A Handbook on the European Union

An informed opinion on Europe's experiment in transnational democracy

2015-11-08

Table of Contents

1. Introduction
2. The European Union
3. The gradualist tradition
4. Rule forming and rule making
5. Limitations of the European Parliament
6. The euro
7. The statelessness of the euro
8. Shared sovereignty and shared responsibility
9. Institutional independence of the European Central Bank
10. Transnational democracy
11. Democracy as decentralised power
12. Democratic sovereignty
13. Federalism as state-level decentralisation
14. Europe’s sovereignty mismatch

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Introduction

The objective of this publication is to argue that the European Union can be understood as an experiment in transnational democracy. In the present handbook we indirectly examine how this organisation does not fit into any of the existing models for classifying political entities. Though it is a union of states, it is neither a federation nor a confederation. While it is founded on inter-state treaties, it is not like any other international organisation. Even though its legislation is legally binding, it is not a sovereign nation state.

What contributes to such indeterminacy is the very nature of European integration. It is a process that brings together different nation states, each with their own unique characteristics and traditions, with the objective of selectively harmonising areas of policy. By “European integration” we are actually referring to a method for standardising legislation across countries that are members of this organisation. These countries, formally referred to as the European Union Member States, are jointly participating in an array of procedures for bringing about the eventuality of rule standardisation.

If we were to describe the European integration process in a single phrase, it would have to be “cross-border harmonisation”. To understand why that may be the case, and why European leaders find it worthwhile to provide for a common basis for legal provisions and policy targets, we need to consider European history. The European nations were traditionally divided, each developing its own political culture and state structures. To a larger or lesser extent, every European nation that now is a Member State of the EU has had its own historical trajectory as a nation state. From a supranational perspective, each of these paths led to a different direction, eventually contributing to a Europe-wide heterogeneity. Though divisions are a near-permanent feature in European history, it arguably was the experience of two World Wars that made Europeans realise the need for forging closer ties among their nations for the preservation of continent-wide peace. Although conceived to prevent another major war, the first European Communities were economic projects: agreements for gradually developing an area of free trade. With the creation of the European Union, the integration process has, at least in principle, assumed a more ambitious telos: the political unification of Europe.

Examined in its own capacity, every stable state is a peace project among its people. It is a political organisation meant to preserve, at the very least, the public goods of order, security, and health. These are not the only ethical items of a polity. They are however the minimum for preventing lawlessness and internal conflict. Without a certain set of rules, be they codified in law or not, and in the absence of inter-personal qualities for guaranteeing general stability, there can be no functioning state, no organised society. Seen in relation to other states, a stable state can be a degree of peace or a sense of togetherness that is achieved at the expense of other peoples, which amounts to a global “win-lose” situation, where one side gains at the expense of another. That used to be the norm in European power struggles prior to the second half of the 20th century. The European integration process represents a certain change in that regard. It also is a peace project, albeit one that is among stable states: a “win-win” situation, meant to decisively prevent strife on an inter-state level.

A modern republic is not established solely for the purposes of public order, security, and health. There are other values for legitimising a state, most notably the arrangements of power distribution that make up a democracy which functions in accordance with the rule of law. To those we may add economic objectives manifesting in the capacity of individuals to make choices in supplying or demanding goods and services; social considerations such as the distribution of resources, the equal status among social groups, each with their recognition and respect for their unique characteristics; cultural ends like the empowerment of persons through art and self expression, or the equal opportunities for education and participation in the commons; ecological awareness, expressed as respect for the environment, protection of biodiversity, and the overall adaptation of human social experience to nature’s limits. To that end, European integration is not just a peace project, but an overarching ambition to deliver the public goods of a modern republic on a continental level and in a trans-national-border fashion. Transnational democracy is our criterion for judging the European Union. We are, in other words, applying republican principles on a scale beyond the nation state, though not against its normative achievements.

This handbook is divided into three parts. The first concerns the overall design of the European Union, the second is dedicated to the euro, while the third focuses on political theory in order to flesh out the fundamental sovereignty mismatch of the present order. Ultimately though, the themes under consideration do not exhaust the broader subject of European integration. They merely contribute to one’s thinking when examining day-to-day European affairs.

The European Union

In this first part we shed light on some of the main features of the European integration process and how these relate to the institutional order of the European Union.

The European Union is in many ways a unique political organisation. We may use particular areas of policy to describe its system, such as monetary policy to suggest that it is a federation, or foreign and security policy to argue that it is a confederation. While existing models of state can be useful in guiding our thinking, their rather fixed significations may also obfuscate some of the EU’s peculiarities. To suggest that the EU is a federation or a confederation can be a way of describing the distribution of authority between the national and the supranational levels, yet it can also provide for an erroneous perception of aspects of European policy that otherwise do not conform with such a narrative.

European integration is a process. When we try to use an existing model we commit the error of treating European integration as mostly static and largely complete, as already made. Whereas to perceive of it as a process means to consider it in a state of flux, as being in the making. We may describe the actual system of the EU in negative terms, as not being a typical federation, confederation, or international organisation. The venture becomes more complicated when attempting to positively define it, as to what it actually is. To this end, one should be mindful of the EU’s incompleteness, so that any claim on its actuality is provided with the proviso that it may not be entirely accurate.

It is common to refer to the EU as a polity sui generis, standing in a league of its own. While that may help us avoid the direct comparisons with existing political systems, it can imply that we do indeed know what this unique kind is: that we can, in other words, properly define it. The problem with definitions along those lines is that they try to provide for a uniform description of an otherwise heteroclite whole. Perhaps the safest generalisation one can make is that there are areas of European policy that can be understood as federal, others as confederal, others as intergovernmental. However these cannot be reduced to each other: an intergovernmental formation cannot also be a federation, a federated system differs from a confederation, and so on.

Still, the European Union is not fundamentally indeterminate. What we are arguing for is that the method used needs to account for its nature as becoming. To that end, we attempt to study the specifics, to discern commonalities in the multitude of phenomena for understanding this new form of polity. This is a positivist exercise, yet one which provides for a relatively higher degree of uncertainty in not offering a final judgement.

The gradualist tradition

Though the ultimate end of the European Union is the political unification of Europe, the European integration process did not start with such a lofty ambition. While there were voices following the end of World War II calling for a “United States of Europe”, mostly notably Winston Churchill, as well as attempts at creating a European Political Community, the first European Communities were much narrower in scope. They were trade agreements between six countries: France, Italy, [West] Germany, Belgium, the Netherlands, and Luxembourg.

Officially, European integration starts with the European Coal and Steel Community, established in the early 1950s. It was an inter-state agreement meant to dismantle barriers to trade in perhaps the predominant industries of the time, those of coal and steel. The idea of free trade between countries was broadened with the Treaty of Rome, signed in 1957 and ratified a year later, which established the European Economic Community (EEC), the EU’s predecessor. The objective of the EEC was the creation of a customs union that would eventually encompass the four core freedoms of the common market, namely the free movement of goods, persons, services, and capital. We may consider the creation of the single market as the first stage of European integration.

Change was slow and often had to depend on landmark rulings from the European Court of Justice, such as the Van Gend en Loos case which asserted the Direct Effect of European Law, or the case commonly referred to as “Casis de Dijon” (after a French liquor) which made a breakthrough in the prohibition of indirect impediments to cross-border trade.

In 1992 with the end of the Cold War and with the European common market having matured over the decades, European leaders proceeded with the signing of the Treaty of Maastricht. It was a turning point, ushering in the second stage of integration that would see the common market become but one of the pillars of a new, much more ambitious entity, the European Union. In line with broadening the scope of the integration process, there was to be an Economic and Monetary Union, with the euro envisaged as the official currency of the EU (the opt-outs of the United Kingdom and Denmark are exceptions to the rule). Each Member State committed to a set of convergence criteria—the Maastricht criteria—for eventually adopting the single currency, such as provisions on the level of the budget deficit, public debt, inflation, and long-term interest rates.

The Treaty of Lisbon, the last in a series, has improved and streamlined the Maastricht architecture, with the most notable change from a parliamentary perspective being the expansion of the European Parliament’s power and influence, by virtue of the ordinary legislative procedure becoming the standard method for producing European legislation.

