EU Governments Must not Return to Their Dysfunctional Fiscal Rules

Fiscal rules such as the European Stability and Growth Pact and the German debt brake have been suspended in the Covid19-pandemic in order to provide emergency measures and to overcome the crisis. Now, the controversial debate is back again: When should governments return to fiscal rules? Should they return to fiscal rules, at all? This article argues that it is not so much a question whether governments should return to fiscal rules at all, but to which kind of rules they should return. Following the deficit bias argument and the need for fiscal policy coordination in a monetary union some kind of limitation for government debt and some kind of fiscal rules may easily be justified. However, that does not mean that governments should return exactly to the previously existing rules, because these are economically flawed. Recently the argument for reform has become even stronger due to new empirical evidence about the macroeconomic effectivity of fiscal policy, the experience of the dysfunctionality of the existing rules during the Euro crisis and the fact that the cost of public debt has been reduced dramatically because of persistently low if not negative nominal interest rates.

Europe’s (Euro) Crisis of Legitimacy

Europe’s (euro) crisis of legitimacy stems from the European Union’s ‘governing by rules and ruling by numbers’ during the sovereign debt crisis. Rules-based governance focused on austerity and structural reform played havoc with the Eurozone economy while fuelling political discontent. Subsequent reinterpretation of the rules ‘by stealth’ may have improved performance, but it did nothing to change the suboptimal rules and only further contributed to EU and national politicization. Although general acknowledgement of increasing flexibility came as of 2015, along with quantitative easing and investment, the damage had been done. Legitimacy remained in question, understood not only with regard to economic performance (output) and political responsiveness (input), but also in terms of the quality of the governance procedures (throughput). The chapter begins by conceptualizing legitimacy, and then explores EU institutional actors’ different pathways to legitimacy, and the ways in which they responded to the Eurozone crisis over time. The chapter concludes with a discussion of how the EU appears to have learned the lessons of the Eurozone crisis during the Covid-19 crisis.

The emergence of a New European Labour Policy regime: Continuity and change since the euro crisis

The architecture of European labour policy has changed in the past years of the euro crisis and its management. While in the pre-crisis phase EU labour policy still had a mainly symbolic character, the EU crisis management gave it a much more binding character. The article analyses the continuities and shifts in European labour policy against the background of austerity and crisis policy arguing that a new labour policy complex was able to emerge at the European level. While institutional shifts were considerable, the market-liberal orientation of labour policy remained in place. However, it was radicalized with the resilience approach. The article therefore provides an overview of the continuity and change of European labour policy in the euro crisis on the basis of institutional and discursive shifts.

Authoritarian Liberalism and the Transformation of Modern Europe

<Online Only>This book recounts the transformation of Europe from the interwar era until the euro crisis, using the tools of constitutional analysis and critical theory. The central claim is twofold: post-war Europe is reconstituted in a manner combining political authoritarianism and economic liberalism, producing an order which is now in a critical condition. The book begins in the interwar era, when liberalism, unable to deal with mass democracy and the social question, turns to authoritarianism in an attempt to suppress democracy, with disastrous consequences in Weimar and elsewhere. After the Second World War, partly on the basis of a very different diagnosis of interwar collapse, and initially through a passive authoritarianism, inter-state sovereignty is reconfigured, state-society relations are depoliticized, and social relations transformed. Integration is substituted for internationalism, technocracy for democracy, and economic liberty for political freedom and class struggle. This transformation takes time to unfold, and it presents continuities as well as discontinuities. It is deepened by the neo-liberalism of the Maastricht era and the creation of Economic and Monetary Union, and yet countermovements then also emerge: geopolitically, in the return of the German question; and domestically, in the challenges presented by constitutional courts and anti-systemic movements. Struggles over sovereignty, democracy, and political freedom resurface, but are then more actively repressed through the authoritarian liberalism of the euro crisis phase. This leads now to an impasse. Anti-systemic politics return but remain uneasily within the EU, suggesting that the post-war order of authoritarian liberalism is reaching its limits. As yet, however, there has been no definitive rupture.</Online Only>

