more energy to reach a compromise with “her” own parliament, constitutional court, and central bank.   Any discussion about Eurozone action has therefore less to do with the meaning of the EU constitutional charter, as the European Court of Justice has proclaimed the Treaties a long time ago, and more with whether federal action fits one of the local constitutions.  

Compare this with the prequel to the Nullification Crisis in the United States. In 1798, Madison and Jefferson secretly authored the Resolutions of the Virginia and Kentucky Assemblies that threatened to nullify as “ultra vires” federal statutes, the Alien and Sedition Acts. In a language strikingly familiar to that of a European constitutional scholar, Jefferson wrote that the states: “constituted a General Government for special purposes, delegated to that government certain definite powers … and that whensoever the general government assumes undelegated powers, its acts are unauthoritative, void, and of no force.” In such cases, for Madison, “the states … have the right, and are in duty bound, to interpose for arresting the progress of the evil.” Madison and Jefferson, however, were not defending state constitutions or reading the U.S. Constitution through the prism of state constitutions. They instead wholeheartedly defended their understanding of the U.S. Constitution. It was up to the states, not Virginia or Kentucky, to oppose the federal government when it exceeded its powers; this obligation derived from the common federal project, not a state constitution.  

For Germany, this unfortunately is not the case. When the German Constitutional Court used to center its review of EU acts on human rights (in the Solange I and II judgments), the effect for the common project was positive, since the individual stood at the center of the German Court’s review. The situation changed profoundly when the German judges shifted to the protection of the “substantive content” of right to vote (Art. 38 of the Basic Law) in their Maastricht judgment. From then on, the German citizen became the focal point of the review. Step by step, the Court has built up a complex system of intrastate checks on EU governance, which the other German institutions have quickly internalized. The German Court specified the ultimate boundaries of European integration imposed by the eternity clause in the Basic Law and the necessary level of involvement of the Bundestag in European decision-making. Within the set limits, the Bundestag agrees on a concrete mandate for the executive in a way that, in effect, maximizes the democratic rights of German citizens (cf. the Lisbon judgment). This allows little scope for negotiations at the European level, since the Bundestag will have to check the final “European” outcome. The German Bundesbank is obligated to use its voting and implementing powers within the European System of Central Banks (as is the German executive within the European Stability Mechanism), again, to maximize the rights of German citizens (cf. the OMT judgment: “An ultra vires act … creates an obligation of German authorities to refrain from implementing it and a duty to challenge it”). To paraphrase Madison, we can say that the German Chancellor, the Federal Court, the Bundestag, and the Bundesbank are “in duty bound to interpose for arresting the progress of the [European] evil.” This combination of factual German dominance within the Eurozone and the constitutional “nudge” to maximize German citizens influence is, to say the least, dangerous. What is a prudent economic policy in Greece becomes a German constitutional matter.  

When the major veto players of Eurozone governance are four different and relatively independent German intrastate institutions no wonder that the solutions to the Greek crisis look too German or that the Greeks perceive them as such. Whether these solutions or others are better suited is actually far less important; the main problem is that it taints their legitimacy (cf. Jürgen Habermas on the third Greek bailout deal); and with tainted legitimacy certainly comes less efficiency. If the European Union, and especially its most federal part, the Eurozone, is not Europeanized soon, the third Greek bailout would be the least of Europe’s problems. The federal institutions need to represent Europeans and not Germans, French or Estonians, and the discussions need to revolve around the meaning of the European “constitution”. How to get there is for another post.  

Suggested Citation: Tomas Dumbrovsky, Europeanizing the Eurozone, Int’l J. Const. L. Blog, July 31, 2015, at: http://www.iconnectblog.com/2015/07/europeanizing-the-eurozone

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