As of today, the European Union is founded on two Treaties, the Treaty on European Union (TEU), and the Treaty on the Functioning of the European Union (TFEU). Both have the same legal value. Meanwhile, the Member States of the EU have grown from the original six to twenty eight.

What this historical overview tells us is that the overarching theme of European integration is that of gradual changes to an ever expanding corpus of law, also known as the acquis communautaire or the Community acquis. We may name the method by which European integration is pursued step-by-step as gradualism. This is not really a political ideology, but a way of achieving progress through multilateral negotiations in awareness of Europe’s history as a largely heterogeneous collection of nation states.

The implicit and arguably valid assumption of gradualism is that any sentiment of “Europeanness” is secondary to feelings of national belonging and, hence, any attempt to unite the Europeans has to be made in relation to some practical need for collaboration rather than a more idealist narrative for togetherness. National sensitivities must be respected, otherwise it will be Europe that will fall out of favour in cases where a conflict of identities is perceived as taking place. In effect, this means that nation states must commit to modes of policy coordination that do not undermine their very presence. The European level is, from a national government’s perspective, the theatre of intergovernmental relations, which are formalised in the inter-state treaties that found the European Union and which are framed by the supranational secondary legislation stemming therefrom. These treaties, which serve as the de facto constitution of the European Union, substantiate a rule-forming-rule-making stratum that is above yet decisively with the governments of the Member States.

Essential to gradualism are three items: (1) the functional necessity for broadening and deepening integration, (2) the pursuit of top-down politics, understood as high-level intergovernmental relations being the driving force of integration, and (3) the spirit of intergovernmentalism as the pragmatic way of reaching consensus between nation states within the framework of European law.

Understanding gradualism is important for anticipating future integration. While it may be argued that a quantum leap is needed for decisively addressing some of the EU’s shortcomings, it is highly unlikely, based on the prevailing conditions, that a radical reform of the system will occur over the next decade or so. We now are in the phase of backstage negotiations on a future Treaty amendment. One can only speculate what its content may be. It may push European integration to its third stage, that of eventually becoming a political union of sorts, it might roll back parts of the acquis, or even create some new state of affairs.

What is more concrete at this stage is an action plan titled “Completing Europe’s Economic and Monetary Union”, which was published on June 22, 2015. This is also known as the Five Presidents’ Report, courtesy of its five signatories: European Commission President Jean-Claude Juncker, President of the European Council Donald Tusk, Eurogroup President Jeroen Dijsselbloem, President of the European Central Bank Mario Draghi, and the President of the European Parliament Martin Schulz. The ambition of this document is to do as much as the current Treaties allow for in enhancing economic governance and completing the banking union. Eventually though, it intends to introduce reforms that would require a new Treaty, such as providing the supranational level with a fiscal capacity (to raise taxes, issue debt, engage in autonomous spending) commensurate with political legitimation and accountability.

True to tradition, the five presidents are as gradualist in their stated ambition as one would come to expect. While the European Union will be reformed, it is safe to assume no major change will happen overnight.

Rule forming and rule making

The European institutions are horizontally separated in line with the principle of the division of powers. The executive function is trusted in the European Commission, the legislative in the institutions of the European Parliament and the Council of the EU, the judiciary in the Court of Justice of the EU, the monetary in the European Central Bank, the auditory in the European Court of Auditors. The one institution which complicates things is the European Council, for it performs none of the aforementioned functions yet is the ultimate decider on all things concerning EU politics. The European Council is the formalised body of the heads of state or government of all the Member States. While it does have a president who serves a fixed term, it remains an intergovernmental entity that aims at producing consensual agreements between the national governments on the future direction of the European integration process.

One would expect the executive to be the entity deciding on the political direction of the Union, always in concert with the legislative, and in accordance with the legal order. It is the role of governments to take decisions that influence—indeed determine—their outlook as well as the future options of subsequent governments. For instance, it is up to the United Kingdom’s government to decide on the qualitative features of their country’s referendum on EU Membership: what the exact question will be, whether there will also be a referendum on a possible renegotiated package, what the specific demands may be for changing their relationship with the EU, and so on.

Though the European Commission is the executive, it is not the European government, at least not in the sense we would think of any other government. The Commission does indeed perform almost all of the tasks of an executive, proposing legislation, foreseeing its implementation, providing technical expertise on all areas of policy that fall within its competences, etc. What the Commission lacks is the capacity of taking final decisions on what rules will be created. This power is left with the European Council. It is the latter institution which decides on what the outlook of European integration may be, and which areas of policy require further harmonisation. The Commission takes all necessary measures for realising the European Council’s guidance, typically by putting forth a legislative proposal. Thus, while the Commission is the European “government”, it has an overseer, an institution which provides it with its mandate.

To better describe this kind of institutional order, we may employ terms or phrases that denote what each of the institutions does in the creation of the EU’s rules. Since the European Council does not get involved in the technical aspect of law-making, we may argue that its role is that of rule formation. The European Council forms the rules by virtue of deciding on the direction and scope of future integration. In effect, the European Council instructs the Commission to pursue certain goals. The Commission is tasked with fleshing out in precise detail the specifics of its mandate, usually by means of initiating the ordinary legislative procedure, which involves the European Parliament and the Council of the EU as co-legislative institutions. We can suggest that the legislative process, with all its technicalities and complexity, is where the European Union’s rule making takes place.

Whether this state of affairs is optimal or not remains a matter of one’s judgement. For the present author, this is considered suboptimal even though it does extend an otherwise sound principle: the division of powers. The flaw is identified in the European Council’s accountability structures. One would expect the final decider to be accountable to a body politic commensurate with the reach of its authority, just as a country’s government is accountable to the country’s citizens. The European Council is an intergovernmental entity, which means that any one of its members, the political leader of each Member State, is only accountable to their own citizens. The collection of national leaders is not accountable as a body to a unified citizenry, to a European demos. As will be discussed at the end of this handbook, this reflects the fundamental flaw of the European Union’s current rule-forming-rule-making design: its sovereignty mismatch.

Though the EU is still far from being a federal republic, it could still benefit from a change in the legitimacy and accountability of its supranational decider. Should Treaty amendments be considered in the near future, it would be desirable to reform the relationship between the European Council (and its quasi-legal subset, the Eurogroup) and the rest of the institutions. One can envisage the adaptation of the current bifurcation of powers between European Council and European Commission, so that a new executive could be introduced that would perform the function of forming the rules as well as participate in their making. This would involve a couple of things:

1. a European Administration as a successor institution to the European Council, preferably a directly elected one or, at the very least, one appointed by the Member States following approval from the European Parliament;
2. the remodelling of the European Commission into a purely technocratic entity, a public service, tasked solely with providing its technical expertise in the making of legislation, and in being a true “guardian of the Treaties” by monitoring the compliance of Member States with the Union’s legal order.

Currently the European Commission consists of twenty eight commissioners, each from a Member State. These Commissioners are high profile politicians. Though it is understandable that in the spirit of consensus every country gets to have a Commissioner, this set-up is not particularly desirable for at least three reasons: (i) it politicises the Commission, thus creating a tension between its actuality as a political entity and its objective as an impartial guardian of the Treaties, (ii) it forces the Commission’s president to come up with ever more roles to give work to individual Commissioners, so that they effectively end up with seemingly overlapping tasks, and (iii) the European Commission is a purely supranational institution and should have a clear status as such, distinguishing it from other intergovernmental entities.

A reformed Commission would see it reduced in political gravitas, so as to be best suited for the crucial technical role it has to assume. The direct input of Member States is already provided in the legislative institution of the Council of the EU, making any further involvement an unnecessary duplication of representation. In such a new institutional arrangement with a reformed bifurcated executive, a convention of Member States’ leaders would only be foreseen for the purposes of deciding on amendments to the European Treaties.

Understandably, none of these reforms may take place. At this point they remain purely theoretical, even though they are empirically informed from the EU’s peculiarity of having distinct entities that form and then make the rules. Rule formation and rule making can very well be preserved in a Treaty change that will otherwise improve the overall legitimacy and accountability of the supranational stratum of authority, all while respecting—and being in line with—the interests of the Member States.

