The Economic Crisis and Europe’s Rule of Law Problem


Close attention to particular decisions by European institutions and governments before and during the present economic crisis suggests that many have significantly infringed the rule of law.

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As the European Union struggles to contain its financial and economic problems, it is easy to forget the broader non-economic context to Europe’s troubles. Most discussion of Europe’s seemingly endless crisis is understandably focused upon the economic causes and effects of factors such as falling productivity, population stagnation and decline, excessive debt, sclerotic labor markets, and the ailing welfare states of many European nations.

But while these elements contain their own specifically economic dynamic, they do not occur within a political, legal, or cultural vacuum. Widespread political and cultural expectations concerning the state’s role in realizing economic security, for example, contribute to profound resistance from many Europeans to any meaningful attempt to raise retirement ages or liberalize labor markets. Such expectations also help explain the relative weakness of entrepreneurial activity in many European nations compared to the higher appetite for risk that (still) characterizes America, but more particularly China.

Among the many non-economic factors shaping Europe’s current crisis, there is one which, despite its seriousness, has not yet received extensive attention: an emerging rule of law problem throughout the EU.

Many will be taken aback by this claim. Isn’t Europe the continent where the very idea of the rule of law was first developed in its most sophisticated form? And haven’t postwar European governments been so focused upon dispute resolution through shared legal protocols that they have been willing to dilute national sovereignty in order to enhance the authority of pan-European courts such as the European Court of Justice? Close attention, however, to particular decisions by European institutions and governments before and during the present economic crisis suggests that many have significantly infringed the rule of law.

The meaning of the rule of law is by no means uncontroversial. Broadly speaking, it has been defined in “functional,” “thin,” and “thick” terms. “Functional” conceptions of the rule of law focus on the degree of “flexibility” enjoyed by public officials in deciding how to use state power: the greater the flexibility, the lesser the rule of law. “Thin” versions, by contrast, are less concerned with flexibility; instead they emphasize the procedural requirements that must be followed if the promulgation and application of a law is to be considered just. While “thick” conceptions of the rule of law embrace such concerns, they also insist that the rule of law necessarily involves protecting particular human rights, sometimes explicitly so.

Central to all three versions, however, is a concern for restricting the ability of governments and public officials to act arbitrarily. The reasons are twofold. First, arbitrariness on the part of governments is, like any arbitrary choice, intrinsically unreasonable. After all, what plausible reason could be offered by anyone for choosing to act arbitrarily? Secondly, arbitrary public decision-making—be it by governments, legislatures, or judiciaries—destroys the certainty that those in positions of power will normally behave in particular ways.

In that sense, the rule of law is a central component of the common good, understood as the conditions that assist people in a given society to engage freely in human flourishing. There is considerable empirical evidence to support this normative claim. In recent decades, for instance, economists from varying schools of thought have concluded that the sense of certainty or security associated with the rule of law is indispensable for sustainable economic development. That’s why establishment of the rule of law (and securing property rights) may well be the biggest long-term challenge confronting China’s economy.

Obviously, non-arbitrariness on the part of public officials doesn’t guarantee that a law or policy will be just. No amount of procedural correctness can obviate, for instance, the essential injustice of laws that relegate entire groups of human beings to a subhuman status. Nevertheless it remains the case that injustice normally flows from public decisions to act arbitrarily.

A good example of arbitrariness is the choice of governments and other public institutions to ignore or decline to be bound by laws and agreements that define and limit their powers. It is this particular instance that indicates that key decisions made by European institutions and governments before and during Europe’s existing crisis border on the extra-legal.

Beginning in the late 1990s, several EU governments chose to ignore the 1992 Maastricht Treaty’s legally binding criteria concerning the public finances of euro-member aspirants. Article 121.1 of Maastricht required such countries to have (1) no more than a 60- percent debt-to-GDP ratio, and (2) a ratio of annual government deficit to GDP that did not exceed 3 percent at the end of the preceding fiscal year. Had these criteria been adhered to, nations ranging from Italy to Belgium should have been excluded from adopting the euro. They were, however, permitted entry. In 2001, Greece was allowed to join the eurozone, despite having a debt-to-GDP ratio exceeding 100 percent.

