ABSTRACT
The crisis of the euro area (EA) has severely tested the political authority of the EU. Since 2010 the EU and its members states have been forced to improvise policies and processes to deal with the crisis, including the European Semester, a strengthened Stability and Growth Pact, the Treaty on Stability, Co-ordination and Governance, the European Financial Stability Facility (EFSF) and its successor in the European Stability Mechanism (ESM) (Begg 2013; Ioannou et al. 2015). The European Central Bank (ECB) has embarked upon two rounds of long-term refinancing operations to improve bank liquidity, in effect buying sovereign debt, as well as announcing its willingness to
reference to which policies and institutional change are justified. Resting on agreed norms and principles, they form a political contract among member states. However, questions of normative legitimacy are raised by the crisis not
simply as a result of the EU’s being a normative order, but also because the construction of EMU rested upon a set of constitutional principles that contained strong – and contestable – normative assumptions. In particular, economic and monetary union was constructed according to the principles of legal constitutionalism (Issing 2008; James 2012). Legal constitutionalism is a political doctrine to the effect that a legitimate political regime must rest on a set of legal rules that constrain the actions of politically responsive decisionmakers. In some versions (e.g., Dworkin [1996]) such restrictions take a ‘left liberal’ form; in others (e.g., Hayek [1979]), they take a neoliberal form (see Bellamy [2007]). Our contention in this contribution is that the developing political contract underlying EMU has produced restrictions on member states with respect to their public budgets that amount to more than simply a treaty agreement; they have given rise to a treaty agreement underwritten by the principles of legal constitutionalism of a neoliberal kind, indeed of a specific kind within neo-liberalism. The tradition of political analysis that fed into the construction of the single
currency and its management is to be found in the work of thinkers associated with the Hayekian version of constitutional liberalism (see James [2012: 6-7]). According to this tradition, democratic governments have a tendency to fiscal irresponsibility owing to politicians having incentives to buy votes through excessive public expenditure. In seeking re-election, political representatives are motivated to respond to the wishes of special interest groups in the short term rather than framing legislation for the public interest in the long term. Particular manifestations of these tendencies might include the provision of price support schemes for agriculture, the protection of domestic industry from foreign competition, interference in controlling the terms of employment contracts that can be agreed, and expenditure on public works that benefit only localized constituencies. Hayek (1979) held that, to avoid these pitfalls, states need to be constrained by constitutional rules and mechanisms from engaging in excessive expenditure and unduly interfering in the operations of the free market. Behind the construction of the specific set of rules for EMU, therefore, lay a more general set of premises concerning the character of a democratic political order. The problem with this construction, we argue, is that, when applied to
EMU, it neglects the normative logic of two-level games. According to this logic, when governments make commitments to one another about their future behaviour, they simultaneously need to be responsible and accountable to their domestic populations in order to retain their political legitimacy. The logic of two-level games was originally developed by Putnam (1988) to account for the outcome of the Bonn economic summit of 1978, and has been subsequently applied to empirical cases ranging from security issues to
engage in outright monetary transactions (OMT), a policy allegedly leading Jens Weidmann, President of the Bundesbank, to say that this is tantamount ‘to financing governments by printing banknotes’ (Steen 2012). And still the prospect of deflation looms over European economies (House of Lords 2014c: 13 and passim). The same conditions that gave rise to these policy imperatives have required
the EU to find ways of supporting the governments of Greece, Ireland, Portugal, Spain and Cyprus in defiance of the no bail-out clause of the original monetary union (now Article 125 of the TFEU). They have resulted in the Troika imposing restrictions on the national budgets of debtor governments, policies that have been resisted by national parliaments and opposition movements. They have strengthened anti-EU parties, with a record number of Eurosceptic Members of the European Parliament (MEPs) elected in the European elections of May 2014. They have provoked legal actions in national constitutional courts in both creditor countries like Germany (Federal Constitutional Court 2014a, 2014b) and debtor countries like Portugal1
resulting in judgements that question the legitimacy of the programmes. They have stimulated continued, and sometimes violent, demonstrations against public expenditure austerity packages. They have entailed the installation of technocratic governments in Greece and Italy in 2012 as a way of dealing with the inadequacies of their respective political institutions, as well as the electoral defeat of incumbent governments in Spain and France. In short, they have brought about a crisis of political legitimacy for the EU. The Lisbon Treaty was widely regarded as having settled the institutional
architecture of the EU after nearly two decades of constitutional debate. The EA crisis has reignited those issues. The new policies and processes that have been inaugurated have changed the balance of power within the EU and opened up questions about what ‘deep and genuine’ economic and monetary union (EMU) requires by way of institutional change (European Commission 2012; House of Lords 2014a). In these debates, issues of normative political legitimacy inevitably arise, because the EU is a normative order. That is to say, the agreements that it embodies contain principles and values defining norms of behaviour for member states and EU institutions. The Treaty on European Union (TEU) and the Stability and Growth Pact (SGP), strengthened through Title VIII of the Treaty on the Functioning of the European Union (TFEU), together with the Six-Pack and the Two-Pack, have required member states to make progressively stronger commitments to one another in respect of economic and fiscal policy (Ioannou et al. 2015). Those commitments have been reinforced by the Fiscal Compact contained in the Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union (TSCG), by which member states have undertaken to ensure that national budgets are in balance or in surplus ‘through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes’ (TSCG, Article 3.2). Such measures provide a set of rules and principles by
