Synonyms

European law; European Union law

Definition

European community law consists of the law that is found in the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU). In addition European community law comprises regulations, directives, or decisions, as well as the soft-law form of recommendations and opinions.

The Legal Framework of the European Union

Introduction: The History of Integration and Main Legal Texts

The European Union (EU) as we know it today is a result of a process of European integration that has lasted for the most part of the last seven decades. While this might seem like a long time, it is only a blink of an eye in the overall history of the European continent.

The European Union has evolved from what was earlier called the European Community, which in turn was based on three communities founded in 1951 (the European Coal and Steel Community (ECSC)) and more importantly in 1957 (the European Economic Community (EEC) and the European Atomic Energy Community (EURATOM)) by means of the treaties of Paris and Rome, respectively (Lenaerts and van Nuffel 2011). While the Treaty on the Coal and Steel Community was concluded for 50 years only, the Communities as of 1957 were entered into for an unlimited period (art. 356 TFEU). Six Member States, Belgium, France, Germany, Italy, Luxemburg, and the Netherlands, committed themselves to the process of economic integration and gave away sovereign rights to a supranational order. They agreed to have some policy areas governed by four principal institutions: The Council as a representation of Member States, the Commission (or at that time the High Authority), the Assembly (later to be the European Parliament), and the Court. The Council and the Commission were triplicated for all three communities but joint for the purposes of efficiency and convenience by the Merger Treaty in 1965 (Craig and De Burca 2011; Hartley 2014; Lenaerts and van Nuffel 2011).

While the ECSC Treaty was very specific as regards the policy to be pursued by the institutions, the EEC treaty left much more leeway to the institutions to fill in their objectives. In addition, the mainly economic aims of the Communities were complemented by ideas of a political, social, and cultural union. Probably the greatest step for the Communities was the establishment of the European Union by the Maastricht Treaty in 1992, which also paved the way for the Economic and Monetary Union (Hartley 2014). This treaty was founded on the communities and introduced two more policy domains to be dealt with by cooperation: a common foreign and security policy and cooperation in the field of justice and home affairs (Craig and de Burca 2011).

However, the process of European integration did not only concern the deepening of integration but also the widening. Membership became open for other States in Europe: Even though the UK was initially reluctant to join the EU, it ended up applying for membership, first blocked by Charles de Gaulle but later realized in a group accession including Ireland, Denmark, and Norway in 1972. In the years 1979 and 1981, Greece, Spain, and Portugal joined, before some of the EFTA countries, Sweden, Finland, and Austria, acceded to the Union in 1994. The biggest accession process, however, concerned a group of former communist countries in the East of Europe (Lithuania, Latvia, Estonia, Poland, the Czech Republic, Slovakia, Hungary, Slovenia) and two Mediterranean islands, Cyprus and Malta (Nugent 2010). More recently, Bulgaria and Romania have joined and the currently last Member to the EU is Croatia, which acceded in July 2013 (Hartley 2014).

The Treaty of Lisbon, a result of the failed constitutional treaty for the European Union, replaced the European Community by the European Union as the sole entity and led to a deepening of the EU competences and codified institutional developments in the Union (Craig and de Burca 2011).

European Union Law as a Body of Law

Status of European Union Law and Main Legal Texts

The law of the European Union can roughly be divided into primary and secondary legislation. Primary law is the law that is found in the treaties, the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU). The TFEU superseded the Treaty on the European Community as a result of the Treaty of Lisbon (Fairhurst 2012).

