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The Objective of Stability of the Euro Area as a Whole

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The Pursuit of Stability of the Euro Area as a Whole

Part of the book series: Studies in European Economic Law and Regulation ((SEELR,volume 18))

Abstract

This chapter focuses on the meaning of the objective of the ‘stability of the euro area as a whole’, which has been formally introduced in art. 136(3) TFEU. After recalling the role of objectives in the EU legal framework, the research will develop an exhaustive definition and qualification of the ‘stability of the euro area as whole’ in the light of the case law of the CJEU and the academic debate. The objective will distinguish it from other interpretations of stability such as monetary, fiscal and financial stability. The analysis will argue that the ‘stability of the euro area as a whole’ essentially consists of the preservation of the existence and the integrity of the monetary union, whose establishment is a goal of the EU in accordance with art. 3(4) TEU.

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Notes

  1. 1.

    The concept was developed by the German Federal Constitutional Court (GFCC) as a condition of the German participation in the EMU . See German Constitutional Court, Judgment of 12 October 1993, [BVerfGE 89/155], paras 138, 144, 147, 148.

  2. 2.

    See Sommermann (2013), Article 3 TEU, para 3.

  3. 3.

    See Larik (2016), p. 162. Objective define a desirable condition to achieve (erstrebeswerter Zustand) or an element of material perspective (materiell-prospektives Element). See Terhechte (2017), Artikel 3 EUV, para 19.

  4. 4.

    See Ipsen (1972), p. 995.

  5. 5.

    See Larik (2016), p. 134.

  6. 6.

    In German ‘Zweckverband’. See Ipsen (1972), pp. 197–198, 1055.

  7. 7.

    See Larik (2014), p. 948.

  8. 8.

    See German Federal Constitutional Court , Judgment of 12 October 1993, [BVerfGE 89/155], para 112. In the Lissabon judgment the GFCC specified that ‘the Basic Law does not authorize the German state bodies to transfer sovereign powers in such a way that their exercise can independently establish other competences for the European Union’. German Federal Constitutional Court , Judgment of 30 June 2009, [2 BvE 2/08], para 233.

  9. 9.

    In the Gimenez Zaera case the CJEU stated that the aims laid down in art. 2 of the EEC Treaty ‘are concerned with the existence and functioning of the Community’. ECJ Judgment of 9 September 1987, Case C-126/86, ECLI:EU:C:1987:395, para 10.

  10. 10.

    The implied power doctrine should not allow the attribution of new powers to the Union, but clarify the sphere of application of the existing competence. In European Agreement on Road Transport case, the Court explained that the ‘authority [of the Community] arises not only from an express conferment by the Treaty […] but may equally flow from other provisions of the Treaty and from measures adopted within the framework of those provisions by the Community institutions.’ ECJ Judgment of 31 March 1971, Commission of the European Communities v Council of the European Communities. Case C-22/70, ECLI:EU:C:1971:32, para 16.

  11. 11.

    Sommermann (2013), Article 3 TEU, para 12; Ruffert (2016), Artikel 3 EUV, para 12.

  12. 12.

    In the Maastricht judgment, the GFCC referred to the flexibility clause as a ‘competence extension provision’ (Kompetenzerweiterungsvorschrift). German Federal Constitutional Court , Judgment of 12 October 1993, [BVerfGE 89/155], para 127. The strict procedure requested for the activation of the flexibility clause proves that there is no automatic correspondence between objectives and competences. See Larik (2014), p. 957.

  13. 13.

    See Larik (2014), pp. 947–948; Tuori and Tuori (2014), pp. 3–6. In the Van Gend &Loos case, the CJEU stated that the ‘Community constitutes a new legal order of international law for the benefit of which the states have limited their sovereign rights, albeit within limited fields’. ECJ Judgment of 5 February 1962 C-26/62, NV Algemene Transport- en Expeditie Onderneming van Gend & Loos v Netherlands Inland Revenue Administration. Reference for a preliminary ruling: Tariefcommissie – Netherlands, ECLI:EU:C:1963:1, p. 12. In the Le Verts case, the ECJ said that ‘the European Economic Community is a Community based on the rule of law’ and is provided with a ‘basic constitutional Charter, the Treaty’. ECJ Judgment of the of 23 April 1986, Case C-294/83, Parti écologiste “Les Verts” v European Parliament, ECLI:EU:C:1986:166, para 23.

  14. 14.

    See Geiger (2014), Article 1 TEU, para 13.

  15. 15.

    The catalogues of competences are provided in art. 3, art. 4, art. 5 and art. 6 TFEU.

  16. 16.

    Larik (2016), p. 146.

  17. 17.

    Larik (2016), p. 143.

  18. 18.

    The concept of Staatszielbestimmung has been developed by the German legal doctrine, while the concept of objectifs de valeur constitutionnelle can be identified in the case law of the Conseil constitutionnel. See Larik (2016), pp. 23, 27; Ruffert (2016), Artikel 3 EUV, para 2.

  19. 19.

    The assimilation of EU objectives to Staatszielbestimmungen and the objectifs de valeur constitutionnelle depends on the fact that they both have the purpose to guide the management of public powers. Despite this significant similarity, some important differences remain. First, while objectives in an international organisation represent a substantial ‘need’ (Zielbedarf), in a sovereign state they represent more of a ‘desire’ of the public authority to better orientate its policies (Zielbedürfnis). See Larik (2016), pp. 149–150. Second, while the Staatszielbestimmungen and the objectifs de valeur constitutionnelle are self-posed by the sovereign legal order of the State, the objectives of EU law are (etero-) determined by the Member States, in accordance with the principle of conferral . See Ruffert (2016), Artikel 3 EUV, para 2.

