An Alternative EU Economic Governance

Xavier Vence - Alberto Turnes - Alba Nogueira | An alternative economic governance for the European Union 1
An Alternative
Economic Governance
for the European Union
Xavier Vence
Professor of Applied Economics at the University of
Santiago de Compostela. Coord. ICEDE Research Group
Alberto Turnes
Master DEIN and Graduated in Economics at
the University of Santiago de Compostela
Alba Nogueira
Professor of Public Law at
the University of Santiago de Compostela
With the collaboration by ICEDE members

Oscar Rodil, Brais Yáñez and Jorge Fernández.
Santiago de Compostela, July 2012
Centre Maurits Coppieters

2013
2 Xavier Vence - Alberto Turnes - Alba Nogueira | An alternative economic governance for the European Union 3
Contents
Preface 6
Summary 10
Introduction 16
1 The economic dynamics and real convergence/divergence: 22
a heterogeneous and neoliberal Europe
1.1. Economic growth and the stagnation of regional convergence 24
1.2. The unsustainability of the model: productive specialisation and trade balance 33
1.3. Recently integrated countries and the overdose of neoliberalism 39
2 The failure of European economic governance 44
2.1. The failure of the SGP and the new measures to control stability 46
2.1.1. Austerity as a strategy for neoliberal radicalisation: 50
the public debt crisis as an argument for reducing the welfare state
2.1.2. The Euro Plus Pact and the dismantling of the European social 56
and employment model
2.2. The ECB: the monetary corset and financial deregulation 62
2.3. Contrast between the ECB and the US Federal Reserve: learning from experience 71
3 The financial sector: deregulation and fragmentation 76
3.1. Pre-crisis financial legislation in the EU 76
3.2. Post-crisis legislation in the EU 80
3.3. Assessment of the EU’s reforms 82
4 Competition - the Services Directive 86
4.1. Liberalisation as guiding principle 86
4.2. Bolkestein and its community aftermath 88
4.2.1. (Theoretically) excluded sectors 90
4.2.2. The whole Bolkestein family 92
4.2.3. Maximum administrative harmonisation vs Minimal harmonisation 95
of consume rights
4.3. Expansive interpretation of the freedom of establishment and to provide services 97
5 Stateless nations and small countries in the EU 112
6 Economic governance and democracy in the EU: threats and challenges 118
6.1. Globalisation, capitalism and democracy 118
6.2. From Bretton Woods to financial globalisation 120
6.3. Financial globalisation and democracy in the European Union 125
7 Conclusions and recommendations 130
Appendix: Basic data for stateless nations and small countries in the EU 144
Centre Maurits Coppieters 148
This publication is financed with the support Members of the CMC 151
of the European Parliament (EP). The EP is not Bibliography 153
responsible for any use made of the content of Colophon 157
this publication. The editor of the publication is
the sole person liable.
the asymmetry in the economic circumstances of each Member State. The
European Union is not, and never has been, an optimal monetary area. The
progress of recent years has not secured a process of real convergence or
increased cohesion between the various economies; on the contrary, it has
extended the heterogeneity and asymmetries in the dynamic economic
background (productivity, competitiveness, trade balance, employment,
etc.). Although it had seemed that less developed economies in the EMU
were converging with the major economies, the current situation shows
the inconsistency and fragility of nominal convergence. Measures taken in
response to the 2008 crisis and since highlight both the economic errors
of the strategy adopted by the Commission, ECOFIN and the European
Council and the structural weaknesses of the community, particularly in
Preface
terms of economic governance, the structure and function of the European
Central Bank, the complex and slow decision-making process, inadequate
monitoring of the fulfilment of agreements and the lack of democratic
legitimacy in some cases. There is, thus, an impression that there are no
strong democratic institutions to prevent financial power from taking
control.
It is, therefore, time to define what type of EU we want: a multi-speed Europe,

The economic crisis that began in 2007-2008 as a result of the explosion clearly uneven, that is made up of blocs and in which the deficiencies of
of the American financial system makes it evident that the model that has the more disadvantaged Member States have adverse consequences for
been built around the dollar-Wall Street and the FED has come to its end. the more advanced? Or an EU that acts as one, with robust democratic
The financial crisis caused by the huge bubble of accumulated private debt institutions where the measures taken lead to real convergence between the
soon became a crisis of public debt. In this passage, what seemed like a different countries? In this sense, we need to assess the role and opportu-
crack for the dollar as the hegemonic currency and an opportunity for the nities that small nations and non-sovereign regions of the EU actually have.
euro turned out to be the opposite: the debt of countries in the euro area is
soaring in order to save their financial system, and that is just giving rise to Although the new plan to strengthen the Stability and Growth Pact is an
a risky situation of insolvency which initially affected the weaker peripheral important attempt to encourage economic governance, this measure alone
countries but it is slowly putting in question the entire euro area, the large will not be enough if we want to get to the root of the problem. Many other
European banks and the whole EMU project. aspects will also need reformulation.
The still unfinished EMU project is one of the biggest problems in Europe In accordance with this diagnosis, the main goal of this study is to assess
since World War II. The economic governance of the EU has demonstrated the consequences of the Stability and Growth Pact and the possible impact
many deficiencies in the past, with an excessive bias towards a distinctly of the new measures added to it by the European Parliament and the
neo-liberal economic model; but this crisis has again exposed the weakness European Council. We will also discuss and assess other central aspects of
of its architecture, particularly that of Monetary Union. Economic Governance of the EU, including:
It is important to notice that the economic agreements expressed in the The redesign of the European Central Bank, given that it is a fundamental
Treaty of Maastricht and Lisbon are not currently feasible, due in part to institution for economic stability, which implies a new policy for the
creation of money that will mitigate the credit problems of many of the
Member States who are the source of much of the instability of the euro.
The competitiveness policy and internal market as key instruments that

determine the chances of a strong industrial and territorial policy. In this
sense it is necessary to discuss the consequences of deregulation on the
productive capacities of peripheral countries and hence for economic and
social cohesion. For this reason, we will analyse the conditions for a new
framework of competitiveness.
The development of a common fiscal policy that grants a greater capacity

of action for the EU when a country finds itself in economic difficulty, as well
as reinforcing cohesion and regional development policies with the aim of
helping countries to continue towards convergence.
The design of a new framework for skills that gives less developed regions
the opportunity to drive strategic sectors in their economies.
The revision of the commercial treaties between the EU and the rest of the
world, in particular with the newly industrialized countries. Many Member
States see themselves overwhelmed by the immense competition from
economies outside the EU. Unable to protect themselves, these Member
States maintain a structural commercial deficit.
Closely related to the previous point is the dwindling away of the welfare
state in those economies with competitiveness problems, given that it is
the only recourse available to reduce the problem. The question, then,
is what type of social model are we after: that which seeks to spread the
welfare state and gives greater leverage to workers in negotiations and
therefore increases their quality of life, or do we want to continue the
neoliberal model?
In this respect, the crisis which has hit the EU in recent years is not only
economic, but is to a great extent political: the failure of a model of
European integration which has been shown to be all too fragile. The
prolonged crisis and its unusual depth have called into question not only
the distinctly neoliberal profile of the macroeconomic policies promoted
through the conservative choices which have dominated the European
political scene in recent years, but also reveal an inappropriate distribution
of powers between Europe’s governing institutions, poor coordination,
slow reactions and a rigidity which restricts the kinds of regulatory and
decision-making tools available to the Community authorities and the
governments of Member States.
summary The fact that basic macroeconomic policies such as monetary policy –
interest and exchange rates – or fiscal policy are decided at completely
different levels of government to meet uncoordinated general objectives
is one of the factors which has particularly complicated the response to
the crisis. This has ultimately contributed and continues to contribute to its
ineffectiveness.
However, over and above the inability of the institutional architecture

The main objective of this paper is to analyse the basic pillars underpinning to pilot the main macroeconomic policies in a consistent fashion, what
economic governance in the European Union and their weaknesses and has been happening in recent years reveals the risks of an asymmetric or
failings, in particular in the light of the current economic crisis, with a view to divergent development of productive capacity in different countries of the
formulating alternative proposals for this aspect of EU governance, especially European Union. The internal liberalisation associated with the creation of
with respect to monetary union, the eurozone. the internal market led to the weakening and loss of primary and industrial
production capacity in the peripheral countries, strengthening the industrial
The European Union has been going through a prolonged period of weak potential of some of the countries at the heart of Europe, which has caused
economic growth in the last three decades, but the economic and financial severe and unsustainable imbalances in the current account balances of
crisis which was triggered in 2007-2008, and the type of responses which some countries. In this way, the current policy of adjustments to the public
have been implemented on the part of the EU authorities, have led to accounts, which appears to lead down a blind alley of recessionary spiral,
a situation of increasing difficulties for many eurozone countries, partic- seems to overlook the much deeper nature of the imbalances which have
ularly those on the periphery, although also for the European Union as accumulated over the last two decades and which largely have their basis
a whole. in the uneven development of productive capacity, the dynamics of which
in turn are based on the disparate capacities for innovation and competi-
The dynamics of this crisis, its prolongation and worsening throughout tiveness in combination with a framework of increasing liberalisation.
this period, have exposed a dual failure: firstly, the failure of policies
guided by a common approach of fiscal consolidation based on a massive It might be said that the EU’s inability to master the current financial and
reduction in public spending, and secondly and more importantly, the debt crisis is the failure of the approach of constructing the EU and the euro
faults and structural brittleness of the EU’s institutional architecture and its on the basis of excessively neoliberal principles in conjunction with the
governance, particularly in the eurozone. failure of policies intended to respond to the crisis which are also guided
or founded on purely neoliberal diagnoses and strategies. In other words, ECB’s monetary and financial policy, along with the austerity policies
the current crisis is the crisis of a neoliberal Europe, built on neoliberal implemented in Greece, Portugal, Ireland, Spain, Italy and even the United
principles, which today’s leaders appear to intend to pursue still more Kingdom. The protracted deterioration of results demonstrates the failure
radically. of these tools and policies as a way out of the crisis. The diagnosis of these
failures reveals what have been considered as the major issues for the
Throughout this work, we have tried to show the aspects of economic and future, as well as the main thrust of the objectives of European economic
institutional reality which have been of crucial importance to the progress governance as a future model for economic strategy.
of the European economy and its governance. The first and most essential
is the fact of the immensely heterogeneous nature of the economic The economic powers of the Union’s institutions, with a clear conservative
structure in the EU’s Member States, and the disparities in their evolution hegemony, have responded to the crisis of neoliberal financialisation with
over time. The policies implemented over the last two decades have been an extreme radicalisation of the neoliberal model foreshadowed in the
unable to reduce these disparities in any significant and robust fashion. This Maastricht Treaty: continuous liberalisation, deregulation, a reduction in
evaluation reveals how the economic realities of the European Union have State intervention (particularly in terms of the welfare state) and the substi-
taken shape around two or even three groups of countries, with clearly tution of the social by the individual. The radicalisation of matters in this same
contrasting patterns of development, until the point where the failures and direction imposed by conservative forces in response to the current crisis,
economic instability of some coexist with the success of others, and it can especially since 2010, has failed to provide a path to recovery in economic
even be seen that the factors explaining the success of some are simulta- activity. On the contrary, this response has brought about a genuine
neously the cause of failure for others. economic disaster and a profound institutional crisis of the European Union
itself, even putting its own future and viability back on the agenda.
This clearly shows the great heterogeneity and diversity existing in the EU,
alongside the real but weak convergence between the Member States in Furthermore, we drafted this paper during the first months of 2012 which
the long term and the absence or scant effectiveness of the policies of redistri- saw a dizzying succession of complications of the crisis in the peripheral
bution or solidarity between countries. The impact of cohesion policies countries of the eurozone, with the existing rescue plans in Ireland, Greece
has been demonstrably incapable of countering the polarising effects of and Portugal, the rescue of the financial sector in Spain and the threat of
liberalisation in trade, capital and services. The growing imbalances, and an explosion of debt in Italy. The feeling that the economic governance of
the current account balance between the core European countries and the eurozone is out of control, or that the EU and eurozone institutions (the
those on the periphery, reflect the relative loss of production capacity in the ECB in particular) lack the capability or the political will to adopt alternative
peripheral states to the benefit of the more competitive core. This disparity solutions to tackle the disaster, makes it difficult to reach a diagnosis. The
is fundamental in understanding the strengthening of a multi-speed issues on the table during the weeks before the Summit at the end of June
economic and productive EU which ultimately expresses itself in drastic 2012 (eurobond issue, banking union, fiscal union, political union) were
current account imbalances in favour of the core and an unbalanced flow reduced to hasty patching up (the direct rescue of the Spanish banking
of financial capital in the opposite direction, resulting in a heavy external sector with European public funds through the ESM if needed; proposals
debt for the countries concerned. This Europe of growing productive for bond purchases in the secondary market, etc.).
and commercial disparities is difficult to reconcile with the existence and
strengthening of a single currency. In any event, we are increasingly aware of the urgent need to choose
between the future alternatives to what we are facing; either a Europe
We have also believed it necessary to analyse the workings of the main which continues with the existing strategy which will very probably lead
tools for economic governance in the EU and the eurozone, the centrepiece us to an impasse in the short to medium term, or a Europe which accepts
of which is the Stability and Growth Pact. To do so, we have analysed the need to adopt a new paradigm, bringing with it radical changes in the
the new SGP, the Euro Plus Pact and the Europe 2020 Strategy and the institutions which steer the economy of the Union as well as the drafting of
new policies. The problems are on such a scale that many voices question
the future of the EU itself. We ourselves feel that either the EU will move
decisively towards a more federal solution on a genuinely democratic
basis, or it will regress to a scenario where a large measure of sovereignty
is restored to its constituent countries. Increasingly, the current situation
seems unsustainable.
Finally, we have also considered, keeping in mind the future prospects

of our geographical area within the single market, the role that stateless
nations could play in a new configuration of the European Union.
alternative macroeconomic policy options (monetary, financial and fiscal) and
the alternative options for the economic and political governance of the EU.
This is the background to the debate on the challenges and alternatives for
economic governance in the EU to which this paper hopes to contribute.
The economic crisis which began in 2007-2008 was the result of the
implosion of the US financial system and, as a result, of the model of
globalisation which it had been pushing. It initially appeared that we
were witnessing the collapse of the “dollar-Wall Street regime”, constructed
around the dollar as the key international currency, Wall Street as a symbol
of all-powerful deregulated global finance and the Fed as the heart and
introduction head that “governed” the whole edifice.
The financial crisis caused by the enormous private debt bubble led to
the collapse of many of the institutions of the system which, however,
were rapidly rescued with massive public funds in the forms of credits,
guarantees, capitalisation and even nationalisation. As a result of these
policies for large-scale rescue of financial entities by the state, much private
debt was transformed into public debt. In addition, the need to maintain
The debate on the construction of the European Union has taken on liquidity in the system forced central banks to reduce the interest rate
a new profile and importance as a result of the economic crisis which almost to zero and to inject enormous amounts of resources, particularly
erupted in 2007-2008 and its development over the last four years which huge in the case of the Fed, which in scarcely one month in 2008 almost
has been intense when not actually disastrous. When the financial crisis tripled the volume of dollars on its balance sheet. The other major central
caused by private debt, starting in the United States and spreading rapidly banks (BoE, BoJ) adopted similar policies. The ECB moved in the same
throughout the world, became a sovereign debt crisis, the European direction, though more hesitantly.
Union and the eurozone in particular were faced by difficulties which
exposed some of the weaknesses of the institutional architecture of The passage of time has unveiled a striking paradox. The fact that the crisis
the EU and of EMU. In this way the crisis became a factor that revealed broke out in the US, and that its financial system was so severely affected
previously hidden failings and weaknesses, some of which had been by the collapse of the bubble led us to think in that first moment that this
diagnosed by specialists but had not been taken on board in political or crisis might represent a severe blow to those who regarded the dollar as the
institutional circles, while others were the de facto object of public and dominant currency, and that this might open up an opportunity for the euro
political debate at various times, in particular on the occasion of the public to become a key internal currency. However, in a very short time the relative
consultations on the Constitutional Treaty. strength of both currencies was restored to the previous situation, or rather,
it was the euro which experienced a sharp deterioration of its position. EU
Therefore, at the moment when the economic crisis became a chaotic countries’ public debt rapidly rose in order to rescue the financial systems
explosion of sovereign debt in the countries on the periphery of the of each State from bankruptcy, and the euro began to expose the fragility
eurozone, it also became a euro crisis and the controversy over anti-crisis of the EU’s institutional model: the particular status of the European Central
policies became interwoven with the debate on the governance of the EU Bank, its monetary policy and the straightjacket of the principles which
and EMU. What is more, it exposed the close interrelationship between the ought to guide its policy in relation to state funding (Art. 123, Lisbon Treaty).
As a consequence of the institutional problems and the monetary policy stimulate growth and cohesion. Certainly, it is plausible that the pattern of
which was pursued, some eurozone countries experienced severe difficulties construction of the Union has been tightly linked to a pattern of policies
in placing public debt, the debt market fragmented and the solvency of inspired by neoliberalism, and that the response to the current crisis forces
some countries was put to the test. This situation very rapidly worsened the us all to reconsider the political and ideological profile which has guided
risk of insolvency for some peripheral countries (the first to go under were the integration process and the profile of the economic and social policies
some of the countries from the most recent EU enlargement and then those put forward in order to escape the current crisis.
on the periphery of the eurozone, Greece, Ireland, Portugal and Spain);
however, towards 2011 Italy and even Belgium were experiencing strong We might take a step further and consider how far this crisis requires us
tensions in their debt markets. The subsequent ECB and ECOFIN measures to rethink, in a realistic fashion, the possible contradiction between the
were not able to check the explosive dynamic, and the debt crisis in the proactive nature of certain ambitious projects such as the single currency
countries on the periphery ran out of control; the markets, speculators and and the way in which other aspects are hampered, including the common
panic preyed on the same countries which were simultaneously forced to budget and taxation. This divide between monetary and fiscal policy,
implement aggressive policies for cutting public expenditure which fed enshrined in the Maastricht Treaty, is being brought into question by
the recessionary spiral. The results are deeply worrying. The difficulties the current crisis and has become a serious obstacle to resolving it. More
of implementing monetary measures to cushion debt tensions or to fundamental still, the crisis in the eurozone is forcing us to reconsider the
re-establish external balances exposed the inconsistency of the institu- objective limitations, difficult to remove in the short term, which are due
tional architecture of the ECB and the euro and for others even brought into to the extreme internal heterogeneity. The asymmetries between the
question the very existence of the eurozone. Thus the crisis in Europe, the economic circumstances of different groups of Member States demonstrate
debt crisis, is very largely a political and institutional crisis of the Union, as that the European Union is not an Optimum Currency Area (OCA) and this,
implemented. over and above conceptual discussions or a priori ideological visions,
represents a serious argument which should be discussed calmly. The
In the past the economic governance of the European Union has exhibited criticisms raised at the time by authors such as Krugman, Mundell or De
many weaknesses, even crises, and addressed them with greater or lesser Grauwe were disregarded by promoters of the euro and we should return
success by successive reforms implemented through new Treaties and to this problem, although after all that has happened the parameters of the
conventions. There is now a consensus that the crisis is very deep, but discussion are now different, the tensions in play should be reassessed. The
nevertheless there does not appear to be a shared desire to carry out eurozone was not an OCA, and its launch and development in recent years
large-scale changes to amend some fundamental aspects of the structure have not ensured a genuine convergence process or increased cohesion
and governance of the Union. The debate on this key issue requires us, inter between the different economies.
alia, to elucidate the extent to which these failings derive from the inevitable
complexity of the integration process which demands the coordination of On the contrary, the divergences and particularities existing among the
many different countries, as well as the Union’s own institutions, or whether Member States have grown in crucial structural aspects: sectoral speciali-
they are due to a particular political and ideological thrust in the project sation, productive model, competitiveness, productivity, trade balance,
that is steering integration. unemployment, etc. Although it appeared that the less developed
economies in the European Monetary Union were converging with the larger
In other words, it is necessary to examine the extent to which some of the economies, the current situation shows the weakness and fragility of that
inconsistencies and fragilities of the EU and EMU are due to the increasingly nominal convergence. What is more, the actual introduction of the euro and
neoliberal influence which has guided the Treaties and policies. It will, a common interest rate has been a factor in reinforcing imbalanced patterns
therefore, be necessary to discuss whether this neoliberal straight- of specialisation, prompted by speculative bubbles and current account
jacket limits the options for changes to the constitution and governance deficits which have ultimately exaggerated the real asymmetries between
which might give the Union more stability and a greater capacity to some peripheral economies and the economies of the European core.
The measures adopted in response to the crisis of 2008 highlight both badly eroding the prestige and legitimacy of the Union and public
the economic errors of the strategy adopted by the Commission, ECOFIN support for the European project. Democracy, sovereignty and economic
and the European Council and the weaknesses of community integration, performance for the majority of the population are three aspects which
in particular with respect to economic governance, the structure and seem increasing linked.
functioning of the European Central Bank, the complexity and sluggishness
of the decision-making process, the weakness to control compliance with
the agreements and the absence of democratic legitimacy in some cases.
The Stability and Growth Pact, the Euro Plus Pact and, finally, the Treaty on
Stability, Coordination and Governance in the Economic and Monetary Union,
which will come into force in 2013, have become the fundamental pillars
of economic governance and have shaped the strategy which Member
States should adopt to attain, in theory, a more sustainable and prosperous
economy. But these treaties barely touch on some of the incongruities
exposed by the current crisis; essentially, it could be said that they prolong
and radicalise many of the most problematic aspects of the neoliberal
model which underpinned the creation of the euro.
Although the greatest possible macroeconomic stability is necessary for

improved performance, the neoliberal policies promoted by these treaties
do not represent a solution to existing problems since they have no impact
on the roots of the key factors which got us where we are today. What is
more, as we are seeing, their application is driving many countries into a
deeply deteriorating economic situation and an increasing dependence on
the markets the financial system.
The gravity and depth of the current crisis thus force us to reconsider
what kind of union we want: a multi-speed Europe, clearly asymmetric,
with conflicting interest blocks and where the weaknesses of the most
disadvantaged Member States could provoke a risk of political rupture; or an
EU that is attempting to more forward as a space for cohesion, with sound
democratic institutions, where the measures adopted lead towards genuine
convergence between the different countries. The development of a strategy
to strengthen cohesion obliges us to rethink the relevance of the territories
and the difficulties of large central states in guaranteeing internal cohesion
or convergence, and to consider more deeply the function and the opportu-
nities of small countries and stateless populations within the EU.
Furthermore, the current crisis and its development have turned the issue
of democracy in the EU into an aspect of vital importance, its degradation
intervene in the economy using the traditional tools to fight the crisis has
been restricted, which automatically limits the exercise of sovereignty and is
leading to deterioration in the quality of democracy in many Member States.
The European Union has not sat on the side-lines during the financialisation
of the global economy, expressed in the increasing weight of the financial
sector which is becoming the centre of the economy as a whole, setting the
rules of the game for its own benefit, converting the financial markets into
the mechanism for allocating resources and investment and channelling
towards them a growing proportion of the profits generated by the whole
economy. These rules of the game and the distribution of the revenues thus
created crowds out productive capital and depresses wages.
1 The economic Economic growth in the EU has been modest in the last three decades.
dynamics and Growth in countries like Ireland, Spain, Greece and Portugal has chiefly
relied on the credit boom, due to low real interest rates and to the attraction
real convergence/ of high volumes of foreign capital, generating a growing level of mainly
divergence:
private indebtedness and feeding major speculative bubbles. In some of
these countries, the sum of public and private debt exceeded 400% of GDP
a heterogeneous in 2009, with the peculiarity that this was a mainly external debt1.
and neoliberal However, at the same time these countries neglected their industrial
policies and ignored the serious problem to their economies of an excessive
Europe openness to trade, exposing them to extreme international competition

(including competition from within the EU), which, combined with the
delocalization of manufacturing towards countries with much lower costs,
has damaged and removed much of their industrial capacity. As a result
of this expansion in demand fuelled by debt on the one hand and the
undermining of industry on the other, an enormous current account deficit
has been run up (in 2007-2008, this represented 10% of GDP in Spain, and
reached 12% in Portugal and 14% in Greece).
The construction of the European Union, particularly since the Maastricht
Treaty and the planning and introduction of the single currency, has been These are the countries which ran into serious trouble from 2009 onwards.
greatly influenced by the neoliberal doctrines imposed all over the world The collapse of the interbank markets, the public rescue ofthe financial
since the 1980s. The European Union has been moulded by radical economic system and the recession all provoked a rapid rise in the deficit and in
ideas, sometimes called the Brussels Consensus (by analogy with the
Washington Consensus), which have consolidated the imposition of the
interests of finance in political decision-making and which today translate
1
Lapavitsa, C. Kaltenbrunne, A. Lambrinidi, G. Lindo, D. MeadwaY, J. Michell, J. Painceira,
into the subordination of debtor countries to their creditors, creating a J.P. Pires, E. Powell, J. Stenfors, A. Teles, N. “The Eurozone between the austerity and default.”
two or even three-speed Europe. At the same time, the States’ capacity to Research on money and finance. September 2010. p. 8.
the public debt of these countries. Tensions in the debt market were and stagnation covering the years since 2007, with a particular downturn in
exacerbated as the result of the absence of a central bank to directly 2009 and 2011.
stand behind the debt of these countries because of the restrictions in
the EU Treaty and the statutes of the ECB which prevent it from directly Graph 1: Trends in capita GDP, EU-27, 1995-2009
buying government debt instruments. Because of speculation in the mar- (annual rate of change, constant euros, base year 2000)
kets in the light of these difficulties and inflexibilities, the conditions for
solvency in some peripheral countries became unsustainable.
The economic policy measures adopted, focusing on drastic adjustment and

austerity in public spending, dragged these countries down a recessionary
slope which worsened matters. These measures did not address the root
of the existing problem but only accentuated the economic imbalances,
caused demand to contract, and provoked the destruction of productive
capacity and employment which fed into a recessionary spiral that led
these countries into deep depression.
Source: Compiled by the authors on the basis of Eurostat data (REGIO data base)
The economic circumstances which the European Union is experiencing

demonstrate the serious problem of the existing economic configuration, The disparities between Member States are very great, and have widened
wherein the established rules of the game are far from having symmetrical in absolute terms over this period. In an initial analysis by country (Graph 1),
impacts in the different countries; instead, one group of countries obtains the simple comparison of the maximum and minimum values for per capita
net gains while others, over and above cyclical illusions, are losing ground gross domestic product (hereinafter ‘per capita GDP’) reveals a consid-
in their real competitiveness and productive capacity. The financialisation erable gap (a ratio of 1:6 in 2009) between the highest and lowest national
of the economy has been pushed to the limit through the massive indebt- levels of per capita GDP in terms of purchasing power parities (the ratio is
edness of all the economic players which enabled the liberalisation of trade much higher in euro). Although this gap is growing in absolute terms, in
and services to strip most of their competitive advantages and eliminate relative terms it has fallen from 1:7 (1995) to 1:6 (2009).
their most important industrial sectors.
Graph 2: Maximum and minimum values, pc GDP, states (Nuts 0)
1.1. Economic growth and the stagnation

of regional convergence
Before studying the disparities in economic growth in European regions, it is

appropriate to present a brief note on economic trends in general.
Graph 1 presents trends in economic growth for the European Union as a

whole (EU-27). The profile clearly reflects the essential facts: a modest rate
of growth in the EU throughout the period and the change in the cycle
experienced from 2007 onward due to the persisting global crisis. This
profile reveals two different phases: a first, moderately expansionary phase
which covers the period from 1995 to 2007, and a second period of recession Source: Compiled by the authors on the basis of Eurostat data (REGIO data base)
When studying spatial disparities, it is more appropriate to do so at the Graph 3: Maximum and minimum values, pc GDP, groups of regions (NUTS 1)
regional level. The European Union uses the NUTS (Nomenclature of Units
for Territorial Statistics) classification for statistical purposes; these range
from national-level aggregation, NUTS 0, to the lowest level of territorial
disaggregation, NUTS 3. However, this study focuses on NUTS 1 and NUTS 2
levels, which correspondent fairly well with the concept of a region. The
NUTS 2 classification largely coincides with existing political and adminis-
trative units2. The 27 countries which make up the European Union are thus
divided into a total of 97 NUTS 1 regions (74 regions for the EU-15 Member
States) and 271 NUTS 2 regions (EU-15: 215 regions).
In comparative terms, depending on the unit of comparison used, the

degree of disparity can vary significantly. For example, in 2009 there was a Graph 4: Maximum and minimum values, pc GDP, regions (NUTS 2)
ratio of 1:6 between the country with the highest per capita Gross Domestic
Product (Luxembourg) and the country with the lowest income level
(Bulgaria) if we use the purchasing power standard (PPS), and a gap nearly
three times as great (1:16) if we take the euro as the unit of comparison. It
should be noted that this ‘statistical’ gap falls to half if we only take account
of the fifteen countries which had joined the European Union before the
2004 enlargement. As may well be imagined, the fact that almost all the
countries in the most recent enlargements (2004 and 2007) are below the
EU-27 average has posed an enormous challenge to the maintenance of the
principle of cohesion. Source: Compiled by the authors on the basis of Eurostat data (REGIO data base)
These disparities, which may certainly already appear significant, rise in a

particularly intense manner when we reach the regional level. At the level Table 1: Regional disparities in per capita Gross Domestic Product by NUTS
classification Comparison of EU-27 and EU-15 (2009)
of regional groupings (NUTS 1), the gap widened to 1:8 in 2009 (1:22 using Data in purchasing power standard (PPS)
data in euro); and in the regions themselves (NUTS 2) it reached 1:12 in 2009
(1:26 using data in euro). EU-27 EU-15
maximum value (PPS) 62,500 62,500
Countries
As for the trends in this regional disparity, although the maximum/minimum minimum value (PPS) 10,300 18,800
(NUTS 0)
ratio tends to oscillate, the distance in absolute terms has increased contin- maximum/minimum ratio 6.1 3.3
uously over the past decade, as shown in Graphs 3 and 4. maximum value (PPS) 62,500 62,500
Regional
groupings minimum value (PPS) 7,600 15,500
(NUTS 1) maximum/minimum ratio 8.2 4.0
maximum value (PPS) 78,000 78,000
Regions
minimum value (PPS) 6,400 12,400
(NUTS 2)
maximum/minimum ratio 12.2 6.3
2
Roughly speaking, it refers to territories with a demographic size of between 800,000 and
3,000,000 inhabitants. Source: Compiled by the authors on the basis of Eurostat data (REGIO data base)
The band of disparities is more narrow in EU-15, where the ratio between largely revolved around the concept of convergence, giving rise to diverse
maximum and minimum values ranges from 3.3 (NUTS 0) to 6.3 (NUTS 2), types of convergence, among which there stand out beta convergence,
passing through 4 for regional groupings (NUTS 1). understood as that which occurs when economies which start from a
lower level of per capita GDP tend to grow more rapidly (the opposite case
But perhaps the most worrying aspect is the trend in these disparities over would be called divergence) and sigma convergence, which occurs if the
time. These differences have significantly increased during the period dispersion (standard deviation) of per capita GDP of the economies as a
1995-2009, most obviously in the case of the regions (NUTS 2), which seems whole tends to reduce over time (or divergence in the contrary case).
to call into question the objective of regional cohesion (Graph 5).
The results seem to be very sensitive to the measurement method and, of
Graph 5: Trends in the ratio between minimum and maximum values of pc GDP, course, to the frame of reference (EU-15 or EU-27). The sigma convergence
1995-2009 (data as equivalent purchasing) test (Graph 6), which reflects the trend in the dispersion of per capita GDP
(using logarithms) in EU-27, offers clear evidence of convergence from 2000
onwards, though with some nuances. Although it is certain that the degree
of dispersion is greater at the beginning than at the end of the whole period,
there are differing trends in its development. For example, between 1995 and
2000 dispersion of per capita GDP tends to increase. Similarly, in the more
recent crisis years, there is a slight change in the trend which suggests some
degree of slowdown in the convergence process which characterised the
period before the crisis (2000-2007).
Graph 6: Trends in the distribution of per capita GDP (sigma congervence),