Limitations of the European Parliament

The European Parliament performs the main function of any other parliament: to decide on the content of legislation. While that may qualify it as adequate for the purposes of fulfilling its law-making role, it does indeed face certain limitations in its power, all of which have to do with the nature of the European Union as a union of states that is not yet a federal republic.

There are three limitations to the Parliament’s scope, namely: (1) no legislative initiative, (2) constrained budgetary powers, (3) no institutional role in controlling rule forming entities.

Within the context of the ordinary legislative procedure, which is the main modus operandi for producing secondary legislation, only the European Commission has the right to initiate the process. The Commission sends its draft law to both co-legislative institutions, the European Parliament and the Council of the European Union, which are then tasked with agreeing on a common text. What this means is that the legislative function is only capable of reacting to a proposal from the executive. All the Parliament can do in terms of an initiative, is to ask the Commission to produce a certain draft for a new piece of legislation, which will then be subject to the ordinary legislative procedure. The inability to outright initiate the law-making process implies the following:

1. the Parliament’s own-initiative reports are not legally binding;
2. it cannot be the prime mover in the effort to amend or repeal existing legislation;
3. it may not fulfil its democratic mandate in formally expressing the demands of European citizens (such as those that gain momentum through the European Citizens’ Initiative).

As concerns budgetary powers, the Parliament has to conform with the EU’s peculiarity of having a multiannual budgetary framework, formally known as the Multiannual Financial Framework. Also and given that the EU does not have a fiscal capacity of its own (the power to, inter alia, raise taxes and issue debt), all of the budget’s funds come from national contributions. This means that intergovernmental bargaining takes place prior to the introduction of a new MFF, for the purposes of deciding on the appropriation and upper limits of the funding arrangements. The main role of the European Parliament is to make amendments to the inner distribution of any given set of resources, as well as have a final say on the MFF as a package. It cannot have a position on either the distribution or the ceilings concerning each area of spending. Put simply, the Parliament cannot decide to take resources from agricultural policy and reallocate them to infrastructure. Ultimately though, the rather minor impact on the MFF means that no parliamentary majority is capable of shaping the EU’s fiscal stance to adopt an expansionary or contractionary policy in accordance with the business cycle.

In recent years, where the Parliament’s weakness has been most apparent is its inability to scrutinise the rule forming entities of the European Union (European Council and Eurogroup), as well as hold accountable the various intergovernmental arrangements that have been set up as a response to the euro crisis, most notably the so-called “troika”—officials from the European Commission, International Monetary Fund, European Central Bank—and the European Stability Mechanism. As concerns the rule forming entities, the Parliament cannot hold each of them accountable as a body, for they are comprised of national representatives who only answer to their respective parliaments and electorates. This means that the rule forming entities are answerable to no parliament or citizenry as collectives. As for the instruments that deal with the euro crisis, including the ESM, these are purely intergovernmental in nature, which puts them in the same league as the rule forming entities. Similarly, the European Parliament has no right to scrutinise the International Monetary Fund: the bailout programmes under the troika’s supervision are multilateral agreements whose “ownership” is attributed to the nation state receiving the financial support, so that accountability, if any, remains at the national level.

These limitations notwithstanding, the European Parliament has over the decades become an important player in European affairs. With the Treaty of Lisbon making the ordinary legislative procedure the default mode for producing secondary law, the Parliament has a key role to play in determining the content of legislation. To that end, we may consider any limitations to the European Parliament’s power as germane to European integration, in particular the fact that the EU is still not a sovereign, constitution-based republic with full fledged legislative and executive functions. The Parliament’s weaknesses are quite apparent, though they would require relatively minor reforms to be addressed, such the right to a legislative initiative, a more meaningful involvement in the EU budget, and the right to hold accountable the rule forming entities.

As for the inability of the European Parliament to decide on its own seat, it is not entirely clear whether this is a flaw of the Parliament or an inherent constraint of unanimity-based decision-making between national governments. Perhaps the latter is a more plausible explanation, since it ultimately is the veto power of the French government which forces the rest of official Europe to persevere the ordeal of travelling from Brussels to Strasbourg to hold at least twelve plenary sessions per year. This will remain the case for as long as the permanent seat of a European institution is treated as a matter of symbolism rather than practical reason. Ultimately though, this issue is not substantive as it does not have an impact on the general role of the European Parliament and, therefore, should not be given more attention than the above three limitations to parliamentary power.

The euro

In this second part of the handbook we turn our attention to the euro, examining its framework of economic governance, its paradoxical statelessness, and the institutional independence of the European Central Bank.

The euro is the official currency of the European Union. While there still are Member States who use their national currency, all are obliged to eventually adopt the euro. Exceptions to this rule are the United Kingdom and Denmark, which have negotiated opt-outs from the monetary union.

From the perspective of European integration, the euro is not just an international reserve currency. The creation of the euro coincided with the transformation of the European Economic Community into the European Union. This was set in place with the Treaty of Maastricht, signed in 1992. What the European leaders sought to initiate after the end of the Cold War was a new stage in the integration process that would see the European Community move beyond trade liberalisation and the establishment of the common market toward political unification. The euro with the concomitant monetary union was conceived as the best starting point for bringing about the eventuality of political union.

The idea was that the material changes brought about by the introduction of a single currency would eventually point to the need for harmonising areas of policy that were traditionally kept at the national level, such as economic and fiscal policy, and bank supervision. The euro would broaden the scope of—as well as accelerate—the integration process, while the uniform monetary policy would have positive spillover effects on all other areas of economic activity and planning. Once a higher degree of legitimacy and accountability would be needed, political union would come as a necessary and desirable extension of changes on the ground. It would be the last part of the puzzle.

This approach has had its shortcomings, already prior to the post-2008 financial crisis. The original design of the monetary union was predicated on some brave and ultimately erroneous assumptions about economic realities. One was that largely diverse national economic structures could organically converge without any close coordination or active involvement from policy-makers at the supranational level. A second wishful thought was that cross-border capital markets would emerge in spite of the compartmentalisation of banking policy along national lines. A third misguided belief was that a central bank can indeed be the sole institution in charge of the monetary union, without any need for a system-wide fiscal backstop, and a counter-party treasury capable of adapting fiscal policy to area-wide fluctuations along the business cycle.

From a purely economic standpoint, the euro should not have been introduced under the conditions it did. Though one can argue that the original euro was “minimal” that would not capture its actuality, for minimalism entails sufficiency. Europe’s monetary union was not viable in its original form. It was incomplete and insufficient for pursuing its stated objectives. The erratic capital flows in its first years already indicated the inability of the system to correct its own self-destructive propensities. Yet it was the economic shock following the collapse of Lehman Brothers that exposed all of the monetary union’s inadequacies, forcing policy-makers to actually focus on addressing the errors of the euro’s architects.

Nonetheless, it has to be noted that there is nothing about the European integration process which could reduce it to a “purely economic” project. Even when trade liberalisation was its primary objective, integration was profoundly political. The transition from the European Economic Community to the European Union, coupled with the introduction of the single currency, has only made the political nature of the project more apparent. Couched in those terms, one ought not underestimate the political capital invested in the euro. While the concurrent financial and debt crises have mired the European economy in near-stagnation and disinflation, and though the entire system was subject to duress and could have collapsed under the pressure, the euro remains, despite its persistent design flaws, the main driver for the realisation of the ultimate objective of the European Union: the formation of a transnational republic.

For the purposes of European integration the euro is much more than just fiat money. It is the catalyst in the efforts to deepen and broaden cross-border harmonisation. The very evolution of Europe’s Economic and Monetary Union provides such an insight. The original design of the euro was predicated on a monetarist conception of a single currency area. A fully independent central bank, the European Central Bank, was provided with a rather narrow mandate for targeting inflation. Fiscal policy remained primarily national, though a limited set of supranational rules were established for standardising the procedures and relevant targets. There were no instruments for carrying out area-wide stress tests for private banks, while the European Central Bank did not have the necessary tools for conducting micro- and macro- prudential policy. The currency area was left largely unfinished. An incorrectly decentralised monetary union, one without a fiscal, banking, and political capacity, was prone to abuses of its own rules by Member States that realised they could rig the rules with impunity. Meanwhile, the entire edifice remained exposed to external shocks as well as internal asymmetries. The Great Recession exposed the weaknesses of that model, with Europeans having to pay a very high cost for their leaders’ lack of foresight when deciding on the specifics of the euro.

