BRINGING DEMOCRATIC CHOICE TO EUROPE'S ECONOMIC GOVERNANCE: THE EU TREATY CHANGES WE NEED, AND WHY WE NEED THEM.

Author:Smith, Jeremy
Position::Report
 
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  1. The Democratic Case for Change

    In principle, the European Union should be a force for peace, prosperity and social progress. It has many positive achievements to its credit, and positive general democratic values to defend and uphold, especially in this world of "post-truth" media and politics. But in recent years, a number of crucial negative developments have taken place, and the global financial crisis, and the ongoing Eurozone crisis which swiftly followed, have together highlighted the problems caused by the current EU Treaties in so far as they relate to economic and related issues. The structure and operation of the Euro, especially when confronted with financial and economic crisis, have given rise to the most severe difficulties.

    Despite its commitment to democratic values, in one key area the European Union does not permit legitimate democratic choice, and that is the economic sphere. Because so much of the economic policy of the EU is embedded in its Treaties, which can normally only be changed if all member states agree, there is a growing frustration that the democratic will of Europe's people simply cannot be expressed if on any point it differs from that set out in the Treaties. We are convinced that much of the recent popular discontent, leading for example to the Brexit Referendum decision, is based on the refusal of the Union to accept that its economic philosophy and policies are in many respects harmful, and its determination to reject out of hand any alternative.

    The Treaties' narrow economic dogma

    The Treaties impose a very specific--and highly contested--economic ideology, which has been described as "ordoliberal." In a paper (1) published by the European Council on Foreign Relations in 2012, the economist Sebastian Dullien and political scientist Ulrike Guerot describe this ideology:

    "The central tenet of ordoliberalism is that governments should regulate markets in such a way that market outcomes approximate the theoretical outcome in a perfectly competitive market. Inflation is seen as distorting valuable price signals, hence creating high economic costs.

    Ordoliberalism differs from other schools of liberalism in that it places a greater emphasis on preventing cartels and monopolies, but it keeps a number of beliefs central to other strands of economic liberalism. For example, it shares a neoliberal opposition to activist monetary and fiscal policies...."

    Many who share this philosophy (2) would go still fUrther. Harold James, in his book "Making the European Monetary Union," (3) says

    "Tommaso Padoa-Schioppa (4) saw this emphasis on the independent central bank as part of a more general acceptance of 'minimum government' that made a new stage of European integration possible. As he implied, the discussion of central banking was part of a broader trend that prepared the way for what was later dismissively referred to as 'market fundamentalism.'"

    And again,

    "The European Central Bank was designed as a non-state actor whose primary purpose was to issue money--the kind of institution that had basically only been imagined before the 1990s by antistatist liberal economist and philosopher Friedrich Hayek and some of his wilder disciples. By the time of the monetary union, some influential interpreters saw Hayek as one of the inspirations.

    As Otmar Issing, the first chief economist of the European Central Bank, put it, 'many strands in Hayek's thinking...may have influenced the course of events leading to Monetary Union in subtle ways'" (ibid., p. 6).

    Of course, to hold ordoliberal or similar views, and try to win support for them, is a perfectly legitimate part of a democratic society. But many economists and others, the authors of this report included, believe this ideology is based on profoundly mistaken premises, leading to substandard economic results and to adverse social consequences. The great financial crisis demonstrated the falsity of many of the assumptions that underlie the theories embedded in the EU's Treaties and policy-making.

    The EU's economic ideology bites deepest in relation to the Eurozone; the Treaty-based rules and policies have imposed austerity, excessive levels of unemployment, and poor economic outcomes, over many years. In October 2016, Eurozone unemployment fell below 10% (to 9.8%)--until then, and with the exception of a single month in 2011, unemployment in the Eurozone had been over 10% for more than seven years. This is a sign of failure in economic policy and theory.

    The authors of this study believe that to achieve economic prosperity, the active deployment of fiscal as well as monetary policy is often required. The EU policy to reduce government spending when unemployment is high and the economy is operating way below full capacity is self-defeating and prolongs depression or recession. Fiscal and monetary policy should be coordinated, which means more interaction between the different authorities than current theory and law permit.