EU-27 (data as equivalent purchasing power)
Although, as can be verified from the previous graph, the trend in the ratio
between the maximum and minimum values fluctuates over the period in
question, the data for EU-15 show the existence of significant difficulties in
remedying the marked imbalance between European regions.
The analysis has so far referred only to variations in the regional disparities
in per capita GDP, since it only considers the outlying values; hence no
conclusions can be drawn as to their distribution. For this it is necessary to
advance further in the analysis of overall performance. We are interested in
the performance (trend) in the regions as a whole, differentiating between
their different starting levels and trying to understand to what extent there
has been a reduction in disparities (convergence) or otherwise (divergence)
in terms of the process of economic growth. To do so we approach the global If rather than considering per capita GDP using logarithms (the standard
performance of disparities through the “convergence tests”. version of the sigma convergence test), we instead consider the absolute
values (Graph 7), the test results leave no room for doubt, producing a
It should be noted that the last two decades have witnessed a wide continuous increase in the dispersion of per capita GDP in EU-27 regions
theoretical and empirical debate on regional disparities. This debate has over the majority of the period. It is only during the crisis years that we
observe a change in this trend, boosted by the sharp economic slowdown capita GDP, making the previous result compatible with the existence of a
which has affected the less dynamic regions in a very particular way. degree of polarisation in the regional distribution of per capita GDP in EU-27.
Graph 7: Trends in the distribution of per capita GDP (absolute values), EU-27 Graph 9: Beta convergence test. Regions (NUTS 2), EU-27, euro at constant rates
(data as equivalent purchasing power) (base year: 2000) period 1995-2009
The previous analysis, focusing on EU-27, includes cases of regions and
In turn, the beta convergence test (Graphs 8 and 9), which relates the initial countries with very different experiences, as is the case of the regions of
level of per capita GDP in the regions analysed to its rate of variation over countries which were part of the European Union in 1995 (EU-15) compared
time, reveals an apparent convergence of the graph (regression line with with regions belonging to countries which acceded to the Union after 2004
negative slope), with significant quality of adjustment. However, a slower (the enlargement countries) and which start from positions lagging far
rate of convergence and a worse quality of adjustment are observed when behind and very different socio-economic contexts. All this means that it is
we turn from the NUTS 1 level (regional groupings, Graph 8) to the NUTS 2 appropriate to separate EU-15 for the purposes of analysis.
level (regions, Graph 9). There is also a significant gap between the leading
group and those bringing up the rear (mainly enlargement countries), which Focusing now solely on the EU-15 regions, the sigma convergence test
relates to the inclusion of regions which are very remote in terms of per (Graph 10) shows a significantly different picture to that obtained for EU-27.
Graph 8: Beta convergence test. Regional groupings (NUTS 1), EU-27, Graph 10: Trends in dispersion of per capita GDP (convergence and sigma),
euro at constant rates (base year: 2000) period 1995-2009 EU-15 (data in equal purchasing power and logarithmic)
Source: Compiled by the authors on the basis of Eurostat data (REGIO data base) Source: Compiled by the authors on the basis of Eurostat data (REGIO data base)
Although it is true that in the case of the regional groupings (NUTS 1) there Graph 12: Beta convergence test. Regional groupings (NUTS 1), EU-15,
is a certain trend towards convergence (reduction on the regional dispersion euro at constant rates (base year: 2000) period 1995-2009
of the per capita GDP), this is less clear in the case of the regions (NUTS 2),
which have even experienced a divergent trend in the period before the crisis
(2003-2007), demonstrating in general terms a degree of stagnation in the
convergence process. Curiously, the result is nevertheless more surprising in
the case of the fifteen countries (NUTS 0), which demonstrate a clear trend
toward divergence which only slackened with the arrival of the crisis.
If, as before, we consider the dispersion of absolute levels of per capita

GDP (Graph 11), the test results confirm the finding above, producing a
continuous increase in the dispersion of per capita GDP in EU-15 regions
over the majority of the period. Once again, the latter years of the crisis have
been marked by a degree of reversal of this process. Source: Compiled by the authors on the basis of Eurostat data (REGIO data base)
Graph 11: Trends in dispersion of per capita GDP (absolute values), EU-15 Graph 13: Beta convergence test. Regions (NUTS 2), EU-15, euro at constant rates
(data in equal purchasing power) (base year: 2000) period 1995-2009
In the case of the beta convergence test applied to the EU-15 countries
(Graphs 12 and 13), although there continues to be some convergence
(negative slope of the linear adjustment line), this is much weaker than that
obtained for EU-27. Both the slower rate of convergence (elasticity) and 1.2. The unsustainability of the model:
the lesser quality of the adjustment (R2), suggest that this is an apparent productive specialisation and trade balance
convergence rather than a real and generalised one.
Another approach to the trend of cohesion in the EU is to analyse the
On the other hand, just as happens in the twenty seven countries, the development of productive and trade specialisation, as well as changes
comparative results for NUTS 1 (Graph 12) and NUTS 2 (Graph 13) suggest in the current account balance, aspects which are much more revealing of
a greater questioning of convergence as we move down the hierarchy of the fundamental trends in the individual economies and which are closely
disaggregation. related to their long-term competitiveness.
The countries which drive their economic growth through the process of Graph 16: Productive specialisation for major sectors in Greece 1967-2009
financialisation have neglected their industrial policies and have undergone 120
deindustrialisation, driving their economies towards a model which has 100
turned out to be self-destructive. 80

Services
60
To understand the impact of this deindustrialisation, it is important to 40
observe the transformations which have taken place in the productive 20
systems of these countries. Graphs 14, 15 and 16 demonstrate the speciali- Agriculture
0
sation by economic sector in the countries which currently present the Energie
-20 Minerais
worst problems. Portugal, Spain and Greece all have economies specialising
-40
in the services sector, in particular low added-value areas such as tourism.
-60
Industrie
-80
Graph 14: Productive specialisation for major sectors in Portugal 1967-2009
-100
80 67 70 73 76 79 82 85 88 91 94 97 00 03 06 09
Source: Panorama of European Specialisation CEPII 2011

60 Services
40
However, it is important to highlight the fact that these countries have
lost some of their industrial capacity during the last two decades, as is the
20 case in Portugal, where the decline in sectors such as textiles or the timber
industry is particularly relevant.
0
Agriculture
Energie
-20
Minerais Since joining the European Union, these countries have not succeeded in
Industrie strengthening and expanding their industrial capacity; quite the contrary.
-40
67 70 73 76 79 82 85 88 91 94 97 00 03 06 09
They have seen productive capacity shrink, and their competitiveness has
Source: Panorama of European Specialisation CEPII 2011 declined at a global level. The contemporaneous integration and liberali-
sation process within the EU and the parallel trade liberalisation driven by
Graph 15: Productive specialisation for major sectors in Spain 1967-2009 the WTO weakened much of the industrial fabric in these countries. The rapid
50
and extreme opening of their markets exposed businesses to implacable
40 Services international competition, which led to a reduction in their already limited
30 industrial activities. In some sectors, the impact has been very drastic as
a consequence of the widespread and questionable “industrial restruc-
20
turing” processes, as has been the case in mining, the steel industry,
10
Agriculture
shipbuilding, etc.
0
-10 Industrie The problem is that these countries have refocused their economies
-20 towards models which involve major macroeconomic imbalances, internal
and external, which render the system unsustainable in the medium to
-30 Energie
Minerais long term. Initially, these imbalances are reflected in increases in disparities
-40
67 70 73 76 79 82 85 88 91 94 97 00 03 06 09 and greater problems of cohesion. But over time these imbalances lead
Source: Panorama of European Specialisation CEPII 2011 to serious conflicts, as in a monetary union like the eurozone, the macro-
economic instability of some countries eventually affects the macro- These contrasting patterns of productive specialisation in the countries of
economic stability of others, especially if there are no effective means for the EU have consequences on different macroeconomic factors, such as
alleviating the fundamental causes of the problem. growth, convergence or otherwise, employment, external imbalances, etc.
An essential aspect, closely linked to the current asymmetrical crisis, is the
The case of Germany contrasts with the pattern followed by the peripheral evolution of the current balance of trade deficit/surplus. The imbalances
countries. If the German economy was already characterised by the in the trade balances of the separate Member States reflect the type of
significant weight and strength of its industrial sector, which stands out for economic configuration which has developed over the last twenty years.
its advanced technological development and because it is one of the most
competitive in the world, this relative position has been strengthened since Over the last two decades, the European Union - despite the rhetoric of
the creation of the European Union, and especially so since the implemen- convergence and cohesion - has generated an economic map characterised
tation of the Maastricht Treaty, as Graph 17 clearly shows. Germany has been by the existence of blocs of profoundly divergent countries. One of these
able to take advantage of the Union to consolidate its industrial power. The blocs consists of the countries in the centre-north of Europe, characterised
question now is how far these gains to German industry have been at the by a strongly export-led and highly competitive productive fabric, enjoying
expense of other Member States. large trade surpluses (as can be seen in Graph 18). The States making up this
bloc have not cut social rights to any great extent and in addition, within
Graph 17: Productive specialisation for major sectors in Germany 1967-2009 their borders, they have succeeded in limiting the financialisation of their
economies, avoiding the appearance of dangerous speculative bubbles.
120
100
Graph 18: Trade balances: Austria, Belgium, Finland, France, Germany and the
80 Industrie Netherlands, 1990-2011 (In % of GDP)
60
40
20
0
Agriculture
-20
Services
-40
Energie
Minerais
-60
-80
67 70 73 76 79 82 85 88 91 94 97 00 03 06 09
Source: Panorama of European Specialisation CEPII 2011
Source: Compiled by the authors. IMF data
The experience of the last two decades and the very serious current
problems show that the sectoral and commercial policies of the internal Another bloc of countries consists of those in the south of Europe, which
market should change their direction radically, in particular as they affect face very different circumstances to those in the north. These are economies
the peripheral countries, with a view to strengthening and modernising with a lower average level of production, productive specialisation which is
their industries at the same time as the shift towards other economic less industrial and more based on low-technology services, modest interna-
sectors. The reluctance to reconsider the acquis communautaire in this area, tional competitiveness and which have based their growth over the last
and to adopt alternative measures, is part of the drastic problem currently 15 years in the expansion of large speculative bubbles, particularly property
afflicting the EU, especially the eurozone. bubbles in the cases of Ireland and Spain.
This virtually non-export pattern of growth has been financed by massive However, what has occurred in the EMU shows that this does not take
financial flows which were provided in the main by the banks of the most place as expected by the neoclassical theory. The experience of this period
powerful and thrifty Member States, such as Germany and France, such that shows that flows of savings mainly finance consumption in the periphery
the exposure of the Spanish banking system to private and public debt rose (including housing and infrastructure intended for consumption rather
to €366,000 million at the height of the crisis. than production). As summarised by Cesaratto (2012, p. 2):
It should be noted that much of the external imbalance of these countries “The typical pattern: financial liberalisation + fixed exchange rates -> capital
is within the EU, so that the success achieved by one group of countries is flows from the centre to the periphery -> housing bubble -> current account
mirrored in the failure of others. Thus the surplus maintained by countries deficit and indebtedness -> default, suggests two things. First, foreign financial
such as Germany, the Netherlands, Finland and Austria has its counterpart flows do not generally finance domestic investment but consumption, mainly
in the swollen current account deficits of Portugal, Ireland, Italy, Spain and household demand for new residential dwellings and speculative investment in
Greece (see Graph 19), and the majority of exports by Member States go to the construction sector. This empirically disproves the neoclassical theory that
other countries which belong to the European Union. capital flows from saving-rich/trade-surplus core-countries towards saving-
deprived/trade-deficit peripheral-countries to facilitate the industrial catching
Graph 19: Trade balances: Greece, Ireland, Italy, Portugal and Spain 1990-2011 up of these countries. Second, foreign saving/trade surplus in core countries is
(In % of GDP) the result of the trade-deficit in the periphery: the story of the financial crisis
validates the Keynesian tale that financial credit precedes investment and
autonomous consumption, and that saving is an ex-post result. In other words,
savings do not determine investment either in closed or in open economies (the
world is, after all, a closed economy). The results of the capital theory controversy
provide the rationale for the empirical rejection of the neoclassical claim.”
1.3. Recently integrated countries

and the overdose of neoliberalism
Although economic attention has focused on the depression in the “PIIGS”,

due to the hugely adverse impact that it could have on the economic stability
Source: Compiled by the authors from IMF data of the eurozone it is also necessary to pay attention to the current situation
of crisis in some countries in the most recent round of EU enlargement. We
How can we explain and what conclusions can we draw from the will pay particular attention to Latvia, Hungary and Romania, countries
experience of these years? In terms of economic theory, what has which have experienced a deep recession with severe public accounts
happened is very relevant and calls into question the neoclassical hypothesis imbalances, which were “rescued” by EU and IMF programmes and which
according to which flows of capital from wealthy countries with abundant were the first in Europe in which austerity policies were tested.
capital towards the peripheral countries constitute a balancing mechanism,
insofar as this capital flow and the current ac-count surplus would constitute Since the break-up of the USSR in 1991, Latvia’s economic planning has been
investment in the periphery, which would drive its industrial development, led by economic advisors who seek the complete dismantlement of the
initially causing the periphery to experience a current account deficit. public sector and who have great influence over policy decisions, and has
based its growth on a deep round of privatisations, drastic deregulation of
the banking system, and, consequently, on a disproportionate credit boom.
In return, it has paid the price for the most extreme neoliberal policies and 2010 and an unemployment rate which has reached almost 20% (Graph 20).
has experienced a severe economic downturn in the last three years. As Nonetheless, the fact that unemployment is finally beginning to fall and
Hudson and Sommers point out in an article published in 2010, describing that some imbalances, such as that in the trade balance, are beginning to be
the disaster caused in Latvia: “It was a plan that no democratic government controlled is leading the heads of the IMF and the EU to uphold the virtues
in the West could have passed. Public enterprises were doled out to individuals of the policy of severe adjustment and drastic internal deflation imposed
trusted to sell out quickly to Western investors and local oligarchs who would by the IMF. Obviously, this ignores the huge social cost and the steep rise
move their money safely offshore into Western havens. To cap matters, local in debt3.
tax systems were created that left the traditional two major Western bank
customers – real estate and natural infrastructure monopolies – nearly tax free. Graph 20: Macroeconomic data, Latvia (in % of GDP). 1993-2012
This left their rents and monopoly pricing “free” to be paid to Western banks 50
50
as interest rather than used as the domestic tax base to help reconstruct these 40
40 GDP
economies.” GDP
30
30
20
The country has been victim of an economic policy which has led to the 20
Unemployment
Unemployment
disappearance of the weak industrial base which it had, while its agricultural 10
10
production has also been severely damaged. In return, a financialised 0 Gross Debt
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0 Gross Debt
economy has developed which has overwhelmed the country with huge
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-10
debts and has reduced society to a state of servitude. -10
Current
-20 account
Current
-20 (balance of
account
The European Union has played a major role in this whole process, since -30 payments)
(balance of
-30 payments)
it has used the Baltic country as a financial and commercial colony. All
the tools of economic development which have been used by western
European countries in the post-war period: the promotion of industry and
employment, a progressive tax system, the existence of a public bank, were However, not only Latvia but also other eastern European countries have
entirely vetoed. Instead, they flooded Latvia with huge debts in strong suffered the consequences of a type of measures designed to mark a radical
currencies and changed it into one of the neoliberal financial countries. step towards a neoliberal socio-economic model, under conditions and at a
rate which do not correspond to the actual circumstances of each country,
As these authors indicate, the EU offered these countries the opportunity to destroying the productive capacity of these countries and based solely on
join the euro on condition that they undertake a series of extensive reforms accumulation by dispossession and debt servitude.
which in practice devastated their economies: “Europe promised to help
these countries join the Euro by suitably helpful policies. The ‘reforms’ consisted The macroeconomic data in Hungary reveal that the economic recession
in showing them how to shift taxes off business and real estate (the prime bank stood at 6.6% of GDP in 2009 and that the unemployment rate has risen
customers) onto labour, not only as a flat income tax but a flat ‘social service’
tax, so as to pay Social Security and health care as a user fee by labour rather
than funded out of the general budget largely by the higher tax brackets.”
3
This has led to a major debate between economists in an attempt to decide whether
adjustment measures and “internal deflation” provide an effective prescription or not.
All these measures have lead Latvia into an unprecedented crisis, which Participants in this debate include P. Krugman (Latvian competitiveness: http://krugman.
has caused a deep trade deficit, a decline in GDP of as much as 24% in two blogs.nytimes.com/2012/06/10/latvian-competitiveness/), O. Blanchard (Lessons from
Latvia: http://www.voxeu.org/index.php?q=node/8084) and M. Weisbrot (http://www.
years (2008-2009) and which has brought about a disproportionate rise in guardian.co.uk/commentisfree/2012/jun/07/christine-lagarde-perverse-praise-latvia-
public debt, rising from 7.9% of GDP in 2007, to exceed a level of 40% in economic-success).
continuously in the last decade and is forecast to reach 11.24% this year.
The trade deficit in Hungary has been practically negative for the last two
decades, and the debt has grown to 80%. Nor has Romania lagged behind.
The economic information we have obtained reveals a difficult situation: a
decline in GDP of 7%, a trade deficit which has persisted for the last 20 years
and a public debt which follows an ascending line.
These countries have had to be “rescued” after suffering a steep economic

decline, by packages amounting to some 20 billion euro. However, in
exchange they have had to impose rigid austerity programmes and various
structural reforms: the privatisation of public enterprises and services,
changes in the pension system and labour market reforms. All these
measures merely exacerbate a model which has led them into the current
economic situation which afflicts them, and have no relationship with the
economic needs of these countries.
Graph 21: Macroeconomic data, Hungary and Romania (in % of GDP) 1993-2012
100
Gross Debt
Hungary
80
Current
account
60 (balance of
payments)
Hungary
40
Gross Debt
20 Romania
Current
0 account
(balance of
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
payments)
-20 Romania
The financial crash at the heart of the system in Wall Street in 2007-2008
rapidly spread to the European Union due to the close banking relationships
which connect Wall Street with its satellite, the City of London, and this in
turn with the banking system in the remaining European countries. The
transformation of the crisis of private debt - of the financial system - into a
public debt crisis ended up profoundly affecting the eurozone, uncovering
the fragility of the euro and the states which had adopted it as a currency,
lacking the backing of a genuine central bank. The direct dependence
on financial markets to finance the issuance of government debt causes
great instability and very destructive speculative tensions, and afforded
banks and funds a great capacity to influence decision-making bodies and
governments.
2 The failure The roots of the crisis should be sought in the economic form established
of European in the 1970s and 1980s to overcome the severe crisis of over-accumulation
and stagnation in those years, as well as the breakdown in the Bretton
economic Woods system of international regulation. This was what would be
governance
known as the global neoliberal model. The package of solutions adopted
established a financialised economy, increasing deregulation and globali-
sation, leading to a growing and extortionate level of indebtedness on the
part of economic operators, the speculative growth in financial markets – at
times creating huge bubbles in housing or other types of assets – in the
United States and in many European countries. This resulted in spectacular
financial profits which deflected capital from the productive economy
towards the financial sector, weakening the productive fabric and the
ability to create employment and real wealth in many countries, including
those on the European periphery. The collapse of this financialised
economic model marked the start of a long period of dangerous economic
One of the main characteristics which stand out in the current economic and political instability.
crisis is its structural nature, impacting every aspect of the economic model
in a horizontal fashion, both internally and in how it affects the shape of In 2008 the banking system was suddenly “surprised” by levels of debt
the global system. A deep financial crisis – debt crisis and banking crisis which caused the fall of major investment banks such as Lehman Brothers
rolled into one – is plunging its roots into the key characteristics of the and which came very close to causing the collapse of the entire financial
productive economy, its systemic rules, governance and economic policies. system. Soon the crash crossed the ocean and spread throughout the
The depth and comprehensiveness of this crisis have taken the form of a European Union, generating huge chaos in the financial network and
developmental sequence of apparent transformations of the same since bringing major banks to the verge of bankruptcy. At the same time, there
its outbreak in 2007. If we examine the changes it has undergone since it was an immediate reduction in the supply of credit and, bearing in mind
began, we can see the constant opening of different fractures which have its role as the main engine of the economy, there followed a sharp decline
given rise to new stages in the crisis, demonstrating that we are facing the in economic activity, leading several countries into a deep recession which
breakdown of the existing model of accumulation. was especially severe in 2009.
States which in recent decades had been used by the financial lobby to the second is not a genuine central bank. The ECB, with its independent
impose its laissez faire policies where now called upon to rescue the financial status and taking price stability as its sole objective, focusing on providing
system, under pressure to prevent the failure of many institutions which liquidity to the banking system, is far from becoming a real central bank.
were “too big to fail.” But these measures in turn paved the way for a new Two key aspects in the regulation of an economy remain, in principle,
phase in the crisis. The debts of several EU Member States grew rapidly and outside the ECB’s sphere of responsibility: financial stability and the role of
budget deficits rocketed, also due to public expenditure policies intended the state as funder of last resort.
to relieve the most severe impacts of the crisis (employment subsidies) and
to stimulate the economy. Eventually, this fatally undermined the Stability The rational for this approach lies in the monetarist policy which argues that
and Growth Pact, previously considered as the essential framework for strong fiscal discipline creates a virtuous circle. That is to say, fiscal consoli-
governance for sustaining the single currency. The rapid loss of control of dation leads to greater confidence in the financial markets, in this way
government debt in some countries on the European periphery opened stimulating higher investment levels which generate economic growth and
a new phase in the crisis, characterised by speculative attacks against reduce unemployment, while states simultaneously increase their capacity
sovereign debt in the weakest countries and exposing the incongruities to raise revenue and reduce their levels of indebtedness. Underlying this
and weaknesses of the foundations of the European Union and Monetary doctrine is a blind faith in the efficiency of the market and its self-regulating
Union in particular. In this way, the crisis in the EU ultimately became a capacity, alongside a belief in minimal state intervention in economic
monetary crisis, a crisis of the euro and of the EU’s institutional architecture. matters and the need for a continuous reduction in the size of the state.
But it should also be noted that this new stage of upheaval succeeded in However, comparative experience suggests that we would do well to
shifting attention to the real financial/monetary core of the problem and approach these arguments with caution and in a critical spirit. In fact, the
opened a new front. In an attempt to socialise the losses of the financial weak economic growth of recent decades in the developed countries,
sector, a very radical programme of reductions in social public expenditure considerably lower than during the “thirty glorious” post-war years, and the
and wage deflation was launched. In this way the crisis has been exploited to current crisis itself, cast doubt on these axioms. As has been seen during
launch a powerful ideological attack in order to radicalise and push forward this crisis, the markets are incapable of self-regulation and require state
with the neoliberal process: shrinking and eroding the welfare state, more intervention to remain viable.
restrictions on the ability of the state to intervene in economic matters,
progress towards policies for liberalisation, an increase in the deregulation Indeed, the depth of the current crisis has had a drastic impact on
and flexibilisation of the labour market and a growth in privatisations. economic activity in European Union countries, and this led to an unusual
This is the heart of the conservative and neoliberal agenda in the EU, and even improvised interventionism by governments. Some states
entailing a radicalisation of the EU’s neoliberal profile, huge social damage initially implemented policies to stimulate the economy, focusing on
and an unprecedented crisis of Community architecture, threatening the given monopolistic sectors (automotive, large-scale construction, etc.) in
integration process itself. an attempt to cushion the fall in production which, in combination with
financial rescue measures and a steep decline in tax revenues, caused a
sharp rise in the government deficit and in some countries a substantial
2.1. The failure of the SGP and the new measures increase in public debt. We may highlight the cases of Ireland, Greece, the
to control stability United Kingdom, Spain and Portugal, whose public deficits in 2009 were
14.3%, 15.4%, 11.4%, 11.1% and 10.1% respectively. The level of government
As we have said, the SGP and the ECB, as the expression of a particular fiscal debt is growing at an increasing rate (see Graph 22).
policy and as instruments of monetary policy, are the two key elements
of governance in the eurozone. The central problem arises from the fact All this led to the sudden break with the Stability and Growth Pact by almost
that the first is not a real and effective pillar of common fiscal policy while all countries, in particular in relation to the deficit and public debt; worse
was to come when some countries began to experience problems in funding It should also be noted that according to the European Council, all the
the issuance of new debt, ultimately revealing the fragility of the economic agreements, including the reform of the Treaty, should have been drawn
governance of EMU and a real crisis for the euro. In reality, the Stability and up “in close cooperation with the social partners, respecting Member
Growth Pact had demonstrated its inconsistencies since the beginning, and States’ national systems”5. But the reality is that all these measures were
had been breached on several occasions, in particular by the states which adopted with little or no social consultation, and we have even witnessed
had promoted the agreement - such as Germany and France. After the the imposition of very severe adjustment policies on countries such as
dot-com crisis in Germany and France ceased using the automatic stabilising Greece, Spain, Italy, and Portugal with no balanced dialogue or democratic
mechanism, with the direct result that the public deficit increased, reaching legitimacy6.
3.8% in Germany and 4% in France in 2003. It was these two countries which
then complained that the pact caused excessive rigidity in their economies The central and guiding principle of all the pacts is austerity, understood as
and weakened economic dynamism, conducting a campaign to persuade the need for retrenchment and budget stability; Member States must reduce
the Commission to revise the pact. their levels of government deficit and debt. For this it will be necessary for
deficits to return to below 3%, which would entail an annual adjustment
“considerably above 0.5%.” The new Stability and Growth Pact agreed is more
Graph 22: Fiscal deficits (% of GDP) of countries on the European periphery
intransigent and demands greater discipline, simultaneously toughening
the enforcement measures. It also refers to the introduction of structural
reforms to increase the competitiveness of all the EU’s economies, and
thereby achieve sustainable medium to long-term growth.
The Euro Plus Pact7 contains a package of measures to strengthen the

