Pulling the rug from under Mario’s feet: the BVerfG and the ECB’s OMT programme

Ioannis Glinavos (@iGlinavos), Senior Lecturer, University of Westminster

A key decision relating to EU economic and monetary union will be delivered by the German Constitutional Court (Bundesverfassungsgericht, “BVerfG”) next week (Tuesday June 21). That court will be deciding on the case of Gauweiler (C-62/14), where it had asked the European Court of Justice (CJEU) for an opinion (preliminary reference) on the legality of the European Central Bank’s (ECB) Outright Monetary Transactions (OMT) programme after 37,000 plaintiffs questioned the legal basis of the ECB’s scheme. It is notable that Jens Weidmann, Bundesbank president, had voted against the OMT programme and Eurozone Quantitative Easing (QE). The Court referred two questions to the CJEU in what it classified as an ultra vires review of acts of the European Union.

In summary, the BVerfG wanted to check whether the ECB had transgressed the limits of its powers derived from the EU Treaties. If the ECB had, this would have consequences for the constitutional identity of Germany. Therefore, the BVerfG asked for clarification on whether the OMT programme was an economic rather than a monetary measure and whether the ECB had as a consequence exceeded its powers by establishing it.  Second, the BVerfG raised the question whether the OMT programme was not violating the prohibition of monetary financing of Member States.

The BVerfG set out the following specific conditions that could render OMT compatible with the German constitution: (1) OMT should not undermine the conditionality of the EFSF and ESM (‘bail-out’) programmes; (2) OMT should only be of a supportive nature to other economic policies; (3) any debt restructuring must be excluded (no pari passu for the ECB) (4) no unlimited purchases of government bonds and (5) avoidance of interference with the price formation on the market where possible.

Indeed, the ECB is not allowed to engage in economic policy, neither is it allowed to finance member states, as articles 120, 123, 127 TFEU (primarily) set out. On the face of it, the concerns of the claimants at the BVerfG seem justified. Let us therefore examine the nature of the complaint in some more detail. The OMT, announced in September 2012, is an initiative aimed to help struggling Eurozone economies by buying short-term government bonds on secondary markets. It is widely perceived as an important tool to calm markets. The way in which OMT offers relief to states experiencing funding difficulties is by opening an avenue to short term affordable liquidity. In a way, it allows funds to reach governments by creating demand for sovereign debts in secondary markets, therefore lowering the costs of borrowing overall. Its critics, however, have argued that OMT exceeds the ECB’s mandate and undermines the rules that keep the Eurozone from becoming a ‘transfer union’ where stronger members are constantly bailing out weaker ones.

These transfers are supposedly prevented by the fact that the OMT operates in conjunction with fiscal discipline measures in the affected countries. The ECB insists that a necessary condition for OMT is strict and effective conditionality attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programme. Such programmes can take the form of a full macroeconomic adjustment programme or a precautionary programme, provided that they include the possibility of EFSF/ESM primary market purchases. The ECB Governing Council considers OMTs to the extent that they are warranted from a monetary policy perspective as long as programme conditionality is fully respected (which is why Greek government bonds are not included in the OMT shopping list), and terminate them once their objectives are achieved or when there is non-compliance with the macroeconomic adjustment or precautionary programme. As to the transactions themselves, they are focused on the shorter part of the yield curve, and in particular on sovereign bonds with a maturity of between one and three years. No ex ante quantitative limits are set on the size of transactions. In purchasing these bonds, which is likely to be a sticking point for the BVerfG, the ECB accepts the same (pari passu) treatment as private or other creditors with respect to bonds issued by euro area countries and purchased by the Eurosystem through OMT, in accordance with the terms of such bonds.

But how can the above transactions avoid violating the monetary financing prohibition? Benoît Cœuré (of the ECB) offers the following explanation for the actions of the ECB. He argues that the economic rationale of the monetary financing prohibition is clear, as central banks cannot ensure price stability if they have to permanently make up for weak performance in other policy domains. This is why Article 123 TFEU is central to the architecture of EMU. In the view of the ECB, the aim and design of OMTs fully respect this economic requirement, via the link to conditionality. As presented above, the link to policy conditionality of an EFSF/ESM programme ensures that central bank intervention via OMTs does not replace reform efforts in other policy domains. Rather, OMTs can only be complementary to national reform efforts. This is designed to prevent a scenario of harmful central bank support, or fiscal dominance over the central bank. 

Cœuré continues by arguing that OMTs would never be used to indiscriminately push down government bond spreads. By contrast, spreads should continue to reflect the underlying country-specific economic fundamentals, fiscal positions and market risk perceptions that incentivise governments to engage in sustainable fiscal spending and competitiveness-enhancing structural reforms. The aim of OMT is therefore not to reduce yields below the fundamentally justified level so as to preserve debt sustainability despite weak policy performance, but to aim at that portion of the bond yield spreads that is not fundamentally justified and based on undue risks of a euro area break-up. In other words OMT deals with market anxiety over Eurozone wide systemic risks not linked to the underlying fundamentals of Member State economies (at least as those are understood by the ECB). This is perhaps because central bank independence and a clear focus on price stability are deemed necessary but not sufficient to ensure monetary dominance. The ECB maintains the position that by creating the right environment and providing appropriate incentives for governments to take action to ensure fiscal solvency, OMTs create the conditions to affirm the monetary dominance regime, which is at the heart of the Treaty.

The European Court of Justice seems to be largely in agreement with the above. In its 2015 judgment in Gauweiler, it ruled that a plan by monetary policy makers to buy government bonds, even in potentially unlimited quantities, was legal. The court found that Mario Draghi’s pledge in the summer of 2012 to do “whatever it takes” to save the region from economic ruin through OMT, complied with EU law. “The programme for the purchase of bonds on secondary markets does not exceed the powers of the ECB in relation to monetary policy and does not contravene the prohibition of monetary financing in member states,” the ECJ declared, offering an important win to Draghi against German opposition to ECB attempts to stave off a Eurozone financial crisis. This decision is also perceived as shielding monetary policy makers from legal attacks on their landmark €1.1tn QE package, unleashed in 2015.