Secondary law is EU law that is adopted on the basis of primary law, the so-called legal bases, and can take the shape of regulations, directives, or decisions, as well as the soft-law form of recommendations and opinions (art.288 TFEU). Regulations have general application and are binding in their entirety, while directives are binding as to the result to be achieved (and need to be implemented by national authorities); however, Member States are free to choose form and methods. Decisions are binding in their entirety on those to whom they are addressed. If there is no legal basis in the treaty, the EU is not allowed to adopt any legislation; this is called the principle of conferral as laid down in art.4 (1) and art.5 (1) TEU (Craig and de Burca 2011). Those areas in which the Union is allowed to legislate are divided in three categories:

  • Exclusive competence areas are those on which only the Union is allowed to legislate, the customs union, competition rules, monetary policy for euro-area Member States, conservation of marine resources under the common fisheries policy, and the common commercial policy (art.3(1) TFEU). This competence also applies in external context for the negotiation of international treaties, which the Commission is allowed to sign on behalf of the EU for these policy areas (art.3(2)TFEU).

  • Shared competence areas are those in which both the Union and its Member States are allowed to take legislative action and include the social policy; economic, social, and territorial cohesion; and transport (art.4(2) TFEU includes a full list). However, the level on which decisions are actually taken is governed by two important principles of the EU: subsidiarity and proportionality (Lenaerts and van Nuffel 2011). Both principles were put in the Treaty of Maastricht (TEU) and describe that:

    Under the principle of subsidiarity, in areas which do not fall under the exclusive competence of the Union, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level (art.5(3)TEU)

    and

    under the principle of proportionality, the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties. (art.5(4)TEU)

There is one competence that is the odd one out – economic coordination. While monetary policy is an exclusive competence of the EU and is conducted by the independent European Central Bank, Member States are to “coordinate their economic policies within the Union” (art.5(1)TFEU). This discrepancy in competence division is arguably one of the reasons for the euro crisis (de Grauwe 2012).

Not only can one categorize European Law on the basis of competences, another divide that is often made is the distinction between Internal Market law and institutional/constitutional law (see below). The notion Internal Market describes a Common Market between the members of the EU. While economic integration was initially the main purpose of the Union, the institutional setting has only evolved alongside the process of integration.

The Institutions

After the Treaty of Lisbon, the European Union is officially governed by seven institutions: the European Parliament, the European Council, the Council, the Commission, the Court of Justice of the European Union, the European Central Bank, and the Court of Auditors (art.13 TEU). These institutions have developed over time, although most of them were part of the Union framework even before they were officially mentioned as institution in the treaty. However, some institutional developments cannot go unmentioned (Hartley 2014).

The European Parliament used to be called the Assembly until 1962 (EP Resolution of 30 March 1962, JO1962) and hardly had any powers at all in decision-making – it was not even recognized as an institution. That changed in the case European Parliament v. Council Case 302/87 (1988) ECR 5615 concerning the Parliament’s legal standing in front of the Court, which, before the judgment, was not “privileged,” i.e. directly admissible with any action before the Court, a prerogative reserved for institutions (Hartley 2014). The European Parliament then started to play an ever greater role in the EU, culminating in the first direct elections for the European Parliament in 1979, and together with the national parliaments, it is now seen as the democratic underpinning of the European Union. It is comprised of currently 751 members representing the European people by degressively proportionate representation, with a slight overrepresentation of small Member States.

More recently, the introduction of the so-called ordinary legislative procedure by the Treaty of Lisbon basically made the European Parliament co-legislator with the Council in most areas of European law (art. 294 TFEU). The Council, as the main legislator, is comprised of ministerial delegates who are authorized to commit their governments (art. 16(2) TEU); the Council does not have a fixed constellation, but the ministerial delegates will change depending on the topic to be discussed – finance ministers will legislate on financial matters, ministers of agriculture will legislate on agriculture, etc. The presidency of the Council rotates on a half-year basis among Member States; however the situation is different when it comes to a, one could call, special configuration of the Council, the European Council. The European Council is comprised of the Member States’ heads of state or government and has, since the Treaty of Lisbon, a permanent president who is elected for two and half years. The European Council is the highest political organ of the European Union and provides it with the necessary impetus for its development and defines general political directions and priorities (art. 15 TEU; Craig and de Burca 2011). Especially in the euro crisis, the European Council has played a major role with regard to the measures taken to tackle the crisis, since the situation required a consensus on highest political level.