The policy response to the financial shock, notwithstanding some of the ad hoc mechanisms that were introduced for bailing out individual states that had lost access to international money markets, was a means of retroactively correcting the frailties of the monetary union. Provisions for concerted economic governance were introduced with the intention to centralise fiscal policy at the supranational level. In such a legal order, the fiscal sovereignty of Member States has already been deprived of most of its substance, since every national government has to comply with an extensive set of common rules.

What currently is in place falls short of delivering a credible solution to the inadequacies of the Economic and Monetary Union. The next steps in the European integration process are meant to further strengthen the EMU by providing it with an embryonic capacity for autonomous fiscal policy as well as creating a basis for a unified banking sector. Perhaps changes will be made that will enable the supranational level to act as an economic government, though it is too early in the process to accurately estimate the immediate steps forward. Much of what we will witness in the foreseeable future depends on the presidential elections in France, as well as the outcome of the United Kingdom’s attempts at renegotiating its place in the European Union. The year 2017 will likely be the starting point of a new phase in the integration process, one whose qualitative features are contingent on a series of events over the coming months.

The statelessness of the euro

It perhaps is presumptuous to elaborate on a chapter that asserts the statelessness of the euro. This is, after all, a perfectly good currency: fiat money issued by an institutionally independent central bank that is the legal tender of nineteen European Union Member States, representing a total population of around 340 million people. The euro actually is the official currency of the European Union, so any claim on its statelessness seems tenuous at best.

While these are valid considerations, the fact is that the political entity whose fiat makes the euro a legitimate currency—the EU—is not actually a sovereign state, certainly not in terms of its international standing. Though every Member State whose currency is the euro does have an international personality as sovereign, the euro is not any one nation’s currency, for it is shared among a group of states. What is here meant by “statelessness” is simply the realisation that the supranational level where this shared reality is made manifest is not qualified as sovereign. As was noted in the first part of the handbook, the European Union is a union of states founded on inter-state treaties, whose main feature is an interplay between intergovernmental rule formation and supranational rule making.

Characteristic of the euro’s stateless nature is the absence of a government for the system at-large. The Economic and Monetary Union (EMU) is a rules-based formation, an interweaving web of regulations establishing and defining the qualitative features of economic governance. Attention should be given to that very last term, since by “governance” we do not signify a person, political body or institution, but only a set of provisions that are supposed to be implemented by national governments with the guidance, support, and involvement of certain EU institutions, primarily the European Commission, and under pressure from their peers.

The closest approximation to a government of the euro is the European Council, the rule forming institution consisting of the heads of state or government of the EU Member States. However, since the euro area and the broader EU represent different degrees of integration, the former being much deeper than the latter, the intergovernmental entity that may best qualify as a pseudo government of the euro is the Eurogroup: an informal entity made up of the finance ministers of the states whose currency is the euro.

Strictly speaking, neither the European Council nor the Eurogroup may qualify as a proper government, for none of them performs the vast majority of the executive functions: those are trusted in the European Commission.

In the absence of a clearly-delineated decider, the only way to regulate Europe’s single currency is to rely on a far-reaching nexus of rules that are legally binding on all of its Member States. The two-pack and six-pack of Community regulations as well as the Fiscal Compact (formally referred to as the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union) provide the framework within which economic governance takes place. These rules focus on budgetary surveillance and economic coordination, which are meant to achieve the two-fold objective of (i) keeping states aligned with the Maastricht criteria, especially the targets on budget deficit and public debt, and (ii) preventing the accumulation of macroeconomic imbalances.

The shortcomings of a uniformly rules-based system can be summarised thus:

• Decontextualisation: the targets are predetermined, permanent and legally-binding, implying that neither the prevailing economic conditions nor the peculiar needs of each country are considered in the impact assessment of the policies that need to be introduced by virtue of European law.
• Retroactivity: the rules on economic governance, albeit anchored in the European Treaties or prior institutional arrangements, are to a large extent the product of the EU’s reaction to the financial crisis. It is no surprise that the provisions therein are geared on limiting budget deficits and public debts, while monitoring macroeconomic imbalances, for these are perceived as the ultimate causes of the concurrent sovereign debt and banking crises. While understandable, this approach is not the most prudent, as it provides a solution to a crisis that has, for the most part, already run its course. There are no flexible instruments for dealing with new and emerging challenges that are beyond the scope of the existing legal framework. In such a scenario decision-makers will again be caught unprepared, seeking to produce yet another retroactive response.
• Arbitrariness: the European Semester, where economic governance takes place, is a heavily modified version of the Open Method of Coordination. This is a largely intergovernmental instrument involving EU institutions that seeks to harmonise the procedures while relying on “peer pressure” for the enforcement of the rules. What may first appear as a structure that guarantees the equality of Member States, is in fact a recipe for potentially abusive conduct. Inter-state affairs are subject to situational power relations, where it is more expedient to elaborate on some quid pro quo than force a given government to conform with its obligations and commitments. We thus can have arbitrariness in the form of intergovernmental bargaining that occurs behind closed doors.
• Inflexibility: the rules are rather fixed in an effort to limit disputes over interpretation, as well as minimise the margin for discretion. This has been considered the most preferable state of affairs as it would otherwise be near impossible to achieve the desired end of a more centralised control on economic policy. Yet the inflexibility of the rules can, in and of itself, be a cause for crisis, as it engenders a certain behaviour of prioritising formalities over substance, which can lead to the implementation of policies that exacerbate rather than ameliorate an economic slowdown. A law-abiding national government may have to introduce spending cuts because the rules demand so, not due to some immediate practical necessity.

Assuming the system was a federal republic, we would have a European government capable of implementing measures in line with evolving needs and conditions, being proactive, and acting in a flexible way wherever necessary, always within a comprehensive legal framework that would prevent the disproportionate centralisation of power. The euro as it currently stands leaves much to be desired. From a technical perspective, it hampers any effort to conduct rational economic policy. By “rational” one must also signify “context-aware”, for the optimality of a certain measure can only be understood in relative terms, in relation to the interoperating factors of the case. The euro has to be reformed, something that the Five Presidents’ Report also admits. As the euro crisis has shown, the statelessness of the EU’s official currency cannot be preserved without cost to the integration process.

Shared sovereignty and shared responsibility

Europe’s Economic and Monetary Union (EMU) is often described as a formation of states enjoying a shared sovereignty. Euro area Member States have bound themselves together under a single currency by means of forgoing their sovereign authority over monetary policy. An independent institution, the European Central Bank, is tasked with the monetary function, mandated to pursue a policy of inflation targeting that aims at a medium-term price level increase that is “below but close to 2%”.

To improve the stability of the entire edifice, euro Member States also commit to a set of targets regarding various economic magnitudes, including those peculiar to fiscal policy. In recent years and as a response to the [ongoing] economic crisis, the EMU rule-set has been expanded to include such instruments as the European Semester aimed at making states concurrently enforce policies that account for a comprehensive list of macroeconomic indicators covering productivity, trade balance dynamics, and fiscal solidity.

While these common commitments do provide a basis for appreciating the structures as shared, they do not—and cannot by themselves—foster a common sovereignty.

Technicalities aside, the contemporary understanding of “sovereignty” is informed by the Peace Treaty of Westphalia of 1648 C.E. Prior to that, the legitimacy of the state, the justification for its authority over a group of people, resided in the supposed divinity of the monarch or the ruling elite. The sovereign was an individual, whereas under the scope of the Westphalian tenets of statehood, the sovereign became an impersonal agency: the state, which later evolved into the nation state. The new principles of that treaty, as well as the inferences drawn from them over the passing of the ages, contributed to a system of international politics predicated on [at least] the following items concerning the substantiation of sovereignty:

• The hypostatisation of the state as the primary actor of diplomatic affairs;
• The reification of the state as the agency exercising supreme authority over a clearly delineated territory;
• The identification of the state with a given people;
• The capacity for self-determination that, when universalised, entails the principle of non-intervention in the internal affairs of another state;
• The equal status of states qua states.