Alicia Hinarejos writes that the CJEU has recognized the broad discretion of the ECB to make complex economic assessments and technical choices, while at the same time striving to discharge a meaningful and necessary role. The Court clearly does not want to be seen to be second-guessing the other institution’s policy choices, so it focuses on procedural requirements and applies a light-touch review when it comes to assessing the proportionality of the scheme. This is most evident in the final part of the judgment, where the court assesses the compatibility of the OMT programme with the ban on monetary financing. Here the Court seeks to apply (and be seen to be applying) a coherent, rigorous-enough-yet-within-judicial-boundaries compatibility test. 

The CJEU found (para 103-5) that the ESCB is entitled to purchase government bonds — not directly, from public authorities or bodies of the Member States — but only indirectly, on secondary markets. Intervention by the ESCB of the kind provided for by a programme such as OMT thus cannot be treated as equivalent to a measure granting financial assistance to a Member State. The Court recognised however that the ESCB’s intervention could, in practice, have an effect equivalent to that of a direct purchase of government bonds from public authorities and bodies of the Member States. This could happen if the potential purchasers of government bonds on the primary market knew for certain that the ESCB was going to purchase those bonds within a certain period and under conditions allowing those market operators to act, de facto, as intermediaries for the ESCB for the direct purchase of those bonds from the public authorities and bodies of the Member State concerned. However, the ECB convinced the Court that the implementation of a programme such as that announced in September 2012 must be subject to conditions intended to ensure that the ESCB’s intervention on secondary markets does not have an effect equivalent to that of a direct purchase of government bonds on the primary market.

The decision can be said to continue in the Pringle vein of ratifying a move away from a rules-based EMU to a policy-based one in the wake of the crisis, with the CJEU limiting its role of review to a strictly formalist position. This can be seen in the fact that the discussion (like the AG’s Opinion before it) does turn on the specific features of the OMT programme rather than on more abstract questions such as the nature of EMU, its evolution, and the role of solidarity within its constitutional framework. 

Will the BVerfG decide along the same lines? Analysts at Société Générale model three possible outcomes. In the best case scenario, the BVerfG will simply find the OMT in line with the German Constitution based on the ECJ preliminary ruling. At the opposite end of possibility, the BVerfG could find the participation of the Bundesbank in OMT incompatible with German constitutional law or even declare German participation in ESM programmes that are supported by OMT incompatible. Such a ruling would then require German primary law to be changed to allow the Bundesbank to participate in an eventual OMT programme. A middle position is in effect more likely, with the BVerfG tinkering with some aspects of the programme (such as pari-passu for instance) and linking the operation of the OMT with ECB’s QE by highlighting the issue limits of QE as an important feature to respect under OMT. Such a move would address the concerns of Germany at being pushed under OMT to take on uncapped risks towards other euro area sovereigns, and assuage the fears of other EU members as to violations of Article 123 TFEU. At the same time, the BVerfG seems keen to avoid becoming an instrument of politics and is unlikely to allow itself to be used as a tool for the transmission of political concerns over ECB decision-making onto the constitutional law domain.

Will Mario find himself on the floor on June 21st? This is unlikely to happen, but considering the British are holding the Brexit referendum on the 23rd of the month, anything other than total support from the BVerfG to the architecture of Eurozone rescues is likely to cause a noticeable wobble.

Art credit: David Simonds

Barnard & Peers: chapter 19 

EU Referendum Briefing 1: Can the UK control the EU’s future if it stays a member?

Steve Peers

During the EU referendum campaign, a number of arguments have been made that staying in the EU is risky, because of possible future developments of the EU itself. While there will always be someone somewhere who says they would like to see an EU army, or some development related to the single currency, such an expression of opinion is meaningless by itself.  The fundamental issue is whether the UK could control such developments – either by vetoing them or opting out.

So what’s the worst that can happen? In this post, I’ll examine in turn the main alleged risks to staying in the EU. As we’ll see, in every single case the UK has control, either by an opt-out or a veto. In other words, none of these things can happen without the British government’s consent. Nearly all of them would also need our Parliament’s consent. And the large majority – all the fundamental possible changes to the EU that many are concerned about – would actually need the consent of the British public in another referendum. (Anyway, there's nothing to stop the UK holding another referendum on EU membership in future, if it wanted to).

All of these safeguards for UK control of further developments of the EU exist in the current law of the EU – as I will show in detail. None of them are first created by the renegotiation of EU membership agreed this February.

I’ll look at seven issues where the UK has control over future EU developments:

a) defence;

b) transfers of power;

c) new Member States, including Turkey;

d) taxation;

e) non-EU immigration, asylum and criminal law;

f) the single currency; and

g) the EU budget, including the UK rebate.

There's also an earlier blog post on the controversial issue of the planned EU/US trade deal (TTIP) and the NHS. 

a)      EU Defence and foreign policy

The UK has control over EU defence and foreign policy measures because they are in principle taken by unanimous vote, with only limited exceptions. On foreign policy in general, Article 31 TEU says:

Decisions under this Chapter shall be taken by the European Council and the Council acting unanimously, except where this Chapter provides otherwise.

The exceptions are where there has been a prior act or request of EU Presidents and Prime Ministers (who act by consensus), or where the EU is implementing a prior act already agreed by unanimity, or where the EU appoints a ‘special representative’. However, there is a kind of ‘emergency brake’ in all these cases:

If a member of the Council [ie a Member State government] declares that, for vital and stated reasons of national policy, it intends to oppose the adoption of a decision to be taken by qualified majority, a vote shall not be taken.

Also the majority voting ‘shall not apply to decisions having military or defence implications’. It’s also possible to apply majority voting to funding issues, but again there’s a military and defence exception (Article 41 TEU), and also there’s an exception for a Member State which chose to abstain on a proposal. The bottom line is that the UK is in control of whether it has to contribute to EU foreign policy funding.

So whether EU foreign policy relating to Ukraine or Russia (for instance) is a good idea or not, it has not been imposed on the UK government. Rather the government is in control, because it could have vetoed it. This means that if EU Member States can’t agree on an issue, there is no EU foreign policy on that issue, and they do as they like – as in the case of the Iraq War, for instance.

Some have raised the issue of the UK’s permanent seat on the United Nations Security Council. In fact Article 34(2) TEU refers to Member  States’ seats on the Security Council, not to any EU seat. The UK has control here, because it could veto any EU decision that required it to give up its Security Council seat, as part of its veto over any foreign policy matters. It’s suggested that the European Parliament wants that to happen, but the European Parliament has no role in EU foreign policy: Article 36 TEU says that it’s only consulted.