The Commission is an independent body representing the Union interest and is led by 28 Commissioners, one from each Member State. Commissioners are proposed by the European Council, while the European Parliament has to consent to the appointment of the president of the Commission and his or her Commissioners by the European Council (art. 17(5) TEU). The Commission is the only institution to have legislative initiative; it formulates proposals for new EU policies, mediates between Member States, and oversees the execution of Union policies. It could be regarded as the EU executive (Craig and de Burca 2011).

The European Central Bank (Hartley 2014, p. 31f) only became an official institution once the Treaty of Lisbon entered into force, even though it existed in the same shape before – since the inception of the Economic and Monetary Union (EMU). Its independence in conducting monetary policy for the Member States whose currency is the euro is enshrined in the treaty (art. 283(3) TFEU) and is only limited by its mandate being that of securing price stability (art. 127(1)TFEU).

The Court of Auditors consists of one national per Member State from within a pool of national auditors. Their task is to examine the accounts of revenue and expenditure of the European Union and to provide the Union legislator with reports on the regularity and legality of such (Hartley 2014, p. 31). The Court of Auditors is strictly a monitoring institution and is not to be confused with the Court of Justice of the European Union (CJEU). The CJEU has, in the context of the reforms of the Lisbon Treaty, undergone a major restructuring and is now divided in the General Court (a court of first instance and for the less difficult cases), the European Court of Justice (for seminal cases, it always sits in full court), and the Civil Service Tribunal (for cases involving the staff of the EU). The Court of Justice has played a major role in the process of European integration (Craig and de Burca 2011), which will be discussed below.

In general, however, the division of tasks among the institutions in the European Union is very well thought through and quite balanced. The Commission, together with national authorities represented in the European Council, acts as an executive; the Council and the Parliament now share the legislative competence, while the CJEU is the obvious judiciary. The European Central Bank is probably the only central bank whose independence is enshrined in a document of arguably constitutional value (the treaty). The democratic legitimacy of the European Union is based on the European Parliament and the indirect control that national parliaments have on their governments when they take decisions in the Council, as well as the principle of subsidiarity which is controlled by national parliaments (Lenaerts and van Nuffel 2011).

While the establishment of a democratic Union is one of the proclaimed aims of the EU, one has to be aware of a debate that has mainly started with the Treaty on European Union in Maastricht and that deals with the question of a democratic deficit in the European Union. Two strands of literature claim the existence of such a deficit. First, institutionally speaking, the European Parliament is argued to be unrepresentative of the European people since voter turnout is relatively low and the ordinary legislative procedure is not applicable in important policy areas such as the Common Foreign and Security Policy and the monetary policy. In addition, the involvement of national parliaments is often seen as too little (Follesdal and Hix 2005). Second, a sociopsychological democratic deficit is often attested for the Union. This refers to the lack of a common European people (demos), which in turn leads to a conceptual lack of a European democracy. Opponents on the other hand argue that there is no democratic deficit, because the Union is mainly a technocratic order and is also designed as such (Majone 1998). While this debate is worthwhile exploring, it would go beyond the scope of this entry to discuss it in detail.

European Union Law as a Legal Order

The treaties are essentially treaties that have been entered into under the rules of public international law. However, the European Union legal order has evolved as a legal order standing on its own. In this, the European Court of Justice has played a major role in the early years of integration. Two seminal cases defined the status of European Union law. First, in the case Van Gend en Loos v Nederlandse Administratie der Belastingen (1963) Case 26/62, which concerned a reclassification of a chemical in another customs category by the Benelux countries, the Court stated that the EEC Treaty was a legal order on its own, capable of creating legal rights which can be enforced directly by natural or legal persons before the courts of the Community’s Member States, if the respective provision was “clear, precise, and unconditional.” This principle is now called the principle of direct effect and is probably one of the most important principles of Union law and has been further developed (Craig and de Burca 2011).

