On the flexibility of the EU Treaties

2016-01-09

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In a December 31, 2015 article titled “Responding to Europe’s Political Polarization”, Jean Pisani-Ferry argues that the European Union’s best chance of adapting to fast-paced political events is to become a federal republic, founded on a generic and mostly flexible framework of constitutional law. His thesis is that the European Treaties, the EU’s de facto constitution, are too descriptive and comprehensive. Supranational politics are not in sync with the frequent changes that occur at the national level, due to the rigidity of the Union’s primary law.

Mr. Pisani-Ferry arrives at that conclusion by thinking of the EU legal order as idiosyncratic, in that there is no clear distinction between primary and secondary legal provisions. The resulting inflexibility provides grist to the mill of “radicals” or “populists” who criticise the Union for its inability to act. The solution is to make the EU susceptible to political change, which is to be achieved through the clearer distinction between its constitutional provisions and the legislation derived therefrom. He notes:

This would require explicitly changing the balance between constitutional and legislative matters, so that principles are preserved, but policies can be responsive to politics.

While I do share the view that a federal republic is the most viable option in theory, I do not agree with Mr. Pisani-Ferry’s narrative on the rigidity of the EU’s primary law and the ostensible conflation between “constitutional and legislative matters”.

On the face of it, it is indeed true that the European Union is a derivative political organisation. It is, in a manner of thinking, the “state of its states”: a polity that has been established by inter-state covenant, whose competences are governed by the principles of conferral, subsidiarity, and proportionality. The impression one may get by examining the Union’s basic principles is that it has a clearly-delineated scope of action: the Treaties have predetermined the EU’s policies. The argument then is that whatever the EU does has been anticipated by its primary law and, conversely, anything the EU cannot do is to be attributed to the inherent limitations of the Treaties.

Do recent facts, such as the dominant theme of the euro crisis, give credence to such a view? The short answer is negative.

The European Treaties are flexible

Prior to the euro crisis, say, in 2009, we [thought we] knew that the Treaties definitevely set the specifics of the Economic and Monetary Union (EMU) as a legal-institutional order that would feature a uniform monetary policy without any effective coordination or harmonisation of national fiscal and economic policies, bank supervision (prudential policy), as well as the macroeconomic stance of the system as such. The EMU was supposed to remain robust to any alterations in its overall design. Though contrary to the intention of its architects, and faced with reality, the system has since undergone thoroughgoing reform, such as:

• a comprehensive framework for economic governance, as established by the Two-Pack and Six-Pack of Community regulations, as well as the Fiscal Compact (formally, the Treaty on Stability, Coordination, and Governance in the Economic and Monetary Union);
• a prudential capacity for the European Central Bank (ECB), courtesy of the Single Supervisory Mechanism (macroprudential) and the Single Resolution Mechanism (microprudential);
• the European System of Financial Supervision, encompassing three separate agencies, namely, the European Banking Authority (EBA), the European Securities Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA), as well as the European Systemic Risk Board (ESRB) at the ECB;
• a fiscal backstop for the Economic and Monetary Union, found in the institution of the European Stability Mechanism.

We are in the midst of this far-reaching process. As per the Five Presidents’ Report, the next steps over the short-to-medium-term include:

• a European Deposit Insurance Scheme;
• a unified representation for the euro area at the International Monetary Fund;
• the establishment of a European Fiscal Board for assessing the fiscal stance of the EMU at-large;
• a more harmonised system for monitoring competitiveness, via the introduction of national Competitiveness Boards;
• a stronger framework for implementing Country Specific Recommendations issued within the context of the European Semester.

None of these were explicitly mentioned in the European Treaties and, most importantly, few would have predicted that today’s EMU would constitute such a radical departure from its original design. All these reforms came (and will come) into being either through secondary law or by inter-state treaties outside—though clearly in line with—the European acquis. EU legislation can go a long way to setting the necessary criteria for concerted action at or via the Union level. Where such legislation is inadequate, the Treaties are flexible enough to provide for the possibility of “enhanced cooperation” between a group of Member States for the purposes of pursuing common ends outside the legal order of the EU while making use of EU institutions: a kind of interoperability between different sets of inter-state treaties among European nations.