reference to which policies and institutional change are justified. Resting on agreed norms and principles, they form a political contract among member states. However, questions of normative legitimacy are raised by the crisis not
simply as a result of the EU’s being a normative order, but also because the construction of EMU rested upon a set of constitutional principles that contained strong – and contestable – normative assumptions. In particular, economic and monetary union was constructed according to the principles of legal constitutionalism (Issing 2008; James 2012). Legal constitutionalism is a political doctrine to the effect that a legitimate political regime must rest on a set of legal rules that constrain the actions of politically responsive decisionmakers. In some versions (e.g., Dworkin [1996]) such restrictions take a ‘left liberal’ form; in others (e.g., Hayek [1979]), they take a neoliberal form (see Bellamy [2007]). Our contention in this contribution is that the developing political contract underlying EMU has produced restrictions on member states with respect to their public budgets that amount to more than simply a treaty agreement; they have given rise to a treaty agreement underwritten by the principles of legal constitutionalism of a neoliberal kind, indeed of a specific kind within neo-liberalism. The tradition of political analysis that fed into the construction of the single
currency and its management is to be found in the work of thinkers associated with the Hayekian version of constitutional liberalism (see James [2012: 6-7]). According to this tradition, democratic governments have a tendency to fiscal irresponsibility owing to politicians having incentives to buy votes through excessive public expenditure. In seeking re-election, political representatives are motivated to respond to the wishes of special interest groups in the short term rather than framing legislation for the public interest in the long term. Particular manifestations of these tendencies might include the provision of price support schemes for agriculture, the protection of domestic industry from foreign competition, interference in controlling the terms of employment contracts that can be agreed, and expenditure on public works that benefit only localized constituencies. Hayek (1979) held that, to avoid these pitfalls, states need to be constrained by constitutional rules and mechanisms from engaging in excessive expenditure and unduly interfering in the operations of the free market. Behind the construction of the specific set of rules for EMU, therefore, lay a more general set of premises concerning the character of a democratic political order. The problem with this construction, we argue, is that, when applied to
EMU, it neglects the normative logic of two-level games. According to this logic, when governments make commitments to one another about their future behaviour, they simultaneously need to be responsible and accountable to their domestic populations in order to retain their political legitimacy. The logic of two-level games was originally developed by Putnam (1988) to account for the outcome of the Bonn economic summit of 1978, and has been subsequently applied to empirical cases ranging from security issues to
engage in outright monetary transactions (OMT), a policy allegedly leading Jens Weidmann, President of the Bundesbank, to say that this is tantamount ‘to financing governments by printing banknotes’ (Steen 2012). And still the prospect of deflation looms over European economies (House of Lords 2014c: 13 and passim). The same conditions that gave rise to these policy imperatives have required
the EU to find ways of supporting the governments of Greece, Ireland, Portugal, Spain and Cyprus in defiance of the no bail-out clause of the original monetary union (now Article 125 of the TFEU). They have resulted in the Troika imposing restrictions on the national budgets of debtor governments, policies that have been resisted by national parliaments and opposition movements. They have strengthened anti-EU parties, with a record number of Eurosceptic Members of the European Parliament (MEPs) elected in the European elections of May 2014. They have provoked legal actions in national constitutional courts in both creditor countries like Germany (Federal Constitutional Court 2014a, 2014b) and debtor countries like Portugal1
resulting in judgements that question the legitimacy of the programmes. They have stimulated continued, and sometimes violent, demonstrations against public expenditure austerity packages. They have entailed the installation of technocratic governments in Greece and Italy in 2012 as a way of dealing with the inadequacies of their respective political institutions, as well as the electoral defeat of incumbent governments in Spain and France. In short, they have brought about a crisis of political legitimacy for the EU. The Lisbon Treaty was widely regarded as having settled the institutional
architecture of the EU after nearly two decades of constitutional debate. The EA crisis has reignited those issues. The new policies and processes that have been inaugurated have changed the balance of power within the EU and opened up questions about what ‘deep and genuine’ economic and monetary union (EMU) requires by way of institutional change (European Commission 2012; House of Lords 2014a). In these debates, issues of normative political legitimacy inevitably arise, because the EU is a normative order. That is to say, the agreements that it embodies contain principles and values defining norms of behaviour for member states and EU institutions. The Treaty on European Union (TEU) and the Stability and Growth Pact (SGP), strengthened through Title VIII of the Treaty on the Functioning of the European Union (TFEU), together with the Six-Pack and the Two-Pack, have required member states to make progressively stronger commitments to one another in respect of economic and fiscal policy (Ioannou et al. 2015). Those commitments have been reinforced by the Fiscal Compact contained in the Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union (TSCG), by which member states have undertaken to ensure that national budgets are in balance or in surplus ‘through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes’ (TSCG, Article 3.2). Such measures provide a set of rules and principles by