Another seminal case that thrived European integration is the case Flaminio Costa v ENEL [1964] ECR 585 (6/64) which regarded an alleged incompatibility of an Italian domestic law with the treaty. Here, the Court stated that “the law stemming from the treaty, an independent source of law, could not (…) be overridden by domestic legal provisions, (…), without being deprived of its character as community law and without the legal basis of the community itself being called into question.” It thereby effectively established supremacy of the Union law over national law, which even applies in the case of national constitutions (Internationale Handelsgesellschaft und Vorratsstelle für Getreide und Futtermittel Case 11-70, ECR 1970 1125; Lenaerts and van Nuffel 2011).

The Dynamics of the European Union Law

The legal order of the EU has not only changed and developed because of the proactive Court of Justice. Rather, the EU has always reacted to social, economic, and political realities and has changed accordingly. Unfortunately, this has not always been to the benefit of a more coherent EU law. In order to change the treaties and provide the Union with more competences, all Member States have to be in agreement (art. 47 TEU) and ratification in all Member States is required. Increasingly, the Member States find it hard to reach consensus among, currently, 28. Some Member States are keen to drive the integration process forward towards a political and social union, while others are more reluctant. In some policy areas, therefore, some Member States have negotiated an opt out (such as the UK and Denmark regarding the monetary union) or those Member States that wanted to further integrate opted for different (intergovernmental) solutions (Craig and de Burca 2011).

The Schengen Treaty is one example of such further cooperation which started out as an international treaty outside the EU framework. Some Member States committed themselves to abolish border controls among themselves in order to facilitate the free movement of persons. Later, however, the Schengen Treaty was incorporated into the EU treaty framework and is now part of the so-called acquis communautaire, the Union law that needs to be accepted and implemented by all new Member States. Only those Member States that did not ratify the Schengen Treaty before it was part of the Union framework (the UK and Ireland) are not obliged to comply with Schengen (Hartley 2014).

Similar developments have taken place with regard to the tackling of the economic and debt crisis. While EU measures enhancing the economic agreements under the so-called Stability and Growth Pact (SGP) have been adopted and implemented in the form of the six pack (six regulations and one directive) and the two pack (two regulations), agreement on the establishment of a permanent financial stability mechanism could not be reached. In addition, mechanisms for immediate financial assistance for Member States in case of an economic crisis were not foreseen in the treaty. The result was the establishment of somewhat hybrid institutions such as the European Financial Stability Facility, a societe anonieme under Luxembourg law backed up by euro-area Member States lending money to other euro-area Member States in financial trouble, the granting of bilateral loans to Greece, and the European Financial Stability Mechanism, all of which are now replaced by the permanent European Stability Mechanism, the ESM (de Grauwe 2012). The ESM as well is founded in a treaty outside the EU framework ratified by 25 Member States (apart from the Czech Republic, the UK, and Croatia), although a treaty change to art.136 TFEU has been made allowing the euro-area Member States to establish among themselves a European Stability Mechanism. Another intergovernmental treaty, the Treaty on Stability, Coordination, and Governance (TSCG), has been ratified by the same countries, in order to improve fiscal discipline and economic coordination among the signatories. Both treaties are designed to include the EU institutions such as the Commission and the Court in their working, and the EU aims to incorporate these treaties in the EU framework midterm. However, it is striking that intergovernmental decision-making in the context of treaties or the European Council has gained momentum in recent years. While it used to be the aim to bring more and more policy areas under the supranational pillar of decision-making (the ordinary legislative procedure), particularly the economic and monetary union is increasingly governed intergovernmentally. The European Council might be evolving from an institution that gives political impetus to an institution with a more legislative role. While this might arguably sidestep the European Parliament, it is also an example for the dynamics of EU institutional law. The mode of decision-making seems to increasingly depend on the sensitivity of the policy area concerned: Internal Market law on the other hand is still a prime example for supranational decision-making in the EU.