  20. 20.

    See Becker (2012), Artikel 3 EUV, para 7; Ruffert (2016), Artikel 3 EUV, para 9; Terhechte (2017), Artikel 3 EUV, para 12.

  21. 21.

    See Ruffert (2016), Artikel 3 EUV, para 7.

  22. 22.

    See Sommermann (2013), Article 3 TEU, para 11.

  23. 23.

    See Sommermann (2013), Article 3 TEU, para 6; Ruffert (2016), Artikel 3 EUV, para 5.

  24. 24.

    See Sommermann (2013), Article 3 TEU, para 8; Ruffert (2016), Artikel 3 EUV, para 4.

  25. 25.

    See Larik (2016), p. 129.

  26. 26.

    See ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, paras 94–97.

  27. 27.

    See ECJ Judgment of 16 June 2015, Case C-62/14, Gauweiler (and Others) v. Deutscher Bundestag, ECLI:EU:C:2015:400, paras 49–50.

  28. 28.

    See Larik (2016), p. 130.

  29. 29.

    The principle of subsidiarity can be deduced by the reference to the ‘closeness to the citizens’ in art. 1 TEU.

  30. 30.

    The German Constitutional Court in the Lissabon Urteil clarified the that Grundgesetz would prevent Germany from participating in a future European federation except if, by way of art. 146 of the Basic Law, a new constitution given by the people replaced the existing Basic Law. See German Federal Constitutional Court , Judgment of 30 June 2009, [2 BvE 2/08], para 113. On the matter see also Calliess (2011–2012), pp. 103–104.

  31. 31.

    See Ruffert (2016), Artikel 3 EUV, para 1.

  32. 32.

    According to Tehechte these ‘meta objectives’ reflect themselves in the other concrete objectives outlined in the following paragraphs of art. 3 TEU. This provision works as a hinge with the Preamble and the values of art. 2 TEU. See Terhechte (2017), Artikel 3 EUV, para 29.

  33. 33.

    See Larik (2016), p. 140.

  34. 34.

    See Sommermann (2013), Article 3 TEU, paras. 17–18; Ruffert (2016), Artikel 3 EUV, para 11; Terhechte (2017), Artikel 3 EUV, para 22.

  35. 35.

    These are the Protocol on the statute of the European System of Central Banks and of the European Central Bank (No 4); the Protocol on the on the excessive deficit procedure (No 12); the Protocol on the convergence criteria (No 13) and the Protocol on the Eurogroup (No 14).

  36. 36.

    The Pact included at the beginning three legal acts: Resolution of the European Council on the Stability and Growth Pact , Amsterdam, 17 June 1997, (1997) OJ L 236/01; Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies, (1997) OJ L 209/1; Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure , (1997) OJ L 209/6. The Pact has been subsequently reformed by Regulation (EC) No 1055/05 of 27 June 2005 amending Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies, (2005) OJ L 174/1, and Regulation (EC) No 1056/05 of 27 June 2005 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure , (2005) OJ L 174/5.

  37. 37.

    In 2009 the Lisbon Treaty included the ECB among EU institutions, acknowledged the Eurogroup meetings and partially strengthened the role of the Commission in the process of European supervision on national budgets. See Häde (2009).

  38. 38.

    See ‘Delors Report on Economic and Monetary Union in the European Community’, 17 April 1989¸ p. 28.

  39. 39.

    See art. 109e(2)b TEC.

  40. 40.

    Member States had to reach an inflation rate, which was close to that of the three best performing Member States in terms of price stability.

  41. 41.

    Budgetary sustainability consisted of two parameters: 3% of ratio deficit/annual GDP and 60%of the ratio public debt/GDP.

  42. 42.

    Art. 4 of Protocol No 13 on the convergence criteria specified that a Member State had to present, over the last year, an average nominal long-term interest rate not exceeding 2% points than that of the three best performing Member States in terms of price stability.

  43. 43.

    See art. 107 TEC and art. 14 of the Statute of the ESCB and the ECB . Except for this obligation, NCBs could conserve their peculiarities and perform other functions.

  44. 44.

    This body has been active between 1 January 1994 and 31 December 1998. The EMI was in charge of promoting cooperation between NCBs and coordinating monetary policies with the aim of ensuring price stability. The main purpose of the EMI was to verify the convergence process.

  45. 45.

    The EMI and the Commission presented to the Council favourable reports on the state of convergence. On this basis, the Council adopted a decision by qualified majority in order to prevent a veto from those States not respecting the convergence criteria . See Pipkorn (1994), p. 290.

  46. 46.

    Italy for example adopted an emergency ‘tax for Europe’, a one-off levy on personal incomes, in order to reduce its deficit and meet the convergence criteria . On the state of convergence see European Monetary Institute (1998).

  47. 47.

    The Bundesverfassungsgericht affirmed that Germany could join the last stage of the EMU only if the latter presented the characteristics of a Stabilitätsgemeinschaft, meaning if the convergence criteria were respected. See German Constitutional Court, Judgment of 12 October 1993, [BVerfGE 89,155], para 148.

  48. 48.

    This could be assumed considering that: (i) art. 109(j)(1) simply TEC states that convergence criteria are parameters the EMI and the Commission shall use to assess the level of convergence achieved between the Member States; (ii) art. 109(j)(2) TEC states that the report of the EMI and the Commission work as a basis for the evaluations of the Council; (iii) art. 109(j)(4) TEC mentions the ‘necessary conditions for the adoption of a single currency’, which may don’t consist of the convergence criteria ; iv), Protocol No 11 affirmed that the convergence criteria shall ‘guide the Union in taking decisions referred’ to the launch of the EMU , implying that this should consider a wider perspective. See Partsch (1998), pp. 58–59.