To judge whether “shared sovereignty” is an accurate term, we may examine whether the EMU satisfies the criteria on that list:

• The EMU is not a primary actor in diplomatic affairs and, even if it did have a unified representation that would not necessarily entail a sovereign capacity to exercise foreign policy;
• The EMU as such, if assumed to be a sovereign state, does not properly exercise authority over a given territory, not least because it cannot maintain its own fiscal policy (issue bonds, raise taxes etc.), it lacks the right to draw its Exclusive Economic Zone, does not have its own power to use military might to defend its territory, and so on;
• The EMU does not have its own constituted people, for there still is no European demos, properly so-called, with the capacity to participate in—and to formulate—its own politics, and, furthermore, the system is predicated on a rules-based system for economic governance in the absence of a government;
• The EMU is not self-determined, as its Member States are the ones to define its sphere of influence and modalities thereof via decisions adopted by the rule forming entities (European Council and/or Eurogroup);
• The EMU is not recognised by the international community as a sovereign nation state.

By stripping the EMU of its pretences on sovereignty, we are left with a complex system of rules that apply to all Member States, which specify their shared responsibility, commitment, and interconnected liability. For sovereignty to be incorporated in this architecture, a political sphere needs to be introduced, with the two-fold objective to: (i) address all of the EMU’s shortcomings as enlisted above, and (ii) transform the EMU into a republic, operating along federal lines.

In the absence of EMU-level sovereignty, Member States hold a several and joint responsibility to commit to a standalone set of rules that is not part of a wider corpus of will-formation. A network of legal principles, against the backdrop of intergovernmental arrangements for decision-making, represents an inflexible order that can become subject to abuse. There are no credible mechanisms for the enforcement of the common objectives, while any such exercise, given the lack of sufficient EMU-level legitimacy and accountability, is akin to the annulment of national popular will.

The notion of “shared sovereignty” is not considered inaccurate due to semantic or esoteric reasons, but only because its significations contribute to the conflation between what we currently have—a quasi [con]federal system—and what we presumably denote by “sovereignty”: a polity with a single international personality, preferably a republic.

Institutional independence of the European Central Bank

The European Central Bank (ECB) is the institution of the European Union tasked with conducting monetary policy. To deliver on its mandate, the ECB enjoys a very high degree of independence. Though institutional independence is a core attribute of the division of powers, the ECB’s position has to be considered in conjunction with the Europe Union’s peculiar political order.

The rationale underpinning monetary independence is that politicians should not be in a position to influence monetary affairs, for that could provide the incentive to introduce short term measures for boosting economic activity at the expense of longer term sustainability. The central bank, just like a constitutional court, has to think about the broader context and the wider ramifications of its policy, something that politicians may not necessarily be keen on doing if they are to win an election.

While monetary policy ought to be protected from opportunistic interference and must have a degree of continuity, the general perception of politicians as abusive and the concomitant aversion to the possible fluctuations of democratic conduct, if universalised, will usher in a robust technocracy. To avoid such extremes, it is of paramount importance to distinguish between operational independence and independence from democratic control. The former is a prerequisite to good governance as well as the optimal, unencumbered conduct of monetary policy, while the latter is dubious at best.

Though the degree of independence as well as the scope of authority always need to be proportional to the task, one must also account for the modality of independence: the way in which independence is realised in a certain state of affairs. In the EU’s brand of supranational politics, it exhibits certain unique characteristics:

• pseudo-permanence: no given parliament, neither the European nor any national one, can amend the ECB’s mandate; unanimity among Member States is required to change a single iota in the Treaties;
• tokenistic accountability: given that the European Parliament has no means of initiating the process of altering the ECB’s legal basis, the democratic accountability of the ECB is effectively reduced to a communication policy, with the so-called Monetary Dialogue between the two institutions being nothing more than “dialogue”;
• euro statelessness: the euro is a currency that belongs to no state, there is no political union underpinning the Economic and Monetary Union and, a fortiriori, the ECB has no counter-party European Treasury with which to coordinate economic policy.

Couched in those terms, we would contend that the modality of institutional independence actually makes the ECB mostly independent from democratic control rather than operationally independent; an unintended effect of gradualism, of the EU being an incomplete political organisation. This claim is based on a specific, albeit not idiosyncratic, understanding of accountability: the obligation of an unelected institution to render things concrete before the citizens’ representatives and remain subject to the consequences thereof. Since there exists no European Ministry of Finance to frame the ECB’s conduct and given that the European Parliament has no full power to act on the ECB’s briefings, communications, policies, the independence of this institution seems disproportionate to its power.

A justification for the ECB’s institutional standing can be that its clear mandate enables it to achieve “output legitimacy”. If it delivers on its expected objective of price stability it is legitimised by the result. While plausible, the claims on output legitimacy leave something to be desired, for they presume the ECB’s mandate to be unequivocal, i.e. that there is only one way of interpreting it and, hence, any one can be an objective judge. Alas, price stability concerns the medium term outlook of monetary policy. However, there is no clear definition of what the “medium term” amounts to. It is ambiguous: it can be 2-5 years or perhaps 5-8. Maybe some other range. Also, how close is “below but close” to 2% inflation? Does the projected rate also account for it?

Our task is not to provide definitions on the subject, but only to point to a certain weakness in the argument for output legitimacy. Such vagueness opens up a sluice gate for the introduction of all sorts of justifications to any policy. To that end, accountability to parliamentarians is reduced to a process of “explaining” decisions, so obscure language can always be employed to obfuscate or beautify the actual outcomes. The gist is that unelected officials have to make qualitative decisions and, therefore, another institution should be able to hold them accountable.

Its mandate’s vagueness notwithstanding, even if the ECB were to consistently deliver on price stability, that would not be sufficient to legitimise all of its initiatives, for it clearly acts on issues that do not pertain to inflation targeting even if they may be treated as ancillary to that end, such as the decision not to maintain an accommodative stance vis-à-vis the Greek banking system during the month of July 2015. There it had to make a judgement call on two seemingly conflicting objectives: (1) maintain the uniformity of monetary policy, and (2) abstain from furnishing liquidity to financial institutions that were expected to become insolvent. While the trade-off may be understandable, the fact remains that a certain judgement on politics cannot be evaluated solely by means of referencing a single macroeconomic indicator.

There is a certain view that a central bank’s institutional independence should mimic that of a supreme court. Given that both entities are made up of unelected experts in their fields, this appears to be a sound proposition. Yet such thinking seems to underestimate the qualitative differences between a court of law arbitrating on the scope of legislation, whose decisions tend to have a gradual and progressive impact on the social fabric, and a central bank with the power to make an entire economy go boom or bust with relatively little effort (especially the latter).

It is in the nature of central banking to be the cornerstone of a financialised system. In the modern world, financialisation and central banking are inextricably bound up together. A failure to maintain the money supply will grind a developed economy to the ground, just as a prolonged period of disinflation or outright deflation will severely damage economic activity while making nominal debt burdens heavier. In other words, a central bank is powerful, especially if it rules over a significantly large economy.

As concerns the reach of monetary policy, one may take Quantitative Easing as a case in point: a policy instrument with which the central bank shapes interest rates throughout the yield curve by virtue of buying assets in the secondary market. This effectively represents the capacity to redistribute resources across the economy. If the central bank can achieve the same or similar results as those of an elected government’s fiscal and social policy, then it follows that it must also be subject to strict democratic control: citizens have to ultimately be able to review, reject or approve of effective wealth transfers.