Anyway, a change to the UK’s Security Council veto  could only happen by means of a change to the UN Charter, and the UK has control over that: a veto, according to Article 108 of the Charter:

Amendments to the present Charter shall come into force for all Members of the United Nations when they have been adopted by a vote of two thirds of the members of the General Assembly and ratified in accordance with their respective constitutional processes by two thirds of the Members of the United Nations, including all the permanent members of the Security Council.

As for defence, can there be an EU army? Article 42(2) TEU says:

2. The common security and defence policy shall include the progressive framing of a common Union defence policy. This will lead to a common defence, when the European Council, acting unanimously, so decides. It shall in that case recommend to the Member States the adoption of such a decision in accordance with their respective constitutional requirements.

So the UK has control over any possible ‘common defence’, by means of its veto. And there’s more: the ‘constitutional requirements’ that would apply in the UK are not only parliamentary approval, but also a referendum, according to the European Union Act 2011. In general this law sets out a ‘referendum lock’ on further transfers of power to the EU, putting the British public in control over any future transfers. I’ll refer to this law again several times, since it sets many other limits on the development of the EU in future. It also requires a referendum before any British veto over foreign policy or defence is given up. 

b) Treaty amendments and transfers of power

It’s sometimes suggested that there might be future transfers of power from Member States to the EU, as part of the developing single currency project (perhaps following the so-called ‘Five Presidents Report’ on this issue) or for some other reason. This is sometimes presented as a 'superstate', or as an inevitable outcome of the EU's 'ever closer union' clause. However, the UK has control over these developments. First of all, the UK has an opt-out from the single currency, as discussed below. Secondly, it also has a veto over future Treaty amendments.

There are several ways to amend the EU Treaties, as set out in Article 48 TEU. They have two things in common: (a) the UK government has a veto over all of them (which it used in 2011, for instance); and (b) the British Parliament would have to approve each of them, either by voting in favour or deciding not to vote against.

But there’s more. The European Union Act 2011, first mentioned above, also gives control to the British public over any significant Treaty amendment, by means of a referendum. This would apply where the UK would drop nearly any veto. It would also apply to other transfers of powers to the EU from the UK, defined in detail as including:

a)      ‘the extension of the objectives of the EU’;

b)      any ‘conferring’ or ‘extension’ of any EU competences, including over ‘the co-ordination of economic and employment policies’ (an issue in the Five Presidents’ Report); or

c)       giving any EU ‘institution or body’ any power to give orders or impose sanctions upon the UK.

  

It’s been suggested that the UK gave up a veto relating to single currency and banking issues as part of the renegotiation deal. This isn’t true, as the deal didn’t amend the Treaties and Parliament has not amended the 2011 Act.

So the control over any transfer of power from the UK to the EU is threefold: the UK government, UK Parliament and the British public.

c)       New Member States

The rules on accession of a new Member State are set out in Article 49 TEU, as follows:

Any European State which respects the values referred to in Article 2 and is committed to promoting them may apply to become a member of the Union. The European Parliament and national Parliaments shall be notified of this application. The applicant State shall address its application to the Council, which shall act unanimously after consulting the Commission and after receiving the assent of the European Parliament, which shall act by an absolute majority of its component members. The conditions of admission and the adjustments to the Treaties on which the Union is founded, which such admission entails, shall be the subject of an agreement between the Member States and the applicant State. This agreement shall be submitted for ratification by all the contracting States in accordance with their respective constitutional requirements. The conditions of eligibility agreed upon by the European Council shall be taken into account.

So the UK controls whether a new country joins the EU, by means of a veto. The ‘constitutional requirements’ are an Act of Parliament in favour.

There has been some concern about new Member States joining the EU in future, but in order to join each new State must negotiate 35 chapters of detail about EU law. In 11 years’ of negotiations, Turkey has only agreed one out of those 35 chapters. It has not even opened many of them:

Moreover, the ‘conditions of eligibility’ include human rights standards, which Turkey doesn’t now meet. Cyprus would veto Turkish membership unless there’s a deal on the future of the island. The other countries applying to join have not agreed many chapters either.

In any event, the current Member States can insist on a long waiting period before the free movement of persons fully applies to new Member States. The majority of the Member States which joined the EEC/EU after it was founded (14 out of 22) have been subject to seven-year waiting periods before full free movement of people, and longer periods could be applied in future.

The UK veto over enlargement could only be dropped by a Treaty amendment, approved by the government, parliament and public under the European Union Act 2011.

d)      Taxation

The main taxes harmonised at EU level are VAT and excise taxes. EU law sets a minimum rate for these taxes: it’s 15% for VAT, subject to exemptions. It also defines their scope. The UK has VAT exemptions on things like books, basic foodstuffs and children’s clothes.

While VAT is sometimes depicted as if it is imposed by the EU upon the UK, in fact the UK has consented to all VAT laws, since law-making in this area is subject to unanimity. The rule currently appears in Article 113 of the Treaty on the Functioning of the European Union:

The Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation.

So the UK has control in this area, since it has consented to every VAT obligation and excise tax obligation set by EU law. It’s the UK’s own decision to set the rate of tax for VAT and excise taxes (taxes on alcohol, tobacco and petroleum) above the minimum level. Many people would like to see further exemptions from VAT, such as on tampons or environmental services; but it was the UK government that agreed to commit itself not to lower these rates. Actually, the UK government recently agreed to a renewal of the 15% minimum rate. In any event, the EU has recently agreed to a more flexible approach, which will allow VAT to be dropped on tampons and possibly a broader range of other products and services.

It follows from the existence of the veto that the UK has control over any future amendment to EU tax law in these areas, including any removal of any exemption, by means of its veto.

What about other taxes? There is little EU involvement in other areas of tax law. So, for instance, the UK is entirely free to set rates of personal income tax, National Insurance contributions, corporate taxation, council tax and many more. However, there is some limited EU involvement in cross-border aspects of corporate tax, such as the recent law which aims to tackle cross-border tax evasion.

The EU adopts these laws on the different legal basis of Article 115 TFEU:

Without prejudice to Article 114, the Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, issue directives for the approximation of such laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the internal market.

Again it can be seen that unanimity is the rule. So the UK has a veto. This veto is further protected by Article 114(2) TFEU, which says that the majority voting that normally applies to EU single market law does not apply to ‘fiscal provisions’.

Therefore the UK has control over any new EU tax that might possibly be proposed to fund refugee and migration costs, or upon pensions, or upon anything else. We can simply veto it.