neoliberal approach for the European Union. One of its main character-
istics is perhaps that although at first sight it could be described as a Treaty
with little content in terms of the measures to be taken, this scanty content
hides a powerful message, radicalising the model that has got us into this
situation.
This Pact claims to “further strengthen the economic pillar of EMU and achieve
Source: Eurostat
a new quality of economic policy coordination, with the objective of improving
competitiveness and thereby leading to a higher degree of convergence.”
The prolongation of the deep crisis which began in 2007 overwhelmed
the European institutions and they slowly began to launch a series of
reforms and legislative packages intended “to modernise our economies
5
See the Statement of the Members of the European Council, 30/01/2012. Towards growth-
and strengthen our competitiveness to secure a sustainable growth”4. This friendly consolidation and job-friendly growth p.2.
was the purpose of the Europe 2020 Strategy, the Euro Plus Pact and the 6
The absolute primacy of Germany in imposing these measures, exemplified in the many
strengthening of the Stability and Growth pact. bilateral meetings between Merkel and Sarkozy, demonstrated the weakness of the Com-
munity institutions, the secondary position into which the Council and the Parliament were
declining and, above all, the erosion of the meaning of sovereignty and the democratic
national institutions. An example is the incident in which Germany and France threatened
to block € 8,000 million in aid to Greece if Papandreou submitted the adjustment policies
to a referendum, which ultimately forced his resignation and the appointment of a “techni-
4
See the Statement of the Members of the European Council, 30/01/2012. Towards growth- cal” government.
friendly consolidation and job-friendly growth p.2. 7
European Council. Conclusions - 24 and 25 March 2011.
The Euro Plus Pact is defined by the pursuit of certain objectives: competi- competitive in Greece, Ireland, Spain and Portugal - the countries at risk of
tiveness, employment, sustainable public finances and boosting financial bankruptcy - and to generate a competitive downward dynamic in the EU as
stability. It is also necessary to demonstrate that the application of this a whole. Internal devaluation and austerity measures do not appear to be the
Pact should be compatible with the existing tools, including Europa 2020 solutions to the problem, because the truth is that they have caused growth
and the Stability and Growth Pact, extending and intensifying the absolute to stagnate in these countries. Accordingly, Randall Wray (2012) states that
commitment to the free market and the continued shrinking of mechanisms “if the blood-letting and crushing of wages in the periphery actually does work,
which help to counter its inefficiencies. the factories will be moved out of Germany seeking lower cost workers”. In other
words, success in the periphery would shift the burden back to Germany’s
workers, who would have to accept lower wages to compete. That will be
2.1.1. Austerity as a strategy for neoliberal radicalisation: fuelled by job losses if Germany cannot find sales outside the EU that will be
the public debt crisis as an argument for reducing lost as the periphery nations fall farther into depression. The result will be a
the welfare state nice little rush to the bottom, benefiting Europe’s elite.
Austerity has become the paradigmatic proposal for all the problems which The countries enjoying a better economic situation in the eurozone, like
an economy may present. In practice, the solution which the EU is seeking Germany, claim that countries in the South should learn to take responsi-
with the support of the IMF and the major European powers is via deflation bility for their public accounts and that their situation reflects the economic
and fiscal adjustment (Krugman, 2009). Countries such as Greece, Ireland, wastefulness of their governments. Although it is possible to be severely
Portugal, Spain, Italy and the United Kingdom (which have all been victims critical of the spending priorities of some of these countries, and even of
of the extreme financialisation of their economies) have, with the exception the efficiency of their management, it is nevertheless true that this is only a
of the United Kingdom, been forced to adopt very strict austerity plans very partial aspect of the problem, and certainly not the central cause of the
imposed by the Troika (the IMF, the ECB and the European Commission) current situation. A detailed analysis reveals a much more complex reality.
as the essential condition for being ‘rescued’ from the insolvency of their For a start, the growing public and private indebtedness of the countries on
economies. This policy of austerity and deep cuts is presented by the the periphery of the eurozone cannot be separated from the fact of their
leadership of the eurozone as the only existing alternative for the rapid membership of the euro under conditions in which the official interest rate
recovery of the economy, assuming that these measures bring about the set by the ECB stood for a good part of the period at levels close to or even
re-establishment of the confidence of investors, a rise in investments and, lower than inflation in these countries, meaning that real interest rates are
accordingly, the creation of jobs and economic growth. zero or negative, and becomes a powerful incentive to indebtedness for all
the economic players. This means, inter alia, that the ECB’s monetary policy
However, economists have been sharply critical of these policies. Historical was much closer to the needs of the German economy than those of the
experience does not exactly endorse these kinds of remedies as a response countries on the periphery of the eurozone.
to stagnation or depression. What is more, without going back to the years of
the Great Depression, recent history demonstrates the risk of these policies Furthermore, the success of exporting economies in Europe (Germany,
based on severe adjustments. One example might be the catastrophe Austria, the Netherlands and Finland) is due in large measure to the countries
caused by the IMF in many Latin American countries during the 1980s, in the South: Portugal, Spain, Greece and Italy. Over the last decade, these
when they were obliged to submit to strict adjustment programmes by this countries have seen their trade deficit with the first group rise year on
institution to resolve their debt repayment problems. This leads us to raise year, and the policy followed by the latter has been one of prolonging the
some questions that we believe are key to understanding what aus-terity party, since their banks have been the main lenders behind the external
really involves: what is its real objective? Why are we told that austerity is deficit. That is to say, the Union was reluctant to cooperate in trade policy
the only possible way out of the crisis? For the critical economists what is and encouraged a growing asymmetry between one group of countries
really at stake is how to increase workforce exploitation to make business and others. Instead of a strategy of cooperation aimed at ensuring that the
states in the South became more competitive and productive, the most However, the concern is that this debt is not due to the generous welfare
powerful states have taken it upon themselves to undermine the weakest state enjoyed by Greek citizens but to the sum of the heritage received from
states continually through an extremely neoliberal trade regulation which a dictatorship, ultra-liberal policies, characterised by a highly regressive
simply penalises the less advanced economies. tax system which has greatly weakened the state coffers, and significant
cases of corruption. The Greek case serves as an example of one of the main
But the role of the most developed states in the EU in the collapse of the characteristics of extreme capitalism: the absolute subordination of the
least developed goes much further. In the Greek case, Germany and France state to the interests of big business.
have a direct responsibility for the economic disaster of the country, in
addition, obviously, to the responsibility of the leaders of the country itself. Such is the wealth of spurious factor that lead not a few writers to call for a
In particular, because of the importance acquired throughout the process commission to declare the debt, or a large part of it, unlawful: “All this means
by defence spending and the Greek government’s huge programmes that we should rigorously examine the legitimacy and legality of these various
of military procurement from the French or German industrial military debts, using the method applied in Ecuador in 2007-2008, by the integral public
complex, in which intergovernmental relations played a central role. debt audit commission. Debts which are found to be illegitimate, abhorrent or
illegal should be declared null and void.” (Toussaint, 2011)
There are many examples in Greece (Toussaint, 2011) to demonstrate how
its government has acted as the main guarantor of the interests of large The price which many economies are paying for the adverse consequences
multinationals from these countries. Greece is one of the countries with of the euro and the ECB’s policy, or for its mismanagement, is excessively
the highest military expenditure, reaching 4% of its GDP and overtaking high and only deepens the economic depression into which they have
countries like France, Germany, the United Kingdom and Spain, with plunged. The countries which are subject to so-called rescue plans have
purchases in 2010 from France, Germany8 and the US, in the depths of its entered a depressive spiral. With the most recent Greek rescue plan,
debt crisis, which total some €10,000 million. Equally important are the €300,000 million are now destined to address the payment of the debt
events of the Athens Olympic Games, in which from an initial budget of in Ireland, Portugal and Greece, in return for extremely severe economic
€1,300 million authorised by the IOC (International Olympic Committee) cutbacks; a sharp reduction in investment in health and education, a cut
the final expenditure after the Games reached €20,000 million according in public sector pay accompanied by the dismissal of thousands of staff,
to various sources. But to complete the grotesque nature of the Greek pension cuts, reduced unemployment benefits, thorough-going labour
debt, we cannot forget the case of Siemens-Hellas, in which the head of market reforms, sharp tax rises and the financialisation of the privatisation
the company admitted funding major Greek political parties and bribing of public enterprises and public services: a whole series of measures which
politicians and the military to secure juicy contracts. amount to a direct attack on the welfare state.
In any case, the issue of Greek public debt has many other angles which One of the arguments used to legitimise these measures is that they
we cannot overlook. While the private debt accumulated in countries such represent the only way to restore competitiveness to these economies.
as Spain and Ireland poses the main problem, in Greece the public debt is Given that countries in the eurozone cannot resort to the devaluation
without question of great importance and serves as a mirror of the true reality of a currency they no longer possess to be more competitive, these
of the EU and the neoliberal disaster. Since the introduction of the euro, measures would instead enable them to carry out internal devaluation.
Greek public debt has only been below 100% in two years. In 2011 it stood at Thus, this would be the only option possible within the principles currently
165.5% and is expected to reach 189.14% in 2012, according to IMF figures. dominating the EU, a policy of deep public spending cuts with the main aim
of rendering these countries more competitive by rolling back their level
of development several years in time. The problem is that this policy has
significant limitations. Firstly, because it is rather unlikely that countries like
8
The purchase of German submarines is currently under judicial investigation. Portugal, Greece, Spain and Italy could really become more competitive by
making themselves poorer and reducing investment in such key areas as stances. Another reason is the immense power of financial capital in the
education, research and other public goods. These countries run a serious heart of decision-making bodies, and the subordination of all the measures
risk of establishing an economic and social structure resembling that of taken to financial interests.
developing countries such as those in Latin America. But also, secondly,
because there are social and economic factors that mean that austerity has As Hudson argues: “This is the treadmill on which Eurozone social democracies
important limits as the main measure applied. are now being placed. Under the political umbrella of financial emergency,
wages and living standards are to be scaled back and political power shifted
Following Alonso (2011) we can emphasise two main orders of factors which from elected government to technocrats governing on behalf of large banks
could make this strategy of austerity and internal deflation unworkable: and financial institutions.” The force of these arguments resides principally
“The first is of a political and social nature. The severity of the adjustments will in the strength of the most powerful interests which stand behind them,
necessarily exacerbate social tensions, which could ultimately undermine the whatever the consequences. The severity of these consequences demands
legitimacy of the institutions and the governance of the adjustment process. redoubled efforts to legitimise the measures in question, as Hudson points
Over a short time, there has been growing social unrest in Greece, Spain, out: “This appropriation of the economic surplus to pay bankers is turning the
Portugal and France. Apart from this unrest, the adjustments confirm the traditional values of most Europeans upside down. Imposition of economic
impression - mentioned earlier - that the perpetrators of the crisis have been austerity, dismantling social spending, sell-offs of public assets, de-unionization
the main beneficiaries of the policies introduced, while the heaviest price falls of labour, falling wage levels, scaled-back pension plans and health care in
upon the innocent victims. The absence of balance in the distribution of costs countries subject to democratic rules requires convincing voters that there is
and benefits associated with the response to the crisis is among the criticisms no alternative. It is claimed that without a profitable banking sector (no matter
aimed at governments, including those of the left as in the Spanish case. The how predatory) the economy will break down as bank losses on bad loans and
second problem has to do with the very effectiveness of austerity as a means gambles pull down the payments system. No regulatory agencies can help, no
of emerging from the crisis. In an environment of highly integrated economies better tax policy, nothing except to turn over control to lobbyists to save banks
like those which make up the EU, the simultaneous contraction of public from losing the financial claims they have built up” (Hudson, 2011).
expenditure will have an amplifying effect on economic dynamism, through
the reduction of reciprocal demand. Therefore, many believe that the measures One of the best examples of the ultra-orthodox policies imposed has been
now being taken will only prolong the depression and prevent economic the constitutionalisation of a ceiling on public expenditure, which in coun-
recovery” (Alonso, 2011). tries like Spain has been imposed in a barely democratic fashion, entirely
subordinating the interests of society to those of business and placing
Despite the grim results over the three years of application, the radical significant limits on the development of the welfare state.
neoliberal programme goes on and tries to justify itself, as usual, with the
argument that there is no option. The claim that there is no alternative to Thus, a calm and judicious analysis of the austerity policies, and, in
the policy of extreme austerity exposes the orthodox fanaticism in the particular, of the rescue plans, leads to the conclusion that the objective is
decision-making bodies of the European Union. The existing governance not simply a rapid cyclical adjustment of the public accounts as a way out
operates within a narrow margin and does not allow any measures to be of the crisis, but a radical rethinking of the welfare state itself. From behind
developed or applied which might entail the questioning or reformu- these adjustment policies there seems to emerge a highly neoliberal and
lating of the various agreements and institutions which govern economic conservative project, the goal of which is to shrink the size of the state and
activity. This is one of the main reasons why it is claimed that deep cutbacks to reduce the welfare state to the minimum possible, with all that this entails
represent the only option possible, since many of the possible alternatives for the European social model, as in fact embodied by the Euro Plus Pact.
would entail changes in the behaviour of bodies such as the European “The measures adopted appear to transcend the occasional containment
Central Bank, which would be a taboo subject as well as a direct attack on of expenditure, becoming an operation designed to affect the scale of the
neoliberal beliefs, which is impossible in the current economic circum- respective welfare states and the scope of social rights with which we entered
the crisis. Within this framework, not only are policies for social integration in the last decade (Portugal, Greece, Spain and Italy), exhaustive monitor-
(which inter alia affect migrants) called into question, but even the extent of ing of wage movements is proposed, the criterion being that wages
public funding of previously guaranteed services (such as health); from the should evolve in line with productivity. The pact also urges a “review of
conditions of unemployment insurance to pensions and the retirement age. It the wage setting arrangements, and, where necessary, the degree of
seems that advantage is being taken of the urgency of the crisis and its relentless centralisation in the bargaining process, and the indexation mechanisms
pressure on budgetary balance to undertake reforms in the social model which and that states should “ensure that wages settlements in the public sec-
formerly characterised Europe with less resistance” (Alonso, 2011). tor support the competitiveness efforts in the private sector.” These meas-
ures are accompanied by others aimed at the liberalisation of sectors, the
This view is repeatedly shared by the majority of authors, and it has recently opening of sheltered sectors to foster competition, which is expected to
been emphasised, for example by P. Krugman, that “the big question here is improve efficiency. Curiously, when discussing productivity and competi-
whether the evident failure of austerity to produce an economic recovery will tiveness there is just a brief mention of the “need to promote” investment
lead to ‘a Plan B’. Maybe. But my guess is that even if such a plan is announced, in R&D, but without establishing objectives or criteria, which enables us to
it won’t amount to much. For economic recovery was never the point; the drive recognise the profound neoliberal bias permeating the Euro Plus Pact.
for austerity was about using the crisis, not solving it. And it still is” (El Pais,
3/6/2012). 2. The reform of the labour market9 and its flexibilisation is proposed as the
best solution to the decline in employment levels. The Pact propounds
Ultimately, fiscal austerity measures are part of a plan to continue the rescue the need for greater “flexicurity”, a significant increase in apprenticeships
of the banks. In reality, Greece, Ireland, and Portugal were rescued to save and training contracts, the need for more mobility of human capital
the banks in the core countries of the eurozone. However, it is very unlikely within the European Union and the need for tax reforms which will
that IMF-type measures will work since even private investment continues lower taxes on labour while preserving overall tax revenues. This last is
to be depressed and consumption remains weakened; credit is expensive an important indication, although many countries will not comply10, of
and in short supply; and an increase in exports is not the solution, since a rise in indirect taxation, which will very pro ably reduce the revenue-
the global growth rate has declined and these countries lack the level of collecting powers of the state, since economic activity in the coming
competitiveness that would allow them to develop markets in the midst of years will be fairly weak. It is important to note that there is not the least
the current global upheaval. reference to the state’s capacity as an employer, yet again clearly demo
strating a bias towards neoliberal policies.
2.1.2. The Euro Plus Pact and the dismantling of the In relation to these two aspects of the Euro Plus Pact, it is worth considering
European social and employment model the problem of unit labour costs in the different European Union Member
States, which, according to the orthodox theory, are a key factor in
The Euro Plus Pact accompanies the austerity measures with another series explaining the loss of competitiveness. According to this theory, the
of far-reaching measures which have an impact on fundamental aspects of governments finding themselves in the most severe economic circum-
the European social and employment model and which have euphemis- stances should conduct drastic labour market reforms, also required by the
tically been described as a “programme of reforms”. EU through the Treaties. The excuse for this is that the weakest states need
The new pact has four fundamental pillars:
1. Salary deflation through far-reaching deregulation of collective bargain-

9
See the Statement of the Members of the European Council, 30/01/2012. Towards growth-
friendly consolidation and job-friendly growth.
ing. To foster competitiveness in the different countries, in particular 10
See the decision by the government of Mariano Rajoy in Spain to increase taxes on earned
in those which have demonstrated the greatest loss in competitiveness income.
more flexible labour market legislation which reduces labour costs, so that recovery in profits and interest which would help resolve the problems of
businesses become more competitive and can then take on more staff. But the financial sector and major corporations, raising the level of dividends
the neoliberal theory is lacking in rigour and is excessively simplistic, since distributed which would go to the banks and funds operating in the
to understand competitiveness other elements need to be included in our markets. For this reason it is easy to understand the short-term strategy of
analysis. these major corporations, focused on paying out ever-increasing dividends
even at a time of crisis and having to resort to staff cuts or asset disposals,
Since the 1980s, real wage increases for workers in the EU-15 countries have strategies which only increase pressure towards a continuing reduction in
been in continuous decline. While the 1950s and 1960s were characterised labour costs.
by rises in workers’ pay of around 5% on average11, and even during the
crisis of the 1970s wage increases stood at around 3%, these increases This strategy, which causes the increasing contraction of demand from
have barely exceeded 1% since the 1980s. In EU-27 changes in wage rates families and prolongs recessionary tensions, is accompanied and boosted
are practically zero, which, taking into account the considerable increases by the strategy of austerity and public spending cuts.
experienced in the new Member States, demonstrates the strict wage
restraint policies applied in many EU countries. However, in addition the Significantly, and importantly, this strategy does not seem to correspond
rate of growth of productivity in the last 30 years has been lower than it to the vision which enterprises in the productive economy have of the
was between 1950 and 1975, and, given that the divergence between problems which they face in the current crisis and which hamper and
productivity and wages has increased, except during the 1990s, this only threaten their growth. According to the survey conducted on behalf
demonstrates that unit labour costs have fallen. However, although this of Eurostat in 2011, the great majority of SMEs are aware that demand is
may be the case generally in the majority of EU countries, it is also clear shrinking, which represents their main difficulty. The graph below shows
that there are exceptions in some countries which indicate a rise in unit that, in the case of Spain, labour costs are not the main problem for
labour costs. employers, and also reveals that the neoliberal policies implemented to
tackle the crisis have led to very pessimistic economic prospects which are
In recent work by Patrick Artus (2012) published by the investment bank becoming the main factor to be taken into account.
NATIXIS and studying various factors, including hourly industrial labour
costs corrected for productivity, export income elasticity and evolutions in
Graph 23: Main limits on business growth between 2011 and 2013 (%)
the exports or each country and the percentage of these in the global total,
the author shows that it is not clear that very high labour costs prevent
General economic outlook 87,2
countries such as Spain, Portugal or Ireland from being competitive. The
only countries which appear to have demonstrated a costs problem are
Falling demand in local and national markets 70,1
France, Italy and Greece.
Price competition and reduced margins 59,4
Thus, what is hiding behind all the new labour legislation initiated in all the
states which are in a grave situation is not just a belief in some neoliberal Other labour costs 40,1
axioms but, to a greater extent, a deliberate strategy to bring about severe

wage deflation. This wage deflation, in turn, is intended to facilitate a Lack of tax incentives 33,1
Inadequate finance 24,1
New competitors in the market 21,1

Note that these average figures do not take account of movements in workers’ wages by
11
qualification, enterprise size, sector or trade union membership. Source: INE
3. The third pillar of the Euro Plus Pact is based on restructuring and cutting with a high technological level and with the state playing a role which
the package of services which go to make up the welfare state: reforms significantly helps them to achieve these targets through high spending
of pension schemes, health care and social benefits. These are all set on R&D and the education system and the development of the welfare
as conditions for compliance with the new Stability and Growth Pact state. Conversely, in the economies of the South the reverse happens: with
through the reduction of public expenditure. less state influence, less cohesion, less investment in R&D and innovation,
The reforms should include: etc. they are losing a significant proportion of the primary and industrial
- aligning the pension system to the national demographic situation, productive fabric and are less able to maintain the current account
- an increase in the retirement age, balance and, ultimately, the balance of their public accounts. In order for
- limiting early retirement schemes. a monitoring and control process to exist in reality, work is required in the
first instance to mitigate the deficiencies in the economic structure of each
4. With respect to financial stability, the treaty goes no further than the country which cause these imbalances. It is, therefore, absurd to impose
need for monitoring through bank stress testing, coordinated at EU level limits and sanctions as the ‘best solution to the problem’.
by the European Banking Authority. There is also monitoring of the debt
levels of banks, families and nonfinancial businesses. However, oddly Ultimately, all these measures are guilty of an excess of ultra-orthodox
for a pact ‘for the euro’, there is no mention of the need to establish ideology. The neoliberal philosophy affords uniform treatment to all
far-reaching regulation of the financial system at any point in the Pact; countries without recognising the particularities of each state. The belief
nor is there reference to the need for the ECB to add financial stability to that the same economic strategy will have the same results in every country
its objectives at the same level as price stability. is totally wrong and leads to instability and crisis. If we simply allow the
It should be noted that a crisis which was born within the financial system, market to act, which is in fact the essence of all the Treaties, the weakest
which is now the spinal column which structures all economic activity, countries will be increasingly affected and weakened. Their productive
that is to say, which determines the ‘rules of the game’, has not included structures will be unable to compete and in the medium to long term
in the main package of measures a full reform of the regulation of the significant macro-economic imbalances will follow.
European financial system which might address the serious problems of
deregulation, control and supervision. On the contrary, packages like the
Euro Plus Pact have side-lined the urgent need for far-reaching reform
Excessive
in the financial sector from the debate and, to complete this failure, fiscal
the main economic measures introduced so far have been designed to discipline
protect the interests of the sector, especially large banks and investment
funds.
Medium-long Reduced
term capacity
The decisions taken in the European Union also assert the importance macroeconomic for state
imbalances intervention
of monitoring and control in order to improve the progress of economic
activity. The problem lies in the fact that no such monitoring process exists,
since by serious error the consequences have been mistaken for the causes.
Thus the existence of a budgetary, trade and debt level balance, which is
perfectly achievable by each country, is the direct consequence and not the
cause of a given economic structure existing in each Member State of the Loss of
Maximum
competitiveness
Union. The countries in the North of Europe possess an economic model freedom for
by the
markets
which improves their capacity to achieve a degree of macro-economic weakest
balance in the medium to long term; competitive and innovative sectors
The truth is that the agreements reached in these years of deep crisis are the eurozone. Certainly, subsequent events revealed its inconsistency much
fundamentally aimed at perpetuating the model of accumulation which more clearly. The prolonged and explosive public debt crisis in countries on
has existed in recent decades. What is more, in practice they entail a radical- the periphery of the eurozone shows that the ECB lacks the organisation, the
isation of this model, and all the agreements and measures aim to give functions and the flexibility to tackle the problem. However, retrospectively
substance to this radicalisation, giving each Member State the basis for a contemplating the development of the European economy, the financial
new regulatory framework which is coherent with the general approach. flows between eurozone countries and the debt bubbles which were
accumulating, we cannot but recognise that the euro itself, the organisation
of the ECB, and the monetary policy it had followed right from the start also
2.2. The ECB: the monetary corset lie at the heart of the crisis which began in 2007-2008.
and financial deregulation
In effect, and this is very important, a diagnosis of how the financial and
From the creation of the single currency to the start of the current crisis in property bubbles which are at the root of the crisis developed demonstrates
the eurozone and its core, the dominant opinion had grown that the euro that these were to a great extent encouraged by the introduction of the
had been a great success. The apologistic discourse even claimed that the euro and by the difficulty of adapting a single monetary policy to such
objectives, for which it has been designed, had not only been achieved but heterogeneous circumstances, with such diverse inflation rates and without
had also been surpassed, situating it as a serious competitor to the dollar as common financial regulation or a joint fiscal policy. The neoliberal positions
an international and reserve currency. Among its merits, it was credited with on which the euro was constructed have shown that in the long term they
achieving significant price stability throughout the eurozone, so that the represent a severe risk for many countries, and that they also not only freeze
countries which traditionally tended towards inflation had finally managed but actually worsen existing conflicts.
to bring it under control with adoption of the single currency. At the same
time, the eurozone overall had become much more competitive with signif- Although the ECB achieved price stability overall (inflation was constantly
icantly improved productivity, obviously with differences between the core below 2% in Germany and around 1.5% in the eurozone as a whole), in
and peripheral eurozone countries. countries such as Spain, Ireland and Greece the average annual rate of
inflation remained relatively high, even above interest rates (see Graph 24),
For some countries, such as Germany, the consolidation of the euro so that for many years before the crisis real interest rates in these countries
represented a primary factor for successfully operating in a large internal were negative. This is very clearly reflected in the calculation of the Taylor rule
market; in particular, the fact that less competitive countries could no longer (generally used to adjust central bank interest rates) for core and peripheral
resort to currency devaluation to offset their reduced competitive capacity eurozone countries in the period 2001-2011. Graph 25 shows the contrast
brought significant benefits to the German export industry. All this served between the interest rate which would be appropriate to the economic
to reinforce the idea that the fundamental principles, for example the circumstances of the periphery of the eurozone and the rate advisable for
independence of the European Central Bank, had been sound; the target the core, which is much closer to the overall rate and that actually followed
of keeping inflation at below 2%, the ECB’s main task, was to a large extent by the ECB.
successful, and this was associated with the fact that the institution was
shielded from the turmoil which would have resulted had it been at the This decoupling of monetary policy from the unequal circumstances of the
service of the needs of one state. different eurozone economies acted as a powerful incentive to indebtedness
for all the players in the peripheral countries, encouraging the appearance
But events from 2008 onwards showed that this success was rather fragile, of property and other asset bubbles in various countries. These are the main
incapable of coping with a crisis which began at the heart of the US financial cause of the present financial and debt crisis. In this way, savings in northern
system but which spread rapidly to the European financial system and which states such as Germany are channelled through the financial system to fund
the architecture of the euro transformed into a crisis of the euro itself and of banking and certain other sectors in the countries of the South, contributing
decisively to the appearance of the property bubbles which developed in And all this has played out while the ECB, from the start, has failed to play
Spain and Ireland or to the disproportionate level of public debt in Greece. a supervisory or monitoring role in massive operations which could have
destabilising consequences for the European financial system and for the
But this bank sector behaviour in the core countries is not purely economies of these countries.
independent, since the ECB played a significant part in the process. As
Graph 26 shows, in the early years the ECB lent the majority of its resources This forces us to think about why these high levels of debt were not directed
to the banking sector in the core eurozone countries, some of which were towards more investment in productive capital, more spending on R&D, or
earmarked as lending to the banks in peripheral countries through the on the development of human capital; and about what degree of respon-
interbank market and the TARGET market. Since mid-2009, the proportions sibility for allowing all this to happen rests with the different European
have been reversed; now the banks on the periphery have to resort to institutions.
funding themselves directly from the ECB, while banks in the core countries
are unwinding their position in the periphery. Graph 26: Financial disintegration and the mediating role of the ECB
90
Graph 24: Inflation and interest rates
80
70
60
50
South
40
Nord
30
20
10
31.01.07
31.03.07
31.05.07
31.07.07
31.09.07
31.11.07
31.01.08
31.03.08
31.05.08
31.07.07
31.09.08
31.11.08
31.01.09
31.03.09
31.05.09
31.07.07
31.09.09
31.11.09
31.01.10
31.03.10
31.05.10
31.07.10
31.09.10
31.11.10
31.01.11
31.03.11
31.05.11
31.07.11
31.09.11
31.11.11
31.01.12
31.03.12
Source: Compiled by the authors. World Bank and ECB data Source:http://www.bruegel.org/nc/blog/detail/article/761-chart-of-the-week-the-consequences-
offinancial-disintegration/
Graph 25: The Taylor rule and ‘advisable’ interest rates in the European core and
periphery
Note: peripheral countries: Greece, Ireland, Portugal, and Spain; These complex and changing relationships between the banking sector in
core countries: Austria, Belgium, France, Finland, Germany, and the Netherlands the central European core and the banking system on the periphery have
%
developed in a context of little or very poor regulation and without any
10
Taylor rule
banking or monetary authority to exercise prudential supervision. And, at
8
periphery the end of the day, it is the emerging conflicts of interest that explain the
6
4
Taylor rule behaviour of the banking sector and governments in the core European
core
2 countries throughout the crisis. Due in part to the significant exposure of
Target rate
0 German, French, Dutch banks etc. to all these debts, this is why the largest
-2
economies in the eurozone are currently treating Greek, Irish, Portuguese
-4 Target rule:
Target = 1 + 1.5 x Inflation - 1 x Unemployment gap and Spanish debt with intransigence. They were the main funders, and
-6
2001 2003 2005 2007 2009 2011 failure to pay these debts could lead the financial system in these countries
Source: http://www.frbsf.org/publications/economics/letter/2011/el2011-18.html?utm_source=home into a further major crisis.
Particularly if they have been preceded by significant speculative bubbles, governments would struggle to repay their debts. Thus investors’ euros began
major financial crises can turn into a crisis of sovereign debt, which can to abandon the countries in the worst situations - Ireland, Greece, Portugal,
threaten a state with bankruptcy. When investors fear that governments Italy and Spain. The risk premium for these countries began to soar and the
cannot cope with the payment of their debt, capital markets are closed interest rates which they paid on their debts rose very significantly (see Graph
and states can no longer refinance their debt, leading to the suspension 27), and German bonds simultaneously became the premier refuge, interest
of payments. Although this type of crisis has so far only been seen in rates on its debts falling to historical lows. Then came the time when some
developing countries, which issue their debt in a non-sovereign currency, of these states (Ireland, Greece and Portugal) could not meet their debts on
reality has taught us that this outcome of the crisis is also possible in maturity, and thus had to be rescued from immediate bankruptcy.
countries of the eurozone, since the architecture of the single currency
forces these Member States to issue debt in a currency which is not really Graph 27: Interest rates - yields on 10-year government bonds
theirs, as if it were a foreign currency, the issue of which it does not control
and without a central bank to support it.
When a country requests a loan in a currency over which it has no control,