  49. 49.

    Regardless of the rhetoric used in the SGP and the introduction of a new ad hoc Title in the Amsterdam Treaty, convergence has never taken into consideration the objective of high employment level. This represents a significant vulnerability, as the latter contributes to the achievement of economic stability and sustainable development. See Hansch (2002), p. 56–57.

  50. 50.

    Due to the difficulties in ensuring the correctness of economic data Regulation (EU) No 679/2010 amended Regulation (EC) No 479/2009 regarding the quality of statistical data in the context of the EDP . Eurostat has been strengthened and entitled with the power to carry out in all Member States regular visits. Directive 2011/85/EU required Member States to put in place a public accounting system comprehensively and consistently covering all sub-sectors of general government and containing the information needed to generate accrual data. More importantly Regulation (EU) No 1173/2011 allowed the Council, acting on a recommendation by the Commission, to impose a fine in case a Member State intentionally or by serious negligence misrepresents deficit and debt data relevant for the application of art. 121 or art. 126 TFEU.

  51. 51.

    After the first enlargement to Greece (2001), also Slovenia (2007), Cyprus (2008), Malta (2008), Slovakia (2009), Estonia (2011), Latvia (2014) and Lithuania (2015) adopted the Euro. The case of Greece is quite emblematic. The country managed to join the monetary union in 2001 despite presenting a high debt ratio and having manipulated its financial books.

  52. 52.

    Art. 140 TFEU requires to take into account also the results of the integration of markets, the situation and development of the balances of payments on current account and an examination of the development of unit labour costs and other price indices.

  53. 53.

    Only external monetary relationships of the euro area are managed by the Council in accordance with art. 138 and art. 219 TFEU.

  54. 54.

    The transfer of monetary competence to the European level represents a significant renouncement, as it represents one of fundamental functions of modern states along with security and taxation. While the establishment of monetary unions has normally followed a process of political independence or unification, the European case is rather the opposite. The sovereign rights exercised by the European institutions don’t come from an original source of authority, but are conferred by the Member States, which remain the true masters of the Treaty. See German Constitutional Court, Judgment of 12 October 1993, [BVerfGE 89, 155], paras 112, 135.

  55. 55.

    The EU budget is based on a system of own resources : traditional own resources (customs duties on imports from outside the EU and sugar levies); own resources based on value added tax (0.3% on the harmonised VAT base of each Member States); own resources based on GNI. The latter, which essentially consist of national contributions, have gradually become the main source of financing. The budget must be balanced and is not allowed to borrow. The financing and spending of the budget are set in the Multiannual Financial Framework (MFF) agreed every 7 years by the Council. Between 2014 and 2020 the EU budget has been financing the common agriculture policy, the cohesion policy and structural funds, foreign aid and the administration costs of the EU itself. See infra. Sect. 5.6.2.1.1.

  56. 56.

    See Schor (1999), p. 136; Cottarelli and Guerguil (2014), pp. 2–4.

  57. 57.

    Since 1980s the monetarist paradigm has been prevailing especially among central bankers. See De Grauwe (2016), p. 158. On the debate between ‘monetarists’ and ‘economists’ see Tuori and Tuori (2014), p. 42.

  58. 58.

    Tuori and Tuori (2014), pp. 49–50. See supra Sect. 1.2.

  59. 59.

    On moral hazard behaviours in the Eurozone see De Grauwe (2016), p. 229; Estella (2016), pp. 514–515.

  60. 60.

    This has progressively become ineffective because the threats on which the economic supervision has been based, such as the imposition of sanctions from intergovernmental institutions and the cessation of financial support, have progressively lost their credibility. Adamski (2016), pp. 190–191.

  61. 61.

    See Schor (1999), pp. 132–133; De Grauwe (2016), p. 225.

  62. 62.

    The participation in the monetary union increases interdependence between the Member States. Accordingly, the shock in one country may affect also the others. See Tuori and Tuori (2014), p. 31.

  63. 63.

    The theory of the Optimum Monetary Area (OMA), which was initiated by the economist Robert Mundell in 1961, describes the necessary conditions, which make advantageous (in terms of employment, price stability and balance of payments) for a number of regions to relinquish their monetary sovereignty in favour of a common currency. These conditions are labour mobility, openness of the economies, capital mobility, and high degree of product diversification among members. If all these conditions occur, the monetary area would automatically balance asymmetric shocks affecting its members and avoid macro stabilisation costs determined by the loss of the national exchange rate policy. In the case of Europe, however, the Community lacked some elements to be an OMA, precisely a high level of labour mobility and price flexibility. See Schor (1999), pp. 75–79; Apel (2002), pp. 95–97; Stiglitz (2016), pp. 92–94.

  64. 64.

    On the weak compliance with the fiscal discipline see Tuori and Tuori (2014), p. 49–51.

  65. 65.

    Mundell (1963).

  66. 66.

    Schoenmaker (2011). Rodrik developed a trilemma on the process of globalisation: you cannot have at the same time deep international economic integration, national sovereignty and mass politics. See Rodrik (2000). The same trilemma was adapted by Snell to the EMU . See Snell (2016), p. 158.

  67. 67.

    In the surveillance model, Member States maintain taxing authority, while the EU has a corrective role as an enforcer of discipline. Hinarejos (2013), p. 1621.

  68. 68.