Can these vetoes be removed? As discussed above, due to the European Union Act 2011, they can only be removed (in whole or part) if the Treaty is amended with the consent of the UK government and parliament, and the British public in a referendum.

e)      Asylum, non-EU migration and criminal law

The UK has an opt-out over EU laws on non-EU migration, criminal law and policing. This is set out in Protocol 21 to the Treaties.

As regards immigration and asylum, the UK opted out of most non-EU immigration laws, but opted in to the first phase of asylum laws from 2003-2005, using the veto which it had at the time to ensure that these laws did not require any change in UK asylum law. The only substantive EU asylum laws which the UK has opted in to since 2005 are the Dublin III Regulation (on returning asylum-seekers back to another Member State where they first entered) and the Eurodac Regulation (on fingerprinting asylum-seekers to that end). The UK opted out of recent EU laws on relocating asylum-seekers from Italy and Greece to other Member States.

The UK also has an opt-out from the Schengen system of open borders between Member States, and harmonised external border controls (see Protocols 19 and 20). This includes an opt-out from the EU laws on short-term visas (which concern stays of three months’ maximum). So the UK will not be covered by the proposed laws on waiving the short-term visa requirement for Turkish citizens, or for other countries (Ukraine, Georgia, Kosovo).

For the same reason, the UK will also not be covered by the proposed law on a European Border Guard. While this law originally provided for the border force to enter a Member State without its consent, that idea was dropped during negotiations. That would anyway not have applied to the UK; and in fact the EU court has ruled that the UK could not opt in to the EU law creating a border agency (the precursor to the proposed Border Guard law) even if it wanted to, without signing up to the whole of the Schengen system.

In the areas of criminal law and policing (which will be the subject of a separate blog post with more detail), the UK had a veto until 2009, when the Treaty of Lisbon came into force. Since that date, it has had an opt-out, which it has frequently used. In particular, it has opted out of the proposal for a European Public Prosecutor. Note that the EU’s police agency, Europol, is not a ‘federal police force’: the Treaty rules out ‘coercive powers’ for it, so it cannot arrest, question or detain people. Its main role is the analysis of police investigation data.

The abolition of the opt-outs on immigration and asylum, Schengen and criminal law would require a Treaty amendment subject to approval of the government and Parliament. The abolition of the Schengen opt-out would also require a national referendum, under the European Union Act 2011. So would participation in the European Public Prosecutor.

f) The Single Currency

The UK’s opt-out from the single currency appears in Protocol 15 to the Treaties. Point 1 reads:

1. Unless the United Kingdom notifies the Council that it intends to adopt the euro, it shall be under no obligation to do so.

This protocol does not expire at some point, as is sometimes suggested. Neither are ‘all Member States obliged to join the euro by 2020’. So the opt-out is valid for an unlimited period.

The protocol goes on to disapply the various EU law rules relating to the single currency. This has a number of implications. Due to the single currency opt-out the UK cannot be subject to austerity measures imposed by the ‘Troika’ that oversees bail-outs to Eurozone countries, since this only applies to states which adopt the single currency. Austerity policy in the UK is solely a decision made by our own government.

Furthermore the UK is exempt from some EU banking laws. Most notably it is not obliged to participate in the permanent bail-outs of Eurozone states. Only Eurozone states are involved in that, on the basis of a separate treaty. In fact the EU as such cannot adopt laws on permanent bail-outs, according to the EU court.

The UK could potentially be part of solely temporary bail-outs. But here the law was amended to provide a guarantee that the UK would get its money back in the event of any default.

g)      The EU budget – and the UK rebate

Of the money the UK in principle sends to the EU, there are two key features: a) a rebate, meaning some of that contribution is never sent at all; and b) some EU spending back in the UK. (For an overview, see here).

It’s often suggested that the rebate is not legally secure, and that the UK has no control over spending by the EU. Both suggestions are false.

The rebate is set out in the EU’s Own Resources Decision. This does not (as some suggest) have an expiry date (other Member States’ rebates will expire in 2020, but the UK rebate, and the law as a whole, will not). If the EU wants to amend this law, Article 311 TFEU applies:

The Council, acting in accordance with a special legislative procedure, shall unanimously and after consulting the European Parliament adopt a decision laying down the provisions relating to the system of own resources of the Union. In this context it may establish new categories of own resources or abolish an existing category. That decision shall not enter into force until it is approved by the Member States in accordance with their respective constitutional requirements.

It’s clear that the UK government can control the future of the rebate by means of a veto. Furthermore, so can Parliament, since the ‘constitutional requirements’ for the UK referred to mean that an Act of Parliament has to be passed for any amendment to the Own Resources Decision. These constraints have meant that the veto has stayed in place for over 30 years – although the UK government and parliament have agreed to some reduction in it over that time.

It’s clear that this rebate is not ‘conditional’, as is sometimes suggested. The UK has full control over the rebate money and can do entirely what it likes with it.

What about EU spending back in the EU? The basic rules on what the EU spends money on are set out in the law on the ‘Multi-Annual Financial Framework’. The latest such law is here. The UK does have control over the basic features of this law, because it has a veto over it, according to Article 312(2) TFEU:

2. The Council, acting in accordance with a special legislative procedure, shall adopt a regulation laying down the multiannual financial framework. The Council shall act unanimously after obtaining the consent of the European Parliament, which shall be given by a majority of its component members.

It’s also useful to put the EU budget contribution into broader perspective. It’s less than 1% of UK spending (the small red section of the graph below). So if the UK no longer paid the contribution, it would be like getting a pay increase from £400 to £404. The average taxpayer is paying 12p a day toward the EU.

Conclusion

As we have seen:

a)      The UK cannot be required to join an EU army without consent of the UK government, parliament and public;

b)      Treaty amendments require the consent of the UK government and parliament, and (if there’s any transfer of powers) the public;

c)       Accession of new Member States requires the consent of the UK government and parliament; it is a long way off for Turkey in particular and if it ever happens, will be subject to long periods of transition for workers to be admitted;

d)      The UK has a veto on tax issues; the UK government, parliament, and public would have to consent to dropping it;

e)      The UK has an opt-out from EU law on asylum, non-EU migration and criminal law; the UK government and parliament would have to consent to dropping it, and the public would have to agree to join Schengen or the European Public Prosecutor;

f)       The UK has an opt out from the single currency and other related issues, and could only join after the consent of the UK government, parliament and public;

g)      The UK has a veto over the basic EU budget revenue and spending rules, including the UK budget rebate; the veto could only be dropped with the consent of the UK government, parliament and public.