    For present purposes, it is not even necessary to decide finally which school of thought is right and which wrong (though the economic failings of the Eurozone tell their own tale). The whole purpose of democracy is to allow not only the free exchange of ideas, which can and does take place, but also to enable different democratic choices to be made.

    Fundamentally, the European Union's Treaties today forbid the peoples of Europe to choose a different economic path. The Treaty-based rules, ultimately given penal effect, require contractionary austerity in a downturn, and now (through "balanced budget" Treaties and constitutional means) prevent an activist fiscal policy. Instead, it is assumed--wrongly--that supply-side measures are the only answer.

    Because so much of the economic policy of the EU is embedded in its Treaties, which can normally only be changed if all member states agree, there is a growing awareness and frustration that Europe's peoples are structurally barred from making legitimate democratic choices in relation to economic policy.

    The EU Treaties have created "a constitutional order"

    While the Treaty of Rome, which established the original European Economic Community, the modern European Union was created by the Treaty of Maastricht (1993), and since December 2009 its legal existence is provided for by the Treaty of Lisbon. The Lisbon Treaty in turn

    (a) amends and renames the Maastricht Treaty as the Treaty on European Union, or TEU for short;

    (b) also amends and renames the Treaty of Rome (1957), now called the Treaty on the Functioning of the European Union (2007) or TFEU.

    As the EEC and later the EU developed, a mismatch was increasingly apparent between the inter-governmental Treaty form, and the apparently sovereign substance of this new transnational entity--with its own European citizenship, as well as a common currency, Charter of Fundamental Rights, and Court with overriding jurisdiction. This led to the decision to draw up a new European Constitution, which was rejected in national referenda in France and the Netherlands in 2005. However, its actual contents were effectively maintained (almost unchanged in substance) and redistributed as amendments into the newly named TEU and TFEU Treaties.

    Despite the failure of the European Constitution, the European Union today has all or most of the attributes of a "constitutional order." Its Treaties are to be seen as providing a constitutional framework. That is, they have to a large degree the functional equivalence and force of a written Constitution of a state--or of a "sui generis" (5) body with many or most of the attributes of a state, even if it has other attributes. This is recognized generally in academic circles; Professor Robert Schutze (6) moreover goes further:

    "Indeed the real problem of the European Union is not whether there is a European Constitution, but that there is '[t]oo much constitutional law'.... For in comparison to the 34 articles and amendments that make up the written constitution of the United States, the European Treaties alone contain 413 articles. The European Treaties are therefore, with regard to their length, 'bad' constitutional law. For it is the task of constitutions to define the very principles on which societies are based."

    Nor is this idea that the Treaties form a constitutional order confined to academics. The European Court of Justice had itself, in a formal Opinion (7) delivered as long ago as 1991, affirmed as much in respect of the EEC, i.e. even before the EU was created:

    "The European Economic Area is to be established on the basis of an international treaty which merely creates rights and obligations as between the Contracting Parties and provides for no transfer of sovereign rights to the inter-governmental institutions which it sets up. In contrast, the EEC Treaty, albeit concluded in the form of an international agreement, none the less constitutes the constitutional charter of a Community based on the rule of law."

    More recently, in its judgment in the case of Kadi (ECJ C402-05) (8) of 2008, the ECJ pronounced that:

    "The obligations imposed by an international agreement cannot have the effect of prejudicing the constitutional principles of the EC Treaty..." (our emphasis in each quote).

    In sum, the Treaties perform a function that is so analogous to a Constitution --and in particular to a liberal-democratic state constitution--that it is wholly justifiable to assess its provisions against the norms of such states.

    A Constitution in general terms sets out the institutional relationship between the different parts and levels of government, and allocates competences between the different parts and levels of government. It may often set out the founders' general values and aspirations. It frequently lays down the principal rights which the state's citizens are to enjoy. The provisions of the Constitution are almost always entrenched, i.e. are harder to amend than ordinary laws.

    All...

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