The crisis, the new eurozone governance and the legitimacy of the EU institutions
By Gerda Morkeviciute and Edgaras Mascinskas
When the euro crisis began, nobody knew how fast or broadly it would spread, or how difficult it would be to tackle. As an immediate response to the crisis, EU leaders and institutions implemented a number of mechanisms. These were designed to provide financial stability throughout the eurozone. The so-called ‘new eurozone governance’ was implemented under very difficult and extraordinary circumstances. As a result, the impact of these new structures on the way the EU functions has become an area of interest for many. This has led to questions around impact of the new eurozone governance and its impact on the overall legitimacy of the EU.
The institutional response to the eurozone crisis
The Greek financial crisis hit during the spring of 2010. The initial EU response was rather sluggish. It only firmly reacted when it was asked to coordinate and help the Greek government, by which time it was too little too late.
In May 2010 EU adopted the European Financial Stabilisation Mechanism (EFSM). This was the first solid step in tackling the sovereign-debt crisis. The EFSM aimed to provide financial assistance to all EU member states suffering financial difficulties. Under EFSM, the Commission can borrow up to €60 billion under an implicit EU budget guarantee. However, having been activated for Ireland and Portugal, it was revealed that this amount was insufficient.
One month later saw the creation of the European Financial Stability Facility (EFSF). This is a private liability company established under Luxembourgish law. Its objective is to preserve financial stability of Europe’s monetary union by providing temporary financial assistance to eurozone states if needed. Four weeks later, the 17 eurozone members concluded a framework agreement with EFSF, deciding new institutional structure of this new mechanism with goal to offer assistance and grant procedure, supervised by the Commission. The board of the EFSF is composed of high-level representatives of the 17 eurozone members, the Commission and the European Central Bank; each have observers on the board. The board itself is headed by EU’s Economic and Financial Committee. While unravelling all the legal technicalities is difficult, it is clear that the EFSF is not a part of European legal order. Simply put, EFSF is outside the EU law.
Eurozone states went further, signing the treaty establishing the European Stability Mechanism (ESM) in February 2012. This is an international agreement, based on international law. The ESM has full legal independent personality and in the future will not be constrained by normal EU legal order. Like the EFSF, it is not a product of specific Council representing euro area members. The ESM is a substitute to the EFSM and EFSF. The ESM primarily acts as permanent firewall for the Eurozone to safeguard and provide instant access to financial assistance programs for member states of the Eurozone in financial difficulty, with a maximum lending capacity of €500 billion.
One of the latest safeguard mechanisms established as a response to the euro crisis is the Fiscal Stability Treaty (FST – also known as the European Fiscal Compact). The FST introduced new stricter version of the previous Stability and Growth Pact, signed in March 2012. The overall goal was to facilitate and maintain the stability of the Economic and Monetary Union through tight self-correcting mechanism, guided by the monthly surveillance of a governmentally independent fiscal advisory council, which guarantees national budgets are balanced or in surplus under the treaty’s definition. It was signed and ratified by all EU member states except the Czech Republic and the UK. The difference between the FST and the ESM or EFSF is that the previous mechanisms were more or less designed for eurozone states. Out of 25 signatory member states of the FST there are only 17 eurozone states. So why did the rest of non-euro member states did sign and ratify this treaty? This is difficult to say (maybe they were signing for the future).
It is clear that these mechanisms were designed and implemented under very different and controversial circumstances. One question remains, however: how has the new eurozone governance affected EU legitimacy?
Legitimate, but distant?
All of these new instruments (mostly outside EU law) are a new way of regulating domestic policies. However, these institutional reforms do not overrule existing EU law, at least in technical terms; there is nothing unlawful about the new eurozone governance. Indeed, the EU institutions continue to be tightly constrained by constitutional checks and balances, narrow mandates, fiscal limits, super-majoritarian and concurrent voting requirements and separation of powers.
For the past four years international law was used to repair the damage of insufficient political will and lack of safeguard mechanisms. Member states legally chose, by unanimity, to proceed with international law. By doing so, they bypassed normal procedural requirements to amend the treaties. This way of conducting EU political affairs caused several problems.
To begin with, the role of the Commission in the new eurozone governance is to manage all of the new agreements. However, the involvement of the only directly elected EU institution – the European Parliament – is hardly to be found. The European Court of Justice is there only when the member states decide that it should have jurisdiction. Council negotiations were carried out in working groups behind the closed doors. Though national governments have taken most of the key decisions, the public scrutiny and overall institution transparency has been insufficient. Furthermore, the documentation and access to relevant information has been very difficult and hard to understand for normal EU citizens. For a very long time, the EU was criticised for being distant and managed by unelected officials and technocrats.
Some have argued that the European Parliament should have a bigger role in the new eurozone governance. But this leads to another problem: how do you incorporate the Parliament when not all member states use the euro? The Parliament represents all member states, so cannot just split in two and conduct EU affairs in this way.
How all of this relate to already existing debate on the legitimacy of the EU? Like a coin, the issue of EU legitimacy has two sides. One could argue the EU lacks significant legitimacy, while the other would argue not. One thing is sure, the lack of success in tackling the eurozone crisis, controversy and secrecy surrounding the negotiations of new eurozone governance has severely damaged the image of the EU. No matter the way you look at the issue, we can all certainly agree that there is a way and a need for further improvement of the EU.
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