THE NORMATIVE LEGITIMACY OF TWO-LEVEL CONTRACTS
At the centre of the issue of political legitimacy is the question of the credibility, and consequently the justifiability, of the reasoning underlying the norms and principles on which the construction of EMU is based. Yet, how might one evaluate such credibility? We approach this question through contractarian political theory. According to contractarian theory, political authority is to be understood as arising from a contract to mutual advantage implicitly or explicitly agreed among the members of a political association. The need for political organization can be modelled as the solution to dilemmas of collective action (Buchanan and Tullock 1962; Gauthier 1986; Ostrom 1990; Weale 2013). These dilemmas occur when unco-ordinated action by separate agents gives rise to potential gains from co-operation, as in an agreement on weights and measures or the rules of the road, or where unco-ordinated individual action leads to harmful side-effects from otherwise legitimate human activity, of which pollution and resource depletion are the obvious examples. If we think of political associations as having a contractarian logic in this sense, then we can address the issue of credibility by asking what conditions have to be satisfied for actors to find a contract that they can rationally support (Gauthier 1986). The general logic of contractarian analysis can be applied not only to the
study of natural persons but also to relations between states. States can impose harmful externalities on other states and their populations through cross-boundary pollution, trade restrictions or population movements. They can also fail to secure common advantages through a lack of political co-ordination. The EU has often been portrayed as a mechanism for overcoming these problems in the international arena (Moravcsik 1993). The assumption is that the policies that fall within the competence of the EU are in the longterm common interest of the member states, offering Pareto improvements over a prevailing status quo for all concerned. However, many such issues are subject to the logic of the prisoner’s dilemma. Each member state may be better off with an agreed policy with which all other member states comply but with which it does not, than it would be when it complied as well, even if all would be worse off without any agreement. Yet, if this logic is clear to all, none would rationally comply and so the policy will either never be agreed or will unravel over time. Thus, the fundamental problem to be solved in any political contract between states is that of inducing credibility in others of one’s commitment to the policy to be agreed to avoid defection from a mutually beneficial agreement. To overcome this free rider problem requires states to be able to make credible commitments to one another about their willingness to fulfil their obligations, even on those occasions when fulfilling those obligations proves onerous. The logic of the N-person prisoner’s dilemma was reflected in the construction
of EMU. As Issing (2008: 234-6) has clearly explained, it was thought that, because democratic competition works to create deficit financing, thereby undermining the long-term stability of the currency and public finances, the euro was
economic diplomacy and North-South relations (Evans et al. 1993). As Pollack (2001: 225) has pointed out, it also lies behind liberal intergovernmentalist accounts of EU integration such as that of Moravcsik (1998) and Schimmelfennig (2015). However, this framework of analysis neither implies fixed preferences (Crespy and Schmidt 2014), nor does it have only an empirical use. Beyond its empirical applications, the logic of twolevel games also has a normative interpretation (Savage and Weale 2009) providing a model by which we can evaluate the justifiability of constitutional arrangements. The neglect of the normative logic of two-level games in the construction of
EMU is compounded by a second problem within legal constitutionalism: namely, its disregard of the existence of reasonable differences in political judgement over the principles that should govern a monetary union made up of different sovereign states, each with their own traditions of economic and monetary policy. Indeed, even within the broadly neoliberal tradition of thinking about economic constitutions, there are important differences of substance as well as emphasis. When the conditions for continuing contestation over policy measures and organization exists, the putative political legitimacy of EU legal constitutionalist arrangements, such as those underlying EMU, the SGP and the TSCG, reinforce the practical contradiction of the two-level game implicit in the economic constitution. By contrast with this attempt to entrench legal constitutionalism, we suggest that the design of an economic constitution ought to respect the principles of political constitutionalism, with its requirement that governments be responsive to the public reasoning of their citizens within the continuing democratic conversation that makes up a political society (Bellamy 2007). In pursuing this argument, the contribution proceeds as follows. In the next
section we lay out the normative logic of the two-level game embodied in the construction of EMU. According to this logic, those participating in international agreements have a dual duty: to deal fairly with one another, on the one hand; and to be responsive and accountable to the democratic reasoning of the people whom they represent, on the other. In acknowledging this dual duty, they should also acknowledge that their fellow negotiators have a similar duty in respect of their own peoples. The penultimate section indicates why, given reasonable disagreement about the principles that should govern an economic constitution, the legitimacy of EMU cannot be simply secured by framing the related fiscal rules in legal constitutionalist terms. The long-term legitimacy of EMU is compatible only with political constitutionalism. We conclude that so long as the EU remains subject to the logic of delegation implicit in the normative logic of two-level games, EMU must remain subject to the equal control and influence of the different member state demoi – a position we characterize as ‘republican intergovernmentalism’. We suggest this result can be achieved through the empowerment of national parliaments in EU policymaking.