A central bank needs to be closely monitored, be subject to thorough scrutiny, and be held fully accountable for its decisions precisely because its day-to-day operations can change the material conditions of entire classes of economic actors. That is more so for the European Central Bank which finds itself in an institutional framework that remains under construction. With few credible mechanisms for placing a check on the monetary function, policy makers should not remain satisfied with narratives on the sufficiency of output legitimacy or with misleading comparisons between a central bank and a court of law. Better institutional arrangements and accountability structures are needed, such as:

• concerted action: just as with the Bank of England, make the rate of inflation an annual target placed in the hands of the European Finance Minister, who will also control the European Treasury and, hence, be responsible for formulating the economic policy of the supranational level;
• dual mandate: like the Federal Reserve Bank of the United States, the ECB has to pursue price stability and full employment, with no priority given to any one of them—it is preposterous to witness record levels of unemployment and the central bank do nothing about it (besides, an increase in jobs and, thus, in consumer spending would move the euro area away from disinflationary or deflationary territory);
• full transparency: ensure that records of all General and Executive Council meetings are kept, and that they are available to Members of the European Parliament within the context of the Monetary Dialogue, following a formal request from the Economic and Monetary Affairs committee;
• legislative control: provide the co-legislative institutions of the European Parliament and the Council of the EU with the right to jointly propose an amendment to the legal basis of the ECB, subject to approval by the European Administration, or vice versa.

Transnational democracy

In this third and final part of the book we delve into political theory, to examine such notions as “decentralisation” and “sovereignty”, for the sake of adapting them to the reality of the European Union. Our thesis is that the European Union is an experiment in transnational democracy. By that we mean that it is a new way of doing politics in Europe, one that contrasts with the historical paradigm of foreign policy (and war) between European nation states.

The EU is often presented in a negative light, sometimes correctly due to its own flaws and limitations. Its problems are amplified by such shocks as the euro crisis or, more recently, the migrant and refugee crisis. What these phenomena do is put the EU architecture to the test, exposing the areas where it clearly falls short of meeting its own principles and fulfilling its objectives.

Inadequacy and incompleteness do indeed characterise much of the European Union. Yet one ought to bear in mind the nature of European integration as a process. The shortcomings of the existing order should not be the source of negativity and ultimately nihilism, while any shortcomings cannot be blithely attributed to “Brussels” as such, for they often derive from the conflicts of national agendas within intergovernmental entities. It is of paramount importance to keep sight of the broader picture. Each crisis, every instance of friction, does indeed pose a challenge, revealing a certain constraint on collective action. What this system does offer though should not be underestimated nor be taken for granted, while calls for abolishing the EU or parts thereof should be judged on the basis of their merit as realisable and credible alternatives, not be offered support solely as a reaction to the EU’s actual problems.

Criticism of the EU is not a bad thing. Still, one ought to be eclectic and fair, which probably is more demanding than pursuing the politics of negation. An engaged and constructive spirit would ultimately help improve daily life in the EU. One also has to have a historical perspective, to appreciate where Europe was in the first half of the 20th century or in centuries past, and where it now stands. Despite all its frailties, European integration has been mostly positive, something worth having and striving to improve, rather than something to be abolished.

What the political unification of Europe can do is prepare European nations for the global challenges of the 21st century. A united Europe is one that can have an impact on international trade, in global security, and perhaps most importantly, in the protection of the environment and the necessary transition to ecological—maybe more circular—forms of production and consumption. If the European continent were to continue as a patchwork of squabbling nation states, it would have remained fragile, exposed to external shocks, and could have eventually become a peripheral player in global politics.

While such considerations have their value, one should not rely entirely on the international or external challenges facing European nations. European integration cannot be understood as a mere reaction to an exogenous impetus, however defined. The political unification of Europe is something more than a coalition of interests for influencing the international order. A European polity is not a cartel of sorts, nor should it be cast in that light. There actually are endogenous reasons for pursuing European integration.

Firstly, this is a means of guaranteeing inter-state peace. The history of Europe has been one of perpetual conflict between its various nations, including those that currently are Member States of the European Union. No such thing can be claimed about those very same nations since the formal introduction of the European Communities.

Secondly, a Europe divided along national lines is not a good place to do business in a globalising world. It makes little practical sense to maintain all sorts of barriers to the movement of goods, persons, services, and capital while technological innovation as well as a greater awareness of international politics are rapidly making our world a more self-conscious whole.

Thirdly, the nation state arguably is a European invention. Though its underlying nationalism, understood as the traditional sentiment of being pro-nation-state, has achieved certain normative ends, this form of political organisation has also been the source of suffering on a monumental scale. Two World Wars can, to an extent, be attributed to the tensions between conflicting nationalisms. If bringing ideas to the world entails a certain responsibility, then perhaps it can be expected from Europeans to think of ways to correct the inherent flaws of the nationalist conception of statehood. A transnational democracy—understood as transnational and not as a European nationalism—can be that step forward.

Against this backdrop, it is important to adopt a synthetic view of the forces that influence the European integration process. Though differences of opinion may arise as to which set of factors is most important to the political unification of Europe, the fact remains that one has to account for both the internal and external dimensions of the broader issue. Maybe there will be instances of integration that are driven by exogenous events, while others are pursued for endogenous reasons. Whatever the case, Europe’s experiment in transnational democracy, if proven successful, can provide a template for doing politics in an increasingly interconnected global order.

Democracy as decentralised power

If we think of politics as the instituted distribution of power then democracy will have to be conceived as a system of decentralised power. We may compare and contrast this to other systems such as autocracy where power is in the hands of a single ruler, oligarchy where it is in the hands of few people, aristocracy where it is held by a culturally-defined elite, technocracy where power is exercised by policy experts, ochlocracy where the mob reigns supreme, and so on.

In effect, modern republics do interpret democracy as a decentralisation of sorts. We may infer thus from the application of the principle of the division of powers. Different entities are tasked with pursuing the distinct functions of the state. The executive is separated from the legislative, which is different from the judiciary, which is distinct from the monetary, and so on. What the separation of powers does is to introduce a horizontal form of decentralisation among the functions of an otherwise uniform state. The separation of the state’s powers does not, in and of itself, guarantee the decentralised distribution of authority. It does however place constraints on the state with the objective to hamper any attempt at the accumulation of power in the hands of some of those who may happen to exercise it.

In a representative democracy, we may add that bottom-up legitimation is connatural with decentralisation. By that we mean that the process by which a relatively smaller collection of people gets to decide on behalf of a larger population starts from the broadest social group possible: the demos at-large. Representatives come from the body politic, decide on its behalf and for its well-being, yet they never assume the role of the demos as the final decider, for that would no longer qualify them as representatives. Ultimate authority rests in the demos. It is never forfeited nor transferred to a ruling elite. It is only delegated to smaller groups of people and only within a certain legal framework that, among others, guarantees the continuity of democratic rule.

Such bottom-up legitimation indicates a vertical form of decentralisation. Those who get to exercise power—the representatives of the demos—are not capable of depriving the demos from its legitimation function. They are designated as representatives because of—and thanks to—the decisions of the citizens. Further, and what the custom of periodic elections introduces, is that delegates cannot permanently deviate from their voters’ demands or concerns, for that would result in their removal from office.

The bane of a modern republic is the centralisation of authority, be it in its vertical or horizontal form. Our notion of decentralisation has been inferred from the proposition that politics is the instituted distribution of power. Attention should be given to the term “instituted”. This connotes a purpose, an intention, a social-cultural process that may be codified in law. We do not think of power as some natural phenomenon, for that would not be politics. The state of nature or the “law of the jungle” is the absence of politics. Instances of revolution or war are a form of cultural institution, where a given group seeks to change the established order in accordance with its own conception of political order. Such occasions may disrupt the stability of the state or states involved, yet their ultimate objective is to introduce a new type of stability within which social peace may be achieved. This is not to suggest that they are necessarily right or wrong. One cannot make definitive judgements in the abstract. It only is to claim that the disruption of a certain establishment aims at creating another status quo rather than at perpetual strife.

Modern republics are constituted as such. The constitution is the state’s primary law. It is a legal corpus that establishes a given set of parameters for the realisation of practical morality, while setting out the modal features of the distribution of power. The word “constitution” also means “composition”. The state’s primary law, apart from being its legal cornerstone, is also a purposeful organisation of its inner structure.