To add to the insights drawn from the experience of the euro crisis, we [thought we] knew back in 2009 that the Treaties were written in such a way as to ensure that the “statelessness”—this false decentralisation—of the original EMU would never lead to the mutualisation of the system’s debt: more specifically, that no Member State would ever have to transfer resources to—or assume the debt of—another country. That is the notorious “no-bailout clause” envisaged in Article 125 of the Treaty on the Functioning of the European Union (TFEU). The truth is that the “no-bailout clause” is anything but an outright prohibition of official bailouts, as clearly shown by the financial support programmes that have been furnished to certain Member States (the latest being the third one to Greece). The system’s debt has or is being mutualised in a certain way, albeit in an unconventional fashion rather than a straightforward federalist way. If the Treaties were really that rigid, the euro would have already been swiped into the dustbin of history under the pressure of its own design flaws.

Last on this point, let us consider a more theoretical area for flexibility: that of a euro exit. The assumption is that it is impossible since it is not stipulated in the Union’s primary law. The euro is considered irrevocable. Except that it can be conceived otherwise: the Treaties may not specifically envisage a euro exit, yet they clearly do contain provisions that would enable policymakers to come up with an ad hoc arrangement that would allow a Member State to reconstitute its national currency. This can be done either by appealing to the so-called “flexibility clause” found in Article 352 TFEU or, if the Member State in question does not want to cooperate, by making use of the “nuclear option” of Article 7 of the Treaty on European Union (TEU) by treating the unencumbered operation of the EMU as a matter that falls under the “rule of law” (which is a core value of the EU, as per Ar. 2 TEU).

Neither Article 352 TFEU nor Article 7 TEU are considered the default options. These provisions are enshrined in the Treaties only for the most extreme of circumstances. Still, their very presence is yet another indication that the Union’s primary law is quite flexible, provided there is the necessary political will for harnessing its potential.

Politics, all too politics

When it comes to the content of policy, a modest suggestion is to avoid prioritising the legal or legalistic arguments on the constraints imposed by the Treaties. Shrewd lawyers can always find a workaround if decision-makers ask them to. “Political will” is the key phrase when examining European politics or the European integration process in general. This mostly has to do with the fact that EU affairs are in large part determined by the collective will of the Member States. That is achieved in at least two ways:

1. Deciding executive: The European Council, the institution that brings together the heads of state or government of the Member States, is the entity that gives the direction for the next acts in European integration. It does so by adopting strategic “guidelines” that the European Commission has to follow, including on the initiation of the ordinary legislative procedure.
2. Ordinary legislative procedure: Though the EU’s legislative function is not referred to as “bicameral”, it actually works like one courtesy of the two institutions that jointly produce laws, namely, the European Parliament and the Council of the European Union. It is the latter that we are currently concerned with, since it is comprised of representatives from the Member States. Put simply, without the Council’s approval no piece of EU law will be promulgated.

In both of these, national governments seek to reach a compromise between their conflicting interests. Seldom do European politics exhibit the kind of polarisation that is more common in national politics. “Consensus” is the guiding spirit, even when no general agreement is legally required. That has to do with the diplomatic and intergovernmental nature of decisions, and the concomitant need to guarantee the continued support of each state for the Union. Confrontational politics at the supranational level could reinforce centrifugal forces for exiting the Union, as well as render ever more plausible the sensationalised stories about “Brussels” issuing “edicts” to national governments.

Here is a rule of thumb: when something happens in the EU, it ultimately is so because national governments have agreed to it. The eagerness to proceed with the thoroughgoing reform of the EMU is a case in point. Policymakers realised the need for European integration on this front and, most importantly, were perfectly willing to leverage the flexibility offered by the Treaties. Conversely, whenever the Treaties envisage something that is not actualised, it is usually due to the unwillingness of national governments. The question of the rule of law in Hungary is a recent example. Not much was done due to the balance of power within the Union’s intergovernmental entities. A more pertinent issue may be the EU’s response to the relocation of asylum seekers: national governments have yet to reach a compromise that is suitable for all sides involved.

To be sure, legal constraints do exist and do apply. This is not to suggest that politicians can act frivolously in adopting whatever sort of decision they want. What I am trying to point out is that any instance of stagnation in the European integration process is more often than not due to political rather than legal constraints. Before venturing into the interpretation of the Union’s primary law, it is a good practice to identify and assess the conflicting [national] interests at play. What appears to be the “inflexibility” of the Treaties, may in fact stem from the inertia or indecision of policymakers, or worse from their determination to force through a fatalistic belief in the absence of alternatives to their course of action.

If there is one lesson to be drawn from the euro crisis, which has been a very didactic experience for the students of the European integration process, it is that progress in EU politics is for the most part contingent on the collective willingness rather than the capacity of political leaders to act.