the case for members of EMU, these countries expose themselves to the
excessive pressure of the financial markets, whereas this does not happen
to those states which issue debt in their own currency (De Grauwe, 2011).
Let us take the example of a financial crisis in a developing country which
has issued debt in a non-sovereign currency - in dollars, for instance. Fears
that the government cannot cope with its debt, perhaps because the deficit
has soared to absorb bank losses and deal with the economic situation,
lead to an exodus of foreign capital, causing interest rates on the debt to
Source: Compiled by the authors. ECB data
rise. As such governments are now unable to refinance the debt and only
hold limited reserves to meet debt maturities, because their central bank is
Graph 28: Interest rates on 10-year government bonds
unable to print dollars, the country will plunge into a solvency crisis and, as
interest rates continuously rise because of fears of default, a spiral develops
18
which ultimately leads to the suspension of payment.
16 Greece
Introduction
of the Euro
This is very similar to what has been happening in Spain, Portugal, Greece 14
Lehman
and Ireland. When the European banks were hit by the financial crash on Wall Bankruptey Ireland
12
Street and by the collapse of the property bubble in countries such as Spain
Portugal
and Ireland, governments in the most affected countries resorted to rescuing 10
their financial institutions. In this way, the deficits12 in these states soared,
8
and, as the economic forecasts continued to worsen, with a deep economic
recession and a sharp rise in unemployment, investors began to fear that 6 Spain
Italy
4
12
In orthodox theory, a condition of solvency is that the budget surplus must be at least France
as high as the difference between the interest rate on the debt and the nominal growth in 2 Germany
GDP. Thus countries with high and persistent deficits, such as Spain, Greece, Ireland, Italy
1
9
1
and Portugal, are required to make deep spending cuts, that is to say, a policy of extreme
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
fiscal soundness. Source: http://www.economonitor.com/blog/2011/12/which-graph-best-summarizes-theeurozone-crisis
Graph 29: Accounting for Spanish Target2 changes – domestic vs. foreign investors which it does not actually control). In this case, the chance of default is
Note: TARGET 2 data available to March 2012; balance of payments data higher. That is why countries like the US, Japan and the United Kingdom,
available to January 2012
whose debts as a percentage of GDP are higher than those of states such
€bn, 3mma as Germany, France, Spain and Italy, pay much lower interest rates on the
100 Remainder Capital outflows debts than do Member States of the eurozone. If, hypothetically, such
Foreign Investment
80 Financial Account fears developed in the United Kingdom and investors abandoned the
Spanish Investment Abroad
60
TARGET 2
pound, “the price of the pound would drop until somebody else would be
40 willing to buy these pounds. The effect of this mechanism is that the pounds
20
would remain bottled up in the UK money market to be invested in UK assets.
0
Put differently, the amount of money in the UK would remain unchanged.” (De
-20
Grauwe, 2011). Crucially, however, if the crisis were to worsen, the Bank of
-40
-60 England would act as lender of last resort, printing the pounds which were
Capital inflows
-80 necessary, nipping any liquidity crisis in the bud. Additionally, this process
-100 also leads to a significant difference as regards the remaining members of
08 09 10 11 12 the monetary union, which is that with the fall in the value of the pound the
Source: Credit Suisse, National Central Banks British economy would receive a boost to competitiveness, and, therefore, a
considerable cushioning against the crisis, whereas such an effect does not
apply to eurozone countries since euros move from one country to another,
Graph 30: Accounting for Italian Target2 changes – domestic vs. foreign investors
preserving their value practically unchanged.
Note: TARGET 2 data available to March 2012; balance of payments data
available to January 2012
Capital outflows It should be stressed, therefore, that the role of the central bank represents
Remainder
100 Foreign Investment the principal difference between countries with a sovereign currency and
Italian Investment Abroad
Financial Account countries without. The first group possess a central bank which performs
TARGET 2
50 vital tasks for the macro-economic stability of a country, such as maintaining
price stability, achieving the lowest possible unemployment rate, and
0
maintaining low long-term interest rates. Above all, it has an indispensable
role as the lender of last resort. Countries in the eurozone do not have central
-50
banks to perform these roles, and the sole ‘obsession’ of the European Central
Capital inflows Bank is price stability, a policy which has been hugely influenced since its
inception by the fanatical orthodoxy of Germany.
-100
08 09 10 11 12
From all this we can conclude that the role which the ECB has played and
Source: Credit Suisse, National Central Banks
continues to play during the current crisis exposes the consequences of its
fundamental bias as an entity at the service of the private banking sector
This could practically never happen in countries issuing debt in a currency focusing purely on price stability, relegating to second place any concern
which they control. According to G. De la Dehesa (Dehesa, 2011), there are for growth, employment and the welfare of the population. Indeed, the ECB
two types of sovereign debt, the traditional type (issued by an independent was acting as a tool of the banking sector when the policy of austerity was
state with very low probability of defaulting on its debt, especially if it is a imposed. With the extraordinary measures for injecting liquidity which it
developed state) and the ‘subsidiary’ type (issued by a eurozone Member has taken in recent months, like the two operations carried out in December
State which issues debt in the international markets in a currency, the euro, 2011 and February 2012 for a total of more than €1 billion, it demonstrates
its absolute commitment to the interests of the financial sector, while the start of the crisis this separation has been impossible, firstly because the
countries on the European periphery continue to suffer severe stress, with states cannot maintain their public finances without the ECB intervention,
disproportionate interest rates on their debt. Although this operation could and secondly because the ECB is unable to stimulate the economy in the
provide some relief and ease the pressure on the bonds of countries in absence of government policies for growth.
the worst conditions, it is no more than a dangerous temporary cosmetic
exercise which will lead to high future costs for the countries concerned, Although the second point has been acknowledged, there is still resistance
with long-term (10-year) debt at high rates of interest13. to the first. Perhaps it would have been necessary to differentiate monetary
policy to reflect the budget adjustment restrictions of these countries,
In recent times, we have entered an increasingly unstable and explosive which might consist in sovereign debt purchasing programmes varying
scenario, as described by Aglietta et al. (2012). The financial and monetary from one country to another, maintaining mandatory rates below the
disparities between eurozone countries are increasing. The portfolio of levels compatible with the budget adjustment undertakings made by
government bonds held by the banks is being renationalised, preventing governments. At the same time, it would be necessary to establish a
risks from being shared between different banking sectors; while on the European prudential authority and formalised budget cooperation to
other hand there is a national diversification of the collateral required, re-establish the unity of the markets (Aglietta et al. 2012).
leading to a fragmentation of the money market.
Ultimately, recent events have revealed the total ineffectiveness of the
Under these circumstances, if government interest rates rise, as happened ECB’s decisions and demonstrate the absurdity of certain neoliberal
in May and June 2012 in countries such as Spain and Italy, or if the recession axioms, such as the need for the ECB to be independent in order not
ultimately leads to defaults on loans, the financial situation could become to be contaminated by political decisions. Due to the immense debt
catastrophic. If there is no mutualised recapitalisation at a European level, accumulating in the financial system and the existing lack of trust, some
the coupling of the eurozone banking system to the ECB could open up a governments, including the Spanish government, are selling sureties to
stage in which credit risks constantly build up on the ECB’s balance sheet, the banks so that they can obtain money from the European Central Bank
which could lead to an equally catastrophic episode if there was a rise in and thus make the banks buy government debt. This means that if there
inflation. is a further financial crash, the government will find itself in an extreme
situation, leading to another large-scale crisis. Everything that is happening
The problem is that these dysfunctionalities are not the result of incidental clearly exposes the fallacy of independence. We may wonder about the
shortcomings or errors, but, as Aglietta et al. emphasise (2012), they are purpose of “independence” when the financial sector itself needs state
the reflection of an inherently flawed design: “to understand the difficulty intervention to conduct operations with the ECB, and also given that what
of the situation, it is necessary to understand the fundamental contradiction is happening is creating an increasing consensus that it would be more
in the paradigm on which the ECB’s policy is based: the dual principle of the beneficial to the economy as a whole if the ECB were to act as lender of last
separation of monetary and fiscal policy, and the uniformity of the transmission resort and not exclusively as the servant of a financial oligarchy.
of monetary policy (the same for all the countries)” (Aglietta, 2012, 4). Since the
2.3. Contrast between the ECB and the US

13
All this without considering here the consequences which this policy - like that of the Fed - Federal Reserve: learning from experience
could present for the economic stability of emerging countries. This is the case of Brazil, for
example, which was forced to take strong measures, such as increasing the tax on finan-
cial operations to 2% for those below five years, to avoid a catastrophic revaluation of the It is worth conducting a brief comparison of the ECB and the US Federal
Brazilian real due to the avalanche of foreign capital entering the country. However, these Reserve to prove that we are dealing with a banking institution which is far
measures do not appear to have been well-received in the United States and Europe, and
the US government responded rapidly, suspending a $355 million contract previously won
from typical in contemporary economic history. The eurozone institution
by the Brazilian company Embraer for the construction of military aircraft. does not really operate as a real central bank like the Fed or the Bank of
England, since its role does not include acting as lender of last resort to the currency is a serious moral issue (Tognato, 2001). Conversely, the Federal
governments, nor do its objectives include contributing to economic Reserve always considers whether economic growth or inflation poses the
development, economic growth or the well-being of the public. Its remit greatest risk and takes its decisions in this light.
does not even extent to financial stability - ensuring price stability is its one
and only task. The structures of the Federal Reserve and the ECB clearly The world, and the eurozone in particular, is in the presence of an unparal-
explain why they act in such contrasting ways (see table 2). leled model of banking independence - with the sole exception of the
Bundesbank. The currently dominant monetarist school of thought served
Table 2: Features of the Federal Reserve and European Central Bank as the basis for the creation of the main financial institution of the eurozone.
US Federal Reserve European Central Bank Since the 1990s there has been widespread academic discussion of the ECB’s
democratic deficit. In particular, Verdun focuses his analysis on whether the
Monetary policy Maximum job creation, Inflation control real problem of the eurozone’s main financial institution is the democratic
objective stable prices and
moderate long-term deficit rather than independence. He also suggests that monetary union
interest rates. was essentially asymmetric because of “the absence of a parallel between
Government Maintains the treasury Does not grant loans to EU economic and monetary integration. These asymmetries, combined with the
banker reserves bodies or to any national absence of macro-economic and political integration, amplify the problems of
Manages loans to the administration.
the democratic deficit”. (Verdun, 1999)
public sector and
controls the issue
of government debt. The lack of accountability before the Parliament and of transparency in the
Lender of last Rapidly assumed this Assumed this role in decision-making process, and the asymmetric development of monetary
resort role in response to the response to the crisis in a integration compared with political and fiscal integration, are essential
current crisis. belated and incomplete
fashion, not considered aspects of the democratic deficit of European monetary union (Verdun, 1999).
in its remit.
Independence An official body Totally independent of In institutional terms, national central banks in the eurozone have lost
independent of the governments and EU control of the creation of money. Consequently, their participation in the
administration but institutions.
answerable to supervision of private institutions has been ineffective.
Congress.
What is more, central banks should now base their legitimacy solely
on respect for the insuperable objective of controlling inflation. This is
Furthermore, the ECB has never been able to rely on a deposit insurance not a purely technical problem, but limits the margin of manoeuvre for
body established by the states, an aspect for which it stands out when we governments, preventing them from implementing economic policies for
consider that, after the Great Depression of the 1920s, the US government electoral purposes. Accordingly, the independence of political power in
created the FDIC to guarantee the safety of consumer deposits in the event the eurozone is questionable since monetary policy decisions influence
that commercial banks go bankrupt or run into difficulties. That is to say, the the economic situation in the eurozone and determine the remaining
State would be responsible for banks which assume and then succumb to instruments of macro-economic policy (Rodríguez, 2008).
a risk (Stiglitz, 2010).
The Federal Reserve manages loans to the public sector and administers
The ECB’s excessive preoccupation with controlling inflation – to the brink the issue of government debt, a role which the ECB does not play. In effect,
of causing a recession when prices rise beyond a certain level – is actually the ECB does not act as lender of last resort. This responsibility entrusted
motivated by the decisions of Germany, for whom any loss in the value of to a bank needs strong support from fiscal policy. Some economists have
demonstrated that behind a bank with this kind of role there must stand The euro crisis has demonstrated that countries become weaker within a
a state with an energetic tax policy, and not the capital of the bank monetary union due to the distrust of the financial markets because they
(Goodhart, 1999). have no control of the currency in which they issue their debt. As a result,
they end up in a situation comparable to that of emerging countries which
Others, including Verdun, warned that there could be no vigorous monetary issue their debt in foreign currency because of the weak development of
policy without efficient economic and fiscal coordination, that is to say they their financial markets (De Grauwe, 2011).
foresaw at the time that without supranational fiscal control the ECB would
be obliged to purchase government bonds and this independence would
automatically be called into question (Verdun, 1999), something which has
happened in practice, though not without resistance from the eurozone’s
main financial institution.
Further, and against a background of financial globalisation, speculators

in the international markets can attack any currency to the point of
disappearance if it cannot rely on a central bank that can act as lender of
last resort, in other words a bank which is able to guarantee the state the
necessary resources to stabilise its banking system. In the words of De
Grauwe (2011), the markets can bring any currency or state to its knees in
the absence of a lender of last resort.
In practice, the independence and private nature of the ECB have meant
a monetary policy which promotes the interests of the private financial
sector of the economy. The ECB does not lend to states, but to the banks
of the euro-system14.
But the independence of the bank cannot be authoritarian but should be

democratic. “In a democratic state the independence of the leading financial
authority should be accountable” (Sánchez, 1998). The ECB should have a
commitment to the control of parliament and the courts, and cooperate
with the executive organ. Accordingly, the founding treaty establishes no
mechanisms for the control of the ECB’s activities, simply stating that the
institution should account for its activities once a year before the European
Parliament.
14
Since the 1990s there has been widespread academic discussion of the ECB’s democratic
deficit. In particular, Verdun focuses his analysis on whether the real problem of the euro-
zone’s main financial institution is the democratic deficit rather than independence. He
also suggests that monetary union was essentially asymmetrical because of “the absence
of a parallel between economic and monetary integration. These asymmetries, combined
with the absence of macro-economic and political integration, amplify the problems of the
democratic deficit” (Verdun, 1999).
tation contrasts with the expansion of community financial markets and the
proliferation of major banks with a presence in multiple European countries
which conduct complex transnational operations. Strikingly, the European
Central Bank had no responsibility for the supervision of the activities of
financial institutions, this responsibility remaining in the hands of national
authorities and central banks of countries in the euro-system.
Furthermore, the EU, bolstered by the Nice Treaty and the Lisbon Strategy,
supported the liberalisation of the European financial system with a view
to increasing its ability to compete with the United States. It was said that
liberalisation would lead to greater competition, which would encourage
financial entities to reduce costs through improved efficiency, as well as
3 The financial bringing about a better placement of financial assets.
sector: The Treaty of Maastricht and Nice set out in different paragraphs an obligation
for the EU to create common markets (with the free movement of goods,
deregulation persons, services and capital) and to seek economic and monetary union as
and
well as the economic convergence of its Member States. The fundamental
objective of creating a ‘free-competition market economy’ is also reflected in
fragmentation the liberalisation of the financial markets. In fact, Article 51 of the EU Treaty
establishes the need to liberalise financial and insurance services as a means of
encouraging the movement of capital. Article 56, in turn, prohibits restrictions
on payments between Member States and between Member States and third
countries except under exceptional circumstance (Articles 59-60).
The European Commission has powers to initiate financial regulation in

several areas. Within the Commission, DG MARKT (the Internal Market and
Service Directorate General) is the organisation charged with transforming
3.1. Pre-crisis financial legislation in the EU the guidelines of the Treaty into laws and regulations (proposals for
directives). DG Markt’s scope extends into various areas and sub-areas of
Given the prominence of the financial sector in the current European and the financial sector, including financial services, banking, insurance, retain
global economic crisis, special attention is due to its governance. As we banking, etc.
shall see, the weak development of European regulation of the banking
and financial sector is one of the key factors in understanding the striking During the 1990s, efforts in financial policy were focused on the introduction
inability of the EU to deal with this crisis. of the euro. Once this phase was completed, attention shifted to reforms
promoting better integration of the community financial markets through the
Until 2008, banking supervision and regulation in the EU was fragmented ‘Financial Services Action Plan’ (FSAP) between 1999 and 2005, at the request
because of the cultural differences between Member States. In general, of the Vienna European Council of 1998. The FSAP contains 42 measures, half
regulatory and supervisory powers were the responsibility of the individual of which were legislative in nature. The remainder were mostly Commission
parliaments, central banks and national regulatory authorities. This fragmen- Communications or Recommendations and without binding force.
The FSAP set out the need to achieve three strategic objectives: • Harmonisation of consumer protection rules. The Commission drafted an
interpretative communication on the concept of the general good in the
a) Establishing a single market in wholesale financial services, entailing the insurance sector (Official Journal C 43 of 16.02.2000).
following six measures: • Strengthening electronic commerce. In the expectation of problems
previously encountered in the cross-border sale of financial services,
• Establishing a common legal framework for integrated securities an directives were approved on distance selling of consumer financial
derivatives markets. It was necessary to create the conditions for the services (2002/65/EC) and e-commerce (2000/31/EC).
effective cross-border provision of investment services. Therefore, directive • Insurance intermediaries: Member States’ national rules contained
93/22/EEC on investment services in the securities field was updated provisions that protect consumers in their relations with insurance
(extending the rules on the exchange of confidential information), and intermediaries. The problem is that these rules varied from one Member
directive 2003/6/EC was adopted to address insider dealing and market State to another, which can hamper the freedom to provide services. To
manipulation. A communication was drafted determining the protection resolve this issue, directive 2002/92/EC on insurance intermediaries was
rules applicable to sophisticated investors and household investors. adopted in 2002.
• Removing the outstanding barriers to raising capital on an EU-wide basis. • To make the advantages of the single currency perceptible to consumers,
This re-quired the introduction of changes to promote more harmoni- measures were adopted in complement to 97/5/EC on cross-border
sation/standardisation of public-offer operations at EU level. In order to payments.
facilitate access to funding by EU entities, the FSAP also stipulated the
need to define a single set of financial reporting requirements. c) Strengthening prudential structures to contain systemic or institutional
• Creating a coherent legal framework for supplementary pension funds. risk and keep pace with developments in the market, the following
To regulate and supervise pension fund activities, the Commission issued measures were proposed:
directive 2003/41/EC.
• Providing the necessary legal certainty to underpin cross-border securities • Moves to bring banking, insurance and securities prudential legislation
trading, for which it was considered necessary to issue a directive on the up to the highest standards, taking account of the work of the Basel
cross-border use of collateral. Committee and FESCO.
• Creating a secure and transparent environment for cross-border restruc- • Introduction of changes in the supervision of financial conglomerates
turing. This led to the adoption of the directive on takeover bids (2004/25/ appropriate to the new circumstances in which a single financial entity
EC) and the European Company Statute (2001/86/EC). is able to offer banking, insurance and investment services (directive
2002/87/EC, focusing on the risk of double counting).
b) Making retail markets open and secure: • Initiatives to improve cross-sectoral cooperation between authorities.
• The need to provide clear and transparent information to the consumer Subsequently, the FASP15 was replaced by the White Paper on Financial
in cross-border retail services. This required a directive on distance selling Services Policy, which established objectives for the period between 2005 -
of financial services (2002/65/EC), a recommendation on mortgage credit 2010 in order to construct ‘the best financial market in the world’, reduce
information, a directive on insurance intermediaries (2002/92/EC), and an capital costs, make retail financial products cheaper and improve pensions.
action plan to prevent counterfeiting and fraud in payment systems. Between 2005 and the start of the crisis alone, four directives were adopted16.
• Creating an appropriate legal (judicial and amicable) framework for
dispute resolution to provide the necessary confidence to encourage
cross-border activity. Launch in 2002 of the FIN-NET network to facilitate
15
A complete list of the FASP directives can be found at: http://ec.europa.eu/internal_
market/finances/docs/actionplan/index/100825-transposition_en.pdf
out-of-court settlements of disputes in the financial field. 16
http://ec.europa.eu/internal_market/finances/docs/actionplan/index/120117_postfsa_
transposition_en.pdf
3.2. Post-crisis legislation in the EU In the period since the crisis began, the EU has also drawn up new directives
(Directive 2009/14/EC19) to improve the confidence of the banking system
The response to the EU after the start of the crisis focused on increasing with an increase in deposit-guarantee schemes. States had until 31
control and supervision of financial activities, management behaviour and December 2010 to guarantee coverage for the aggregate deposits of each
the coordination of policies to be implemented in all European states. depositor up to €100,000 in the event that the deposits were unavailable.
The increase in supervision led to Regulation (EU) No 1092/201017 Another batch of laws created by the EU was intended to improve control
establishing the European Systemic Risk Board, supplemented by the of the activities and guarantees of financial and financial service entities - in
adoption of Directive 2010/78/EU18 setting up three new bodies, the particular credit ratings agencies. The Directives 2011/89/EU20 and 2010/76/
European Banking Authority, the European Insurance and Occupational EU21 focus respectively on the supervision of financial conglomerates as a
Pensions Authority and the European Securities and Markets Authority. whole and on remuneration policy, while Regulation (EC) No 1060/200922
establishes regulations for credit ratings agencies.
With the creation of the European Systemic Risk Board, the EU acquired a
body responsible for supervising risks throughout the financial system Financial conglomerates are exposed to risks of contagion whereby risks
which is authorised to issue opinions, recommendations and legislative spread from one extreme of the group to the other, so the EU was obliged
proposals. Its role is to act as a consultative body which has the support of to establish consolidated supervision in addition to individual supervision.
the European Central Bank in conducting its investigations.
The new directive states that remuneration policy should aim at aligning
The three new authorities owe their existence to the fact that national the personal interests of staff members with the long-term results of the
supervisory models are inadequate to the challenges of financial globali- credit institution or investment firm concerned, and take into account the
sation and the level of integration and interconnection of the distinct risks associated with that performance.
European financial markets. The crisis exposed the lack of cooperation,
coordination and consistency in the application of EU law, and of confidence The regulation on credit ratings agencies aims to improve the transparency,
between the competent national authorities. responsibility, good governance and reliability of their rating activities. To
do so it sets out a series of organisational and operating requirements.
The intention is to make progress towards more integrated European super-
vision, to ensure genuinely equal conditions for all the players throughout In July 2011 the Commission adopted the legislative package CRD IV (Capital
the EU, and to reflect the growing integration of EU financial markets. Requirements Directive) in implementation of Basel III, replacing Directives
2006/48/EC and 2006/49/EC but also which will also include certain reforms
which are unconnected with Basel III:
17
Regulation (EU) n° 1092/2010 of the European Parliament and of the Council of 24
November 2010 on European Union macro-prudential oversight of the financial system
and establishing a European Systemic Risk Board.
18
Directive 2010/78/EU of the European Parliament abd of the Council of 24 November 20
Directive 2011/89/EU of the European Parliament and of the Council of 16 November
2010 amending Directives 98/26/EC, 2002/87/EC, 2003/6/EC, 2003/41/EC, 2003/71/EC, 2011 amending Directives 98/78/EC, 2002/87/EC, 2006/48/EC and 2009/138/EC as regards
2004/39/EC, 2004/109/EC, 2005/60/EC, 2006/48/EC, 2006/49/EC and 2009/65/EC in respect the supplementary supervision of financial entities in a financial conglomerate.
of the powers of the European Supervisory Authority (European Banking Authority), the 21
Directive 2010/76/EU of the European Parliament and of the Council of 24 November
European Supervisory Authority (European Insurance and Occupational Pensions Author- 2010 amending Directives 2006/48/EC and 2006/49/EC as regards capital requirements
ity) and the European Supervisory Authority (European Securities and Markets Authority). for the trading book and for re-securitisations, and the supervisory review of remuneration
19
Directive 2009/14/EC of the European Parliament and of the Council of 11 March 2009 policies.
amending Directive 94/19/EC on deposit-guarantee schemes as regards the coverage level 22
Regulation (EC) NO 1060/2009 of the European Parliament and of the Council of 16 Sep-
and the payout delay. tember 2009 on credit rating agencies.
• The establishment of a single rule book aimed at introducing a single monopoly which exists in these two sectors. The proposal for the venture
set of harmonised prudential rules for banks and investment firms. This capital sector also represents an advance since, in any event, it will facilitate
would drastically curtail the regulation options of Member States except access to finance for a greater number of small and medium companies,
in exceptional cases. in addition to stimulating an increase in the size of the funds and their
• Corporate governance for the control of the composition of management consequent capacity to fund projects. Similarly, the proposal for the
bodies, function and role in the supervision and management of risk. settlement of securities will reduce the delays in this type of operation,
• Sanctions Proposals for administrative sanctions for infringements of increasing legal protection at EU level and reducing the number of incidents.
European banking legislation.
• Supervision Requirement to prepare an annual supervisory programme The negative reading relates to the scant ambition (or vision) displayed by
for each major entity, and an increase in more intrusive supervisory the EU, which appears to condone the existing form of the financial sector,
assessments. and merely giving it a facelift. No profound changes were proposed, over
• Reliance on external ratings. Credit entities should: and above the reforms to promote greater openness (with the aim of
- base their investment decisions on their own internal credit opinion; achieving total convergence), transparency and the regulation of certain
- develop internal ratings for portfolios in which they hold significant operations. The highest European authority thus followed the guidelines
exposures. set by liberal economic rationale, according to which the problems of the
European economy are the fault of regulation and not errors in the system
and its architecture. It is obvious that most of these directives go some way
3.3. Assessment of the EU’s reforms to correcting problems which deserve attention, but do they strike at the
root of the problem? We believe not, and below we explain why.
With the seven measures presented above, currently under discussion in
the Parliament, the EU is trying to increase financial control and super- • Clear inability to attract credit to finance productive activities,
vision in Europe. Analysis of these seven measures reveals some positive particularly for SMEs. We believe that the EU’s proposals are totally
conclusions, but with some criticisms, which we will discuss. inadequate to address the question of credit rationing. It does not seem
realistic to think that this problem could be resolved by using risk capital
A partially favourable reading of almost all these directives and regulations funding or through alternative securities markets. It may certainly be the
is possible. The new MiFID directive and the regulation on measures to solution for some particular sectors (IT, biotechnology, etc.) but most
prevent market abuse represent an attempt to update the regulation of SMEs, especially those which operate in more traditional sectors, will be
financial markets. Accordingly, they require more information, resulting completely unable to access these sources of finance and will continue
in the possibility of more control and supervision of highly volatile to rely on dwindling bank loans. We therefore think that measures aimed
markets such as the derivatives market. The accounting directive seeks at increasing this volume of bank lending will fail, and that the proposals
a reduction in accounting requirements for SMEs, given that these set out above will, in the majority of cases, constitute a mere add-on
entail a major economic effort, and also require extractive companies to to what is required, which might range from establishing mandatory
disclose payments to governments on a country by country basis. The investment coefficients to the separation of financial entities according
Transparency Directive is a very interesting proposal, chiefly because it to the business they conduct (specialisation vs. universal banking).
creates financial instruments for entities in the social economy, within
which concept savings banks, social economy entities par excellence, • Among the failings we identify is the absence of control of complex
fit perfectly. The proposed reforms for auditing and ratings agencies financial products such as some types of futures and derivatives:
are positive, creating the basis for greater control and reliability in The directives give no indication whatsoever that financial markets are
the accounting of financial entities, forcing them to a more objective oversized, diverting money from the productive economy. They do not
valuation of market financial assets and, above all, aim to eliminate the tackle the problem of financial innovation or regulate products and prac-
tices with the potential to distort the market or create bubbles which
disrupt the economy. A good example is high-frequency operations and
the new operating systems created for investment banks. The regulator
only contemplates the possibility of suspending some financial products
and services temporarily when they threaten financial stability, which is a
contradiction in terms.
• Problems associated with asset valuation. Hitherto, asset valuation