Strictly speaking, a republic is not necessarily democratic. It is a state operating in accordance with the rule of law whose raison d’être is to promote and to preserve the common good, the res publica. The interpretation of what may the common good be will determine the quality of the state. In a democracy the res publica can only be conceived in relation to the demos, its well-being, its capacity to maintain its legitimation function. From this perspective, we may posit that the res publica is good inasmuch as it is enjoyed by all, and common so long as it is good (since the good qua good has to be universalisable).

Democracy is the system for conceiving the common good as a function of the decentralised distribution of power. Democracy is not the “rule of the many”. Though decisions may typically be adopted in accordance with a majority vote, their qualitative features must always comply with a certain corpus of rules that guarantee the application of practical morality. The notion of “majority rules” if applied without any reference to a framework of rules can only be a form of actual or potential tyranny: the rule of the mob, or the rule of a dominant group over the rest of society.

If a democratic system degenerates to the point where power becomes abusive or concentrated in a certain person or group thereof, then the institution of decentralisation is abolished or inwardly corrupted. A democracy is not instituted once by means of introducing a constitution. Decentralisation is continuous, exercised and understood as such through the conduct of day-to-day politics. No legal document can, in and of itself, guarantee the instituted decentralisation of power. What rules do is frame the conduct of individuals and groups within the polity. It is for this reason that democracy cannot just be exogenously imposed on any given people, but rather has to emanate from—or be anchored in—their own cultural will.

Democratic sovereignty

By “sovereignty” we refer to the ultimate authority within a given polity. During the Middle Ages the sovereign was a person, typically the monarch. With the advent of the modern nation state, the sovereign became an impersonal agency: the nation. The nation can be an elusive entity. At first, it entails no definitive bond between the people that make it up. Secondly, it is interpreted as atemporal, which implies that whatever common bond may exist, it is not only between the generations in existence. By that we mean that a nation is not equivalent to the actual citizens or people of a given state, as it also encompasses all possible citizens or people of the state. There ostensibly is no finality to the nation.

Notwithstanding some of the mysticism involved in defining the nation, international relations are very much dependent on this concept. No wonder they are inter-national. However, the contemporary international order does adopt a prosaic view of nationhood, stripping it of its early modern pretences on temporal transcendence. A nation qua sovereign can only be a nation state. This is a reflection of the actualised right of peoples to self-determination. Nation states transcend the life span of any given generation of their people only for as long as that is deemed necessary, and only by means of convention. A stateless nation may indeed be talked about as a nation, but it is never considered sovereign.

Sovereignty, or else self-determination realised as state-formation-state-institution, means that the state legitimised by its people, and recognised as such by the international community, can pursue its own policies without intervention from other states. This is a centuries-old conception of statehood that is often termed “Westphalian” in reference to the Peace Treaty of Westphalia (1648 C.E.). The Westphalian tenets of statehood imply the following:

• Territoriality: every state must have a clearly defined territory over which its sovereignty may be made manifest and be applicable;
• Continuity: every state continues to exist as a state even if its people may change or its legal order undergoes a period of crisis;
• Independence: the capacity for self-determination that, when applied globally, entails the principle of non-intervention in the internal affairs of another state;
• Equality: every state is equal to any other state in its capacity as a state;
• Uniformity: the state is understood as the primary actor of diplomatic affairs in the international order and is treated as a single personality;
• Nationhood: the identification of the state with a given culturally-defined people.

Perhaps a more precise concept for describing this type of sovereignty is “national sovereignty”, which is in terms of statehood equivalent to “nation state sovereignty”. From a democratic perspective, there is nothing intrinsic to national sovereignty which guarantees the normative ends of the decentralised distribution of power. The “national will” or the “national interest” can be—and has been—evoked by all sorts of abusers of powers as a means of justifying their machinations. Various states in the international community are indeed recognised as sovereign nations even though they do not have strong, adequate, or any institutions in place to preserve the decentralisation of authority. As such, a normative theory of statehood cannot remain limited to the understanding of sovereignty as national sovereignty, unless it attaches to it its own significations to the point where it has nothing in common with the prevailing definition.

While it may be useful and perhaps tactically prudent to interpret nationhood in a way that it incorporates democratic principles, it generally is preferable to coin new terms for the sake of avoiding confusion. If a certain notion can be both democracy and its opposite, then it does not really help us understand what a certain proposition’s actual meaning may be. One shrewd enough can use such polysemy to their advantage or, conversely, one sloppy enough may inadvertently obfuscate some of the issues involved.

We sometimes come across the phrase “popular sovereignty”, while there is a certain alter-establishment tendency to interpret “populism” as a positive term that indicates the capacity of the people to be sovereign. These views are interesting and fecund, yet they are insufficient to a democracy.

Their first limitation is that they place a disproportionate emphasis on the internal aspects of sovereign authority. This forces them to downplay the importance of the essence of the Westphalian state: non-interference from other states. A sovereign people without a strong state that has an equal standing in the global order, will always be exposed to external threats or to pressures that may undermine its conventions. Sovereignty of such a sort would be a sovereignty manqué.

The second tension in this line of over-evaluating the populace, is that it cannot easily fit with the vertical dimension of political organisation, especially for more complex formations of state, such as a federal system. If it is only or primarily the people who are sovereign, then the legal-institutional order of the state will have to be very weak so as not to impede or limit the popular will. A near-obsolete framework of rules can eventually be the cause of disorder, either due to the inability of the system to place sufficient constitutional checks on the distribution and exercise of power, or because the popular sovereign will descend into an ochlocratic tyrant.

Democracy is a compound term made up of the words “demos” and “kratos”. The former signifies the body of citizens, those who participate in the commons. The latter means state, understood as an interweaving web of laws, institutions, and convention-based intersubjective relations. As was considered in the previous chapter, democracy is not the “rule of the many”. It is the instituted decentralisation of power.

For sovereignty to entail democracy, we need to adopt an eclectic and synthetic approach which will isolate and indeed combine the positive elements from the seemingly polar views of [nation] state sovereignty and popular sovereignty. We may rework these into a democratic sovereignty, which will stand for the virtuous cycle of legitimation and accountability between the demos and the kratos, the citizens and their state.

The feedback loop of democratic sovereignty can be understood in light of the following:

• Within a given political tradition (a civic nation), the body politic proceeds to delegate its authority to various groups of decision-makers. This typically occurs through periodic elections.
• In such a national tradition, the body of citizens does not act in a legal-institutional vacuum. There are rules in place which guarantee the horizontal and vertical decentralisation of power.
• The political representatives are bestowed with the authority to take decisions on behalf—and in the interest—of the demos. Among the decisions are the promulgation of laws, the distribution of scarce resources, the qualitative features of cultural experience, the conduct of environmental policy, and so on. These set precedents for future processes of legitimation.
• The judiciary operates in parallel as an arbiter of the applicability of the laws. Its jurisprudence has an impact on the polity, for it sets parameters within which certain policy initiatives may be realised.
• The judiciary does not decide arbitrarily. It accounts for the prevailing conditions, the legal order, and its jurisprudential traditions to deliver rulings that are in line with practical necessity and the state’s primary law. A judiciary that would seek to become a tyrant on the rest of the state would be overruled by means of a constitutional reform, or the state would implode.
• A constitutional reform will, at some point involve the body of citizens, either directly via a referendum, or indirectly, via their representatives.
• The representatives cannot permanently deviate from their voters’ concerns, for that may eventually impact their status as representatives.
• The citizens of a state are not defined independently of the state’s legal-institutional framework. It is a certain set of legal provisions that may make one a citizen of the state.

Under the scope of democracy, state and citizens cannot be seen as separate. National sovereignty alone implies a distorted version of the common good. Popular sovereignty in its own capacity entails a very weak institutional framework that may expose the state to external threats or to internal self-destructive propensities for injustice. Whereas the combination of these two means that the culturally-historically defined demos will operate within a certain milieu of laws, institutions, and statehood to realise the res publica as practical morality that is indeed common to all and universally good.