Of course, there are many other possible criticisms of the European Union. Some may be valid, and some not. But the argument that the UK government could be forced into any of the measures listed above is quite clearly false and scaremongering. All of the above possible developments are subject to the control of the UK government, and usually our Parliament and the general public besides.

Art: ‘The Scream’, Edvard Munch

Saving the single currency? Gauweiler and the legality of the OMT programme

Alicia Hinarejos, Downing College, University of Cambridge; author of The Euro Area Crisis in Constitutional Perspective 

On the 16^th of June the Court of Justice delivered its decision in the Gauweiler case, concerning the legality of the Outright Monetary Transactions (OMT) programme of the European Central Bank (ECB). The Court considered the programme compatible with EU law. The decision has important implications for the powers of the ECB, the constitutional framework of the EU’s Economic and Monetary Union, and for the relationship between the Court of Justice of the EU and the referring court, the German Federal Constitutional Court. This was the first time that the German court asked for a preliminary ruling, and it remains to be seen whether the reply given by the Court of Justice will be to the national court’s liking. (See my earlier comments on the Advocate-General's opinion in this case here).

Background

The ECB is in charge of conducting monetary policy for the euro area and its role is very narrowly defined in the Treaties. This role, however, has evolved and expanded substantially in recent years, as the ECB has announced or adopted various ‘non-standard’ measures in response to the euro area sovereign debt crisis. The OMT programme is one of these measures: it was announced in September 2012 in a press release and, so far, it has never been used.

The idea is that the ECB will buy government bonds from euro countries in trouble, i.e., when nobody else buys these bonds, or their yield is becoming so high that the Member State will not be able to cover interest payments on newly issued bonds, thus having no more access to credit and risking default. Crucially, the Treaty prohibits the ECB from acquiring government bonds directly (Art 123 TFEU) as this would amount to monetary financing, or becoming a direct lender of last resort to a Member State. Instead, the ECB would buy government bonds in the secondary market—that is, from a party that has bought these bonds first from a Member State—rather than from a Member State directly. While the ECB has already done this before, with the OMT programme there would be an added formal element of conditionality, as the Member State in question would need to obtain financial assistance from the European Stability Mechanism or the EFSF and comply with its conditions (i.e. macroeconomic reforms negotiated between the Member State and the troika: the Commission, the ECB, and the IMF).

The applicants before the German Court argued that the ECB had overstepped its Treaty role by creating a programme that should be viewed as a tool of economic, not monetary, policy; it was also alleged that the programme violated the prohibition of monetary financing. In an exercise of ultra vires jurisdiction, the German Constitutional Court’s preliminary response was to consider the OMT programme illegal under EU law. For the first time ever, the national court then referred the case to the CJEU. In the referring court’s view, the Court of Justice might either declare the OMT scheme contrary to EU law, or provide a more limited interpretation of the programme that is in accordance with the Treaties. The German Court provided certain indications as to what those limits should be, and it went on to state that whether the OMT scheme could eventually be held to violate the constitutional identity of the German Basic Law would depend on the CJEU’s interpretation of the scheme in conformity with EU primary law.

The case was sensitive for various reasons: although not yet used, the mere announcement of the OMT scheme played an important role in getting the euro area out of the acute phase of the crisis, and offers a credible defense against similar future scenarios. A declaration of illegality, or the placing of substantive limits on the programme, could have jeopardised post-crisis recovery. Additionally, the reference was the first ever submitted by the German Constitutional Court, and its tone was quite bold; there was, and is, clear potential for conflict between the two courts, with consequences unknown for EMU. Moreover, the case touches on the nature and legitimacy of the role of the ECB as an independent expert, and on the dichotomy between the original, rule-based conception of EMU and the evolving, more policy-oriented EMU that rose out of the crisis.

The Court of Justice’s Decision

(1)  Preliminary questions

Various arguments had been put forward against the admissibility of the reference. Some of them went to the nature of the ECB’s announcement of the OMT programme and its reviewability; others to the circumstances under which the reference had been made by the national court.

First, it was argued that the ECB’s announcement was not a legal act, but a preparatory act without legal effects. The Court of Justice rejected this view. Second, the Court similarly rejected arguments to the effect that the conditions under which the reference had been made were not compatible with the preliminary ruling procedure, because the questions at stake were too abstract and hypothetical, because the German court would not consider itself bound by the resulting preliminary ruling, or because the national proceedings could be said to create the possibility for German citizens to bring a direct action against the validity of an EU act without having to use Art 263 TFEU (and without complying with its conditions for admissibility). In dealing with these arguments, the Court relied on the division of competences between itself and the national courts within the framework of the preliminary ruling procedure, refusing to second-guess the German court’s assessment of the need for a preliminary ruling or the rules of national law governing judicial review and the organization of legal proceedings. Unsurprisingly, the Court reasserted the binding force of its preliminary rulings upon national courts.

(2)  The legality of the OMT programme

Broadly speaking, the German court had raised two main concerns: that the OMT programme was a measure of economic, not monetary, policy, thus beyond the powers of the ECB; and that the programme was incompatible with the prohibition of monetary financing of Member States enshrined in Art 123(1) TFEU.

Is it monetary policy?

The Court started by assessing the nature of the OMT scheme and whether it should be classified as a measure of monetary or economic policy. The applicants had argued that the scheme should be viewed as an economic policy measure adopted with the aim of saving the euro by changing certain flaws in the design of monetary union, i.e. by pooling the debt of euro countries. They also emphasized the effects of the attached conditionality on Member States’ economic policies. All this, they argued, placed the OMT scheme beyond the merely supporting role that the ECB may have in economic policy, according to the Treaties. The German Constitutional Court agreed, based on various features of the OMT scheme: its conditionality and parallelism with ESM and EFSF financial assistance programmes (as well as its ability to circumvent them) and its selectivity (in that OMT bond-buying would only apply to select countries, whereas measures of monetary policy typically apply to the whole currency area).