has been delegated to ratings agencies, in accordance with the Basel I
and II Accords. The crisis caused by the very poor job done by the ratings
agencies in valuing the sovereign debt of a number of countries has
persuaded the EU to take measures, including the obligation for every
financial entity to conduct an independent valuation of the products
which form part of its asset portfolio. The problem we foresee is that
financial entities could be tempted to conduct biased valuations
reflecting their own interests. Perhaps the only solution to ensure that
these ratings were as objective as possible would be an independent
public body.
Finally, it should be noted that in view of the way directives like the MiFID
try to control financial markets as volatile as the derivatives markets, and
operations as speculative as high-frequency trading, what is lacking is that
the European Commission makes no attempt to separate simple financial
brokerage activities from those which create more complex and risky
financial markets, like derivatives. We do not believe that it is reasonable
to equate the activity of transferring financial surpluses from savers to
enterprises or consumers with high-risk activities which are often highly
leveraged.
Although the services liberalisation process had begun with the GATT
agreements at the Uruguay Round in 1994, in Europe the momentum
towards the freedoms of establishment and the provision of service had
lagged behind compared to the free movement of goods. Directive
2006/123/EC on services in the internal market acted as a catalyst in this
process, and was born, not without controversy, amid lively dispute. The
truth is that this directive, conceived during an economic boom, has
been transposed at the height of an economic crisis and has been used
to champion the promotion of an extensive package of structural reforms
which are presented in international economic forums as a batch of
measures to reduce the impact of that crisis.
4 Competition - Although when the crisis first began thoughts appeared to turn towards the
need for more regulation - for more control of the economy and economic
the Services sectors, particularly the financial sectors - public discourse seems to have
led to different solutions in the financial and services sectors, and in a wide
Directive range of economic activities. The broad programme of measures for the
reform and simplification of administrative procedures in economic activity
have recently moved in a direction in apparent contradiction with what was
initially thought to be necessary for the financial sector.
The option to dilute initial control of activities, simplifying and reducing

administrative procedures, is one of the main anti-crisis demands of the
legislation approved during this period. The existence of two levels, with
an unresolved conflict between them: economic liberalism, represented at
the Community level, and social rights and interests, substantially the
4.1. Liberalisation as guiding principle province of Member States, has been exposed once more by the Bolkestein
Directive.
The need for structural reforms has been the constant refrain since the
beginning of the crisis. Although when structural reforms are discussed This is not just a debate about whether a greater or lesser degree of
these refer to the principal markets (capital markets, labour markets) which intervention by the administration in the economy is a good thing; rather it is
are generally a part of the public debate, the truth is that improving the a matter of examining how far the changes brought about by the Bolkestein
business environment, understood as removing administrative burdens Directive, and which are accompanied by other legislation under discussion
and liberalisation, frequently figures among these structural reforms. or by the jurisprudence of the ECJ, directly impede this debate from
The Washington Consensus which sets out the structural adjustment taking place to the exclusion of some legislative options which would be
programmes implemented by institutions such as the World Bank covers possible both under the European Treaties and in the constitutions of some
fiscal discipline; redirection of public spending priorities; tax reform; Member States. The expansive force apparently acquired by the freedom of
liberalisation of interest rates; competitive exchange rates; international establishment and provision of services, calling social rights into question,
trade liberalisation; liberalisation of inward foreign direct investment; restricting the regulatory independence of Member States and forcing
privatisation; deregulation; and property rights. through an unprecedented harmonisation of administrative procedures,
is taking place with little basis in the Treaty, leading to a reduction in the it is said that “discussions with Member States and stakeholders’ contri-
constitutionally valid options for interpretation of free enterprise to outlaw butions have shown that the Single Market remains a work in progress in
measures which have no discriminatory effect on non-nationals. certain service sectors, in particular as far as the cross-border provision of
services is concerned”24. However, the absence of a genuine single market
The Services Directive 123/2006/CE (DIRSE) appears to involve a decisive in services may have other causes, as well as administrative obstacles.
bid to overcome the desire for a balance between the construction of a Economics literature suggests that, even in the absence of significant
single market and respect for the social model which characterises many obstacles, markets continue to be essentially national25. This warning is
European states. The existence of two levels, with an unresolved conflict important when weighing up between the distinct conflicting interests
between them: economic liberalism23, represented at the Community level, represented by economic freedoms and the protection of the general
and social rights and interests, substantially the province of Member States, social or environmental interests, or the interests of social cohesion. It
has become clear with the Services Directive. seems that the objective of promoting the internal market will in any case
have a limited impact, in that its impacts will be experienced mainly at the
This struggle continues at the Community level. Examples include the ECJ’s national level (e.g. national validity of the system of access to activities).
Viking, Laval, and Rüffert decisions, with a reductionist interpretation of There is no hesitation in accusing the Community authorities of suffering
social rights as compared to the freedom of establishment; doubts about from an ‘obsessive competitiveness disorder’, arguing that, far from the
the proposed directive on consumer rights in terms of guaranteeing claimed benefits of the liberalisation of services in terms of the increased
higher levels of protection; or the analysis of the three Community supplied and reduced consumer prices, it seems more likely that there will
directives currently under discussions regarding the single permit, seasonal be other kinds of results. Given that this is a labour-intensive market with
employment and entry and residence conditions in the framework of a little price elasticity, competition will lead to a reduction in wages and,
transfer within a single enterprise - the first of these significantly known subsequently, in employment because of a surplus of supply, since it is
as ‘the bride of Bolkestein’ - which are based on the principle of country difficult to achieve an increase in demand. The Services Directive will have
of origin and contain extensive exceptions to the social rights granted to precisely the opposite effect to that intended, since it will lead to falling
workers posted to provide services in a Community country. wages and potential tax revenues.
A programme of reforms such as that undertaken with the Services