The Co-development of European Community Law and Economic Integration

The Economic Rationale for European Community Law and Integration

The body of European Community law implies a great promise for the European Member States, companies, and citizens. Tearing down barriers to trade and closer institutional integration can reap considerable welfare gains.

Even though the beneficial effects of free trade are known since the works of Adam Smith (1776) and David Ricardo (1817), it was the Cecchini-report from 1988 (Cecchini Report 1988) that estimated an overall cost reduction of 200 billion ECU for the Member States, if all trade barriers (tariff and non-tariff) would fall. However, the report provided no detailed analysis about the growth effects and distributional consequences for and between regions (e.g., center and periphery) (Baldwin 1989).

Because some Member States win and some lose with regard to their absolute welfare position, when trade barriers are removed (while overall welfare increases), it did not come as a surprise that in the aftermath of the Cecchini-report, the potentially losing Member States resisted a simple abolishment of trade barriers (for a theoretical analysis, see Pierson 1996).

The insight that the distributional consequences of abolishing trade barriers which must be taken into account leads to three basic propositions that drive the economic analysis with regard to European Community law.

  1. 1.

    Economic integration is a process in time in which the Member States go through stages of integration, thereby deepening integration.

  2. 2.

    European Community law is mirroring the stages of integration, thereby aiming towards a European constitution.

  3. 3.

    At the micro-level the integration process is driven by interest groups and stakeholders that impact on the content of European Community law.

Stages of Integration

It is common to differentiate five generic stages of economic integration (Balassa 1961; Baldwin and Wyplosz 2012). Economic integration usually starts at the first or second stage and progresses then over time towards stages of higher integration.

  1. 1.

    The first stage is mainly associated with a bilateral or multilateral free trade agreement (FTA) between countries. While the abandoning of tariffs between the signatories of the FTA reaps some welfare gains, running an FTA is not trivial and not easily administered. That is because of the FTA countries’ freedom to determine the tariff with third countries on their own. For importers and FTA countries alike, this creates opportunities for arbitrage (Tarr 2009). As a consequence rules of origin have to be introduced and maintained. One may conceive these rules of origin as a very nascent step into the direction of a common understanding over the rules of the game between FTA countries. One may regard this as a first step towards a premature constitution.

  2. 2.

    The second stage is the customs union (CU). The signatories of a CU abandon tariffs against each other, but they also agree on a common tariff against third countries. This overcomes the problem of maintaining and controlling complex rules of origins as it is necessary under an FTA. From an economic perspective, the Treaty of Rome (1957) constituted a CU.

  3. 3.

    The third stage is the establishment of a common market (CM). The Treaty of Rome implied already the antecedents of a CM, although it took time till the 1980s to establish and enforce the features of a CM. Central to a CM is that non-tariff barriers to trade (national regulations) which impede trade become removed and that the free movement of people/companies, services, and capital becomes feasible. Two features of a CM need special attention: First, non-tariff barriers for goods, people/companies, services, and capital (four freedoms) can either be overcome by harmonizing laws and regulations or by mutual recognition of laws and regulations. Both ways play out in the European economic integration process. Second, to safeguard the four freedoms, a CM has to establish a common competition policy, preventing the Member States to give unfair advantages to their industries (esp. state aid control). Both features have in common that they need policy coordination between Member States, implying that there is a basic agreement about the vertical delineation of the competencies between the central level (EU level) and the signatories (Member States). In parallel power has to be vested to institutions and administrations at the central level, in order to execute the common policies. This process of institutionalization becomes apparent, for example, in the increasing role that the Court of Justice of the European Union plays.

  4. 4.