    See infra Sect. 3.3.2.

  69. 69.

    See infra Sect. 3.3.3.

  70. 70.

    These provisions have a double intent: on the one hand the ECB shall have the full control over money supply in the Eurozone, thus preventing uncontrolled monetary expansion and inflation; on the other hand, Member States shall rely only on their capacity to collect public resources, thus fostering fiscal responsibility.

  71. 71.

    On the principal of ‘no bailout’ see Tufano (2002). The prohibition considers central, regional, local governments or other public authorities, other bodies governed by public law, or public undertakings. The only exception to the prohibition, which is expressly mentioned in art. 125 TFEU, is the mutual financial guarantees for the joint execution of a specific project. The prohibition of bailout does not prevent Member States from purchasing the bonds of other States, as long as this is done at market conditions. See Allemand (2015), p. 261.

  72. 72.

    See infra Sect. 3.4.

  73. 73.

    This depended on the influence of the ordo-liberal school of economic thinking on the EU economic constitution, according to which market freedom and competition shall be balanced with political decisions and rules pursuing order; this includes price stability. See Tuori and Tuori (2014), pp. 18–21.

  74. 74.

    See German Constitutional Court, Judgment of 12 October 1993, [BVerfGE 89/155], para 138.

  75. 75.

    See German Constitutional Court, Judgment, 7 September 2011, [2 BvR 987/10], para 129.

  76. 76.

    See Herdergen (1998), p. 21.

  77. 77.

    Smits considered acceptable less than 2% inflation rate. See Smits (1997), p. 185. Stadler considered acceptable 2–3% of annual inflation. Stadler (1996), p. 104.

  78. 78.

    See Dutzler (2003), p. 28; Chemain (2005), p. 362.

  79. 79.

    European Central Bank (1998). The Harmonised Index of Consumer Prices (HICP) is regulated by Council Regulation (EC) No 2494/95 of 23 October 1995 concerning harmonized indices of consumer prices, (1995).

  80. 80.

    The ECB has discretion in deciding which monetary policy ensures monetary stability . The target of 2% shall take into consideration the bias of economic and statistical measures. See Dutzler (2003), p. 32; Gaitanides (2005), p. 21.

  81. 81.

    Lupo Pasini (2013), p. 235.

  82. 82.

    See Whereas (7) Council Regulation (EC) No 3603/93 of 13 December 1993 specifying definitions for the application of the prohibitions referred to in Articles 104 and 104b(1) of the Treaty (1993) OJ L 332/1. The ECB can still buy sovereign bonds on the secondary market.

  83. 83.

    Dutzler (2003), p. 30. On the reasons, why price stability is an objective of monetary policy see Issing (2001).

  84. 84.

    Dutzler (2003), p. 30.

  85. 85.

    See Resolution of the German Bundestag on the Economic and Monetary Union , 2 December 1992 the German (BTDrucks. 12/3906; Sten.Ber. 12/126 p. 10879). The adoption of the German model of monetary policy is clearly visible in the application of two provisions of the Maastricht Treaty , which directly derive from the German Basic Law: the objective of price stability and the principle of independence of central banking (cf. art. 88 GG).

  86. 86.

    See art. 109(3) of the German Basic law.

  87. 87.

    See art. 119 and art. 120 TEU. In the Lisbon Strategy and the 2020 Strategy, the EU also identified a number of economic targets (regarding employment, research and development, climate change and energy, education, poverty and social exclusion), Member States should have achieved through the Open Method of Coordination.

  88. 88.

    On the concept of convergence cf. European Central Bank (2015).

  89. 89.

    See Ruffert (2011), p. 1793.

  90. 90.

    Imbalances are considered ‘excessive’, if they are able to jeopardise or risks jeopardising the proper functioning of the EMU . See art. 2 of Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances, (2011), L 306/25.

  91. 91.

    This was the cause of the outbreak of the fiscal crisis in Ireland and Spain between 2010 and 2012.

  92. 92.

    See Protocol No 12 on the on the excessive deficit procedure .

  93. 93.

    The SGP was reformed in 2005 in order to grant more margin of flexibility to the interpretation of the convergence criteria .

  94. 94.

    On the necessity to contain public deficit see Gros and Thygesen (1998), pp. 327–329; Schor (1999), pp. 131–133; Padoa-Schioppa (2000), p. 156; De Grauwe (2016), pp. 218–225.

  95. 95.

    De Grauwe (2016), p. 225. As the cost of national indebtedness increases for all, the other governments will be obliged to adopt more restrictive fiscal policies in order to stabilise their public finances.

  96. 96.

    This is what might have happened during the sovereign debt crisis when the ECB introduced some non-conventional monetary policies on the secondary bonds market having the consequence to support Member States, whose public finances were seriously compromised. The consistency of these policies with the monetary mandate of the ECB and the prohibition of monetary financing (art. 123 TFEU) has been the object of a proceeding before the ECJ on request of the German Federal Constitutional Court ex art. 263 TFEU. See ECJ , Judgment of 16 June 2015, Case C-62/14, Gauweiler (and Others) v. Deutscher Bundestag, ECLI:EU:C:2015:400.

  97. 97.

    The possible exit of Greece from the Eurozone started a debate on its opportunity and feasibility. Most of the economic doctrine highlighted the negative effects of such a scenario on both Greece and the rest of the Eurozone. See Petersen and Böhmer (2012), Alcidi et al. (2012) and Dabrowski (2012).

  98. 98.

    See German Constitutional Court, Judgment of 12 October 1993, [BVerfGE 89/155], para 147; ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, para 135.

  99. 99.

