Towards a European Monetary Fund — consolidating the democratic deficit?
A plethora of voices are promoting the idea of the European Stability Mechanism (ESM) transforming into a European Monetary Fund, with a view to eliminate the need to involve the International Monetary Fund (IMF) or the European Central Bank (ECB) in future Eurozone crises. Germany, the biggest contributor to the Eurozone bailouts through the ESM, and France, the second biggest contributor and a proponent of Eurozone changes under President Macron, appear to be driving this discussion.
Such a Fund will be inextricably linked to the Eurozone’s fiscal and legal architecture. However, deepening the current framework would give a new breath of life to the ill-guided approach deployed during the Eurozone debt crisis. Although the legal context in which a European Monetary Fund may be born into sounds like a very technical discussion, it is a discussion inseparable to the direction and the values of the European Project as a whole.
The handling of the Eurozone crisis may have attained a success narrative from an economic perspective, particularly in light of the gradual recovery of the Eurozone, but in law it has proved to be a mutation of the Union’s legal order. Over the past 8 years we have witnessed nothing less than the creation of an alternative legal reality in the form of the ESM. In this parallel legal order, the Eurogroup, an informal meeting of ministers that cannot produce legally binding decisions and is accountable to no one, reigns supreme. There is a stark antithesis between the Eurozone’s decision-making regime and the traditional governance models of the EU as a whole.
The Eurosystem was clearly unprepared for sovereign debt crises and banking crises. The absence of genuine legal tools to deal with insolvent euro area sovereigns at a level of primary EU law, led to the adoption of measures peripheral to the EU’s legal architecture, aiming at enhancing financial stability in the Eurozone. The Two-Pack and Six-Pack instruments, the Treaty on Stability, Coordination and Governance and the European Banking Union, were deployed to remedy the silence of the EU Treaties on financial crises in the EMU. The ESM itself, a creature of a new treaty, was established with a strong link to the Eurogroup within its governance infrastructure.
Establishing the ESM outside EU law (as confirmed by the Court of Justice)has enabled sovereign financing to evade the scrutiny that accompanies the decision-making process of EU institutions. The ESM’s operations are relieved of the obligation to abide by the EU Treaties, including — most crucially — the Charter of Fundamental Rights, a primary legal instrument in the Union’s legal order. The parallel universe established for the ESM raises the question as to whether ESM financing programmes would be different in their negotiation and conclusion, had they been required to comply with the Charter and the fundamental principles enshrined in the Treaties, not least that of solidarity.
Brussels has shown little signs of genuinely identifying the Eurozone’s democratic pathogenies, let alone address them. The parallel legal order developed over the past 8 years is, after all, a Brussels-sanctioned contraption. The report of the “5 Presidents” (the ECB, the Commission, the Parliament, the Council and the Eurogroup) for the completion of the monetary union contains few positive elements. For example, while it correctly recommends the incorporation of the ESM into the EU Treaties, it does little to suggest the democratization of the EMU’s decision-making framework, which has immense repercussions for sovereigns and their populations.
The same report further fails to identify the fundamental problem of legitimacy and accountability in the Eurozone’s governance. The Eurogroup is vested with a defining role under the ESM parallel legal order. The Eurozone crisis served as the factual context propelling that informal group into becoming the primary decision-making forum, essentially determining the terms of bailing out debt-ridden sovereigns and having a substantial impact on national Economies and their local societies. From informality in the EU Treaties, the Eurogroup found itself in the driver’s seat in the ESM treaty — the group’s president is also Chair of the Board of Governors of the ESM. It is inconceivable that such arrangements would ensue by establishing a European Monetary Fund within the existing framework, shifting the Eurozone’s architecture further away from the Union’s legal order.
Establishing a European Monetary Fund without enshrining the entire governance of the Eurozone into primary EU law can only facilitate the ostracism of due process, transparency and accountability. The same applies vis-à-vis empowering the Eurogroup under its current status, which would only serve to perpetuate this informal forum’s de facto grip on determining national economic policies. This would not only preserve the economic oxymoron of a monetary union devoid of a uniform fiscal policy, it would enhance the democratic deficit at the core of the EMU.
The whole of the Eurozone currently takes decisions of catalytic importance within a vacuum in accountability, legitimacy and democratic process. Ending economic imbalances amongst member states is fundamental to facilitating the next stage in the European Union’s integration as a whole. This could prove challenging through anything less than a complete overhaul tackling the inherent problems in the Eurozone’s legal architecture. Within that context, a European Monetary Fund should be established on the premise of a fiscally and politically integrated Eurozone.
The views expressed by the author are personal and do not necessarily express the views of Antoniou McCollum & Co.