4.2. Bolkestein and its Community aftermath Directive, aiming to achieve in a short space of time results similar to
those which required decades in the case of the free movement of goods,
The deep-seated reforms stimulated by the Services Directive do not call accompanied by innovative ‘peer evaluation’ mechanisms by forcing the
for new initiatives, in the judgment of the Community authorities. Thus, total review of administrative procedures and legislative requirements
which might impede the freedom of establishment or to provide services,
must not be underestimated.
23
Pisarello, G., ¿Constitucionalismo sin Constitución o Constitucionalismo?. Elementos
para una lectura de la construcción europea en clave post-estatal”, ReDCE, 5/2006, spoke
during the process of approval of the European Constitution of a “ruling economic constitu- 24
COM(2011) 20 final: Communication from the Commission to the European Parliament,
tion without social constitutionalism” and “an inoffensive charter of Rights subordinated to the Council, the European Economic and Social Committee and the Committee of the
the political and economic constitution of the Union” Salvador Armendariz, M.A., “La Direc- Regions, Towards a better functioning Single Market for services – building on the results of
tiva de Servicios y su transposición. ¿Una ocasión para repensar el derecho a la libertad de the mutual evaluation process of the Services Directive, Brussels 27.1.2011.
empresa?” in Rivero Ortega, R. (ed.), Mercado Europeo y reformas administrativas, Civitas, 25
Roca Zamora, A., “El estado del mercado único: un relanzamiento necesario. Balance
Madrid, 2009, p.144., suggests, for example, that “following the transposition of Commu- y desafíos pendientes”, Investigaciones regionales, 18/2010, p.165. The author, quoting
nity Law, it is obvious that there are general interests linked to the protection and defence Canoy and Smith, suggests that “the impact of the liberalising measures of the internal
of the national economy or of certain national economic sectors that have ceased to be market will be chiefly felt in increased competitiveness in national markets, thanks to the
legitimate objectives in the framework of the single market.” removal of obstacles to the freedom of establishment.”
It is true that the change in administrative paradigm gives us images of support to families and persons in need which are provided by the State at
techniques for limited administration or formulas for simplified documen- national, regional or local level by providers mandated by the State or by
tation which are not new in the European legal system (previous communi- charities recognised as such by the State”, has begun to be the object of a
cations, the statements of leaders), but it is also the case that the intensity restrictive interpretation which contradicts the terms of the directive.
with which administrative authorisation is being outlawed has consequences
which should be studied for their precision and strictness. It could equally be The Commission has hastened to state that “in any case, it will not be
argued that this is a change limited to certain sectors of activity, and does possible for Member States to consider all services in a specific field, for
not extend to all services; however, the importance of the sectors covered example all education services, as non-economic services of general
(commercial distribution, tourism, legal consulting and advisory services, interest.” The assessment process undertaken confirms that university
etc.), and the evidence that the exclusion from its scope of non-economic education, adult education, artistic, musical and language education and
services of general interest is starting to be the object of a restrictive interpre- occupational training are sectors in which action has been taken to apply
tation by the European Commission, make for a very different picture. the requirements, prohibitions and terms of the Services Directive27.
Without reproducing the criticisms which in our view have rightly been The Commission has also decided to take legal action to apply the rules
expressed regarding the way the legal basis of the Services Directive on the free provision of services to care services financed by the German
are anchored in the Treaties and their relationship with domestic law26, social security system, and which, therefore, could be protected, depending
we would like to point out some of the factors which give this process, on the services concerned, excluding health services and social services
understood in its broadest sense, characteristics which go beyond merely supported by public funds. In its application the Commission claimed that
administrative changes or the well-meaning veneer of administrative “Care services, as well as the hire of care equipment, are services which are
simplification proper to a process of ‘better regulation’. supplied for consideration, and constitute in this respect a service within the
meaning of Article 56 TFEU. Such services therefore fall within the scope of
the provisions on the freedom to provide services.”28
4.2.1. (Theoretically) excluded sectors
The uncertain limits of such vague concepts as “services of general non-
The list of services excluded from the scope of Directive 123/2006/EC includes economic interest” and the pressure towards liberalisation has caused the
a package of services relating to the guarantee of social or fundamental European Parliament to call for the Directive’s scope to be implemented
rights. The generic exclusion of non-economic services of general interest; clearly and unambiguously. For this is the only way to create legal certainty
health services, preserving independence in their organisation, ownership [...] implementation of the Services Directive must not be used as a pretext for
and funding; and “social services in the areas of housing, childcare and deregulation or privatisation in the Member States. If a government wants to
carry out deregulation, it should also take responsibility for its own actions.29
26
See de La Quadra-Salcedo Fernández del Castillo, T., “La Directiva de Servicios y la liber-
tad de empresa”, El cronista del Estado Social y Democrático de Derecho, n.º 7/2009; de la 27
European Commission, Handbook on implementation of the Services Directive, Luxem-
Quadra-Salcedo Janini, T., “¿Quo Vadis, Bolkestein? ¿Armonización o mera desregulación bourg: Office for Official Publications of the European Communities, 2007, p. 11.
de la prestación de servicios?” Revista Española de Derecho Europeo, 22/2007; Parejo 28
Appeal filed on 30 November 2010 - European Commission v. Federal Republic of Ger-
Alfonso, L., “La desregulación de los servicios con motivo de la Directiva Bolkestein”, El many (case C-562/10).
Cronista del Estado Social y de Derecho, No 6/2009; Parejo Alfonso, L., “La Directiva Bolkes- 29
European Parliament, Report on implementation of the Services Directive 2006/123/EC
tein y la Ley paraguas: ¿Legitima el fin cualesquiera medios para la reconversión del Estado (2010/2053(INI)), 28.1.2011, p.12. This would be the case, for example, in Spain, where firstly
<<autoritativo>>?”, Revista Española de Derecho Europeo, 32/2009. This vision is supple- the Law 25/2009, known as the ‘Omnibus law’, and more recently the reform introduced by
mented by the rigorous internal analysis of competition conducted by Urratia Libarona, I. Sustainable Economy Act and the Law providing the Bases for Local Regulation, extend to
Marco jurídico del libre acceso a las actividades de servicios y su ejercicio en la Comunidad industry, to authorisations in the public domain, to the field of labour rights and to all areas
Autónoma del País Vasco, IVAP, Oñati, 2010. of local jurisdiction.
However, it should also be noted that this extension of the scope to which However, Community jurisprudence rapidly exploited “the means offered
the Directive limited itself has a defender in the Commission, which appears by the Treaties, obviously not the free movement of workers but the free
to have transformed from a guardian of the Treaties to the upholder of the provision of services and establishment” to reduce the scope of national
free-trade principles of the Community. The interpretation of the Services social law since this was in accordance with the principle of non-discrim-
Directive’s principles which emanate from Commission documents and the ination “provided that the free movement of persons has been used to
proceedings for breach of the Directive which have been brought before access the local ‘labour market’. But this is not what is happening today,
the ECJ are indicative of a quest to generalise its solutions to sectors which since workers are moving, transformed into economic units for the
were excluded from its scope. This is despite the fact that the very long list provision of services, from one enterprise to another, which has generally
of considerations in the Directive are revealing of the tough discussions resulted in a formula for productive decentralisation (often contracts and
and serious suspicions which accompanied the procedure, and clearly subcontracts)”31.
announce the wish to limit its application to those areas which expressly
figure in the body of the Directive, with its restrictions in respect of labour Faced with the regulation that protected the free movement of workers
and criminal law, fundamental rights or cultural and linguistic diversity. and harmonised their rights, offering a common protective cushion, and
subjection to national social law without discrimination for reasons of
nationality, in recent times there has been a legal backlash which restricts
4.2.2. The whole Bolkestein family recognised social rights on the grounds that work is performed in the context
of establishment or the provision of services in another Community country.
In the area of social rights in particular, the way appears to open to the Freedom of establishment or to provide services is used to reach a restrictive
removal of protection through the introduction of the country of origin interpretation or to establish exceptions on working conditions or trade
principle which figures in the initial versions of the Bolkestein Directive. union rights – some with consideration for fundamental rights like the right
This principle vanishes from the final version, not without substantial to strike – recognised in the country of reception of the provision of services.
mobilisation and probably being a decisive factor in the French ‘no’ to
the European constitution, but it was not replaced with any affirmation The Viking, Laval, Rüffert and Luxembourg cases32 have been very critically
of the country of reception principle except for the silence regarding the evaluated in labour doctrine, it being understood that the country of origin
standards applicable to the protection of workers and a general declaration principle is gathering new strength which will allow a diminution in the
that “This Directive does not affect terms and conditions of employment, social and labour rights of workers carrying out activities in the context
[...] nor does it affect relations between social partners” (point 14 of the of services performed in another Community country33. In all these cases
recital)30. the European Court of Justice placed Community freedoms – specifically,
the freedom of establishment and provision of services – on the same level
as, or in some cases even at a higher level than, the protection of working
30
Entrena Ruiz, D., “La génesis de la Directiva sobre liberalización de servicios”, in de la conditions guaranteed in the country of reception, stating that industrial
Quadra-Salcedo, T., (ed.), El mercado interior de servicios en la Unión Europea, Marcial action (the right to strike, collective action) to protect these working
Pons, 2009, p.78 states that the removal of the country of origin principle “is a mere for-
mality, since the text does not expressly prohibit it” to which must be added the fact that
conditions is an inadmissible restriction on the free provision of services.
“disputes with service providers will be resolved by the jurisdiction of the country of origin,
and thus subjected to its legislative sphere, which in turn results in a delocalisation of ser-
vices towards countries with less demanding normative, labour, social, environmental and 31
Aparicio Tovar, J., “¿La libertad de circulación de trabajadores en peligro? Mejor pre-
consumer protection standards.” Peglow, K., “La libre prestation de services dans la direc- guntarse por las consecuencias de la libre prestación de servicios”, (http://japariciotovar.
tive No 2006/123/CE. Réflexion sûr l’insertion de la directive dans le droit communautaire blogspot.com/2009/02/la-libertad-de-circulacion-de.html).
existant”, Revue trimestrielle de droit européen, No1/2008, p.118 draws attention to the 32
Judgment of the Court (Grand Chamber), 11 December 2007, Viking case C-438/05; Judg-
legal uncertainty which could be caused by the interaction of the Services Directive - with a ment of the Court (Grand Chamber), 18 December2007, Laval case C-341/05; Judgment of
concept very close to the country of origin principle - with other directives, such as 96/71/EC the Court (Second Chamber), 3 April 2008, Rüffert case C-346/06; Judgment of the Court
on posted workers inspired by the country of reception principle. (First Chamber), 19 June 2008, Luxembourg case C-319/06.
In these judgments, Community law is interpreted in a way which is little 4.2.3. Maximum administrative harmonisation vs
in keeping with the internal tradition of many Member States, given that it Minimal harmonisation of consumer rights
was traditionally understood as minimums guaranteed by the Community
law on posted workers, as maximums that could not be exceeded on the The expansive force of the guarantee of freedoms of provision and
understanding that they would infringe the freedom to provide services. establishment in the Bolkestein Directive is also evident in the requirement
Doubts about this interpretation have led the European Parliament to for administrative simplification and evaluation introduced in Articles 5 and
demand a balance in the development of the internal market to prevent it 39 of the Directive36, supervised by the Commission, which will also allow
from adopting a pre-eminent position, or from being more important than a more general approach to the liberalisation of services than that which
the European social model34. could be achieved through case law37. This requirement appears to exceed
the legal basis which underpins the Directive in requiring procedural simpli-
Three recently approved or currently debated Community directives follow fication (Article 5). The Directive has as its foundation stone the removal
the same lines, with the free provision of services as a basis (the single permit, of restrictions which could impede access to and the exercise of service
seasonal employment and entry and residence conditions in the framework activities, coordinating the provisions which can have this effect. If these
of a transfer within a single enterprise) which contain exceptions to the provisions or procedures are not ‘sufficiently simple’ it may restrict access
social rights granted to workers posted to provide services in a Community to nationals of other Member States – which is what is relevant in terms of
country35. The play on words implicit in dubbing the Single Permit Directive application of the TFEU - but it may be that this is not the case.
‘the bride of Bolkestein’ reveals the footsteps in which this set of legislative
proposals follow. After suffering an initial reverse in the European Parliament This is for two reasons, either because they are not sufficiently simple for
and having introduced improvements which reduce the inequalities initially those nationals, which would be paradoxical but would not be an effect
imposed on immigrate workers, it remains true that the Single Permit that requires a change to the Treaty unless it would indirectly affect access
Directive - unapproved, significantly, by the United Kingdom, Ireland and
Denmark - depicts an increasingly fragmented social Europe with aspirations
for economic unity.
35
Directive 2011/98/EU of the European Parliament and of the Council of 13 December
2011 on a single application procedure for a single permit for third-country nationals to
reside and work in the territory of a Member State and on a common set of rights for third-
country workers legally residing in a Member State. Although the directive guarantees
33
On these judgments, see de la Quadra Salcedo Janini, T., “TJCE, Sentencia de 18 de diciem- comparable rights to migrant workers, it authorises some exceptions in the matter of social
bre de 2007, Laval, C-341/05, libre prestación de servicios-desplazamiento de trabajadores. security and pensions, restricting them for workers on contracts of less than six months. In
La supuesta legalización del dumping social en el interior de la Unión Europea”, Revista de addition, countries can limit access to family benefits for migrants admitted for the purpos-
Derecho Comunitario Europeo, No 31/2008; Carril Vázquez, X.M., “Derechos sociales y de es of study. EU countries can restrict the access of migrant workers to public services, includ-
los trabajadores. ¿Dónde queda el principio del país de origen?”, in Nogueira Lopéz, A. (ed.), ing housing. They can also lay down conditions for access to occupational training and
in preparation. Robin-Olivier, S. “Libre prestation de services, marchés publics et régulation education, which must be linked to the specific employment activity, Member States being
sociale: le droit européen privilégie la concurrence fondée sur le coût du travail, CJCE, 3 avril entitled to demand proof of language proficiency. During negotiations, MEPs opposed the
2008, Rüffert, affaire c-346/06”, Revue trimestrielle de droit europeen, Vol. 44, No 3/2008, p. Member States’ proposal to withhold these services from unemployed foreign workers.
485-495; Donnette, A., ”À propos d’une rencontre mouvementée entre droit social et droit 36
Concurring with this view, Barnard, C., “Unravelling the Services Directive”, Common Mar-
du marché. Les arrêts Viking, Laval, Rüffert et Luxembourg”, Revue des affaires europeennes, ket Law Review, No45/2008, p. 386-87, 394. Davies, G., “The Services Directive: extending
No 2/2007‑2008, p. 341-358. Joerges, C., “Sozialstaatlichkeit in Europe? A Conflict‐of‐Laws the country of origin principle and reforming administration”, European Law Review, No
Approach to the Law of the EU and the Proceduralisation of Constitutionalisation”, Ger- 32/2007, p. 239 consider that whereas the provisions on establishment and service provision
man Law Journal, Vol.10, No4, p. 346: “The state of the Union has not been improved by a provide doctrinal food for thought, the real important of the directive lies elsewhere, and it
series of judgments of the European Court of Justice, in which the Court has strengthened should be known as the “directive for harmonising and modernising public administration.”
the economic liberties guaranteed in the Treaty with such rigidity that neither hard law 37
De Witte, B., “Setting the scene. How the Services get to Bolkestein and why?”, EUI Working
nor soft law steps towards a correction of Europe’s social deficit seem conceivable in the Papers, Law 2007/20, p. 6, suggests that although more and more services cases were com-
foreseeable future.” ing before the ECJ, there was a suspicion that these were only the tip of the iceberg, leading
34
European Parliament, Report on implementation of the Services Directive 2006/123/EC the Community’s services to promote a comprehensive legislative approach which would
(2010/2053(INI)), 28.1.2011, p. 18. overcome the problems of fragmented approach inherent in judicial solutions.
or providers’ operations in other Member States38, or because it poses no and criticisms from Community institutions42. The European Parliament
restriction in legal terms. This is why the requirement that the competent witnessed a chasm between partisans of full harmonisation and those who
authorities should review their procedures and amend those which are not supported regulation which would permit the preservation of the more
simple appears to exceed the legal basis on which the Directive stands. protective legislation in the most advanced countries. For example, full
This absence of a legal basis on which the Directive might act as a ‘law for harmonisation would prevent a stricter definition of abusive contract terms
substantive administrative harmonisation’ leads DAVIES to predict that the or guarantee periods in a given Member State43.
ECJ might consider the simplification clause to be inapplicable internally39.
By contrast with this process of administrative harmonisation, closely 4.3. Expansive interpretation of the freedom
monitored by the mutual evaluation mechanism which has forced national of establishment and to provide services
authorities to review and communicate all those requirements which may
conflict with the provisions of the directive, the harmonisation of consumer Discussions of the European Constitution exposed the difficulty of making
rights with a high level of protection seems to have made less progress. progress in a Europe which reconciles economic freedom with political
Against the background of the drive towards a European internal market, integration and harmonised social rights. Reservations about adherence
warranty systems remain inadequate. to the Charter of Fundamental Rights as an integral part of the acquis
communautaire and in all Member States without exception allows us a
The poor enhanced regulation of a posteriori controls on businesses which glimpse of a process in which Europe appears to have taken a path closer
operate with simplified initial control systems, the weak regulation of
mechanisms for bringing claims against companies which may be based
in other countries and some monitoring procedures for infringements
41
Carballo Fidalgo, M., “Las cláusulas contractuales no negociadas ante la Propuesta de
entrusted to (habitually ineffective) intergovernmental cooperation appear Directiva sobre derechos de los consumidores”, Indret. Revista para el análisis del Derecho,
to relegate the resolution of any disputes to consumer law. However, the Barcelona, January 2010 (http://www.indret.com/pdf/698_es.pdf), p. 23-24.
approval of the European Consumer Rights Directive40, the main purpose
42
The Opinion of the Committee of the Regions on Consumer Rights “rejects the principle
of full harmonisation on a broad scale as Member States may thereby have to sacrifice
of which should be the protection of consumer rights in a context of particular consumer protection provisions in the name of standardisation”, DEVE-IV-038,
globalised transactions, has been the subject of serious doctrinal criticisms41 79th Plenary Session, 21 and 22 April 2009 (CDR 9/2009 final). It is also “critical of the pro-
posals on standard contract terms, some of which would curtail consumer rights. Legal
rights currently in place in the Member States must not be undercut further.” At the same
time, the Committee of the Regions “also has its doubts as to whether full harmonisation
will boost consumer confidence and foster competition. Up to now, consumer difficulties
38
The recent Judgment of the Court (Second Chamber) of 24 March 2011, case C-400/08 have, in the main, been caused by the uncertainties and complexities of law enforcement
concerning the establishment of shopping centres in Catalonia reminds us that: “it is settled in cross-border trade (language barriers, legal fees, courts costs, etc.). The directive provides
law that Article 43 EC precludes any national measure which, even though it is applicable no improvement on that front.” For language barriers and citizens’ rights see NOGUEIRA
without discrimination on grounds of nationality, is liable to hinder or to render less attrac- LÓPEZ, A., “Simplificación administrativa y régimen de control previo administrativo de
tive the exercise by EU citizens of the freedom of establishment that is guaranteed by the actividades de prestación de servicios”, Revista Llengua i Dret, No 52/2009, p. 205-226. Also
Treaty (see, inter alia, Case C 299/02 Commission v Netherlands [2004] ECR I 9761, para- of interest is the rigorous study conducted by Urrutia Libarona, I., “Defensa y promoción
graph 15, and Case C 140/03 Commission v Greece [2005] ECR I 3177, paragraph 27). de las lenguas oficiales como razón imperiosa de interés general de la Unión Europea a la
39
Davies, G., “The Services Directive: extending the country of origin principle and reform- luz de la Jurisprudencia del TJCE”; Revista Vasca De Administración Publica, No 83/2009;
ing administration”, European Law Review, No 32/2007, p. 241-243. The author points out p. 197-230.
that Articles 43 and 49 of the Treaty are not applicable to internal circumstances, so that, in 43
The diverging views of the associations consulted by the European Parliament is also
accordance with community case law, if the states want to impose disproportionate bur- revealing. Business associations welcome the text, believing that it will give a stimulus
dens on domestic providers “that is their business.” to the internal market and reduce costs to traders, while consumer groups point to the
40
Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 reduced level of protection which it entails. Working document on the Proposal for a direc-
on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of tive on Consumer Rights - COM(2008)614 - 2008/0196(COD) - IMCO/6/68476Committee on
the European Parliament and of the Council and repealing Council Directive 85/577/EEC the Internal Market and Consumer Protection (4.5.2009), (http://www.europarl.europa.eu/
and Directive 97/7/EC of the European Parliament and of the Council. meetdocs/2009_2014/documents/imco/dv/782/782960/782960es.pdf).
to a free trade zone than the ambitious project of political integration in its entirety, and others, like Spain, to conduct an extensive interpretation
with a social model which appeared to be the aspiration of many staunch of Article 93 of the Spanish constitution and a controlled reform of Article 13
Europeans44. without fully addressing the consequences49. In fact in Germany, both the
Judgment of the Constitutional Court on the Maastricht Treaty and the more
Alongside this change of course, there also exists a scenario in which the recent Judgment on the Lisbon Treaty re-affirm the surrender of powers
freedom of establishment and provision of services appears to have served insofar as this may occur while respecting the essential core of constitutional
as the justification for a restrictive interpretation of the general interest identity which includes the principles of a democratic, constitutional welfare
grounds which underpin various public policies and for a retreat in the area state with a guarantee of equivalent respect for fundamental rights.
of social rights45. The existence of two levels, with an unresolved conflict
between them: economic liberalism46, represented at the Community level,
and social rights and interests, substantially the province of Member States,
has once again become clear with the Bolkestein Directive47.
47
Betancor, A., Regulación: mito y Derecho. Desmontando el mito para controlar la inter-
The interaction of these two levels has been addressed by Member States vención de los reguladores económicos, Civitas, 2010, p. 216-117, locates the primacy
which the treaties ascribe to the market and that which the Constitution establishes for
in different ways. The successive reforms of the Treaties and the expansion the social responsibility of the state in the difference in the constituent subject (people and
of Community law, causing a ‘constitutional change on an enormous scale’48 states); but he thinks that these are not antithetical because the Treaties focus on creating
have led some states to constitutional reforms in order to accept this change a supranational environment which can only be guaranteed in the presence of free move-
ment: “It is logical that the state should focus on the individual and collective dimension of
freedoms, just as it is that the Treaty should have a more institutional dimension related to
the supranational framework of these freedoms.” A relection on the interaction between
national and community laws regarding fundamental rights can be found in GAMBINO, S.
“La protección de los derechos fundamentales: El parámetro de los principios y los derechos
44
We could debate whether, as stated by de la Sierra, S. “El ámbito de aplicación de la Direc- fundamentales en la jurisprudencia constitucional, comunitaria y del Tribunal Europeo de
tiva los servicios excluidos: una plasmación de las mutaciones de la Constitución Económi- derechos humanos”, ReDCE, no 8/2007. For the capacity of European institutions, subject
ca Europea”, Revista Aragonesa de Administración Pública, XII Monográfico: La Directiva to modest limits, to transform national laws creating new or adapting existing institutions
Bolkestein, 2010,”the changes in the internal market are also related to the inclusion in the in accordance with its own criteria, see Almeida Cerreda, M., “La construcción del Derecho
same of a more social content” or whether instead the obstacle which social protection Administrativo Europeo”, Scientia Iuridica, ISSN 0870-8185, n. 314, p. 193-222, 2008.
measures pose to these freedoms has resulted in the transfer of the integration and inter- 48
Muñoz Machado, S., La Unión Europea y las mutaciones del Estado, Alianza Universidad,
pretation of both aspects to the community level. 1993, p. 56. This work includes an interesting view of the limits of the constitutional reforms
45
de la Quadra-Salcedo Fernández del Castillo (ed.), La ordenación de las actividades to accept the Maastricht Treaty and the failure to consider fully what this surrender of sov-
de servicios: Comentarios a la Ley 17/2009, de 23 de noviembre, Aranzadi-Thomson ereignty and powers means for constitutional law.
Reuters, 2010, p. 31, clearly takes the position that, in the tension between Commu- 49
Declaration of the Plenary of the Constitutional Court 1/2004, 13 December 2004. Case
nity freedoms and overriding reasons of general interest, this reform should give pref- 6603-2004). Put forward by the National Government, concerning the constitutionality of
erence to Community freedoms. Should the analysis, when the laws are applied, be Articles I-6, II-111 and II-112 of the Treaty establishing a Constitution for Europe signed in
conducted other than automatically, the author considers that he cannot overlook the Rome on 29 October 2004. The Constitutional Court resolves the debate on the primacy of
existence of rights and freedoms but he also appreciates the difficulty of guarantee- Community law taking as a point of departure the notion that Community law is based
ing “the goods and values which are behind the overriding reasons of general interest.” on respect for the identity of Member States and in order to exercise Community powers,
46
Salvador Armendariz, M.A., “La Directiva de Servicios y su transposición. ¿Una oca- differentiating between the concepts of supremacy and primacy: “Supremacy is based on
sión para repensar el derecho a la libertad de empresa?” in Rivero Ortega, R. (ed.), Mer- the hierarchically superior nature of a law and, therefore, is the source of validity of those
cado europeo y...op.cit., p. 144, suggests, for example, that “following the transposition which are subordinate to it, with the result, therefore, that these are invalid if they must con-
of Community Law, it is obvious that there are general interests linked to the protection travene the provisions thereof. Primacy, however, is not necessarily based on the hierarchy,
and defence of the national economy or of certain national economic sectors that have but rather on the distinction between the fields of application of different laws, in principle
ceased to be legitimate objectives in the context of the single market.” Pisarello, G., ¿Con- valid, some of which, however, are capable of displacing others in virtue of their preferen-
stitucionalismo sin Constitución o Constitucionalismo?. Elementos para una lectura de la tial or prevalent application for various reasons. All supremacy implies primacy in principle
construcción europea en clave post-estatal”, ReDCE, 5/2006, spoke during the process of (hence its use equivalent use on occasion, as in our declaration 1/1992, FJ 1), unless the
approval of the European Constitution of a “ruling economic constitution without social supreme law has made provision for its own displacement or non-application under cer-
constitutionalism” and “an inoffensive charter of Rights subordinated to the political and tain circumstances.” In our view these arguments ignore the real problems of interaction in
economic constitution of the Union.” the application of the Law.
On the occasion of the pronouncement on the Lisbon Treaty50 the Federal of unjustified administrative controls54. There exists a common vector which
Constitutional Court ordered the strengthening of the powers of the is accepted in the most diverse doctrinal analyses in relation to the need
parliamentary chambers and a clear affirmation of national control of to reduce discretionality, remove arbitrariness or preserve those controls
Community Law. The existence of this problem of interaction and the required to protect such values and rights as the environment, consumer
need to find solutions leads CRUZ VILLALÓN to propose the configuration rights or public health and safety and it will be after the actual implemen-
of a ‘jurisdictional privilege’ which would avoid the automatic preferential tation of the changes in national laws for the transposition of community law
judicial application of Community Law, via the approach of a mandatory that we will be able to evaluate whether these premises are fulfilled55. But it is
questioning of constitutional legitimacy: in the event that the Constitu- also the case that for this set of prerogatives and guarantees to be deployed,
tional Court rules that it is unconstitutional, the Court should apply to the the competent authorities need a range of techniques at their disposal to
ECJ for a preliminary ruling51. consider the most appropriate to these ends, depending on the ideological
and legal options possible within the constitutional framework56.
This is not just a debate about whether a greater or lesser degree of
intervention by the administration in the economy is a good thing; rather, it is In our view, it is no exaggeration to say that the Services Directive “directly
a matter of examining how far the changes brought about by the Bolkestein and immediately subjects national laws to a Community reference which
Directive, and which are accompanied by other legislation under discussion dispenses with the national constitutional system”57. But this is not the only
or by the jurisprudence of the ECJ, directly impede this debate from taking problematic aspect of the legislative solutions it introduces; it should also
place to the exclusion of some legislative options which would be possible be pointed out that the Directive subjects the provisions of the original
both under the European Treaties and in the constitutions of some Member Community law enshrined in the Treaties to a reductive approach. This dual
States, such as the Spanish constitution. The analysis should, therefore, mutation, the subjection of constitutional recognised rights and freedom
consider, in the first instance, not so much whether this reform is in line with to a restrictive vision in which Community freedoms are paramount, and
the principle of favor libertatis and a notion of business freedom which fits an “interpretation of Community fre edoms which goes beyond their actual
in with the Constitution52, but rather whether it excludes other formulations and traditional content as in the Treaty”58, is worrying because it destabilises
of constitutional freedom, with a debateable interpretation of the Treaty on the checks and balances represented by the dogmatic construction of the
the Functioning of the European Union and without a legal basis for bringing welfare state.
about administrative standardisation53. Nor do we believe that the discussion
should be one of the limitations of administrative discretion vis-à-vis a host
54
Fernández Rodrīguez, T.R., “Un nuevo Derecho Administrativo para el mercado interior
europeo”, Revista española de Derecho Europeo, No 22/2007, p. 193, questions this dis-
50
Judgment of the Federal Constitutional Court of Germany of 30 June 2009 on the Treaty cretion to submit economic activities to controls on the grounds of various requirements
of Lisbon (BVerfG, 2 BvE 2/08 of 30.6.2009, paragraphs 1 – 421). which to justify “the retention of a power which they would otherwise end by losing, leaving
51
Cruz Villalón, P., La Constitución inédita, Ed. Trotta, 2004, p. 79. the interests of the majority without protection.”
52
This is the position supported by Bentacor, A., op. cit, p. 281-311, on the basis that there 55
Rivero Ortega, R., “La libertad de comercio”, Ponencia al V Congreso de la AEPDA, San
could be a harmonious integration of the EU’s market economy with the Social State clause Fernando-Cadiz, February 2010, p. 46, maintains that the reform brought about by the Direc-
since the Constitution, except where social security is concerned would not prescribe any tive is not deregulatory, as held by de la Quadra-Salcedo Janini and Parejo Alfonso, but he
means which would involve taking ownership and the exclusion of the market. qualifies this by admitting that transposition can have this effect if it does not replace the
53
Assuming this curtailment to be inevitable, see Villarejo Galende, H., Salvador Arm- previous controls by a posterior controls, or incorporate guarantees of consumer rights.
endariz, M.A., “El complejo proceso de transposición de la Directiva de Servicios” in Informe 56
An example of this different conception of the economic constitution can be seen in the
de Comunidades Autónomas, 2008, Instituto de Derecho Público, Barcelona, p.115-116: “As considerations put forward by Ariño Ortiz, G., Principios de Derecho público económico,
we have seen, the Directive can restrict the opportunities for manoeuvre of public authori- Comares, 3º ed., 2004, p. 124 et. seq. with regard to the theses of Garcia Pelayo in the work
ties in each Member State. But this is nothing new. As we know, in its substantive part Com- “Consideraciones sobre las cláusulas económicas de la Constitución.”
munity law has only taken up the consolidated case law of the European Court of Justice, 57
Parejo Alfonso, L., “La desregulación de los servicios con motivo de la Directiva Bolkes-
which will now be easy to apply. And, on the other hand, it does not appear that there may tein”, El Cronista del Estado social y de derecho, No6/2009, p. 39.
be distinct solutions in free market economies: a degree of standardisation in economic 58
De la Quadra-Salcedo Fernández del Castillo, “La Directiva de Servicios y la libertad de
decisions is inevitable.” empresa”, El cronista del Estado Social y de Derecho, 7/2009.
The Directive reduces the regulatory autonomy of Member States placing of Community trade with two implications: subjection to the propor-
under suspicion, or directly prohibiting, existing authorisation schemes and tionality test – rather than reasonableness, as before – and jurisdictional
drastically limiting the general interest reasons which, under the Treaty, control by the ordinary civil courts applying the principle of the primacy of
Community case law had considered compatible with the freedom to Community law61.
provide services59.
The freedom to provide services and of establishment appears to have
If we compare the provisions of the Treaty on the Functioning of the taken the baton from the free circulation of goods as the preferred focus
European Union, the primary law, and the Directive, secondary law, we of Community action to remove obstacles to the internal market62.
can see how the latter reverses the terms of the TFEU60. The Treaty admits Furthermore, several authors have noted that the arguments traditionally
normative or administrative measures which entail differentiated treatment used to evaluate the existence of obstacles to the free circulation of
for non-nationals who intend to settle if these are based in certain overriding goods have gradually been transferred to the sphere of the freedom of
reasons of general interest (public order, safety and health). Overriding establishment. From a ‘test’ of discrimination – considering as obstacles
reasons of general interest which, hitherto, have not been regarded as a those measures which are applied differently for reasons of nationality -
numerus clausus in Community case law and which the Directive itself case lawhas moved on to a ‘prohibition of restrictions test’ which examines
extends to include the environment, which does not figure in the Treaty. In whether the measure is liable to prevent provision, on the basis of the filters of
contrast, Article 9 of the Directive establishes that the authorities “shall not proportionality, necessity and non-discrimination63. Thus a measure applied
make access to a service activity or the exercise thereof subject to an authori- without distinction to national and foreign producers could be considered
sation scheme” if it can be shown that the scheme is not discriminatory, is contrary to the freedom of establishment if it was thought to impose a
proportional and is necessary for an overriding reason relating to the public double burden on the exercise of this provision. As indicated by T. de la
interest. Whereas under the Treaty all kinds of control over activities are Quadra-Salcedo, the Services Directive gives a new twist to the proportion-
admissible, even those which involve differentiated treatment for reasons ality test applied to administrative measures which formally treat nationals
of public order, safety and health, the Directive regards recourse to authori- and the citizens of other Member States equally but with differentiating
sation as an exception and subjects any use to the test of proportionality, effects in practice, because it prevents the retention of an intervention
non-discrimination, and the need for an overriding public interest reason. technique which may not have discriminatory effects for non-nationals
included in the definition of the core of entrepreneurial freedom, effectively
The Bolkestein Directive assumes the communitisation of the conditions delimiting the ideological options that would fall under this principle64.
for the provision of services although it does not result from a hindrance
59
Klamert, M., “Of empty glasses and double burdens: approaches to regulating services 61
De la Quadra-Salcedo Janini, T., “¿Quo vadis, Bolkestein? ¿Armonización o mera desregu-
market à propos the implementation of the Services Directive”, Legal issues of economic lación de la prestación de servicios?, Revista Española de Derecho Europeo, No22/2007, p.
integration, 37, no 2/2010, p. 113, considers that the allusion in Article 16 of the Directive 273-74.
to only four overriding public interest reasons (public order, public safety, public health and 62
It also appears to have followed its footsteps in the expansive interpretation of concepts
environmental protection) restricts the regulator autonomy of Member States by removing which challenge public intervention. Miguez Macho, L., La intervención administrativa en
the other reasons introduced by the ECJ to compensate for the doctrine of the prohibition el comercio interior, Iustel, 2005, p. 179, alludes to the expansive notion of a measure hav-
of restrictions which goes beyond the wording of the Treaty. “It can be said that the Direc- ing equivalent effect in the matter of the free circulation of goods which “potentially raises
tive is separating from the European social model, which is happening via the regulation of questions over any public intervention measure in internal trade.”
activities of general interest”, says González Garcia, J.V., “La transposición de la Directiva de 63
For the intersection of case law on the freedom of establishment with the doctrine devel-
Servicios: Aspectos normativos y organizativos en el Derecho Español”, Revista española de oped for the free movement of goods which does not limit itself to preventing discrimina-
Derecho Europeo, No32/2009, p. 478. tion but which prevents anything which might be considered double burden, although
60
Article 52 (ex-Article 46 TCE): The provisions of this Chapter and measures taken in pursuit affects national and foreign operators equally, see Roth, W-H., “The European Court of
ance thereof shall not prejudice the applicability of provisions laid down by law, regulation Justice’s case law on freedom to provide services: Is Keck relevant?”, in Andenas, M., Roth,
or administrative action providing for special treatment for foreign nationals on grounds W-H., Services and free movement in EU Law, Oxford University Press, Oxford, 2004, p. 8 and
of public policy, public security or public health. p.; also Maduro, M.P., “Harmony and dissonance in free movement”, in ibidem, p. 66 and ff.
Additionally, the Directive reduces the scope of the overriding reasons of reception principle except for the silence regarding the standards
of public interest which were developing in case law and which were applicable to the protection of workers and a general declaration that “This
considered to be compatible with the Treaty, in particular in relation to Directive does not affect terms and conditions of employment, [...] nor does
the free provision of services. It introduces a distinction between the legal it affect relations between social partners” (consideration 14)67. However,
system applying to the freedom of establishment and the free provision Community jurisprudence rapidly exploited “the means offered by the
of services, the first being subject to a ‘numerus apertus’ of exceptions, Treaties, obviously not the free circulation of workers but the free provision
while leaving – in what De Witte calls a ‘legal limbo’ – the majority of the of services and establishment” to reduce the scope of national social law
overriding reasons of general interest developed in the case law (quoted at since this was in accordance with the principle of non-discrimination
point 40 of the Preamble to the Directive) in relation to the free provision “provided that the free movement of persons has been used to access the
of services66. local “labour market.” But this is not what is happening today, since workers
are moving, transformed into economic units for the provision of services,
In the area of social rights in particular, the way appears to have been from one enterprise to another, which has generally resulted in a formula
opened to an absence of protection through the introduction of the for productive decentralisation (often contracts and subcontracts)”68.
country of origin principle which figures in the initial versions of the
Bolkestein Directive. This principle vanishes from the final version of Faced with the regulation that protected the free circulation of workers
the Services Directive, not without substantial organised opposition and harmonised their rights, offering a common protective cushion, and
and probably being a decisive factor in the French ‘no’ to the European subjection to national social law without discrimination for reasons of
constitution, but it was not replaced with any affirmation of the country nationality, in recent times there has been a legal backlash which restricts
recognised social rights on the grounds that work is performed in the
context of establishment or the provision of services in another Community
country. Freedom of establishment or to provide services is used to reach a
64
DE la Quadra-Salcedo Fernández del Castillo, “La Directiva de Servicios y la libertad de restrictive interpretation or to establish exceptions on working conditions
empresa”, El cronista del Estado Social y de Derecho, 7/2009. Judgment of the Court of Jus- or trade union rights – some with consideration for fundamental rights like
tice of the European Communities (Fourth Chamber) of 22 October 2009, Case C-438/08.
Commission of the European Communities v Portuguese Republic illustrates the problem
the right to strike – recognised in the country of – reception of the provision
pointed out by this author: “30. Even though those rules apply in exactly the same way to of services.
operators established in Portugal and to those originating in other Member States, they
could lead to the prevention of operators not satisfying the criteria defined there from
establishing in Portugal for the purpose of carrying on the activity of vehicle inspection.
In particular, as the Commission claims, the public interest criterion, to which the grant of
the administrative authorisation concerned is subject, may open the way for an arbitrary 67
Entrena Ruiz, D., “La génesis de la Directiva sobre liberalización de servicios”, in de la
use of the discretion on the part of the competent authorities, permitting them to refuse Quadra-Salcedo, T., (ed.), El mercado interior de servicios en la Unión Europea, Marcial
that authorisation to certain interested operators, although they fulfil the other conditions Pons, 2009, p. 78, states that the removal of the country of origin principle “is a mere for-
laid down by the legislation.” “31. Consequently, the conditions concerned for access to the mality, since the text does not expressly prohibit it” to which must be added the fact that
activity of vehicle roadworthiness tests imposed by the Portuguese legislation constitutes a “disputes with service providers will be resolved by the jurisdiction of the country of origin,
restriction on freedom of establishment.” and thus subjected to its legislative sphere, which in turn results in a delocalisation of ser-
65
De Witte, B., “Setting the scene. How the Services get to Bolkestein and why?”, EUI Working vices towards countries with less demanding normative, labour, social, environmental and
Papers, Law 2007/20, p. 11. consumer protection standards.” Peglow, K., “La libre prestation de services dans la direc-
66
Some authors point out the difficulty of conducting this comparison between the propor- tive No 2006/123/CE. Réflexion sûr l’insertion de la directive dans le droit communautaire
tionality principle and overriding reasons of general interest in order to identify whether existant”, Revue trimestrielle de droit européen, No1/2008, p. 118, draws attention to the
a measure restricting the free provision of services is justified in issues relating to moral or legal uncertainty which could be caused by the interaction of the Services Directive - with a
ethical values. They point to the limits of Community law and the fact that the role of the concept very close to the country of origin principle - with other directives, such as 96/71/EC
ECJ reflects the pre-eminence of the economic aspects of integration over political aspi- on posted workers inspired by the country of reception principle.
rations, see O’leary, S., Fernández-Martīn, J.M., “Judicially-created exceptions to the free 68
Aparicio Tovar, J., “¿La libertad de circulación de trabajadores en peligro? Mejor pre-
provision of services”, in Andenas, M., Roth, W-H., Services and free movement in EU Law, guntarse por las consecuencias de la libre prestación de servicios”, (http://japariciotovar.
Oxford University Press, Oxford, 2004, p. 194. blogspot.com/2009/02/la-libertad-de-circulacion-de.html).
The Viking, Laval, Rüffert and Luxembourg cases69 have been very critically These judgments interpret Community law in a manner which is scarcely
evaluated in labour doctrine, it being understood that the country of compatible with the national traditions of many Member States, given
origin principle is gathering new strength which will allow a diminution that it was traditionally understood as setting minimums guaranteed to
in the social and labour rights of workers active in the context of services posted workers by Community law, with maximums which could not be
performed in another Community country70. In all these cases the European exceeded on the understanding that they would infringe the free provision
Court of Justice placed Community freedoms – specifically, the freedom of services. Similar considerations apply to three recently approved or
of establishment and provision of services – on the same level, or in some currently debated Community directives, with the free provision of services
cases even at a higher level, above the protection of working conditions as a basis (the single permit, seasonal employment and entry and residence
guaranteed in the country of reception, stating that industrial action (the conditions in the framework of a transfer within a single enterprise) which
right to strike, collective action) to protect these working conditions is an
inadmissible restriction on the free provision of services.
70
For these judgments, see de la Quadra-Salcedo Janini, T., “TJCE, Sentencia de 18 de diciem-
bre de 2007, Laval, C-341/05, libre prestación de servicios-desplazamiento de trabajadores.
La supuesta legalización del dumping social en el interior de la Unión Europea”, Revista de
69
Judgment of the Court (Grand Chamber) of 11 December 2007 Case Viking C-438/05: Derecho Comunitario Europeo, No 31/2008; CARRIL Vázquez, X.M., “Derechos sociales y de
“Article 43 EC is to be interpreted to the effect that collective action such as that at issue in los trabajadores. ¿Dónde queda el principio del país de origen?”, in Nogueira López, A. (ed.),
the main proceedings, which seeks to induce an undertaking whose registered office is in in preparation. Robin-Olivier, S. “Libre prestation de services, marchés publics et régulation
a given Member State to enter into a collective work agreement with a trade union estab- sociale: le droit européen privilégie la concurrence fondée sur le coût du travail, CJCE, 3 avril
lished in that State and to apply the terms set out in that agreement to the employees of a 2008, Rüffert, affaire c-346/06”, Revue trimestrielle de droit europeen, Vol. 44, No 3/2008, p.
subsidiary of that undertaking established in another Member State, constitutes a restric- 485-495; Donnette, A., ”À propos d’une rencontre mouvementée entre droit social et droit
tion within the meaning of that article. That restriction may, in principle, be justified by du marché. Les arrêts Viking, Laval, Rüffert et Luxembourg”, Revue des affaires europeennes,
an overriding reason of public interest, such as the protection of workers, provided that it No 2/2007‑2008, p. 341-358. Falguera I Baró, M., “Rüffert: siguiendo los pasos de Bolkes-
is established that the restriction is suitable for ensuring the attainment of the legitimate tein”, http://www.ccoo.es/comunes/temp/recursos/99999/115075.pdf, states that “Since
objective pursued and does not go beyond what is necessary to achieve that objective.” the Viking Line and Laval judgments, it appears clear that the freedom of establishment -
Judgment of the Court (Grand Chamber) of 18 December 2007, Case Laval C-341/05: “Arti- which is only a partial expression of the right of entrepreneurial freedom in the Community
cle 49 EC and Article 3 of Directive 96/71/EC of the European Parliament and of the Council - stands at a higher level than social rights. The individual and collective rights of workers
of 16 December 1996 concerning the posting of workers in the framework of the provision cannot therefore impinge on this sacrosanct Community right.” Joerges, C., “Sozialstaatlich-
of services are to be interpreted as precluding a trade union, in a Member State in which keit in Europe? A Conflict‐of‐Laws Approach to the Law of the EU and the Proceduralisation
the terms and conditions of employment covering the matters referred to in Article 3(1), of Constitutionalisation”, German Law Journal, Vol.10, No4, p. 346: “The state of the Union
first subparagraph, (a) to (g) of that directive are contained in legislative provisions, save has not been improved by a series of judgments of the European Court of Justice, in which
for minimum rates of pay, from attempting, by means of collective action in the form of a the Court has strengthened the economic liberties guaranteed in the Treaty with such rigid-
blockade (‘blockad’) of sites such as that at issue in the main pro-ceedings, to force a pro- ity that neither hard law nor soft law steps towards a correction of Europe’s social deficit
vider of services established in another Member State to enter into negotiations with it on seem conceivable in the foreseeable future.”
the rates of pay for posted workers and to sign a collective agreement the terms of which 71
El Pais 14.12.2010: “There is an obvious risk of establishing significant differences between
lay down, as regards some of those matters, more favourable conditions than those result- the rights of European workers and those of third country migrants. Many companies could
ing from the relevant legislative provisions, while other terms relate to matters not referred relocate their head offices to third countries such as Morocco or Turkey and subsequently
to in Article 3 of the Directive.” Judgment of The Court (Second Chamber) of 3 April 2008, post workers from these countries to their subsidiaries in the EU with the same working
Case Ruffert C-346/06: “(37) by requiring undertakings performing public works contracts conditions as in these workers’ country of origin.The most important exemptions are those
and, indirectly, their subcontractors to apply the minimum wage laid down by the ‘Build- relating to the payment of pensions abroad, the recognition of family allowances, and the
ings and public works’ collective agreement, a law such as the Landesvergabegesetz may right to housing, training and lifelong learning. For example, this means that a Turkish
impose on service providers established in another Member State where minimum rates or Moroccan immigrant who has worked in Germany could not receive his pension in his
of pay are lower an additional economic burden that may prohibit, impede or render less country of origin if he decided to retire there, but would have to remain in the country in
attractive the provision of their services in the host Member State. Therefore, a measure which he worked, unless the legislation of this last so allowed.The approval of this Directive
such as that at issue in the main proceedings is capable of constituting a restriction within would confirm the inferiority of European social and labour law to the 1990 United Nations
the meaning of Article 49 EC.” Judgment of the Court (First Chamber) of 19 June 2008, Lux- Convention on the Protection of the Rights of All Migrant Workers and Members of Their
embourg case C-319/06: in this decision, the ECJ judges that the obligations in Luxembourg Families, which has only been ratified by 44 states, only three of which are European (Alba-
to produce documents on demand to the labour inspectorate and to designate an agent nia, Bosnia- Herzegovina and Turkey) and signed by 15 of them, two European (Serbia and
residing in Luxembourg to retain all the documents necessary for monitoring purposes Montenegro). The proposed Single Permit Directive is also contrary to the Council of Europe
infringe Article 49 EC. Convention of 1977 in respect of working conditions, social security and housing.”
impact on the country of origin principle and contain significant exceptions And here again it can be seen that the Directive exceeds its legal basis in
to the social rights granted to workers posted to provide services in a imposing a requirement for the simplification of proceedings in Article 575.
Community country. Although the first of these suffered a setback in The Directive has as its foundation stone the suppression of the restrictions
the European Parliament in failing to win the parliamentary vote, the which can impede access to and exercise of service activities, coordinating
Commission seems likely to return to this text and to put forward a revised the provisions which can have this effect. If these provisions or procedures
version with similar objectives71. are not ‘sufficiently simple’ it may restrict access to for nationals of other
Member States – which is what matters in terms of application of the TFEU –
Finally, another manifestation of this expansionary force of the guarantee but it may be that this is not the case. This is for two reasons, either because
of the freedoms to provide services and of establishment in the Bolkestein they are not sufficiently simple for own-country nationals, which would
Directive lies in the area which several authors believe will potentially have be paradoxical but would not be an effect that the Treaty should seek to
the greatest impact. This would come from the obligation for simplifi- correct given that it does not affect access or operators from other Member
cation72 and administrative evaluation introduced by Articles 5 and 39 of States, or directly because it does not constitute a restriction in legal terms.
the Directive73, supervised by the Commission, which will additionally allow This is why the requirements that the competent authorities should review
a more general approach to the liberalisation of services that could be their procedures and amend those which are not simple appear to exceed
achieved through case law 74. the legal basis on which the Directive stands. This absence of a legal basis
on which the directive might act as a ‘law for substantive administrative
harmonisation’ leads DAVIES to predict that the ECJ might consider the
simplification clause to be inapplicable internally76.
72
Martīn-Retortillo, S., “De la simplificación de la Administración Pública”, RAP No 147/1998, Ultimately, these considerations reflect the asymmetry of the European
p. 27 alludes to the distinct dimensions of this term: “simplification of the various proce-
dures, of the passage from existing measures to those which it requires, relieving them of
project and the need to evaluate, on the basis of national constitutional
the complex and numerous procedures which should follow in each of them; also, a reduc- order, the conjunction of the principle of the primacy of Community law
tion in the excessively copious mass of separate procedures which often interfere with each
other.” To these two strands there should be added the pursuit and substitution of admin-
istrative techniques in order to opt for milder formulas in terms of the level of intervention
and the administrative burdens they may signify for the parties concerned. 76
Davies, G., “The Services Directive: extending the country of origin principle and reform-
73
Barnard, C., “Unravelling the Services Directive”, Common Market Law Review, No ing administration”, European Law Review, No 32/2007, p. 241-243. The author points out
45/2008, p. 386-87, 394. Davies, G., “The Services Directive: extending the country of origin that Articles 43 and 49 of the Treaty are not applicable to internal circumstances, so that, in
principle and reforming administration”, European Law Review, No 32/2007, p. 239 consid- accordance with community case law, if the states want to impose disproportionate bur-
ers that whereas the provisions on establishment and service provision provide doctrinal dens on domestic providers “that is their business.”
food for thought the real importance of the directive lies elsewhere, and it should be known 77
One only has to remember the acceptance of “opting-out” clauses, or clauses for inter-
as the “Directive for harmonising and modernising public administration.” pretation in accordance with national law such as those in Protocol no 30) annexed to the
74
De Witte, B., “Setting the scene. How the Services get to Bolkestein and why?”, EUI Working Treaty on European Union. On the implementation of the Charter of Fundamental Rights
Papers, Law 2007/20, p. 6, suggests that although more and more services cases were com- of the European Union to Poland and the United Kingdom:
ing before the ECJ, there was a suspicion that these were only the tip of the iceberg, leading Article 1
the Community’s services to promote a comprehensive legislative approach which would 1. The Charter does not extend the ability of the Court of Justice of the European Union, or
overcome the problems of the fragmented approach inherent in judicial solutions. Fernán- any court or tribunal of Poland or of the United Kingdom, to find that the laws, regulations
dez Rodrīguez, T.R., “Un nuevo Derecho Administrativo para el mercado interior europeo”, or administrative provisions, practices or action of Poland or of the United Kingdom are
Revista española de Derecho Europeo, No 22/2007, p. 193-94, welcomes the work of Com- inconsistent with the fundamental rights, freedoms and principles that it reaffirms.
munity case law, now contained in the Services Directive, in defence of the fundamental 2. In particular, and for the avoidance of doubt, nothing in Title IV of the Charter creates
freedoms of the Treaty “free of the surrounding mediatisation which hinders the task of the justiciable rights applicable to Poland or the United Kingdom except in so far as Poland or
constitutional jurisdictions of Member States.” the United Kingdom has provided for such rights in its national law.
75
Art. 5 of the Directive 2006/123/EC: “Member States shall examine the procedures and Article 2
formalities applicable to access to a service activity and to the exercise thereof. Where pro- To the extent that a provision of the Charter refers to national laws and practices, it shall
cedures and formalities examined under this paragraph are not sufficiently simple, Mem- only apply to Poland or the United Kingdom to the extent that the rights or principles that it
ber States shall simplify them.” contains are recognised in the law or practices of Poland or of the United Kingdom.
with the fact that this Community law is incomplete in its scope. Internally,
the economic Constitution is modulated by fundamental rights, guiding
principles and other provisions which permit both the realisation of
political pluralism and the protection of other values that mirror our
configuration as a welfare state. Insofar as the European Union is failing
to progress in the political construction of a unified territory for citizens’
rights accepted uniformly by Member States77 but maintains the process
of economic construction, there is a risk, of which the Directive 2006/123/
EC appears to be an example, that economic freedoms can challenge the
rights which, paradoxically, find a constitutional anchor with the maximum
level of protection in national laws. Both the legislation and Community
case law appear to treat with suspicion, and subject to a very restrictive
interpretation, many of the traditional concepts which govern the
proceedings of our public administrations or which define us as a welfare
state. But the most debateable aspect of this process is that the expansive
force apparently acquired by the freedom of establishment and provision
of services, calling social rights into question, restricting the regulatory
independence of Member States and forcing through an unprecedented
harmonisation of administrative procedures, is taking place with little basis
in the Treaty, leading to a reduction in the constitutionally valid options for
interpretation of entrepreneurial freedom.
for a territory? We have no intention of entering into a detailed analysis of
this issue here, but merely wish to highlight a few points arising from an
empirical comparison of experiences within the EU itself.
Larger states have certain advantages, particularly those resulting from eco-
nomies of scale and strategic factors, but there are also numerous negative
factors and inefficiencies: a more congested administrative apparatus, which
can be a major obstacle to improvements to how well economic activity
functions; large countries, which often consist of a heterogeneous group
of regions each with its own culture, history, economy, characteristics and
needs, multiply the difficulties when responding to certain conflicts.
5 Stateless Without going into this complex debate in depth, we will limit ourselves
to analysing the economic behaviour of countries with higher and lower
nations and populations in the European Union and indicating the differences between
them, and their factors for success. We are basing our analysis on the study
small countries by Castellanos i Maduell et al. (2012).
in the EU From the data gathered by these authors, in the European Union, there is
no evidence that countries with higher populations have greater economic
growth or higher per capita income than countries with smaller populations.
In fact, quite the opposite can be observed, since the countries with a
population of less than 10 million have, for practically the last decade,
maintained higher GDP growth than those with a greater population79.
However, it is not just that their growth rates have been higher, but they
An important aspect of the economic governance of the EU is the internal have also suffered a more acute recession during the current crisis, very
arrangement of this European space and, in particular, the states, nations
and regions which make it up. It is clear that the status of state institutions
78
Various benefits can be drawn from an economy with a large population. Thus Alesina
is not the same within the EU as it is in sovereign states without integration (1993) argues for example that the per capita cost of the public goods provided in these
agreements. In any event, they continue to play a leading role in the countries is lower, while they have greater capacity for development of major military pow-
definition of national strategies and in their capacity to draw up their own er, or that this size also affects their economy; in this manner, in large areas of the market,
the author argues that productivity should be greater and thus these countries should be
policies and also to negotiate at Community level to protect their own wealthier. However, there would also be a greater redistribution of wealth, not merely from
national interests (Rodrik, 2012). This raises the question of the potential the richer social strata to the poorer, but also from the more advanced regions of a given
significance for stateless nations of being able to achieve that status, state to the less developed, which would be a major incentive for the development of an
integration process.
recognition as a state. In this case, the old debate on the issue of size as a 79
Setting a figure above or below which a country should be classified as small or large, i.e.
condition of viability to form a state loses its relevance, if it ever had any78. with a higher or lower population, is a complex issue and in any event the range of behav-
But other aspects are becoming more important: not merely culture, identity iours and situations in small and large countries is very broad; the differences between Fin-
land, Ireland, Denmark, Estonia, Slovenia and Latvia are very significant, for example in
and politics, but the economic arguments themselves. In other words, does terms of per capita income and indeed in economic model, and the same applies to coun-
having the institutions and the status of a state favour economic dynamism tries like France, the UK, Spain and Germany.
probably because their economies are very open and dependent on the that for larger countries, the contrast is striking. The average growth rate
international market, while their per capita income is also greater than that over the last eleven years in Germany has failed to reach 1%, Italy has had
in countries with a higher population. maximum growth of 2%, with a similar figure for France80. However, these
three large countries stand in contrast to Spain and the UK, which had far
Graph 31: Percentage growth in GDP 2002-2010 investors higher growth rates until the crisis broke in 2008. Clearly, there are many
other factors beyond size that influence the economic development of
a society. It is not enough to reduce the success of a given economy to a
collection of isolated factors.
If we carry out a similar exercise to compare the economic trends in the