    See Hansch (2002), pp. 293–294.

  100. 100.

    See German Constitutional Court, Judgment of 12 October 1993, [BVerfGE 89, 155], para 148.

  101. 101.

    See Whereas (1) Regulation (EU) No 1466/1997 and Whereas (2) Regulation (EU) No 1467/1997: ‘the Stability and Growth Pact is based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation’.

  102. 102.

    When the sovereign debt crisis broke out in Greece , some authors suggested sticking with the strict policy of no-bailout. Member States, however, decided to come in aid of the countries experiencing financial difficulties due to the harsh consequences of a default for the country concerned, but also for the other Member States and the euro area as a whole. Hinarejos (2013), p. 1628.

  103. 103.

    Monetary stability is not the only thing, which counts in a monetary union. Several kinds of stability are needed in a monetary union. See Tuori and Tuori (2014), pp. 57–60; Borger (2016), pp. 148–149. Experience proves that a monetary union requires other instruments to avoid crisis, such as risk sharing and mechanism to absorb economic shocks. Even the idea that the financial sector can always self-stabilise is wrong; on the contrary, a banking crisis can turn into a debt crisis. See Vallee (2014), p. 54.

  104. 104.

    The single currency remained relative stable during the crisis, even if the inflation rate started decreasing since 2013. Cf. Draghi (2013) and Neri and Siviero (2015).

  105. 105.

    This was proven few years after the introduction of the single currency, when the Commission started in 2003 an excessive deficit procedure against Germany and France, but the Council refused to sanction these two countries, despite the clear violation of the convergence criteria . See infra Sect. 4.3.2.

  106. 106.

    On the inefficiency of private capital markets and the weak credibility of the ‘no bail-out clause’ see Louis (2010), pp. 979–981; Stiglitz (2016), pp. 24–26; Brunnermeier et al. (2016), pp. 99–100; De Grauwe (2016), pp. 225–226, 229. See infra Sect. 4.3.3.1.

  107. 107.

    On the dynamics of the sovereign debt crisis see Adamski (2012), pp. 1325–1329; Wilsher (2014), pp. 252–254; Pace (2018), pp. 36–68.

  108. 108.

    The banking and the sovereign debt crisis were therefore ‘twin’. See Lastra (2013) p. 1190; Moloney (2014), p. 1622.

  109. 109.

    See Lupo Pasini (2013), p. 228.

  110. 110.

    See infra Sect. 3.6.1.

  111. 111.

    European Council Decision of 25 March 2011 amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro, (2011) OJ L 91/1. The amendment was adopted on the basis of art. 48(6) TEU. The compliance of the amendment procedure was carefully analysed by the ECJ in the Pringle Case of November 2012. Cf. ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, paras 29–76.

  112. 112.

    See infra. Sect. 3.2.

  113. 113.

    See infra Sect. 3.5. The opposition of two Member States, notably the United Kingdom and Czech Republic, prevented the reform of the European Treaties in accordance with art. 48 TEU or the activation of the flexibility clause . Accordingly, the other governments under Franco-German pressure decided to stipulate a separate international agreement. At the same time, the stipulation of an ad hoc Treaty aimed also to stress the content of the agreement and make it more effective. Ziller (2015) p. 29.

  114. 114.

    Cf. Whereas (1) EFSF Framework Agreement of 8 June 2010. Art. 1 of Regulation (EU) No 407/2010 establishing a European financial stabilisation mechanism mentions instead the financial stability of the European Union.

  115. 115.

    See Preamble of the TSCG, art. 3 TESM and art. 3(7) of Regulation (EU) No 472/2013.

  116. 116.

    See infra Sect. 2.4.7.3.

  117. 117.

    According to Tuori and Tuori, the concept of the stability of the Eurozone as a whole remains vague, because it is not yet clear what the ESM can do in order to achieve this objective. This was done on purpose in order to give the ESM some margin of action. The ESM can in fact take care of sovereign debt, but also private institutions. See Tuori and Tuori (2014), p. 133.

  118. 118.

    Tuori and Tuori, qualify it as ‘second order telos’. Tuori and Tuori (2014), pp. 132–133.

  119. 119.

    According to Beck this distinction does not make sense. On the one hand the ESM has a direct impact on the stability of the currency, which depends on the stability of the currency union. On the other hand, the ECB purchase of bonds falls within the domain of economic policy as long as it eases refinancing conditions for the government on the capital market. See Beck (2014), pp. 544–546.

  120. 120.

    Advocate General Villalon has distinguished the two policies also considering the available tools. See View of Advocate Cruz Villalón delivered on 14 January 2015 (1) Case C-62/14 Peter Gauweiler (and Others) v. Deutscher Bundestag, ECLI:EU:C:2015:7, para 132. The doubts on the participation of the ESM in the shaping of monetary policy depend on the fact that financial support is developed through the same instruments used by the ECB (except for the purchase of bonds on the primary markets). See Grimm (2016), pp. 62–63.

  121. 121.

    ‘[T]he attainment of a higher objective, namely maintaining the financial stability of the monetary union.’ ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, para 135.

  122. 122.

    See ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, paras 56, 93–96, 135; ECJ Judgment of 16 June 2015, Case C-62/14, Gauweiler (and Others) v. Deutscher Bundestag, ECLI:EU:C:2015:400, para 64.

  123. 123.

    ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, para 97; ECJ Judgment of 16 June 2015, Case C-62/14, Gauweiler (and Others) v. Deutscher Bundestag, ECLI:EU:C:2015:400, paras 51, 52.

  124. 124.

    See supra Sect. 2.2.2.