The ECB, on the other hand, argued that the aim of the scheme ‘is not to facilitate the financing conditions of certain Member States, or to determine their economic policies, but rather to “unblock” the ECB’s monetary policy transmission channels’ [104]. In other words, the crisis was making it impossible for the ECB to pursue monetary policy through the usual channels. The proposed bond-buying would ensure that credit conditions return to normality, and that the ECB is able to conduct its monetary policy again. Additionally, the ECB argued that the element of conditionality was necessary to ensure that the OMT scheme would not interfere with the programme of macroeconomic reform agreed between the ESM and the Member State in receipt of financial assistance.

As it had done in Pringle, the Court set out to determine whether the measure in question fell within the scope of monetary or economic policy by investigating its objectives and instruments. The Court considered the stated objectives of the OMT programme (to safeguard ‘appropriate monetary policy transmission and the singleness of the monetary policy’) and concluded that they contributed to the ultimate aim of monetary policy, i.e. maintaining price stability. The Court drew an analogy with Pringle at this point to argue that possible indirect effects of the OMT programme in economic policy (the fact that the programme may contribute to safeguarding the stability of the euro area) did not mean the measure should be classified as pertaining to economic policy. The Court came to similar conclusions when examining the instruments to be used in order to achieve the objectives of the programme. In sum, both objectives and instruments of the OMT programme—and thus the programme itself—were taken to fall within the scope of monetary policy.

Interestingly, while Advocate General Cruz Villalón had come to the same overall conclusion regarding the classification of the OMT programme as a measure of monetary policy, he had introduced an important caveat: he saw a problem in the fact that the ECB made bond-buying through the OMT scheme conditional on the Member State’s compliance with a programme of macroeconomic reform adopted within the framework of the ESM or EFSF, and the fact that the ECB plays a very active role in the negotiating and monitoring of this programme with the Member State. This double role of the ECB (first within a framework for financial assistance which constitutes economic policy, according to Pringle, and then in its bond-buying role within the OMT) would tip the OMT scheme beyond the boundaries of the ECB’s powers: monetary policy with, at most, a supporting role in economic policy. The AG thus considered that, if the OMT were to be activated, the ECB would have to distance itself from the Troika and the monitoring of the conditionality for financial assistance immediately.

On the contrary, the Court saw no problem with making bond-buying through the OMT programme conditional upon the Member State’s compliance with ESM or EFSF conditionality; this would lead to the sort of indirect effects in economic policy that the Court had already considered irrelevant to the classification of the measure, and it would ensure that ESM/EFSF conditionality would not be rendered ineffective by the ECB’s actions. This, according to the Court, is in line with the ECB’s obligation to support the general economic policies in the Union. The fact that bond-buying in the secondary markets can be considered a measure of economic policy when the ESM does it (Pringle), and a measure of monetary policy when the ECB does it, is justified, according to the Court, because of the different objectives pursued in each case. Finally, the Court made no reference to the involvement of the ECB within the troika.

Is it proportionate?

The Court concluded that the OMT programme, as first described by the ECB in its announcement, is appropriate for attaining its objectives and does not go beyond what was necessary to achieve them. In conducting its review of proportionality, the Court recognized the ECB’s broad discretion to make complex assessments and technical choices in the area, and it conducted a light-touch review. The Court was satisfied that the ECB had satisfied the duty to give reasons sufficiently, and that it had not made a manifest error of assessment in its analysis of the economic situation and in its view that the OMT programme would be appropriate to achieve the effect sought. Equally, the Court surmised that the measure, as described in the ECB’s press release, would not go beyond what was necessary to achieve its objectives, given the limited nature of the programme and the wording of the press release itself (i.e. that bond-buying would only take place in order to satisfy very specific objectives, and that it would cease as soon as they had been achieved). No prior quantitative limit was considered necessary.

Is it against the prohibition on monetary financing?

The Court then turned to the possible circumvention of the prohibition on monetary financing of Member States. While the Treaty makes it illegal for the ECB to buy government bonds directly from a Member State, the referring court argued that, although OMT bond-buying would take place in the secondary market, this amounted to a circumvention of the same rule. This circumvention would undermine fiscal discipline and would make certain Member States responsible, ultimately, for the debts of others.

The Court of Justice agreed that the ECB should not be able to buy bonds from Member States in the secondary markets under conditions which meant that, in practice, the bond-buying would have the same effect as if it had taken place directly; or, put differently, if indirect bond-buying would defeat the purpose of Art 123(1) TFEU in the same way as buying bonds directly. In order to decide whether the OMT programme could be considered such an illegitimate circumvention of the Treaties, the Court sought to elucidate, first, the aim of Art 123(1) TFEU (the prohibition on monetary financing of Member States); and second, the extent to which indirect bond-buying within the OMT scheme would threaten the achievement of that aim.

According to the Court, the purpose of the prohibition on monetary financing of Member States is to encourage the latter to pursue a sound budgetary policy: if Member States cannot rely on monetary financing, they are subject to market discipline and they need to avoid excessive debt and deficits if they want to be able to sell their bonds, and thus have access to credit in the financial markets, in favourable or sustainable conditions.

The aim of encouraging a prudent budgetary policy could be threatened by indirect bond-buying within the OMT programme to the extent that such actions would improve a Member State’s access to credit, unless certain safeguards were built into the programme. The Court was convinced by the ECB’s assurances that any implementation of the programme would contain such safeguards: distortion to the conditions under which a Member State can sell its bonds in the primary market would be limited (by not announcing in advance the ECB’s intention to buy a Member State’s bonds in the secondary market, and by allowing a reasonable period of time to elapse between the Member State’s sale of its bonds in the primary market and their subsequent acquisition by the ECB). The Court was further satisfied that the uncertain possibility of having the ECB buying a Member State’s bonds in the secondary market would not, by itself, diminish Member States’ incentive to pursue a prudent budgetary policy, given the limited nature of the OMT programme and the limited cases in which it may be used. Finally, making bond-buying within the OMT programme conditional on the Member State’s compliance with ESM/EFSF conditionality would ensure, according to the Court, that Member States in receipt of financial assistance would not see bond-buying through the OMT programme as an alternative to fiscal consolidation.

Overall, then, the Court concluded that the OMT programme—as presented in the press release and subject to the safeguards explained by the ECB before the Court—is compatible with the prohibition on monetary financing: under those conditions, indirect bond-buying through the OMT programme would have an effect on Member States’ access to credit, but that effect would not be equivalent to that of buying bonds directly from Member States (monetary financing) and it would not defeat the purpose of the ban of monetary financing, which is to encourage Member States to pursue a prudent budgetary policy.

