Key dimensions of crises in the EU: contemporary aspects

Purpose. The aim of the article is to describe the main factors of crisis phenomena in the development of the European integration process. Methodology. The methodology involves a comprehensive study of theoretical and practical material on this subject, as well as formulation of relevant conclusions and recommendations. The following methods of scientific cognition were used in the research process: dialectical, terminological, formal and logical, comparative and legal, system and functional methods. Results. Transformation processes in the EU serve as a manifestation of global economic and information development. The crisis in the euro area was largely due to the peculiarities of its economic and institutional organization, in particular, the conditions for the free movement of capital and the lack of policy coordination in other sectors of the economy. Until now, measures in the field of economic governance in the EU have been largely ineffective due to their recommendatory nature and the lack of a legal obligation for EU Member States to comply with them. The crisis in the euro area and the EU in general has created favorable political conditions for deep institutional changes in the field of European integration. In particular, the dependence of EU countries on financial assistance from the ESM leads them to comply with the terms of the Fiscal Compact. At present, most EU political leaders consider deepening integration to be the key to securing the EU’s future economic growth and preventing future crises. In this context, the launch of a common fiscal policy is a significant step towards economic integration in the EU. Scientific novelty. The study found that most EU leaders are fully aware of the need for structural convergence, namely overcoming structural and cyclical differences among the economies of euro-area countries, as well as the main and secondary risks of divergence as a destructive phenomenon that can disrupt the established social, political, legal and economic order within the EU. Practical significance. Research materials can be used for comparative law studies.

Searching for new fiscal rules in the euro area: a new proposal

While the European Union (EU) fiscal rules are suspended in the years 2020–2022, new rules are in the making and might be activated in 2023. If the old rules were used again, massive austerity would be required in the face of the strongly elevated level of public debt and the gap to the 60 per cent debt cap in the EU Treaty. A new proposal is suggested in this article which requires only small changes in the Treaty and/or the Fiscal Compact, but a strong overhaul in secondary law, that is, the Stability and Growth Pact. The key ideas are to use net interest payments, as a share of GDP, as the new metric for defining debt sustainability rather than gross public debt. This would allow the adjustment of the rules to changing monetary environments, especially interest-rate levels, and changing differentials between interest rates and growth rates. This way, much more fiscal space would be generated both for higher-debt and lower-debt member states and the entire euro area.

Budget rules with a public debt reduction target

After the Stability and Growth Pact suspension to face the Covid-19 emergency and subsequent financial crisis, a novel fiscal discipline must be designed for the Euro Area. In this short paper, we formally analyze and compare three budget rules and their efficacy in pursuing a reasonable public debt reduction target, explicitly envisaged by them. The rules we refer to are: (a) the structural adjustment toward a budget medium term objective, required by Fiscal Compact discipline; (b) the expenditure rule proposed by European Fiscal Board and (c) the Musgrave Golden rule. By a simple simulation exercise we argue that the rule proposed by EFB seems to be, for a country with a low rate of growth and a high level of public debt, preferable to the other two.

Why 3 and 60 per cent? The rationale of the reference values for fiscal deficits and debt in the European Economic and Monetary Union

The origins of the reference values for budget deficits and public debt (3 and 60 per cent of GDP) in the euro area are explored. Both numbers came into the Maastricht Treaty by coincidence. Later attempts to legitimise them are traced and found unconvincing. In particular the debt cap is scrutinised, often considered as a precondition for debt sustainability. Since the first overhaul of the Stability and Growth Pact in 2005, reference values for structural deficits became the focus of fiscal policy, but derived from the 60 per cent debt cap. With the so-called Fiscal Compact from 2012, caps for structural deficits were added to the semi-primary law of the European Union. It is argued that the reference values for deficits and debt are not consistent. If the Domar equation is observed, the changing relationship between interest rates on public debt and output growth should be included in the fiscal policy framework. Therefore ‘eternal’ reference values for deficits and debt should be removed from the primary law by Treaty amendments.

The European Stability Mechanism and the Fiscal Compact in European Integration

The European Stability Mechanism (ESM) and the Treaty on Stability, Coordination, and Governance, often referred to as the Fiscal Compact, constitute two of the main European Union (EU) instruments for dealing with the eurozone crisis. Both had to be established as intergovernmental agreements outside of, but parallel to, the EU’s legal framework. However, the instruments were closely linked to the European Community framework and made extensive use of Community institutions. The ESM was originally set up as a loan facility to Eurozone countries facing problems financing their debt, but it became much bigger in size and scope than originally envisioned by the member states. The Fiscal Compact, on the other hand, can be considered as the fiscal counterpart to the ESM. It received a lot of attention in the press and academia, but it was first and foremost required as a political signal that would allow further enhancements of the ESM. The two instruments are often employed in the literature as part of a continuing juxtaposition of intergovernmentalist and supranationalist methods or approaches. However, from a theoretical perspective, the ESM and Fiscal Compact reflect an acknowledgment of new realities in European integration, in which intergovernmental actors and action channels play a more prominent role in decision making, but this does not necessarily come at the expense of the supranational actors. The instruments exemplify the rise of the European Council’s centered governance for dealing with major reforms. The processes of setting up the ESM and Fiscal Compact were undoubtedly political and top-down, but they were less driven and controlled by the big member states than the label ‘intergovernmental’ implies.

Non-EU Legal Instruments (EFSF, ESM, AND Fiscal Compact)

‘Another Legal Monster?’ That was the question asked by the Law Department of the European University Institute on 16 February 2012 in a debate about the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG), also known as the Fiscal Compact Treaty. On 2 March 2012, twenty-five Member States of the European Union minus the United Kingdom and the Czech Republic signed the TSCG. A month before, on 2 February 2012, the euro area Member States signed the Treaty Establishing the European Stability Mechanism (ESM Treaty), another legal monster. In both cases, the monstrosity lies in the fact that Member States have preferred to conclude an international treaty, rather than to use the European Union (EU) institutional system. Why did the European Commission not propose a legislative act to establish a financial assistance mechanism in the Eurozone and strengthen the fiscal discipline in the EU? Does this mean the end of community method and a victory for the intergovernmental method? As Herman Van Rompuy commented about the crisis; ‘often the choice is not between the community method and the intergovernmental method, but between a co-ordinated European position and nothing at all’. In 2010, Angela Merkel defended her vision of a new ‘Union Method’ in a speech held at the College of Europe. This approach can be defined by the following description: ‘co-ordinated action in a spirit of solidarity–each of us in the area for which we are responsible but all working towards the same goal’. Each of us means the European institutions and Member States. The new ‘Euro-international’ treaties (or inter se treaties) raise a number of questions regarding their compatibility with EU law, implications for the Union legal system, institutional balance, national sovereignty and democratic accountability. These questions are all the more important because international treaties raise a number of questions on their compatibility with EU law, implications for the Union legal system and institutional balance.

Hybrides Unionsrecht

The contract of the European Stability Mechanism and the European Fiscal Compact are international treaties and – from a formal point of view – not part of European Union law. With regard to the institutional level and to the main contents of the contracts, there is a specific relationship to the law of the European Union: Both treaties aim at developing European integration. This situation leads to legal questions about the conditions of this specific type of contract, which have rarely been asked yet. Therefore, this work analyses the conditions which European Union law and German constitutional law require for the legal validity of this kind of international treaty.