  125. 125.

    Cf. Cisotta (2018), p. 100.

  126. 126.

    The Eurozone can count on its own governance for the economy, which is ruled by the Euro Summit and the Eurogroup , as well as a government of the currency, which is managed by the Executive Board and the Governing Council of the ECB .

  127. 127.

    The crisis has been the detector of a divergence of priorities for example in relation to burdening the costs of the rescue mechanisms for those countries experiencing financial difficulties.

  128. 128.

    Art. 2 TESM.

  129. 129.

    Art. 3 TESM.

  130. 130.

    Whereas (13) TESM.

  131. 131.

    Art. 13(1)b TESM.

  132. 132.

    The Board of Governors of the European Stability Mechanism (ESM) adopted on the 8 December 2014 the direct recapitalisation instrument for euro area financial institutions. Direct recapitalisation can be granted only if ‘the requesting ESM Member is unable to provide financial assistance to the institutions in full without very adverse effects on its own fiscal sustainability, including via the instrument of an ESM loan for the recapitalisation of financial institutions’. Cf. art. 3(2) of the ESM Guideline on Financial Assistance for the Direct Recapitalisation of Institutions, 8 December 2014. See infra Sect. 3.6.2.

  133. 133.

    The project of common backstop in the framework of the European Banking Union aims to prevent banking crisis of systemic relevance, thus being functional to the pursuit of stability of the euro area as a whole. See infra Sect. 5.3.3.2.

  134. 134.

    See Piecha (2016), pp. 62–63; Palm (2017), Artikel 136 AEUV, paras 56.

  135. 135.

    See Palm (2017), Artikel 136 AEUV, para. 57. For example, the country is not able to finance itself through credit or taxation. Ibid. para. 57.

  136. 136.

    According to Ohler the purpose of the ESM is not to solve the funding problems of a specific Member State on the capital markets, but to reduce the stability risks for these markets. It follows that that there is no individual right of financial assistance for the Member States. The latter can be provided only when it is indispensable for the stability of the euro area and conditionality applies. See Ohler (2011), pp. 60–63. This may be problematic in reality: the financial difficulty of a small Member State may not reach the magnitude to become a significant problem for the stability of the monetary as a whole. This means that small Member States shall participate in the mechanism without, however, being able to benefit from it. See infra Sect. 2.4.7.2.

  137. 137.

    Even if default does not automatically determine the exit from the Eurozone, once a Member State is no longer able to repay its debts, it would be de facto obliged to restart coining its own currency. On the relationship between default and exit from the Monetary Union see Dabrowski (2015).

  138. 138.

    It is doubtful that the introduction of financial assistance of the ESM weakened the principle of individual budgetary responsibility of Member States provided by the no bailout clause . Cf. Ketterer (2016), pp. 254–255.

  139. 139.

    On the interpretation of art. 125 TFEU see infra Sect. 4.2.4.

  140. 140.

    ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, para 135.

  141. 141.

    Ibid. para 111.

  142. 142.

    ‘[W]hilst it is true that loans and credits under the [ESM] aim at substituting the finance that the markets have not been in a position to provide, such assistance is intended to bringing about the budgetary discipline that the logic of the markets—and the Stability and Growth Pact —was not capable to ensuring’. De Gregorio Merino (2012) p. 1627. See also Schwarz (2014), pp. 411–412.

  143. 143.

    See ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, para 135. The Court comes to this opinion also considering the preparatory works relating to the Treaty of Maastricht according to which the aim of art. 125 TFEU is to ensure that Member States follow a sound budgetary policy . See ‘Draft treaty amending the Treaty establishing the European Economic Community with a view to achieving Economic and Monetary Union ’, Bulletin of the European Communities, Supplement 2/91, pp. 24, 54. Borger notes that the Court could not present the objective of safeguarding the financial stability of the monetary union as a new interpretation of art. 125 TFEU following from Decision 2011/199/EU, as this would have led to an implicit modification of the no bailout clause . See Borger (2013), p. 135. In reality, what happened is the application of the ‘law of evolution’, as highlighted by De Gregorio Merino. See De Gregorio Merino (2012), p. 1615.

  144. 144.

    ‘[Fiscal] discipline contributes at Union level to the attainment of a higher objective, namely maintaining the financial stability of the monetary union’. ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, 135.

  145. 145.

    Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances sets out the MIP procedure and applies to all EU countries covered by the MIP; Regulation (EU) No 1174/2011 on enforcement measures to correct excessive macroeconomic imbalances specifies a sanction mechanism to enforce MIP recommendations for euro area countries. See infra Sects. 3.3.2 and 3.3.3.

  146. 146.

    See art. 3 of Regulation (EU) No 472/2013. See infra Sect. 3.6.3.

  147. 147.

    German Federal Constitutional Court , Judgement of 12 September 2012, [2 BvR 1390/12], para 130.

  148. 148.

    Piecha (2016), p. 129. The stability of the euro area as a whole should be qualified as a ‘common good’ of the Eurozone. Cisotta (2018), p. 36.

  149. 149.

    Stability does not only means remaining still or the same (static conception), but also self-affirming or self-sustaining through time (dynamic conception). Cf. Hansch (2002), pp. 40–41.

  150. 150.

    De Gregorio Merino (2012), p. 1629.

  151. 151.

    De Lhoneux and Vassilopoulos (2013), p. 25.

  152. 152.

    According to the Advocate General Kokott avoiding this disruptive scenario is part of the sovereign rights of the Member States and it can’t be prevented by a restrictive interpretation of art. 125 TFEU. Cf. View of Advocate General Kokott delivered on 26 October 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:675, paras 139, 140.