smaller countries and the ‘stateless nations’ of the EU, we can observe that
the former have a significantly higher growth rate than the latter. This
suggests that the fact of having one’s own state apparatus within the EU
acts as a positive factor for growth, which goes to highlight the pragmatic
aspects of the nationalist claims of these nations and is an issue which
should be very seriously assessed when the time comes to define the
institutional architecture of the EU in the future and when planning the
Source: Castellanos i Maduell, A. Paluzie i Hernàndez, E. Tirado i Fabregat, D. (2012) “Dimensió dels
governance of the EU.
Estats I Comportament Econòmic a la Unió Europea” Josep Irla Foundation, May.
Once again, these results support our view on this phenomenon given
Graph 32: Per capital GDP in 2010 (PPS euro) several years ago in Vence (2005): “Given the simplistic nature of neoclassical
economic models, an extensive literature is emerging, both theoretical and
25.500
empirical, showing the importance of what is known as ‘social capital’, the
25.000
24.500 density and stability of social relations, the institutions of cooperation,
24.000 etc. that contribute directly to economic dynamism. By the same token,
23.500 diversity – particularly the diversity of economic configurations across the
23.000
various territories – is also revealed to be a positive factor for economic
22.500
growth, once again giving the lie to the global uniformity promoted by
22.000
21.500
the neoliberals (Lundvall, 2002; Vence & Metcalfe, 1996). Furthermore, the
21.000 relatively favourable trends in the smaller states of the European Union
EU-27 more than 10M inhabitants less than 10M inhabitants over the last fifteen years makes it possible to think that in an integrated
Source: Castellanos i Maduell, A. Paluzie i Hernàndez, E. Tirado i Fabregat, D. (2012). “Dimensió dels economic space the existence of smaller states could have the benefit of
Estats I Comportament Econòmic a la Unió Europea” Josep Irla Foundation, May
promoting growth and cohesion; various explanations could be found for
that empirical evidence but it could have a lot to do with greater adapta-
Economic growth in the smaller EU countries has been very high over the bility, congruence and plasticity of the institutional structure vis-à-vis
last decade, particularly in the Baltic states and Ireland. Estonia managed a smaller and more coherent economic base (compared with the great
GDP growth in 2006 of some 10%, Slovenia 6.8% in 2007 while the ‘Irish heterogeneity typical of larger states), which simplifies the development
Miracle’ involved rates of 5%. Conversely, economic growth in Denmark
has been highly irregular and very low at times (over the last eleven years
the average annual growth has been 0.88%). If we compare this data with 80
IMF data
and implementation of policies more appropriate to the changing needs
for transformation of the productive fabric. The proximity and unique
status of sectoral interests in the smallest economies would simplify the
introduction of more incisive policies which, by contrast, could be counter-
productive for some sectors and territories in larger states. In the same
manner, in communities with greater social and cultural homogeneity it is
possible to reach a level of solidarity and, thus, of social cohesion which
is sometimes more difficult to achieve in larger, internally more hetero-
geneous, states.” (Vence, 2005, 307-8)
Graph 33: Gross domestic product (GDP) at current market prices at NUTS level 2
40.000
European
Union (27
countries)
35.000
Vlaams
Gewest
30.000 Région
wallonie
Bayern
25.000
Galicia
20.000 País Vasco
Cataluña
15.000
Bretagne
Corse
10.000
Valle
d’Aosta/Vallée
5.000 d’Aoste
Provincia
Autonoma
0
Trento
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Castellanos i Maduell, A. Paluzie i Hernàndez, E. Tirado i Fabregat, D. (2012) “Dimensió dels
Estats I Comportament Econòmic a la Unió Europea” Josep Irla Foundation, May
is the fastest and most efficient way to achieve economic development,
or else to make use of all its capacity and scope for action to define a
national strategy, responding to the desires expressed by the population
and the free exercise of sovereign, democratically expressed will. Each
time, the existence of a dilemma becomes clearer, between accepting the
pre-eminence of a globally deregulated market and defending political
democracy as the way that a society decides on its own destiny, making
the main choices of economic and social policy. Dani Rodrik (2011) has with
great clarity described this complex situation as a real and fundamental
trilemma: the current global economy is trapped in a trilemma that
requires us to renounce one of the three factors, hyperglobalisation, the
nation state and democratic politics, if we want to preserve the remaining
6 Economic two. “This menu captures the fundamental political trilemma of the global
economy: we cannot have hyperglobalisation, democracy and national
governance and self-determination all at the same time. We can have, at most, two of the three.
If we want hyperglobalisation and democracy, we have to abandon the nation
democracy state. If we maintain the nation state and also want hyperglobalisation, we will
in the EU: threats

have to forget about democracy. And if we want to combine democracy with
the nation state, say goodbye to deep globalisation” (Rodrik, 2011).
and challenges Thus, taking account of the characteristics which define globalisation, we
can conclude that any country that decides to commit itself fully to this path
will have to submit to the interests of a dominant capitalist oligarchy and
establish a model of economic growth within the parameters set by transna-
tional capital, and the financial sector in particular, thus renouncing the ability
to take the satisfaction of the needs and aspirations of the majority of the
population as a fundamental objective, thus losing freedom and the ability to
take decisions. It is for these reasons that we say that deregulated neoliberal
6.1. Globalisation, Capitalism and Democracy globalisation is fundamentally incompatible with a truly democratic state,
since the logic of the former will always be imposed on the latter.
The phenomenon of globalisation has in recent decades acquired an
unprecedented scale, generating a socioeconomic situation which goes Now, rejecting this option does not mean demanding either autarky or
beyond the understanding of a majority of the population, which changes strong protectionism which leads to countries being permanently sealed
perceptions of the causal relationships that affect their lives, individually off from the outside world. Indeed, the globalisation process has not
and collectively and, in particular, which change their perception of the followed a uniform path throughout history and has appeared in many
actual degrees of freedom of decision for a country or real effectiveness different versions, some far more beneficial than others, allowing greater
of the tools available to states to control and implement those decisions. compatibility with decisions made by a state when giving a certain degree
Each time, the states have to face an important dilemma; act in a way that of preference to the interested of the majority of the population over the
passively accepts the consequences of the laissez-faire that brings globali- interests of an oligarchy. Certainly, these versions depend on many factors,
sation on its heels, believing or making believe that going with the flow not least the stage which the process of accumulation of capital has reached.
6.2. From Bretton Woods to What was then required was for states to achieve adequate balance in their
Financial Globalisation economies, which would provide a boom and stability in international
trade. In this manner each government moved towards policies whose main
If we look at the economic reality of the last sixty years, we can see the objective was full employment, creation of the welfare state, technological
two polar models of globalisation clearly enough. First, a post-war period, development and what was called for was economic growth that was
characterised by international regulation of systems which, to a great primarily at the service of human development and not purely the interests
extent, perhaps for the first time subordinated big business to the interests of big business. However, the striking feature of this period was not just
of the individual states. The other period starts in the 1970s and is charac- the experience of economic development, but also movements for emanci-
terised by the precise opposite. pation and independence calling for the end of colonialism and freedom for
those peoples. This way each country was ‘relatively free’ to design its own
The period from the end of the second world war up to 1971 is known as version of capitalism which was best suited to its economic, socio-political
the Bretton Woods system and is was characterised by an unprecedented and historical situation. Thus we can observe the models which took shape
boom in economic and social development. However, as we will so, one in Europe since the second world war, identifying: Sweden, Germany,
of the pillars on which its success was constructed was to set limits on the France or Italy, each with its own characteristics. What was going on during
phenomenon of globalisation, to a large extent adopting Keynes’s idea that this period? What happened was that the phenomenon of globalisation
it was not possible to have liberalisation of trade, financial liberalisation and was restrained within certain limits in the interests of a form of economic
monetary liberalisation (free movement of exchange rates) simultaneously development which was better distributed between the different strata of
without risking an explosive instability that would render the capitalist the population.
system unviable. The intention of the Bretton Woods agreement was to
encourage international trade through the creation of certain bodies: the Thus, to push for a more complete form of democracy and a certain respect
IMF, GATT, and World Bank, which established a series of agreements which for the freedoms of different peoples, globalisation had to be reined
provided considerable stability and an exhaustive system of regulation in. Of course, this ‘consensus’ was not achieved easily; it was necessary
which also allowed individual states to protect their own interests. In other for big business to pass through a deep crisis, the crash of 1929, which
words, the priority was put on a model of growth based on internal demand, weakened it profoundly, the shock of extreme choices represented by
where the expansion of production would have to be measured against the fascism that plunged the world into the Second World War, while at the
expansion of internal demand and, in particular, of consumption, such that same time the existence of the USSR served as a containing factor and a
this type of growth was primarily associated with an improvement in the threat to the maximalist pretensions of private capital. However, during
welfare of the population, albeit a concept of welfare based primarily on those 25 supposedly golden years, capitalism saw itself as on the ropes,
consumption and hence on consumerism. International trade and currency and, certainly, little by little the conditions were being created for a drastic
flows were a vital complement for the development of this model, but they new change in the configuration of the global system, making this period
were not the driving force behind it. appear as just a minor interlude in the history of capitalism.
As Rodrik (2009) notes: “the new system was based on a delicate The last forty years of our history have showed us the boom of financial
compromise: allowing sufficient progress and international discipline globalisation, which found its defining moment in the proclamation of
in the interests of liberalisation of trade to guarantee lively global trade, the ‘Washington consensus’, which was to serve as a banner for extreme
but allowing individual countries to respond readily to their social and globalisation, the current form of financial globalisation now considered
economic needs. International economic policies needed to be subordinate as the ‘only game in town’ and a panacea for economic development. It
to the objectives of national politics – full employment, economic growth, was proposed that opening up a country to the global economy in every
fairness, social protection and the welfare state – and not the opposite.” respect would be highly beneficial for rapid economic growth, as it would
provide them with a resource almost as important as oil: credit. Everything
should be designed to facilitate the complete freedom of circulation of manner states transformed themselves into ‘Friedman states’; they simply
capital, which would become a major factor in the uncontrolled expansion introduced various reforms that were as attractive as possible to incoming
of financial capital, with the pre-eminence of short term flows and global capital, involving the minimum degree of state intervention in economic
financial speculation. matters and allowing the state only the freedom of action to configure the
country internally in the service of capital. In this way financial globalisation
Harvey (2007) notes that this consensus was constructed on the sole basis showed us once again that this phenomenon is incompatible with a truly
of the opinions of the USA and the UK, transformed into the new roadmap democratic state, as this has submitted to the interests of financial capital
for the imperialism of the 20th century, coercing the economic policies of at this stage.
a large majority of the countries of the world and the process of the con-
struction of Europe, which, in the Maastricht Treaty, held the main mirror of However, this situation has brought to our attention the resounding failure
the Washington Consensus: “In it was defined the American and British models of the Washington Consensus. Harvey (2007) goes on to add: “Financial crises
of neoliberalism as the answer to global problems. Considerable pressure was are endemic and contagious. The debt crisis of the 1980s was not limited to
put on Japan and Europe (not to mention the rest of the world) to adopt the Mexico, but had two global manifestations; while during the 1990s two series
neoliberal path. Thus it was Clinton and Blair, from positions on the centre- of interrelated financial crises broke out, generating a mark against unequal
left, who most contributed to consolidating the status of neoliberalism both neoliberalisation. The ‘tequila crisis’ which hit Mexico in 1995, for example,
nationally and internationally. The creation of the World Trade Organization spread practically instantly and devastatingly to Brazil and Argentina. Its
was the decisive point in this final institutional thrust (although the creation of shockwaves were also felt to some extent in Chile, the Philippines, Thailand
the Free Trade Agreement and the earlier signing of the Maastricht accords in and Poland. It is hard to explain exactly why this particular pattern of
Europe were also significant institutional changes with regional scope). From a contagion arose since speculative movements and expectations in the
programmatic point of view, the WTO set the criteria and rules governing inter- financial markets are not necessarily based on pure facts. However, the
action in the global economy. however, its first objective was to open up the absence of regulation of the financialisation process which was under way
largest possible part of the world to the totally unrestricted circulation of capital undoubtedly posed a serious risk of provoking contagious crises.”
(albeit with a clause making reservations on the protection of the most impor-
tant “national interests”), since this laid the basis for American financial power, The successive financial crises that followed in Latin America and Asia have
and that of Europe and Japan, to exact tribute from the rest of the world.” stood as the leading example of how the phenomenon of globalisation
needs to be regulated and limited, not just to promote a true democracy
In this manner the governments of many regions set to work carrying in different countries, but also in order to try and bring the maximum glo-bal
out a range of reforms: opening up trade, eliminating any sort of barrier macroeconomic stability. The IMF has already admitted that some mea-
to imports i.e. the removal of tariffs or any other type of protectionist sures taken under the Washington Consensus have gone too far and that,
measures, liberalisation of every possible sector, privatisations of for example, controls on capital markets are more than useful for economic
companies and public services, reforms to the labour market to eliminate stability81, which is surprising from the guardian body of neoliberal orthodoxy.
any inflexibility concerning contracts and dismissal, deregulation, removal But many countries are already starting to become aware of the issue presen-
of state obstacles to investment and what has been most important, the ted by financial globalisation and the majority of them have in fact mana-
liberalisation of capital markets, which involves the elimination of barriers ged to achieve significant economic success, since they have managed
to the entry of foreign capital. to a great extent to avoid the brutality of this version of globalisation.
This latter may be one of the most important and controversial measures,
since under Bretton Woods it was fundamental that the entry of foreign
capital was controlled by governments. But at one stage where the dominant
form of business was financial capital, this policy was fundamental. In this 81
See the IMF report (2010) Capital Inflows: The role of controls.
This is the case for a large majority of Latin American countries, such as establish via international bodies, forums, communications media and mass
Brazil, Ecuador, Bolivia, Peru, Argentina, which were devastated by the movements, has given them vast, historically unprecedented influence,
theories of the Washington Consensus over many years and the majority of making it increasingly difficult to escape this current form of globalisation.
the population has taken note of the importance of being able to unshackle For that reason, in order to devolve more autonomy, sovereignty and real
themselves from this model for true prosperity and economic development. power to democracy, it is vital that there should be deep regulation of the
This certainly runs counter to the orthodox message that development in international agreements, treaties and laws governing global economic
these counties is the result of the liberal economic measures promoted activity, since otherwise it becomes practically impossible for a country to
by the Chicago school, Wall Street or bodies like the IMF, and indeed quite be able to resist the pressures and demands of the currently dominant form
the opposite. These countries were aware that all these policies and such of capital, financial capital.
excessive globalisation had done nothing other than damage to the majority
of the population, turning them into mere colonies of the twentieth century, From the beginning of the financial crisis in 2007-2008 the democratic
where financial capital, allied with the ruling classes in all these places, had deficit in economic decision-making has become more and more obvious
free rein to apply its methods of accumulation. It is certain that opening up at both global level and in the European Union. A crisis as global as this
trade could end up beneficial, where it can find in itself to, to some extent, one, which is provoking a major change in the global capitalist dynamic
respect the decisions and internal realities of a country and where the power calls for the use of instruments intended to respond to the specific needs
of the most dominant capitalist classes can be limited. The result, once again, of each country. However, the status acquired by the G-20 in the taking
is that financial globalisation was incompatible with a truly democratic state. of decisions that involve practically every country in the world, or the
existence of meetings like the Davos forum attended by representatives
But perhaps we can find the most glaring example of the total economic of the largest multinational corporations and the heads of government
breakdown threatened by the Washington Consensus in China. The Asian of the main economic powers, where no measures with legislative force
giant refused to apply the principles promoted in this treaty and conducted are taken directly but where a series of agreements are reached which
its own transformations suited to its particular internal context. Various are intended to promote and defend the interests of those present and
authors were quick to say that China’s renunciation of the Washington which subsequently form the roadmap for different governments to follow,
Consensus was a terrible error for their economic aspirations and that China, cannot but demonstrate clearly the existing power relationships and the
acting this way, would never be able to transform itself into a real economic abusive manner in which the interests of a dominant class are imposed on
power. Then the Asian crisis of 1997 struck and showed that the economic the vast majority of the population of the world, on the pretext that that
policies followed by China had been the right ones. China’s success lay in what benefits some will bring with it benefits for others.
not having applied the shock therapies and in the need to recognise the
importance of a gradual process which would bring the greatest possible Thus, in recent years the use of instruments which seek to give the system
stability. In other words, the main objective of the Chinese was to achieve the a more democratic nature, such as the United Nations – although its
maximum possible well-being for its people, while the remaining countries composition is some way from being democratic – has been pushed down
acted solely to meet the needs of financial capital (Stiglitz, 2002). to a secondary level, losing relevance as a mechanism to press for greater
respect for the freedoms and needs of the less developed nations.
However, although many countries had managed to get away from the
most extreme policies, there was no doubt that in practice the absence
of international regulation that would limit the excesses of financial 6.3. Financial globalisation and democracy
globalisation would to a great extent hinder the success of those countries’ in the European Union
policies, leading to their having to give in to many of the demands of
globalised capitalism. Furthermore, the globally networked power Europe has increasingly incorporated the wave of liberalisation and
structure which the most dominant capitalist classes have been able to globalisation. The most radical steps in this direction occurred when the
consequences of the neoliberal excesses in the American continent were the existence of mechanisms to make good these losses, or those which did
already clear. If, since the end of the 1990s, the main economic advances in exist were extremely weak and meagre. For example, the debt crisis which
Latin American and Asian countries were characterised by the adoption of has engulfed Europe since 2009 has exposed the weak capacity of Member
development paths that to a certain extent excluded the most radical tenets States to introduce the policies they think most appropriate to their circum-
of financial globalisation, the European Union has been characterised by stances, and they have been forced to submit to a battery of measures which
the opposite phenomenon since the Maastricht Treaty. The most predatory in no way correspond to democratic power, but quite the contrary. All the
aspects of this version of globalisation were present in the ideological basis measures imposed were designed not to meet the needs of the majority
that gave rise to the EU; financial capital became the determining power of the population but to serve the interests of a financial oligarchy and
and the less advanced states simply had to comply constantly with the continue to perpetuate their modus operandi, which they consider to be the
rules and conditions it imposed, using the leading countries - in practice the most appropriate although it does not respond in the least to the priorities
United Kingdom, Germany and France - as a vector. The option for neoliberal of the countries which are in the worst situations. The Europe 2020 Strategy,
globalisation was a distinctive feature of the European Union, taking its most the Stability and Growth Pact and the Euro Plus Pact have only weakened
radical form in the least developed countries, with a more fragile social pact government action and do not meet the needs of the various sectors of
and less well-established institutions, which finally led this bloc of States into society. In this way they put the interests of the few ahead of those of the
a serious economic situation. Certainly, the measures adopted in response vast majority. But society is becoming more and more aware of what is
to the crisis of 2007-08 have only weakened the economic situation, but the happening, and several social movements have emerged to demand more
most worrying aspect is the fact that they are weakening the institutions, democracy and less abuse of power: not just traditional organisations on
perverting the role of representative and government institutions so that it is the left and workers’ organisations, but also new movements to contest this
now democracy that is experiencing a real crisis in the Member States which decline in democracy and institutional and political representation (as in the
are in the worst position. What can be observed and perceived by ordinary case of the 15-M Movement in Spain, the Greek social movements, etc. which
citizens is that financial capital continues to accumulate power and that the have joined those political movements which have always emphasised the
subordination of the decisions of the state to this capital is become ever importance of sovereignty as the basis for the democratic exercise of power).
more radicalised.
The European Union has thus established itself as one of the greatest
During these years the Member States of the European Union have supporters of globalisation, having also - especially since the start of the
surrendered a series of powers and have lost many of the instruments crisis - forgotten the real meaning of democracy. All the measures and
necessary to defend themselves in an economic crisis. A highly significant reforms which have been implemented, or which are in the process of
example is the loss of democratic sovereignty due to the adoption of the being approved, go in the opposite direction from addressing the needs
single currency. One of the main powers of a state is the capacity to print of the populations which have been worst hit by the crisis, since they
money; another would be the use which is made of this capacity, which prioritise the interests of financial capital over those which ought to be
affords a state great freedom to apply economic and social policies. A the real objectives of a state: job creation, the welfare of the population,
country without a sovereign currency loses capacity and independence in technological development, education and health. The problem is that we
its decision-making, and, in consequence, its democracy is subject to crucial are led to believe that what benefits a dominant capitalist class benefits the
restrictions which limit the exercise of the sovereign power of the people. population as a whole; this is proving to be completely false due to the way
that capitalism has emerged and to its principal characteristics. This means
This can be extended to other areas which affect basic economic institutions. that we need to move away from the existing form of the EU, or achieving the
And this is what has happened during the construction of the European general well-being of the majority of the population will be impracticable.
Union. The continuous surrender of powers has led to a weakening of the
states and a loss of the democratic character of many countries, since this With all this the EU has reached an impasse in which either we take a step
transfer of sovereignty from the states to the EU was not accompanied by backwards in the process of building Europe, returning to the states -
including possible new states - the key powers for economic governance
which they have surrendered in recent years, or we move towards greater
integration, entirely redefining the assumptions which govern the form of
the European Union. This would demand the establishment of structures
for federal government with the powers and functions necessary for
economic governance capable of putting democratic institutions above
market forces.
But the truth is that we have reached a real crossroads, and it is not at all
clear that there is any majority in the EU or in the eurozone for taking a
clear path. There are serious difficulties which make it impractical to
continue on the current path, but, at the same time, there is no consensus
around an alternative way forward. Disappointment with the results and
consequences of inconsistent integration is leading to growing disaffection
and even rejection of this model of Europe right across the social and
political spectrum. Current divisions are making it really rather unlikely that
the European Union will move, at least in the short term, towards a greater
integration which is focused on finding the most democratic solution
possible to the severe problems we are now experiencing. Economic, social
and even cultural circumstances are very heterogeneous, and the crisis has
only accentuated these divergences. If we wish to make progress towards
greater integration, there is no doubt that the Member States must begin
to surrender some of their power, since the interests which govern the
dynamic of the EU cannot be based on the interests of the most powerful
countries, nor on the benefit of a financial oligarchy. Greater integration
must mean that the objective of the EU is to pursue the maximum possible
well-being of the majority of the European population.
economic circumstances and their real development within the framework
of the rules and institutions which have been created over recent decades.
Because, in the final analysis, the effectiveness of economic governance
depends on its adequacy and congruence with the economic base and the
evidence provided by the evaluation of its results.
Monetary Union - the eurozone - is composed of 17 different countries whose