The New Constitutionalism and its Discontents

<Online Only>This chapter examines the unsettling of the political constitution by domestic challenges to the euro crisis response, particularly against the actions of the European Central Bank (ECB). The disconnect between postnational discourse and domestic constitutionalism generated critical constitutional moments over who was ‘the guardian’ of the European constitution. These moments were exemplified by the OMT saga, when the German Constitutional Court threatened to invalidate an ECB programme that had existential implications for the eurozone. The chapter will examine how the ECJ’s assertive ruling, in response, did not signal the perfection of European constitutionalism, as suggested by the new constitutionalists, but revealed its precarity, rubber-stamping a programme that was of dubious legitimacy. If this would ‘buy time’ for the project, it would do so in a way that merely concealed the dysfunctionality of Economic and Monetary Union. The chapter concludes that authoritarian liberalism was, ultimately, juridically fortified by these challenges, but left open to further constitutional contestation, revealing the erosion of sovereignty underlying the European construct.</Online Only>

Authoritarian Liberalism Writ Large: the Spectre of a ‘German Europe’

<Online Only>This chapter explores how inter-state relations after Lisbon represented a fudge; the Lisbon Treaty maintaining much of the substance of the failed constitutional project, but without the constitutional symbolism. It traces how, through the euro crisis, this fudge became unsustainable: the issue of sovereignty could no longer be held in suspension, increasingly exercised outside the EU legal framework, as new informal formations took centre stage, notably the ‘Troika’ and the Eurogroup, which exercised both de facto power and de jure authority. They did so in such a way as to avoid the formal constraints of the Maastricht Treaty, but maintain its ordoliberal spirit. The chapter goes on to consider how sovereignty, in practice, was increasingly drained of any content, its loss appearing as the quid pro quo for accepting financial assistance. The chapter concludes by examining how all of this put the issue of German hegemony back on the agenda, suggesting a regional authoritarian liberalism writ large, more coercive and less consensual than in the foundational era, but ultimately underpinned by an ideological Europeanism.</Online Only>

The Material Constitution in Crisis: Telos, Nomos, and Demos

<Online Only>This chapter explores how the crisis of the material constitution was underpinned by the erosion of democracy, and not only by the dominance of ordoliberalism and neo-liberalism. It discusses how the deepening of the liberal market rationality of integration came to occur in a more disciplinary mode throughout the euro crisis, dismantling domestic social contracts, if ultimately still under the guidance of domestic elites. This was contested by extraordinary popular countermovements, which emerged to break out of the straitjacket of austerity. In particular, the chapter discusses the election to government in Greece of a left-wing party, Syriza, reflecting broader anti-systemic currents across Europe. The chapter concludes by examining how Syriza’s subsequent capitulation symbolized not merely the increasingly powerful external constraints of EU membership, but the homegrown roots of the dominant constitutional imaginary: a fear of popular sovereignty and of radical democracy under the veil of an ideological Europeanism.</Online Only>

Introduction

<Online Only> This book recounts the transformation of Europe from the interwar era until the euro crisis, using the tools of constitutional analysis and critical theory. The central claim is twofold: post-war Europe is reconstituted in a manner combining political authoritarianism and economic liberalism, and this has produced an order which is now in a critical condition. Through a passive authoritarianism, inter-state sovereignty is reconfigured after World War II, state-society relations are depoliticized, and social relations transformed. Integration substitutes internationalism, technocracy replaces democracy, and economic freedom stands in for political freedom and class struggle. This transformation takes time to unfold, and it presents continuities as well as discontinuities. It is deepened by the neo-liberalism of the Maastricht era and the creation of Economic and Monetary Union, and yet countermovements then also emerge: geopolitically, in the return of the German question; domestically, in the challenges to the EU presented by constitutional courts, and informally, in the rise of anti-systemic political parties and movements. Struggles over sovereignty, democracy, and political freedom resurface, but are then more actively repressed through the authoritarian liberalism of the euro crisis phase. This leads now to an impasse. Anti-systemic politics return but remain uneasily within the EU, suggesting the post-war order of authoritarian liberalism is reaching its limits. As yet, however, there has been no definitive rupture.</Online Only>