  153. 153.

    The ESM intervention in the Cypriot crisis is a prove of it. See De Witte and Beukers (2013), p. 843. According to Ketterer the ESM intervention in the Cypriot crisis proved that its real objective is not the systemic stability of the euro area, but helping Member States to finance themselves, thus depriving the markets of the regulatory role initially granted by the no bailout role. See Ketterer (2016), pp. 232–233.

  154. 154.

    Cisotta (2015a), p. 87.

  155. 155.

    Cf. Tuori and Tuori (2014), pp. 134–135; Hinarejos (2015), p. 167; Pilz (2016), pp. 185–214. Even A. G. Kokott in the Pringle judgment recalled the principle of solidarity to support a restrictive interpretation of art. 125 TFEU. View of Advocate General Kokott delivered on 26 October 2012, Case C-370/12 Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:675, paras 143, 144. On the principle of solidarity in the EU legal order see Hinarejos (2015), pp. 166–172; Manzini (2017).

  156. 156.

    The most logical way for a country to withdraw from the Eurozone would have been the adoption of an EU Treaties change by unanimity in order to introduce this option formally. Cf. Athanassiou (2009), p. 30. An alternative to let Greece leave the Eurozone would have been the application of art. 60 (2) (a) of the Vienna Convention on the Law of Treaties (VCLT), according to which if a state commits a material breach of a multilateral treaty, the other parties can by unanimity suspend or extinguish their relations with it. Peroni (2012), p. 144. On the topic cf. also Athanassiou (2009), p. 35. On the possible expulsion of a Member State from the EU cf. Estella (2018), pp. 45–46, 60–63.

  157. 157.

    The President of the ECB have reputedly reaffirmed the irreversibility of the euro. C.f. President of the European Central Bank (2012).

  158. 158.

    Most of the legal doctrine argues that the only way to leave the euro area would be leaving the EU ex art. 50 TEU. Cf. Athanassiou (2009), pp. 28–30; Herrmann (2010), p. 417; Hoffmeister (2011), p. 134. Estella instead argues in favour of the right to exit from the euro area in accordance with the ‘permissum videtur’ principle. Cf. Estella (2018), pp. 56–58.

  159. 159.

    This Protocol was abolished by the Lisbon Treaty.

  160. 160.

    Except for the United Kingdom and Denmark, which enjoyed an opting out right.

  161. 161.

    The ‘Snake in the Tunnel’ was a mechanism introduced with the Resolution of the Council and of the Representatives of the Governments of the Member States of 21st March 1972 on the application of the Resolution of 22 March 1971 on attainment by stages of Economic and Monetary Union in the Community, (1972) OJ L 38/3. It provided for a limited margin of fluctuation between European currencies (the snake) and against the Dollar (the tunnel). The EMS was created with the Resolution of the European Council of 5 December 1978 on the establishment of the European Monetary System (EMS). The EMS was based on the European Currency Unit (ECU), an Exchange Rate Mechanism (ERM) provided with an automatic re-alignment system and a credit mechanism.

  162. 162.

    Cf. Betbèze (2016), p. 6. On the exit of the monetary union see also Dammann (2013), Peroni (2015), Munari (2015), pp. 731–732.

  163. 163.

    Art. 2(c) of Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24th November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board, (2010) OJ L 331/1.

  164. 164.

    Whereas (16) Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, (2013) OJ L 287/63.

  165. 165.

    European Central Bank (2012), p. 5.

  166. 166.

    According to Lastra financial stability refers to the safety and soundness of the financial system and to the stability of the payment and settlement systems. Cf. Lastra (2006), pp. 92–93.

  167. 167.

    See Lo Schiavo (2017), p. 19.

  168. 168.

    Ibid., p. 20.

  169. 169.

    Ibid., p. 20. See also Espinosa et al. (2010), p. 10.

  170. 170.

    The reform was based on art. 127 (5) TFEU and art. 114 TFEU.

  171. 171.

    Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, (2013) OJ L 287/63.

  172. 172.

    Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010, (2014) OJ L 225/1.

  173. 173.

    Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes.

  174. 174.

    See Tuori and Tuori (2014), pp. 183–184; Cisotta (2015b), p. 293.

  175. 175.

    Decision 2010/281 of the European Central Bank of 14 May 2010 establishing a securities markets programme. The plan allowed outright transactions of bond buying in the euro area public and private debt securities markets with a ceiling of €209 billion.

  176. 176.

    Decisions of the Governing Council of the European Central Bank (ECB) of 6 September 2012 on a number of technical features regarding the Eurosystem’s outright monetary transactions in secondary sovereign bond markets.

  177. 177.

    See Cour-Thiman and Winkler (2014), p. 774. The legality of this measure has been discussed by the German Federal Constitutional Court and the ECJ in the Gauweiler case. ECJ , Judgment of 16 June 2015, Case C-62/14, Gauweiler (and Others) v. Deutscher Bundestag, ECLI:EU:C:2015:400; Order of German Federal Constitutional Court , 14 January 2014, [2 BvR 2728/13]; German Federal Constitutional Court , Judgment of 21 June 2016, [2 BvR 2728/13].

  178. 178.

    The Hungarian, Latvian and Romanian governments requested financial support from the International Monetary Fund (IMF) and the EU, which was provided in tranches and was conditional to the implementation of economic reforms. Cf. Council Decision of 4 November 2008 granting mutual assistance for Hungary, (2009) OJ L 37/7; Council Decision of 20 January 2009 granting mutual assistance for Latvia, (2009) OJ L 79/37; Council Decision of 6 May 2009 granting mutual assistance for Romania, (2009) OJ L 150/6.