Final Remarks

The judgment in Gauweiler brings no surprises: the ECB’s OMT programme is in accordance with the Treaties, as long as it implemented in the way that the ECB assured the Court it would be. So certain safeguards have to be built into the system, but these safeguards are not new or especially onerous, and they do not go as far as the ones put forward by the German Federal Constitutional Court as conditions of legality. The final result is as expected; the question is whether the safeguards required by the Court of Justice will satisfy the referring court, and what impact this decision will have on the relationship between the two courts.

The Court of Justice has recognized the broad discretion of the ECB to make complex economic assessments and technical choices, while at the same time striving to discharge a meaningful and necessary role: the Court does not want to be seen to be second-guessing the expert body’s policy choices, so it focuses on procedural requirements and applies a light-touch review when it comes to assessing the proportionality of the scheme. It is in the final part of the judgment (when assessing the compatibility of the OMT programme with the ban on monetary financing) that the decision is at its most strict. It is in this section that the Court seeks to apply (and be seen to be applying) a coherent, rigorous-enough-yet-within-judicial-boundaries compatibility test.  Will the Court’s efforts prove convincing enough? It depends on what section of the Court’s audience we consider. The decision can be said to continue in the Pringle vein of ratifying a move away from a rules-based EMU to a policy-based one in the wake of the crisis. Ultimately, disagreement will remain between those that see this evolution as unavoidable and even necessary if EMU is to adapt and survive, and those that, either do not agree with this evolution, or think that it should take place by different means. Finally, the Court’s discussion (like the AG’s Opinion before it) does turn on the specific features of the OMT programme rather than on more abstract questions such as the nature of EMU, its evolution, and the role of solidarity within its constitutional framework. While the decision should unmistakable be read in its more general constitutional context, the most natural forum for this broader discussion may not be a judicial one.

Barnard & Peers: chapter 19

Catharsis or catastrophe: what next for Greece and the Eurozone?

 

Steve Peers

Yesterday the anti-austerity party Syriza won a large victory in Greek elections and seems certain to become the government, probably in coalition with a smaller party. What is the likely impact upon the EU’s economic and monetary union?

The starting point is Syriza’s election platform. As discussed in more detail in this Open Europe blog post, that party’s aim is not to leave the EU or even the single currency, but rather to renegotiate Greece’s debts and the related austerity obligations. In particular, it wants part of Greece’s debt to be forgiven, and the terms of the remaining debt to be renegotiated, along with an abolition of the austerity demands made upon Greece as condition of previous bail-outs.

But whatever the political and economic arguments for this programme, it potentially faces some legal hurdles. There are limits on forgiving debt or ending austerity, as set out in the EU Treaties and the case law of the CJEU, which I discussed in a previous blog post (which this post updates).

In particular, according to Article 136(3) TFEU, any financial assistance to a eurozone Member State must be subject to ‘strict conditionality’. This is consistent with the CJEU ruling in Pringle, which stated that the ‘no-bailout’ rule in the EU Treaties (Article 125 TFEU) allowed Member States to offer each other financial assistance on the condition that it took the form of loans, rather than a direct assumption of Greek government debt by other Member States. Moreover, the CJEU pointed out, the ESM Treaty (the treaty between eurozone Member States which governs bail-outs) required that in the event of non-payment, the loans would remain payable, and had to be charged an appropriate level of interest.

So it’s not possible for Member States to drop all conditionality as regards loans to Greece, to forgive debt as such or to loan money interest-free. But it is open in principle to reduce the stringency of the conditions somewhat, to reduce the interest rates payable and to lengthen the repayment period – although there is always the risk that some litigant will try to convince a national court or the CJEU that this is going too far. Moreover, the rules in the EU Treaties only bind EU institutions and Member States, not private parties, third States or international organisations (although it might be argued that Member States are constrained as members of the IMF not to violate the no-bailout rule indirectly). So any renegotiation or default as regards such creditors is not subject to EU law rules in principle, although of course other legal rules might be applicable.  And as the Open Europe analysis points out, the bulk of the debt is owed to the Eurozone.

The case law does not rule out a short period of non-repayment of principal or interest, as long as the loans remain payable and subject to interest. Nor does it specifically address the possible conversion of loans into bonds, as some in Syriza have suggested.

Overall, it’s hard to see how the relatively modest renegotiation which EU law would permit would do enough to reduce Greece’s mountain of debt significantly, or to satisfy the voters which supported a Syriza-led government.

The renegotiation of loans might not be the only possibility to help out Greece. For example, arguably the Treaties do not rule out a form of (supplementary) unemployment insurance system as between Eurozone Member States, or support for another Member State’s social spending, as long as it would not take the form of paying off another State’s debts as such.

There is the ultimate possibility of leaving the euro, either at the behest of Greece itself or the other eurozone Member States. As I pointed out in the previous post, it isn’t legal to leave the Eurozone (or to force a Member State out) without that State leaving the EU. On that point, while it’s open to any Member State to leave the EU, it’s not legal to force a Member State out. At the end of the day, though, the European Central Bank holds the trump cards, since it could force a Member State to leave monetary union in practice by stopping the supply of money to that State. The independence of the ECB prevents politicians from ordering the bank to take such a radical step, but it might act on its own initiative.

Quite apart from its very dubious legality and severe economic effects, such a move would be a huge political mistake. The result might not be an increase in support for those moderate parties that reluctantly supported austerity, but rather for the far-right neo-Nazi Golden Dawn party, which came third in the elections.

The better course for the EU is to take this opportunity to re-engage with the millions of EU citizens who are affected or angered by austerity, and re-orient the EU towards ending that austerity, instead of generating more of it. Although this is more easily said than done, it should never be forgotten that the initial rationale for the EU was not austerity, but economic growth which raised living standards for the population as a whole. So in voting for a party which promised the latter, Greeks have reaffirmed, not rejected, the Union’s traditional raison d’etre, reminding it that the Union cannot maintain its social or political legitimacy if it becomes no more than a mechanism for enforcing austerity.

 

Barnard & Peers: chapter 19

Cartoon: Economist.com

The beginning of the end for the Euro? EU Law constraints on leaving EMU or defaulting on debts

 

Steve Peers

After a couple of years without any (apparent) crisis, the future of Economic and Monetary Union (EMU) is threatened again, following the decision to call snap Greek elections in January. What would be the consequences if the anti-austerity party Syriza becomes the government?