This pattern of ignoring particular EU treaty obligations—which, by definition, constitute a good portion of EU law—was replicated in the early 2000s when Portugal, Germany, and France violated the 3-percent deficit ceiling upon eurozone members. Such offenders were supposed to be subjected to what were called “excessive deficit procedures.” While proceedings were begun against Portugal, and later Greece (though they were never completed), calls for the same procedures to be applied to Berlin and Paris were blatantly disregarded by the European Council of Ministers following political pressures from Germany and France.

The obvious inconsistency in applying existing law to similar cases was striking. Indeed the European Court of Justice decreed in 2004 that the Council of Ministers’ decision not to enact proceedings against Germany and France infringed European law. That ruling, however, also was ignored by the Council and EU member states. No one should therefore have been surprised that by 2005, five of the then-twelve euro area countries had or were planning deficits above 3 percent. Seven of them also had debt-to-GDP ratios above the 60-percent figure (with two having debt ratios above 100 percent of GDP).

With the onset of the financial crisis in 2007, treaty breaches became more explicit as many eurozone members engaged in heavy deficit spending in a (forlorn) attempt to mitigate recession and spark growth. Even more worrying, however, was the European Central Bank’s decision in 2010 to start purchasing the sovereign bonds of euro-member states on secondary markets in order to forestall significant slippage of bond prices. How this can be reconciled with Article 123.1 of the 2007 Lisbon Treaty that formally prohibits the ECB from purchasing debt instruments from any EU institution or government whatsoever (national, regional, or local) never has been clarified. Even less clear is the legality of the decision of the EU and member states from 2010 onward to provide direct financial assistance to countries such as Greece and Portugal. Article 125 of Maastricht stated that neither the EU nor any member state was liable for or could assume “the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any member-state.”

In all the instances above, European governments and institutions made choices to adopt policies that are, at a minimum, difficult to square with existing EU law. The EU itself of course possesses no means of enforcing such laws. It essentially relies upon EU member states’ willingness to abide by commitments to which they have freely bound themselves. On the everyday level of adhering to regulations promulgated by Brussels, this occurs all the time. When it comes, however, to the contemporary crisis, existing legal obligations that prohibit certain actions have been regularly subordinated to efforts to realize two overriding goals: (1) an immediate economic objective of containing financial contagion; and (2) the political end of saving the EU’s monetary union.

Neither of these goals is intrinsically problematic in itself. No one wants to see the debt crisis metastasize throughout Europe. The EU should be trying to help member-state governments in their efforts to contain and resolve their debt problems. Likewise, the creation and maintenance of a currency union in the interests of closer European integration is not an essentially reprehensible proposition. The political choice to pursue such an end is very much a question of prudential judgment about which reasonable people can rationally disagree.

Far less reasonable, however, is the more or less conscious choice of European officials and governments to step outside the bounds of their legal authority in an effort to realize these ends, even in the midst of a severe economic crisis. Despite ongoing disputes about the values that the EU ought to embody (and, more particularly, the cultural roots of those values), no one has seriously questioned that the rule of law should number among the goods that define the essence of European political and legal culture.

One measure of a society’s commitment to the rule of law is whether its public institutions resort to “extra-legal” means in times of crisis. By that standard, several European supranational institutions and governments seem to have inched toward something that Europeans, ranging from Aristotle and Cicero, to Thomas Aquinas and Thomas More, have consistently underscored as unworthy of civilized societies: the rule of men.

Samuel Gregg is Research Director at the Acton Institute. He has authored several books, including On Ordered Liberty, his prize-winning The Commercial Society, Wilhelm Röpke’s Political Economy, and his forthcoming Becoming Europe: Economic Decline, Culture, and America’s Future.

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