Why Europe Should Say No to the Proposed Framework of Economic Governance: A Legal and Policy Analysis in Light of the Establishment of the European Stability Mechanism and the Euro Plus Pact

Vasileios Paliouras

Abstract

The eurozone sovereign debt crisis, despite all the pain and suffering that has caused to the peoples of the affected countries of the European periphery, has the potential to serve the purpose of European integration, if the right signals are transmitted to the political establishment of Europe. Clearly, the crisis has challenged the basic premise that underpinned the creation of the Economic and Monetary Union (EMU), namely that coordination of economic policies would be enough to safeguard the consensus over the common currency. During the last year the leaders of eurozone Member States have taken unprecedented action to make up for the failures of economic policy coordination by devoting significant funds to rescue Greece, Ireland and Portugal from a default. It appears that for now the consensus was retained, and the euro survived, but at the expense of the initial commitment of the European political establishment that financial transfers from one Member State to another should not to be allowed. If, however, economic policy coordination has failed and a fiscal union remains, in principle, outside of the current European accord, then how can the euro survive the next crisis or any unexpected turns of the present one? It is the position of this paper that European Union (EU) leaders should seek to reestablish the EMU on the basis of a different kind of consensus. Essential to this approach would be the notion of European Federalism, whereby coordination of economic policies is made possible by financial transfers from the centre to the periphery. It should not be forgotten, though, that such a task goes way beyond the current institutional arrangement of the EU, and most importantly, requires broader transformations towards the creation of a legitimizing basis for the establishment of representative European political institutions. This paper will not venture to explore in a detailed manner how this could be realized, but rather to demonstrate the limitations and fallacies of the solutions that have been given until now, and furthermore, to stress the need to reinitiate the -currently absent- discourse about political integration in Europe.