First of all, such an outcome is not yet certain. As Open Europe’s analysis points out, Syriza has only a modest lead in the polls, and even if it becomes the largest party, it may well fall short of having a majority of seats, in which case it would have to form a coalition with another party.

Secondly, it’s necessary to realise that Syriza has, in principle, relatively modest ambitions. Its policy is not to leave the EU or even the single currency, but rather to renegotiate Greece’s debts and the related austerity obligations. Even in previous elections, it sought to default on the debt, rather than leave the EU or EMU.

Having said that, it is possible that Syriza might decide to threaten more decisive action if renegotiation does not go well. Or that party’s more radical elements might take charge.  Or, in the view of some (see this Washington Post commentary), Greece might be forced out of the euro by other Member States, particularly Germany.

While the main issues arising from this situation are political and economic, there are also legal constraints that cannot be overlooked. Some key measures taken to save the euro in recent years were litigated before national courts (particularly in Germany and Ireland), as well as in the CJEU, notably the Pringle case (concerning the treaty establishing the European Stabilisation Mechanism) and the pending Gauweiler case (discussed here), concerning the European Central Bank policy of buying government bonds. The Advocate-General’s opinion in the latter case is due in mid-January – in the midst of the Greek election campaign.

Let’s start with the most radical outcome. Every Member State has an option to leave the EU, set out in Article 50 TEU. It would be unwise to invoke that provision unless a Member State genuinely wants to leave (see my earlier blog post on that provision). Conversely, however, it’s entirely impossible to force a Member State out of the EU against its will. The most that the other Member States can do is to suspend its membership in the event of a ‘serious and persistent breach’ of EU values, in particular human rights and democracy (Article 7 TEU).

What about departure from EMU? The Treaties contain detailed rules on signing up to the euro, which apply to every Member State except Denmark and the UK. Those countries have special protocols giving them an opt-out from the obligation to join EMU that applies to all other Member States. But there are no explicit rules whatsoever on a Member State leaving the euro, either of its own volition or unwillingly, at the behest of other Member States.  There’s an obvious reason for this: the drafters of the Maastricht Treaty wanted to ensure that monetary union went ahead, and express rules on leaving EMU would have destabilised it from the outset. Put simply, legally speaking, Greece can’t jump or be pushed from the single currency.

But other currency unions have fallen apart in history, despite any legal prohibitions that may have existed against it. So it’s important to consider also the practical constraints: it’s not realistic to imagine forcing Greece to leave or to stay in EMU against its will, short of invading and occupying the country. How would Greece be forced out exactly? By printing drachmas in Frankfurt, dropping them from the air over Greece and hoping that Greeks use them?

In the event that Greece did choose to leave EMU in practice, EU law would have to be amended (probably with retroactive effect) to regulate the position. Although there are no express provisions on this issue, arguably Article 352 TFEU (the default power to regulate issues not expressly mentioned in the Treaties) could be used. This would require a unanimous vote of all Member States: it wouldn’t be possible to use the EU’s ‘enhanced cooperation’ rules (allowing a group of Member States to go ahead without the others), since those rules can’t be used where an issue falls within the scope of the EU’s exclusive competence, and the single currency falls within the scope of the exclusive competence over monetary policy. If Article 352 was not legally possible (someone might bring a successful legal challenge if it was used, or one or more Member States might have purely legal objections), it would be necessary to amend the Treaties.

The least radical outcome is that Greece’s debt and austerity obligations are simply renegotiated. But there are legal constraints here too. Most significantly, Article 136(3) TFEU states that any financial assistance must be subject to ‘strict conditionality’, consistent with the CJEU ruling in Pringle. The CJEU also made clear in that judgment that the ‘no-bailout’ rule in the EU Treaties (Article 125 TFEU) allowed Member States to offer each other financial assistance on the condition that it took the form of loans, rather than a direct assumption of Greek government debt by other Member States. Moreover, the CJEU pointed out, the ESM Treaty required that in the event of non-payment, the loans would remain payable, and had to be charged an appropriate level of interest.

So it’s not possible for Member States to drop all conditionality as regards loans to Greece, to forgive debt as such or to loan money interest-free. But it is open in principle to reduce the stringency of the conditions somewhat, to reduce the interest rates payable and to lengthen the repayment period – although there is always the risk that some litigant will try to convince a national court or the CJEU that this is going too far. Moreover, the rules in the EU Treaties only bind EU institutions and Member States, not private parties, third States or international organisations (although it might be argued that Member States are constrained as members of the IMF not to violate the no-bailout rule indirectly). So any renegotiation or default as regards such creditors is not subject to EU law rules in principle, although of course other legal rules might be applicable.  

Whether such fairly modest renegotiation would do enough to reduce Greece’s mountain of debt significantly, or to satisfy the voters which supported a Syriza-led government, remains to be seen. The greater impact may be longer-term, in the event that a Podemos-led government comes to power in Spain, or that new or current governments in other Member States which have been bailed out demand a similar renegotiation.

Finally, it should be recalled that renegotiation of loans might not be the only possibility to help out Greece. For example, arguably the Treaties do not rule out a form of (supplementary) unemployment insurance system as between Eurozone Member States, since it would not take the form of paying off another State’s debts as such. Admittedly, such a system would provide indirect financial support to another State, since it would reduce costs which that Member State might otherwise have. But the same might be said of loaning money to that Member State, at interest rates far lower than it would be offered on the free market, via means of the ESM Treaty – and the CJEU has already found that this didn’t violate the no-bailout rule. Moreover, the previous Commission has already done a lot of preparatory work on this issue (see the fuller discussion here). Such a scheme could probably be launched either inside the EU legal framework, or outside it.  

It’s up to Greek citizens to decide if they want to vote for Syriza or not, and the EU institutions and other Member States should leave them alone to make their choice. But if Greeks do decide to vote for that party, it would be tiresome and counter-productive to react with bluster and threats. Why not take this opportunity to re-engage with the millions of EU citizens who are affected or angered by austerity, and re-orient the EU towards ending that austerity, instead of generating more of it? That’s more easily said than done, of course. But an unemployment insurance system would not only have an economic rationale (as an automatic stabiliser) but also a political one, demonstrating that the EU can assist those who have suffered from the economic downturn directly.

 

Barnard & Peers: chapter 19
Photo credit: Xendpay.com