    The fourth stage is the economic union (EUN), which is a CM where a number of key policy areas are harmonized (esp. coordination of monetary and fiscal policies, labor market, regional development, infrastructure, and industrial policy). While at the first three stages of economic integration the removal of obstacles to free trade are center stage (negative integration), at the fourth stage the particular institutional design of the economically integrated area becomes important. This process of institutionalization goes hand in hand with the strengthening of administrative bodies managing for the particular design of integration (positive integration). However, the implementation and enforcement of policies remain with the associated countries. The establishment of the European Single Market (Maastricht Treaty) is a good example of a EUN.

  5. 5.

    The fifth stage is total economic integration (TEI). At this stage, a vast number of key policies become harmonized, inter alia those as social policy and monetary and fiscal policy. A TEI exploits all possible economic advantages from free trade and factor mobility. The momentum of positive integration becomes amplified by shifting even more power to the central administration. The policies from the central level become binding for the associated countries, which role is only to execute the prescribed policies from the central level. The EU has yet not reached the stage of TEI, but the members of the euro area are close to it.

Towards a European Constitution

European Community law has yet not been consolidated in a European constitution. The “Treaty establishing a Constitution for Europe” from 2004 was not ratified by all Member States; as a consequence in 2005, the project of a European constitution was given up. Instead in 2009 the Treaty of Lisbon implemented parts of the constitutional project (e.g., qualified majority voting) through the established European treaties.

Insofar, in a strict legal sense, European Community law has yet not reached the status of a constitution. However, European Community law has undoubtedly evolved over time towards a tighter set of rules and regulations (institutional integration). From a law and economics perspective, the crucial question is whether the institutional integration of the EU corresponds indeed with more transborder transactions and hence more gains from trade. In other words, does the process of European constitutionalization lead to welfare gains?

This question can only be answered empirically and it bears the question of how to measure institutional integration. However, Mongelli et al. (2005) can show that a higher degree of institutional integration goes hand in hand with more economic integration (trade). Thereby it seems that causation runs both ways: More institutional integration triggers more economic integration, but more economic integration also leads to more institutional integration. From that observation follows that there is a coevolution between European Community law and economic integration. This implies that the European constitutionalization process is driven by policy choices for the background of a deepening economic integration, while at the same time the deepening of economic integration depends on the policy choices that were made.

The Role of Interest Groups

European Community law is the product of actors on the national and the EU level which try to shape the governing rules and the law-making process into a for them favorable direction. Usually those actors are labeled as interest groups. Even though the term “interest groups” must not have a negative connotation but can refer to quite a lot of meanings in the process of European integration (Eising 2008), from an economics perspective it refers mainly to well-organized groups that try to get an economic advantage that is not the result of their economic performance but of their successful attempts to get favors via the political process (rent seeking) (Mueller 2003; with special reference to federations, see Weingast 1995). For example, the persistent high levels of subsidies that go into the common agricultural policy (CAP) can only be explained by the influence that the interest group of farmers has on European politics (Baldwin and Wyplosz 2012).

The role of interest groups in the process of European integration in general and the impact of interest groups on European Community law in particular can be studied from a great number of perspectives (for an overview, see Eising 2008). From a law and economics perspective, it is important to understand the making of European Community law as the result of a coevolutionary process of diverse interest groups, which influence laws and regulations, and the body of European law, which creates the forum in which interest groups and stakeholders can play out. Thereby the European Community law becomes over time more differentiated and adapted to the challenges it faces in an ever more economically integrated area, but at the same time the increasing complexity of European Community law creates gaps and loopholes that can be targeted by interest groups. This implies on the one hand that interest groups have to evolve to organizations that are able to target those loopholes and gaps. On the other hand, it implies that Community law reacts to the activities of interest groups with a further differentiation of law and regulations.

While the relevance of interest groups for the development of European institutions and Community law cannot be doubted, the operation of interest groups in the EU is yet not fully understood. For example, it is yet not clear whether there is a Europeanization of interest groups (making the level of Member States less important) or whether successful interest groups on the European level need a strong anchoring in the Member States. Moreover, one may ask whether the specific politico-legal system of a Member State predetermines the effectiveness of interest groups on the European level (Eising 2008).