Euro‐Crisis Law
Giorgio Monti
Professor of Competition Law
http://eurocrisislaw.eui.eu

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The euro – a big mistake• Article 3(4) TEU: The Union shall establish an economic andmonetary union whose currency is the euro
– Euro is part of a larger project: EMU– Which is part of an even larger project: political union• Why was it a mistake?
– The EU is not an Optimal Currency Area
– The rules set out were both too strict and too lenient– There was no contingency plan2

Optimal Currency Area v Euro• Capital mobility– EMU is OK• Labour mobility– EMU is weak: language barriers/national markets• Price/Wage flexibility– Wages set by unions, not my markets• Ability to make internal transfers in case ofasymmetric shock– Absent in EMU: no EU taxation/budget– Fiscal policy (tax and spending) is still national3

How EMU was designed to avoidfailure• Enforce free movement of capital rules• Central Bank & single currency• Control National Budget Deficits– Prohibit excessive deficits– Absent single fiscal policy, ensure no stateborrows too much

• Coordinate national economic policies– Divergent policies make it hard for central bank to
set interest rates
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Why failure remained possible• No labour mobility• No central budget to rescue failing state• No discipline by Member States– Incentive to borrow high (Greece, Spain, Ireland,Italy…)– Excessive deficit procedure weak5

Euro‐Crisis– Banking Crisis (2008): financial markets fail,borrowing costs for states/firms rise: recession– Greece 2009: high borrowing & uncertainty overcapacity of repayment– Domino effect 2010: will other states also be
unable to repay debts? Will the Euro survive?
– Commitment by MS, EU, ECB to do ‘whatever ittakes’ to rescue the euro6

Euro‐Crisis Law• How can the EU & Member States
1. Rescue those states that are in difficulty? (crisismanagement)
2. Create a system that makes EMU sustainable? (crisisprevention)• Euro‐Crisis Law– Treaty Amendments, Regulations, Directives– International Treaties

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Crisis management instruments
1. European Financial Stabilisation Mechanism (2010)––

EUR 60 Billion
Under EU Law

2. European Financial Stability Facility (2010)––EUR 400 Billion
Under International Law, only Euro‐area MS

3. European Stability Mechanism (2011/12)–––Consolidates 1 & 2
EUR 700 Billion
Under International Law, only Euro‐area MS

4. TFEU Amendment (2011)–Legal provision to support ESM
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ESM: outside of EU Law, but subject toEU Law, borrowing EU institutions
Art 163(3)The Member States whose currency is the euro
may establish a stability mechanism to beactivated if indispensable to safeguard thestability of the euro area as a whole. The
granting of any required financial assistanceunder the mechanism will be made subject tostrict conditionality.
9National level debates• Ratification debates: main themes– Among non‐crisis states:• Are we too lenient? (moral hazard risk of ever more aid)
• Cost of the measure & doubts on whether it is sufficient• Attempts by minority parties to secure further reforms (egfinancial transactions tax, Germany)• Ensure participation of parliament in ESM‐relateddiscussions– Among crisis states• Strong opposition from minority governments, anti‐europarties grow, governments collapse, technical governments
10Pringle v Ireland• Irish Member of Parliament Challenges
constitutionality of Treaty amendment underIrish and EU Law– Reference to ECJ• Why make this challenge?

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ECJ:
is the amendment lawful?
• Can ECJ review this Treaty amendment?
– Yes, if you use simplified procedures (Art 48 TEU)

• Does the amendment affect monetary policy(for which the EU has exclusive competence)?
– No, it is an instrument of economic policy• Does the amendment increase the EU’scompetences? 9Art 48(6) TEU)
– No, because while it uses EU institutions, the ESM
is established by Member States
12What about the ‘no bailoutclause’?
• Art 125 TFEU
– The Union [& a Member State] shall not be liable foror assume the commitments of central governments,regional, local or other public authorities…
• Reason: avoid more hazard– ECJ’s response• ESM is not a bail out because it is a loan to be repaid• Strict conditionality is attached to the loan so as to prevent
future need for loans

Are these two responses consistent?
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Domestic Legal Challenges•German Constitutional Court:– Enhance participation of German Parliament•French Conseil d’Etat– ESM finds & Parliamentary scrutiny•Netherlands– Challenge against procedure for ESM adoption disallowed, court
priorities practical implementation of Treaty•Latvia:– constitutional court considers budget cuts (e.g. cuts in pensions; cutsin judges’ salaries; cuts in working parents’ childcare allowance)• Fundamental social rights• Principle of proportionality– Takeaway: court is the principal organ where trade‐offs are debatedpublicly.
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Discussion• Procedures and accountability of ESM– Informal procedures: law v speed• Informal meetings of finance ministers• European Council meetings usually ‘fixed’ by Germany &France• Weak accountability for ESM actions (appeals to Board ofGovernors/ECJ)– Commission ‘borrowed’ by the ESM• Risks: resources used for ESM & not EU business; change ofculture for Commission– Imbalance between debtor states & others• Solidarity v hierarchy

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Conditionality• Impact of strict conditionality– States borrowing must make significant adjustments toeconomy• Cut health/welfare spending• Raise taxes• Privatise industries– Compliance is monitored by the Commission/ECB/IMF• Commission &ECB are not formally competent under the Treaty– MOU may be varied (w/o much say by the aid recipient)• 6 revisions to Greek MOU (2010‐2012)– Competences of the ‘EU’ grow as a result of memorandaof understanding:• Labour rights; taxation; property rights
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Crisis prevention measures 1• Six Pack
– 6 Directives, obliging states to:• Avoid excessive deficits• Balance their budgets• Diversify economy– Enforcement• European Semester: review of national policies• Penalties for breach: 0.1 to 0.5 % of GDP• Sanctions:– Extremely complex procedure & high penalties– Not economically credible (Cf. no adverse market reaction in2002 and 2004 when the excessive deficit rules are not enforced)
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Crisis Prevention 2
The Fiscal Compact• Treaty on Stability, Coordination andGovernance– International Treaty (not signed by UK and Czech)– Balanced budget rule
– Automatic mechanism to correct imbalance– To be enshrined in national constitutions

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Takeaways• Legal complexity overshadows analysis of effectiveness• Logic of saving failing states transplanted to all
Member States with European Semester etc.
– Competences of the EU enlarged by international treaties– Democratic input at national level: largely irrelevant– National constitutional courts last place for protecting
democracy & rights?
– Impact on the future of the EU?
• More Europe (Habermas)• Anti Europe19