European Stability Mechanism

Posted: May 8th, 2012 | Author: | Filed under: Estonia, european union, law, thoughts | No Comments »

Currently the Estonian Supreme Court is hearing arguments for and against the agreement establishing the European Stability Mechanism. It was the Estonian Chancellor of Justice who took the extraordinary step of challenging the constitutionality of the part of the treaty which says that the funds could be distributed from the mechanism without approval from the Estonian Parliament (due to the qualified majority system utilised in order to prevent a few smaller states blocking the vote). Both sides have good arguments, but few seem to realise the inevitability of something like the ESM for the future of Europe. The government is really between a rock and a hard place. It has to argue for the ESM, but cannot use a lot of the argumentation that would be politically difficult. The Chancellor can be much more open, as well as the independent legal experts who have submitted their opionions.

The EU is not in a great shape. It faced huge challenges to remain competitive and try to preserve at least part of the welfare state, to deal with aging population, integration of migrants etc. Now, the financial crises has highlighted both the financial and political faults within the system. Scrapping the system is not an option unless people are willing to suffer a major setback to European and global stability and prosperity, so compromises have to be made.

The European Union must become a transfer union. This means that money needs to flow automatically from richer countries to poorer member states (the way it does in the US). Without a transfer union, we will be permanently in the crisis mode and we will have serious problems preserving not only the euro, but the integration project as a whole. Therefore it is inevitable to have a transfer union, which facilitates the movement of resources automatically from the well-off parts of Europe to less well-off parts. We currently have some transfer through the EU budget (via the structural funds), but those sums are too small, too targeted and too inflexible although they are increasingly being used to prop up the economies of states in trouble.

There are few options to enable a stronger transfer union:

  • increase the amount of EU budget and allow the EU to re-distribute wealth in a greater amount. This will probably not work because of the limits and conditions of EU funding;
  • bring a part of taxes, medical and unemployment insurance, education funding and other key social areas to an EU level. This would mean an EU tax of some sort as well as pan-European unemployment and medical insurance schemes. The easiest would be the unemployment insurance, but it might not be enough;
  • create a bulletproof bail-out mechanism, which helps out those who are in need (not only member states, but perhaps their banks and other big businesses);
  • create so-called euro-bonds to fund the bailouts or structural fund projects.

All of these steps will be unpopular for those who pay, unless the politicians are able to explain to people that the EU is not workable in any other way.

This brings us back to the Estonian constitutional debate. A transfer union as such is probably not supported by the current interpretation of the Constitution. There is a fundamental choice that the that will have to made: whether they support the changing of the interpretation of the Constitution to accommodate the transfer union (i.e. lose the parliament’s control over certain parts of the state budget). All other issues are technicalities in my opinion (not insignificant ones, but still technicalities). It was unfortunate political reality that the ESM treaty is not agreed within the EU framework, but that does not stop it becoming EU law.

The European Union is unique. Therefore there is room for creativity regarding interpretation of EU law. There are few established rules, but plenty of legal and political choices to be made, new doctrines to be created. I do hope that the choices made by the Estonian government and Supreme Court will be based on a broad vision of the future of Europe. I hope the decision will be one that established a clear doctrine to be used in future cases involving the relationship of EU law and the Estonian Constitution (of which there is bound to be many).

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