Federalism as state-level decentralisation

Federalism is the ideology of vertical decentralisation among state structures. A federal system is one where there are different levels of government, each deciding on policies that have varying degrees of application. In European law this is also known as the principle of subsidiarity, where the distribution of authority is proportional to the scope of the policies affecting a given group of citizens. Federalism’s main idea is that power should be as close to the local level as possible, and should only be directed toward the federal level if locality-based decisions would be understood as insufficient for the stated objective.

In this regard, federalism is a specific brand of democratic organisation, best suited to a largely diverse demos. Though democracy does entail the decentralisation of authority, this quality alone is not sufficient for guaranteeing decentralisation in a polity that needs to preserve its inner instituted heterogeneity. If the diversity of the demos is to be guaranteed through state structures all while remaining an organic whole, a vertical dimension of constitutional decentralisation needs to be introduced so as to prevent dominant states within the demos from imposing their will on less influential states.

Federalism should not be confused with decentralised government, i.e. with regions within a unitary state having a high degree of autonomy. The latter may not have the kind of constitutional checks necessary for maintaining that vertical separation between the central government and the regions, whereas a federal system will typically have primary law provisions for maintaining the necessary discreteness between the federal and the state levels as well as among the constitutive states themselves.

Though it may seem a contradiction of terms to refer to a federal system as a state, the fact is that, as seen from the international perspective, a sovereign federation is but a nation state. By that we mean that a federation is understood as a single sovereign nation, one that has a unified international personality, manifesting in a uniform representation in all international fora, with the United Nations being the most notable among them.

To avoid the confusion that derives from the polysemy of the term “state”, and in order to account for the international dimension of a polity, we may refer to a federal system as a composite nation state. A composite nation state consists of other states, however these have no international standing as nation states but only as higher-level administrative units within a nation state. For example, when we refer to the United States of America we think of the American nation; when alluding to the Russian Federation we have in mind the Russian nation. Though these are federations, they both have a single international personality as nation states, which in terms of UN representation also manifests in a single seat (and veto power inside the security council).

It is intuitive to think of nations as organic wholes: groups of people who, through their history and culture have forged a common bond between them. What is less clear though is whether these communities are bound together by something more than their shared imaginary, i.e. their common beliefs, norms, traditions, cultural narratives, and so on. Though it is not pertinent to this book to delve into the intricacies of nationhood, we will posit the civic conception as the most plausible one. This is the view by which a nation is a people self-determined in accordance with their political affiliation, values, historical experiences etc., not their ethnicity, kinship, or race.

If the civic nation is, in effect, a form of “social contract”, then we can envisage a federal system that is made up of different historical nations, provided they agree on a common basis for coexistence: a constitutional agreement. The European Union could be such a case. There would still be republics like those of France and Germany, but they would forfeit their international standing as nation states, transferring it to a new nation state, the federal republic of the European Union (whether its name changes is irrelevant—what matters is the political system, since a name can be preserved for the sake of continuity). These historical nations would not cease to exist as nations. There would still be France and Germany as constitutive states of the federation, though they would no longer stand as nation states. By that we mean that they would forgo the international status of statehood that is commensurate with their nationhood. That would be reserved for the European Union at-large.

The European nation would be a “nation of nations”. We can approximate such a concept by thinking of an otherwise reluctant EU Member State: the United Kingdom. The UK has England, Scotland, Wales, Northern Ireland. These peoples share a common bond which is present in their state structures, and they respect it for as long as they are together. Despite having many nations within its borders, the UK has a single international personality as a nation state, with a seat in the United Nations (where they also have a veto power inside the security council). Still their uniformity on the stage of international politics does not prevent them from expressing their national pluralism. We do witness it, for instance, in various sports such as their favourite game: football. There is the English national team, which differs from the Scottish, the Welsh, the Northern Irish.

A constituted European demos, a European body politic as the constitutional subject of a European federal republic, will have to be a largely diverse one, respectful of its constitutive historical nations. For it to be understood as a demos of a certain nation state, that polity would have to guarantee a vertical form of state-level decentralisation, otherwise larger nations within the European demos could exercise an effective hegemony over smaller ones. A federal system is decentralisation among state structures. It aims to complement and enhance the horizontal decentralisation among the polity’s state functions, while a federal system is the only means by which there can be a unified European demos which would indeed remain united in its diversity.

Europe’s sovereignty mismatch

The European Union has two entities capable of forming the rules that fall within their competences. The one is the institution of the European Council, while the other is the Eurogroup, a partially informal body that brings together the finance ministers of all Member States whose currency is the euro. Both are intergovernmental, meaning that they stand as fora where the national governments are represented and where their collective will is formed. Under normal circumstances, the Eurogroup would not be placed on an equal footing with the European Council, however the euro crisis and the concatenation of events leading to the adoption of extraordinary measures for addressing the financial shock has made this entity a key player in European politics.

The democratic quality of these rule forming entities could be improved. Though measures to increase their transparency would be welcome, a certain change in their structures is necessary. Their shortcomings are ones of design, pertaining to the indirectness of their legitimacy and accountability as bodies. While each representative is typically legitimised by—and is answerable to—their national electorate, the collection of nationally legitimised officials is not commensurate with system-wide legitimacy and accountability. This is made manifest in the fact that the rules formed concern the Union (or the euro area) at-large, while the democratic loop of legitimacy and accountability remains confined to national borders.

Democratic procedures at the national level only concern the political leader of that state, yet it is clear that said leader was not alone in adopting the decision for forming a certain supranational rule. The decision was collective, yet the collective as such is answerable to no corresponding collective of European citizens or representatives thereof. Put simply, German Chancellor Angela Merkel and French President François Holland may be pivotal in shaping a certain decision at the European Council, yet they only have to answer to their own voters, Germans and French respectively, even though their influence may effectively extend beyond Germany and France.

Fragmentation along national lines may be perceived as positive, as it seems that multiple checks are placed on supranational authority. While plausible, that is analytically incorrect, for the multitude of checks is not placed on the wholeness of such power, but only on its instances as appearing at the national level. Still, it may be argued that the full area of the system necessarily covers all of its parts, those being each of the Member States. Since each of these parts is a nation state operating as a democracy, then it is to be inferred that all the parts are placing a check on supranational authority. Such line of thinking would fail to treat things in terms of their interoperation, remaining trapped in a mindset of aggregation.

The distinction between aggregation and interoperation is important for three reasons:

1. the parts of the system, the Member States, always retain their status as parts, even though they may adopt joint decisions, and they always work together within the framework of European law which, among others, determines the modal features of their interoperations, with the peculiarities of the European Council and the Eurogroup being among them;
2. if we were to think that several democracies bundled together produce a greater democracy, then the EU would have to qualify as a democracy par excellence; an inference that would not factor in the inter-state power relations that may be formed depending on the prevailing conditions or the subject at hand and how these may produce states of affairs that were not demanded by any unified body of citizens;
3. the view that the EU is the sum of its parts—a greater democracy—misses the key attribute of national democracy, which is its relative directness; whereas the aggregation of democracies, within the context of intergovernmental negotiations, is indirect at best, with such indirectness rendering intergovernmentalism normatively inferior to the customs and procedures that apply to the national level.

Adding to the above, we need to account for sovereignty in its democratic version, as the interplay between state and popular sovereignty, and then use that as a criterion for evaluating the quality of supranational rule formation. A democratically sovereign state is one where there exists a virtuous cycle between legitimacy and accountability. The citizens legitimise the state’s structures, while the state adopts decisions for the citizens in line with the promotion of the common good, always remaining answerable to them, and always bound by the state’s legal order.

The EU’s sovereignty mismatch is discernible in the lack of overlap between the scope of European rule formation and that of a constitutionally non-existent European demos. Though there is European citizenship, it does not have a constitutional status, one which would substantiate a European demos as the subject performing the function of legitimising each of the rule forming entities as a body, as well as holding each of them accountable as a whole.

To address this issue, two changes are necessary in line with embedding democratic sovereignty: (1) a European demos needs to be made the constitutional subject of the European Union, and (2) the rule forming entities need to become akin to national governments in both their legitimacy and accountability. This would indeed make supranational legitimacy and accountability at least equal in value to those existing at the national level, solidifying the position of the EU as a successful experiment in transnational democracy, one that would manifest as a federal republic of a nation of nations.