  179. 179.

    The SRF has a capacity of €55 billion and is financed by national governments in the transitional period and through the contribution of financial institutions at operating speed. Its mandate is to provide guarantees and make loans to banks experiencing financial difficulties, but can’t absorb losses or provide direct recapitalisations. See infra Sect. 3.8.

  180. 180.

    See Moloney (2014), p. 1628.

  181. 181.

    See infra Sect. 5.3.3.2.

  182. 182.

    Whereas (6) of Regulation (EU) No 1024/2013 on the establishment of the Single Supervisory Mechanism acknowledged the strict interdependence between the two goals: ‘The stability of credit institutions is in many instances still closely linked to the Member State in which they are established. Doubts about the sustainability of public debt, economic growth prospects, and the viability of credit institutions have been creating negative, mutually reinforcing market trends. This may lead to risks to the viability of some credit institutions and to the stability of the financial system in the euro area and the Union as a whole, and may impose a heavy burden for already strained public finances of the Member States concerned’.

  183. 183.

    The interdependence between the two objectives emerges also in relation to the project of future reform of the EMU . The proposals to complete the banking union through the creation of a European deposit guarantee and a common backstop are strictly linked to project of a fiscal union between the Member States of the euro area. See Lupo Pasini (2013), p. 226.

  184. 184.

    Recalling the Pringle judgment, according to which art. 136(3) TFEU only has a declaratory role, Lo Schiavo denies that ‘the stability of the euro area as a whole’ owns its one identity apart from the financial stability of the European Union. Lo Schiavo (2017), pp. 48–49. Also other authors consider the stability of the euro area as an equivalent of the stability of the financial system in the Eurozone or the European Union. See Ohler (2011), pp. 60–61; Pilz (2016), pp. 65–67.

  185. 185.

    At the same time, also the stability of the euro area as a whole and price stability are complementary objectives and they influence each other, due to the natural interdependence between the economic and the monetary policies. Cf. De Gregorio Merino (2012), pp. 1629–1630.

  186. 186.

    According to Beck there is no reason why the stability of the Eurozone as a whole may not fall over more competences. Cf. Beck (2014), p. 544.

  187. 187.

    Tuori and Tuori (2014), p. 133.

  188. 188.

    Lo Schiavo (2017), p. 65.

  189. 189.

    According to this interpretation, monetary policy, economic policy and the banking governance would all participate in the pursuit of financial stability , by contributing to its fulfilment in different ways. On the different contribution of each policy to the cause of stability see Lupo Pasini (2013), pp. 235–237.

  190. 190.

    As art. 136(3) TFEU only has a declaratory role, it does not provide the EU with any new competence. See Lo Schiavo (2017), p. 48.

  191. 191.

    See ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, paras 72–73.

  192. 192.

    The CJEU stated that art. 136(3) TFEU only has a declaratory role. See ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, paras 73, 184–185. Cf. De Gregorio Merino (2012), p. 1629. The GFCC identifies instead a constitutive value in the provision, as it introduces the possibility for voluntary financial support that art. 125 TFEU would otherwise prevent. See German Federal Constitutional Court , Judgement of 12 September 2012, [2 BvR 1390/12], para 129. Cf. on the matter Palm (2017), Artikel 136 AEUV, paras 43–45.

  193. 193.

    See Cisotta (2015a), pp. 72–74.

  194. 194.

    Art. 122(2) TFEU was used to set up the European Financial Stabilisation Mechanism (EFSM) in accordance with Council Regulation (EU) No 407/2010 of 11 May 2010. The CJEU in the Pringle case , however, confirmed the doubts on the legality of a European rescue mechanism established under art. 122(2) TFEU. The Court clarified that this norm allows only ad hoc assistance to Member States in financial difficulties and cannot legitimise the establishment of a euro-wide stability mechanism. See ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, para 65. See infra Sect. 4.2.5.

  195. 195.

    Art. 312(2) TFEU provides that the Council shall adopt a regulation laying down the multiannual financial framework deciding by unanimity after obtaining the consent of the European Parliament.

  196. 196.

    See infra Sect. 3.6.3.

  197. 197.

    The European Commission has proposed in December 2017 to introduce the ESM in the EU legal framework on the basis of the flexibility clause ex art. 352 TFEU. See European Commission Proposal for a Regulation (2017). Cf. infra Sect. 5.3.3.5.

  198. 198.

    See German Federal Constitutional Court , Judgment of 30 June 2009, [2 BvE 2/08] paras 252, 256.

  199. 199.

    See Kotzur (2014), Article 5 TFEU, paras 1–2; Hinarejos (2012), p. 260.

  200. 200.

    In favour: Cisotta (2018), p. 36.

  201. 201.

    The proposal of the Commission to incorporate the ESM in EU law on the basis of art. 352 TFEU (see infra Sect. 5.3.3.6) may suggest that the ‘stability of the euro area as a whole’ has been qualified as an objective of the Union. Indeed, one of the conditions for the application of the flexibility clause is the pursuit of one of the objectives set out in the EU Treaties. Cf. Cisotta (2015b), p. 289.

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  1. Faculty of Political and Social Sciences, Catholic University, Milan, Italy

    Luca Lionello

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Lionello, L. (2020). The Objective of Stability of the Euro Area as a Whole. In: The Pursuit of Stability of the Euro Area as a Whole. Studies in European Economic Law and Regulation, vol 18. Springer, Cham. https://doi.org/10.1007/978-3-030-28045-1_2

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