Dr Adam Cygan, University of Leicester
On January 1st 2002, 12 of the then 15 EU Member States replaced their national currencies with the Euro. In 2011 with EU membership at 27 there are now 17 Member States using the Euro and countries such as Poland are actively preparing to join in 2013. To prepare Member States for the transition to the Euro the Stability and Growth pact was included in the Treaty of Maastricht 1993 which requires Member States to keep their budget deficits below 3% of GDP in all but exceptional circumstances. Failure to do so would result in sanctions, including fines. Yet since the inception of the Stability and Growth pact many Member States, including Germany, have consistently run budget deficits which exceed the 3% level.
It is on these shaky foundations that the Euro has been built. While many may view the EU’s problems as the consequence of poor economic management by feckless governments the reason for the Eurozone’s sovereign debt crisis and the bailouts of Greece, Ireland and Portugal is more complex. It is the absence of a strong EU constitution which has contributed to this debt crisis. The Euro has intrinsically linked the economies of the Eurozone States, but this integration has been based on the unrealistic principle that all Eurozone States are equal partners. While equality meant that States were prepared to join the Euro, the Treaty does not include appropriate constitutional mechanisms which guarantee the necessary political and legal accountability required for this pooling of economic sovereignty. For example, France and Germany have persistently flouted the Stability and Growth Pact and the Council, in which these two Member States are dominant forces, chose not to accept the Commission’s recommendations that they should be fined for doing so. The European Court of Justice reviewed the Council’s decision, but sidestepped the question of the fines reinforcing the weak nature of the institutional framework regulating the Eurozone.
Though the European Central Bank (ECB) is an important Institution governing the Eurozone its priority is to deliver price stability through the management of interest rate policy. This blunt instrument of economic regulation is found wanting in 2011 where a one size fits all interest rate policy is inappropriate for economies at different stages of development. Through interest rate policies the ECB does not offer political direction to the Eurozone countries and does not have the power to determine Member States’ priorities for taxation and spending. The ECB is detached from the realities of delivering expensive social and welfare policies which have become expected within the Member States and which form part of the idea of a ‘social Europe’.
As a currency the Euro remains strong, indeed anyone travelling to a Eurozone country from the UK is receiving 30% less for the pound in their pocket than they would have in 2006. However, the Eurozone is undergoing a two-speed economic recovery which is likely to result in a realignment of political and economic power. The principle of equality that has hitherto underpinned the Eurozone has been abandoned. Strong economies such as Germany have significant leverage over the weak economies of Greece and Portugal. Thus, the vacuum left by the absence of a constitutional framework to regulate the Eurozone has been filled, but this has arisen by default rather than by design.
The EU bail-out package and the ad-hoc response to the debt crisis illustrates that the Eurozone, and the EU more generally, will now be dominated an inner core of strong economies. These economies will inevitably place their economic priorities before those of the weaker States. Member States that remain outside the Eurozone are reluctant to write blank cheques. Germany the strongest growing economy in the Eurozone is also making any financial assistance dependent upon simultaneous economic reform. This is the new political and economic hierarchy within the EU which has arisen because the Treaty did not include adequate constitutional control of the Eurozone. Though this realignment means the Euro is likely to survive, the EU will have moved much closer to becoming a multi-speed organisation.
He has recently completed a monograph with Professor Erika Szyszczak to be published as part of the Sweet and Maxwell Understanding Law series. Understanding EU Law examines the themes and principles of EU integration from the Treaty of Rome to the Constitutional Treaty.
His research interests include the relationship between national parliaments and the European institutions within the context of the legislative process. He also researches the process of eastward enlargement of the EU and in particular the impact this has on the EU’s relations with its eastern neighbours. He has published two monographs on the subject of the United Kingdom Parliament and its participation the EU legislative process and has contributed to several Parliamentary inquiries in to the subject.