structural heterogeneity, in terms of disparate income levels, productive
configuration and macro-economic dynamics, allows us to distinguish at
least three large and very different groups; one of these principally comprises
the countries in the north of the European Union (Germany, Finland, the
Netherlands, Austria, France and Belgium), which are relatively similar and
7 Conclusions very competitive at a global scale. Another group is that formed by Portugal,
Italy, Ireland, Greece and Spain, which are currently experiencing severe
and recommen- macro-economic problems which expose some economic structures which
are substantially different from the preceding. Finally, a third bloc consists
dations of the post-Soviet states, in particular Latvia, Hungary and Romania, which
stand a long way from the two previous groups in terms of convergence, but
which also faithfully reflect the strategies pursued by the European Union in
the Member States which are not a part of the core.
The essential reality has undergone changes over the last decades, but
continues to represent the very weak real convergence existing between
these different groups of countries. This persistent heterogeneity and
The economic crisis which is shaking the European Union has laid bare inequality which characterises the EU is something that goes far beyond
the profound inconsistency of the Community’s institutional architecture, the inevitable and beneficial diversity that derives from the particularities
especially that of the euro, the ECB and the Stability and Growth Pact. The of each Member State.
drift of the financial crisis towards a crisis of sovereign debt has definitively
exposed the fact that the eurozone is not an optimal monetary area and The severity of the external and internal imbalances, both productive
that its institutions are not appropriate to address a crisis on this scale. and commercial and financial, experienced by countries on the European
Financial instability eventually affected the stability of public accounts periphery during this crisis revealed that every state has its own needs
and the resolution of this problem is difficult without access to the usual resulting from its productive structure, and that the European Union as it
instruments of public finance, monetary policy and a central bank as lender currently exists is incapable of accommodating all the countries, giving
of last resort. Consequently, the financial crisis was transformed more priority to the needs of some over those of others. This harsh reality forces
obviously that in other parts of the world into a political and institutional us to think more realistically than ever about the immense complexity of the
crisis, forcing us to rethink essential aspects of the integration process and, process of building Europe. The facts reveal the consequences of failure to
therefore, of the economic and political governance of the Union. produce genuine convergence between the different countries, and the fact
that there are no genuine mechanisms for territorial reconstruction focused
The first element in understanding and discussing the problems of economic on resolving the problem. Rather the contrary. The prevailing policies are
governance in the EU is recognition of the essential nature of the underlying those which economically bind the least advanced countries, with the
principal objective of ensuring that the most developed countries will not be For this reason such a scenario could be rejected, sooner or later, by the
impaired by the difficulties of the weakest, which only reinforces the unequal worst affected countries (we cannot ignore the irreducible reality of Europe,
strength of the latter. with deeply-rooted nations, languages and cultures which prevent us
from conceiving Europe as an open space for mobility in the same way, for
Hence, if we mean to make progress in this project, we must design example, as the United States). Therefore, over and above the short-sighted
mechanisms directed at a genuine redistribution of wealth between adjustment measures imposed in the heat of the crisis, a viable project for
Member States, with the aim of achieving real convergence. And this will the EU would require the establishment of strong mechanisms for social
inevitably take place through a redistribution of productive capacity and and territorial cohesion, not merely by transferring compensatory funds by
jobs. It would also be advisable to provide the governments in the less setting up a system of incentives and profound changes in the policies of the
developed geographical areas with the capacity to protect and stimulate internal market with a view to preserving productive capacity and creating
the sectors which are strategic in their regions and which have a direct link jobs and income in the peripheral areas of Europe.
with the territory. Creating conditions for maintaining productive capacity
and employment in the periphery, increasing attractiveness and the locally The experience of recent decades shows that the Structural Funds and
generated development of new activities, call for bolder regional and the Cohesion Funds are obviously inadequate instruments with which
industrial policy measures, which clashes with the straightjacket of policies to strengthen and guarantee the territorial cohesion of the EU. As much
for liberalisation and free competition which characterises the European because of their excessive focus on infrastructure projects – which in many
Union. The problem is that not only do the most powerful countries not cases encourage investment of little strategic interest and even less social
encourage such policies, they are openly suspicious of them; and they use benefit – as because of their gradual reduction, and also because of their link
the Community’s institutions for the implacable imposition of liberalising compliance with the stability pact and the generalised use of co-financing,
policies, leading us to think that the process of building the European Union, these are instruments which contribute to cohesion to a very modest degree.
and taking account of its economic situation, could be seriously endangered
in the medium term. In the light of the failure of these ‘cohesion’ policies, it is necessary to
introduce more ambitious policies to stimulate the territories of the EU
The problem of cohesion is undoubtedly key. Not just for reasons of justice, which will enable them to participate actively in generating employment
or for political reasons, but because without cohesion it is difficult to and producing wealth. Although there are no magic formulas to ensure
consolidate a single currency area, guarantee economic viability to countries cohesion and territorial development within an internal market, we must
on the periphery (which means that their population is not coerced into take up the challenge to design more obviously incentivising instruments.
forced mobility which would lead to the depopulation of these countries The recovery and adaptation of measures and instruments used previously
with their languages and cultures). If we accept that a profound liberali- in regional development policies nationally could be of great importance,
sation of the EU, creating a genuine single market, will cause a trend towards if these were redefined and re-scaled at the European level. Fiscal
the geographical concentration of economic activities in the areas with the incentives to industry or other sectors, the creation of financial institutions
greatest strengths, it is reasonable to think that it will be difficult in the long to stimulated territorial development (regional banks, etc.), direct aid,
term for the less developed areas to experience real growth in productive exceptions to competition policy, limits on the universal and invasive
capacity and sustainable employment. Rather, there is a risk of the desertifi- nature of the Bolkestein Directive, more flexibility in public procurement
cation of significant areas of the European periphery, which will force us to and purchasing, could all be other examples of ‘heterodox’ policies in the
regard as normal a continuous loss of jobs in some countries and regions, existing Community context but could turn out to be essential to guarantee
with strong migratory flows from some countries to others and a highly a minimum of diversity within the EU, to avoid the trend towards the
regressive demographic impact in some of these countries. This scenario geographical concentration of activities and the population and promote
would entirely upset the balance of the external and public accounts and, a genuine convergence which would guarantee a degree of cohesion
above all, could involve an unacceptable social decline. between the states, nations and regions of the EU.
These instruments do not conflict with measures for the active promotion unregulated markets means that in the medium to long term the situation
of innovation and competitiveness; rather they could be the additional will be unsustainable, for developed and developing countries alike.
element which makes all the efforts in this direction effective. Thus,
rethinking and adapting industrial policy, getting away from a universal, The evolution of the European integration process in these last two decades
dogmatic and bureaucratic competition policy; rethinking and adapting has been determined by the neoliberal agenda which has been normalised
fiscal and financial incentives to strengthen investment capacity and the in the Community since the late 1980s. The Maastricht Treaty was the
ability to attract investment by the European periphery appear to be urgent point of departure for the predominance of the neoliberal ideology in the
tasks for improving cohesion and make the process of European integration European Union, and since its adoption the policies implemented have
sustainable. followed a neoliberal line which has strengthened with the passage of time.
The gravity and depth of the current crisis thus force us to reconsider A comparative analysis of the experiences of different EU states suggests
what kind of union we want: a multi-speed Europe, clearly asymmetric, that those which have been least radical in the adoption of neoliberal
with conflicting interest blocks and where the weaknesses of the most policies ultimately find themselves in a more solid economic situation and
disadvantaged Member States could provoke a risk of political rupture; hence very probably their lesser exposure to the crisis. Neoliberal precepts
or an EU that is attempting to more forward as a space of cohesion, with can generate a short-term trade boom, exploiting the loopholes of liberali-
sound democratic institutions, were the measures adopted lead towards sation and deregulation, but the problem lies in the fact that in the medium
genuine convergence between the different countries. The development of term this fragile and opportunistic boost to the treasure-hunters runs out
a strategy to strengthen cohesion forces us to rethink the relevance of the of steam and gives way to a loss of investment stimulus in the productive
territories and the difficulties of large central states in guaranteeing internal economy and an excessive vulnerability to the vagaries of credit and the
cohesion or convergence, and to consider more deeply the function and market. The primacy of short-term evaluation criteria and the inevitable
the opportunities of small countries and stateless populations within fluctuations due to deregulation result in very modest average growth
the EU. Empirical evidence shows that small states have better results in rates and recurrent crises. This is not something which we are experi-
terms of economic growth than either large states or ‘stateless nations’, encing for the first time in the EU, since recent history is full of corrobo-
suggesting that an institutional configuration based on smaller states rating examples. Without going back to the general experience of the
would not only have the merit of respecting the national aspirations of Great Depression, we can find an illustration in the policies implemented
many of the stateless nations but, in addition, would strengthen Europe as in Latin America in the 1970s, or the events in Asia during the 1990s, or the
a whole, stimulating growth and bolstering cohesion. current deep crisis arising in 2007 on Wall Street, which all demonstrate the
inability of the neoliberal model to sustain medium to long-term economic
On the other hand, in an extremely competitive global environment, development. Certainly it is essential to remember that the circumstances
more regulation of the global economy is needed is we want greater in which we find ourselves is the direct result of this neoliberal model of
stability and if we seek to cover the necessities of the least developed European construction, based in the primacy of the financial system and
regions. It could not then be suggested that the European Union blocks the hegemony of the financial class.
or impedes the economic development of the least developed countries;
quite the contrary. Minimally distributed and fair development, both by Thus, resolving the prolonged financial and institutional obstruction
the developed countries and by the rest, should take place within a global requires a revision and a reformulation of many of the fundamental aspects
regulatory framework which guarantees some minimum conditions of of the economic form of the European Union and the resolutions adopted
balance in the process. Otherwise, the results may be satisfactory for capital in these last three years. Not just by ‘putting out fires’ on the fly, or patching
which moves with great freedom in a space with no economic borders, up those regulations which are manifestly dysfunctional, since it will be
exploiting the differences in costs, regulations and opportunities, but may necessary to reconsider essential aspects of the institutional architecture
be unmanageable for the countries and regions. The chaos generated by of the EU, and of Monetary Union in particular. In 2012 we the must make it
clear that the key problem is that the European Union, the ruling majority, is on the reduction and containment of the deficit without blocking growth
not prepared to reconsider this pattern of construction of the EU, but rather and economic development. The adoption of measures to restore balance
the opposite. The strengthening of the Stability and Growth Pact and the to macro-economic accounts cannot be solely and unilaterally based on
Euro Plus Pact merely reflects the radicalisation of the model adopted with public spending cuts, implementing harsh austerity measures, or on higher
the creation of the euro, the SGP, the Lisbon Strategy and the Treaty of taxes on average and modest income groups. Measures of both kinds have
Lisbon. an adverse impact on consumption and hence cause demand, economic
activity and employment to contract. Their effects are devastating in the
What we are living through in these years of crisis is the consequence of countries on the European periphery which have already seen several years
a mistaken diagnosis of the origin of the debt crisis and a response in the of depression which may last for years to come; what is more, the whole EU
eurozone which is equally - and selfishly - ill-conceived. The leaders of is being dragged into prolonged stagnation.
the core countries of the eurozone, especially in Germany, assert that the
crisis is the result of government debt, whereas in reality it was not fiscal In view of all this, the real Achilles heel of the institutional architecture of
spending that led to the crisis but rather uncontrolled lending by the banks. Monetary Union lies in the design and function of the European Central
Increasing public debt was thus not the cause but the consequence of the Bank (and the euro-system as a whole). Therefore, the role of the European
economic recession caused by the bursting of the financial bubble. That is Central Bank must be radically redefined, now and in the future. The first
why what we should really integrate into the EU’s institutional structure is option would be for the ECB to continue to act as it has until now, that is
not just fiscal austerity but strict prudential financial regulation. Without to say, as a body independent of states and governments whose sole aim
other changes in the bases of the model, austerity measures will not reduce is price stability and not growth, employment, or acting as lender of last
public debt but instead create a vicious circle in the eurozone. As Member resort. As we have seen, this option has a very negative impact on financial
States restrict spending, final demand and, consequently, economic growth stability and economic growth in the eurozone, particularly in a large
contract; the tax base is lower because the economy is not growing, so the number of Member States. Additionally, by acting primarily as a source of
fiscal deficit grows instead of shrinking. In reality, we have already verified liquidity for the private banking sector, its provision of massive injections
that the harsh austerity plans implemented since 2009 in the countries on into the financial system to prevent its bankruptcy have done no more than
the European periphery have not led in three years to re-establishing the give this financial system a vast quantity of resources (e.g. one billion euro
financial balance in the indebted states, or even begun to move in that between December 2011 and February 2012), thus consolidating a banking
direction; instead, they have snuffed out the timid recovery observed in model of dubious value to the productive economy and granting it great
2010 and plunged Europe into a new recession since the end of 2011, one power to coerce the policies of many governments and to destabilise the
which will last throughout 2011 and, according to the IMF’s forecasts, even economies of very many countries on an international scale.
beyond in some countries. The certain result is deterioration in public
services and greater inequalities in the distribution of wealth throughout Hence, since for the stability of the eurozone the ECB cannot continue to
Europe to the advantage of capital and the financial sector and to the act as it has so far, eurozone leaders, captained by Germany, are rehearsing
detriment of workers and those in receipt of pensions and benefits. This, possible partial solutions, developing additional instruments to make
in essence, is the root cause of the current European crisis, and prolonged good the failings of the ECB. One such is the creation of a “rescue fund” to
austerity measures will make things worse, dismantling what has been meet the sovereign debt problem in some peripheral Member States: the
called the ‘European social model’. European Financial Stability Fund (established in 2012). Its aim is to go some
way towards easing the spiral of debt in these countries, whose ‘rescue’ is
The new SGP will worsen the already complicated economic situation in accompanied by drastic public spending cuts which in practice is bringing
many countries, simultaneously involving significant restrictions on the about the collapse of the Greek, Irish and Portuguese economies. A new fund
ability of Member States to take those measures more appropriate to of greater size and scope is the Financial Stabilisation Mechanism (EFSM)
their needs to stimulate growth. There should be other policies focusing established in 2011 which should become operational in July 2012. In any
event, this solution too will only have an impact in the short to medium The neoliberal European Union/eurozone, guided by the financial sector,
term, since it will not affect many of the conflicts which lie at the heart of the is paradoxically characterised by very limited progress in the common
current crisis; in the long term these conflicts will return with increasing force. regulation of banking and finance activities. The rules and supervisory
A more progressive option is the creation of a European banking union, the systems continue to be organised mainly at national level. The role
fiscal and political union which was outlined in the discussions prior to the assigned to the ECB and the euro-system focuses exclusively on price
European summit of 27-28 June 2012, but which has not been translated into stability, completely ignoring financial stability. Just as the SGP focuses on
even preliminary agreements82. Its formulation by Germany appears to be inflation and public accounts imbalances, but overlooks real and financial
linked and subordinated primarily to the effective control of the deficit/debt imbalances. However, it was in the financial sector that the crisis erupted, as
and the surrender of sovereignty for the purpose of supervision by central a consequence inter alia of its deregulation and the lack of concern for its
authorities. This penny-pinching accounting approach does not seem likely growing instability. It was only once the crisis had begun that the Community
to define a future project for the European Union. This conservative approach institutions began to develop more stringent regulation of this sector. The
of retaining the ECB’s status and merely creating funds to promote rescue seven measures presented above, some of which are under debate in the
and austerity policies leads to a brick wall for the economic development of Parliament, represent the first steps towards increasing financial control
many eurozone countries, and may result in its break-up in the current form. and supervision in Europe. The new MiFID directive and the regulation on
measures against market abuse, the transparency directive, the reform of
The second option would be to bring about significant changes in the way the audit sector and ratings agencies or the laundering of Venture Capital,
the European Central Bank works: that is to say, this organisation should etc. are all necessary measures although they are late to arrive and of
behave like the majority of Central Banks in developed countries and adopt questionable scope and content. The main problem is the scant ambition
the same objectives. The ECB’s objective should not be limited to controlling (or vision) displayed by the EU, which appears to condone the existing
inflation, but should serve the economic needs of the various countries, form of the financial sector, and merely giving it a facelift. No profound
for example by acting as lender of last resort. But for this second path to changes were proposed, over and above the reforms to promote greater
be possible, two main problems must be overcome. The first is that today’s openness (with the aim of achieving total convergence), transparency and
Germany vetoes any attempt to change the role of the ECB, and especially the regulation of certain operations. The highest European authority thus
its conversion into lender of last resort. The second part is that, were the followed the guidelines set by liberal economic rationale, according to
ECB to assume a wider range of tasks, there would have to be much greater which the problems of the European economy are the fault of regulation
integration and cooperation in the eurozone: it would need the backing of and not errors in the system and its architecture.
a joint European treasury, and that in turn would demand the creation of a
genuine European government, which would be a qualitative leap forward It is obvious that most of these directives go some way to correcting
towards political union. This would require a new Treaty, and in view of the problems which deserve attention, but they do not address the essential
basic political trends in the Member States it is difficult to envisage this problems of the financial system in today’s economy. Firstly, the new
scenario fraught with difficulties. regulation has not addressed the evident inability of the financial system
in most European countries to attract credit towards financing productive
activities, particularly in the case of SMEs. It does not seem realistic to think
that the problem of credit rationing from which European SMEs are suffering
82
This Summit, which had aroused high expectations, had only meagre results. The could be resolved by using risk capital funding or by alternative securities
document presented by Barroso (European Commission), Van Rompuy (European
Council) and Draghi (ECB), in which they proposed the creation of eurobonds along
markets. It may certainly be the solution for some particular sectors (IT,
with some steps towards political union was eventually rejected or shelved. They just biotechnology, etc.) but most SMEs, especially those which operate in more
about managed to agree on measures to untie aid to the banks (from the European traditional sectors, will be completely unable to access these sources of
Stability Mechanism) from the public debts of the respective states; the creation of a
European banking supervisor and the possible purchase of bonds by the ECB in the sec-
finance and will continue to rely on dwindling bank loans. This might be
ondary debt market, and the activation of a modest growth fund of €120,000 million. achieved by a different set of measures, such as the separation of financial
entities according to the business they conduct (specialisation vs. universal state. But the most debateable aspect of this process is that the expansive
banking), the strengthening of public and regional development banks force apparently acquired by the freedom of establishment and provision
or other measures intended to increase the volume of bank lending. of services, calling social rights into question, restricting the regulatory
Secondly, there is genuinely strict regulation of tax havens, beginning by independence of Member States and forcing through an unprecedented
those that are within the EU itself or in ‘special’ territories situated within its harmonisation of administrative procedures, is taking place with little basis
borders. Thirdly, there is no real advance in the control of complex financial in the Treaty, leading to a reduction in the constitutionally valid options for
products such as futures or derivatives. They do not tackle the problem of interpretation of entrepreneurial freedom.
financial innovation or regulate products and practices with the potential
to distort the market or create bubbles which disrupt the economy, such All the above derives from the analysis of the process of hyper-globalisation
as high-frequency operations and the new operating systems created for brought with it by the neoliberal model, of which the European Union is the
investment banks. Fourthly, the crisis caused by the very poor job done by staunchest advocate, although it is also one of the main characteristics of
the ratings agencies in valuing the sovereign debt of a number of countries the economic configuration globally, and in the effects that this has on the
has persuaded the EU to take measures, including the obligation for every quality of democracy in the various countries. There can be no doubt that
financial entity to conduct an independent valuation of the products which the ability of states to plan and implement the policies which best suit them
form part of its asset portfolio. The problem we foresee is that financial is increasingly diluted in an economic environment with excessive deregu-
entities could be tempted to conduct biased valuations reflecting their lation and liberalisation. Thus states become what is known as ‘Friedman
own interests. Perhaps the only solution to ensure that these ratings were states’, whose main function is to design an economic structure and
as objective as possible would be an independent public body. Finally, framework the sole purpose of which is to establish the most appropriate
European regulation must separate simple financial brokerage activities environment in which big business can ensure its expansion and accumu-
from those which develop in more complex and risky financial markets, like lation. Capital seizes the capacity of the state to take the decisions which
derivatives, high-risk activities which are in many cases highly leveraged. best suit it, and a progressive loss of democratic capacity follows, since the
needs of capital are prioritised over the needs of the individuals who form
Ultimately, these considerations - and particularly those regarding the a society; they are displaced and subordinated to the demands of capital.
services and establishment directives - reflect the asymmetry of the
European project and the need to evaluate, on the basis of national Thus, if it is claimed that the construction of Europe guarantees a basic level
constitutional order, the conjunction of the principle of the primacy of of democracy, we believe that it is essential to re-examine the neoliberal rules
Community law with the fact that this Community law is incomplete in its which now regulate global economic activity and which have a direct impact
scope. Internally, the economic Constitution is modulated by fundamental on the internal life of the European Union and its peoples. Hence we believe
rights, guiding principles and other provisions which permit both the that the European Union should review its agreements with the WTO and
realisation of political pluralism and the protection of other values that other treaties which govern international trade, the extreme liberalisation
mirror our configuration as a welfare state. Insofar as the European Union of which not only leads to the disappearance of much of the productive
is failing to progress in the political construction of a unified territory for capacity in many regions, leading to economic depression with all its
citizens’ rights accepted uniformly by Member States but maintains the consequences for unemployment and social exclusion, but also undermines
process of economic construction, there is a risk, of which the Directive the very foundations of democracy. Radically limiting the sovereignty and
2006/123/EC appears to be an example, that economic freedoms can decision-making capacity of populations over essential aspects of their
challenge the rights which, paradoxically, find a constitutional anchor with economic life and their own social model and model of coexistence perverts
the maximum level of protection in national laws. Both the legislation and the effectiveness of citizens’ choices and debases democracy.
Community case law appear to treat with suspicion, and subject to a very
restrictive interpretation, many of the traditional concepts which govern the Ultimately, in view of the profound institutional and political crisis which
proceedings of our public administrations or which define us as a welfare is seriously affecting the quality of the democratic system, any step in the
integration process should consider this aspect. The existing configuration
has reached a dramatic impasse, although the decision to go further in the
integration process or to retreat should be taken not only with regard to any
economic effects but also in respect of the possible impact on the quality
of democracy. To move to a eurozone with a common treasury and finance
minister to exercise overall control of the accounts of Member States, as
Germany now appears to be suggesting83, without any strengthening
of the democratic nature of the European institutions would represent
a backward step and a weakening of the power of citizens vis-à-vis
the powers of the finance sector and the lobbies. Retreating without
re-establishing sovereignty for decision-making in the basic aspects of
law and economic policy would not be a major achievement. Advancing
towards the construction of a genuinely democratic Europe requires us to
ensure direct elections for all the decision-making and governing bodies,
and to guarantee respect for the sovereign decisions of peoples. Ultimately,
the dilemma is not whether we want more or less Europe, but more or less
democracy. The basic principle which ought to serve as a criterion before
we apply any steps towards the future must be: more power for society and
less power for the markets. And this criterion should be applied at every
level of government. From a democratic point of view, any step which
contradicts this principle should be totally rejected.
83
This proposal has been repeatedly aired, both by the current German finance
minister W. Schäuble and Angela Merkel personally. See http://www.lefigaro.fr/
conjoncture/2012/07/04/20002-20120704ARTFIG00509-hollande-et-merkel-veulent-un-
super-monsieur-euro.php.
Appendix
Basic data for stateless Nations
and small countries in the EU
Gross domestic product (GDP) at current market prices at NUTS level 2 Gross domestic product (GDP) at current market prices at NUTS level 2
(nama_r_e2gdp) (nama_r_e2gdp)
Geo/time 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Geo/time 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
European Union (27 countries) 100 100 100 100 100 100 100 100 100 100 100 100 100 100 European Union (27 countries) 14.700 15.400 16.200 17.000 17.800 19.100 19.800 20.500 20.700 21.700 22.500 23.700 25.000 25.000
Vlaams Gewest 126 123 124 121 122 125 122 124 122 120 119 117 116 115 Vlaams Gewest 21.100 20.900 21.400 20.000 23.100 24.400 25.000 25.700 26.300 27.800 28.700 30.100 31.700 32.200
Région walonne 94 92 91 90 89 91 89 90 89 87 88 85 83 84 Région walonne 15.700 15.700 15.700 16.400 16.900 17.800 18.200 18.600 19.100 20.100 20.800 21.800 22.600 23.500
Bayern 145 144 141 141 141 139 137 135 137 137 138 137 136 135 Bayern 26.600 26.500 26.400 27.400 26.400 29.500 30.100 30.700 30.800 31.500 32.100 33.300 34.800 35.300
Galicia 75 74 75 76 76 76 76 79 80 81 83 87 89 89 Galicia 9.500 10.000 10.200 10.700 11.500 12.200 13.000 13.800 14.800 15.800 17.100 18.500 19.800 20.500
País Vasco 109 109 111 115 118 119 120 123 125 126 129 134 137 138 País Vasco 13.800 14.700 15.200 16.400 17.800 19.200 20.500 21.700 23.000 24.600 26.600 28.700 30.600 31.800
Cataluña 111 113 114 116 115 116 120 122 121 121 121 123 123 121 Cataluña 14.100 15.300 15.700 16.400 17.800 19.100 20.400 21.400 22.400 23.600 24.600 26.300 27.600 27.900
Bretagne 97 96 98 99 98 99 100 100 97 97 98 96 94 93 Bretagne 17.000 17.500 18.000 18.800 19.400 20.500 21.100 21.600 22.200 23.400 24.300 25.200 25.800 26.500
Corse 85 82 85 86 87 85 88 87 84 83 85 85 83 83 Corse 14.800 14.900 15.500 16.300 17.200 17.800 18.600 18.800 19.200 20.100 21.000 22.200 22.800 23.800
Valle d’Aosta/Vallée d’Aoste 161 155 144 144 137 134 138 130 132 127 124 122 120 121 Valle d’Aosta/Vallée d’Aoste 20.200 22.500 22.400 23.100 23.200 24.000 25.700 26.400 27.600 28.400 28.800 29.500 30.100 30.600
Provincia Autonoma Trento 148 147 144 145 145 143 142 134 132 126 122 121 122 122 Provincia Autonoma Trento 18.500 21.300 22.400 23.200 24.500 25.600 26.500 27.200 27.600 28.200 28.400 29.300 30.700 31.000
Sardegne 89 88 89 89 88 87 89 83 83 81 80 79 78 79 Sardegne 11.200 12.700 13.800 14.200 14.800 15.600 16.600 16.900 17.500 18.200 18.500 19.300 19.700 19.900
Friesland (NL) 104 104 105 107 106 111 111 108 106 103 106 105 108 110 Friesland (NL) 17.500 17.600 18.000 19.000 19.900 21.600 23.200 23.300 24.000 24.200 25.400 26.700 28.400 29.700
Wales 94 94 96 92 91 92 92 92 93 93 92 90 87 85 Wales 12.700 13.500 16.500 17.400 18.600 21.000 21.400 22.100 21.100 22.400 23.000 24.200 25.100 21.900
Scotland 111 112 114 112 110 112 112 113 114 116 116 118 112 112 Scotland 15.000 16.100 19.800 21.100 22.500 25.600 26.000 27.100 26.000 27.900 29.000 30.900 32.600 28.800
Northern Ireland (UK) 89 91 93 93 93 95 95 95 96 99 98 96 93 91 Northern Ireland (UK) 12.000 13.100 16.200 17.500 18.900 21.700 22.100 22.800 21.900 23.700 24.400 25.800 26.900 23.400
Belgium 129 126 125 123 123 126 124 125 123 121 120 118 116 115 Belgium 21.400 21.400 21.600 22.400 23.300 24.600 25.200 26.000 26.600 27.900 28.900 30.200 31.500 32.200
Denmark 132 132 133 132 131 131 128 128 124 126 124 124 123 123 Denmark 26.600 27.600 28.500 29.300 30.700 32.500 33.500 34.400 35.000 36.500 38.300 40.200 41.700 42.500
éire/Ireland 103 108 115 121 126 131 132 138 141 142 144 145 147 133 éire/Ireland 14.200 16.100 19.600 21.200 24.100 27.600 30.300 33.200 35.000 36.700 39.000 41.600 43.400 40.500
Greece 84 84 84 83 83 84 86 90 93 94 91 93 92 94 Greece 9.500 10.200 11.100 11.300 12.100 12.600 13.400 14.300 15.600 16.700 17.500 19.000 20.300 21.100
Luxembourg 223 222 215 218 238 245 234 240 247 253 254 270 275 279 Luxembourg 38.700 39.200 39.000 40.700 46.200 50.400 51.100 53.800 57.200 60.000 65.200 71.800 78.100 81.200
Austria 135 134 131 132 131 131 125 126 127 127 124 125 123 124 Austria 22.900 23.200 22.900 23.800 24.800 25.900 26.400 27.100 27.500 28.500 29.600 31.100 32.800 34.000
Portugal 77 77 78 79 81 81 80 80 79 77 79 79 78 78 Portugal 8.900 9.500 10.100 10.800 11.600 12.400 13.000 13.500 13.700 14.200 14.600 15.100 15.900 16.200
Finland 108 106 110 114 114 114 115 115 112 116 114 114 117 118 Finland 19.600 19.700 21.100 22.500 23.700 25.500 26.800 27.600 27.900 29.100 30.000 31.500 34.000 34.800
Sweden 125 125 124 123 126 127 122 122 124 128 122 123 125 122 Sweden 22.000 24.600 25.300 25.700 27.400 30.200 28.500 29.900 31.100 32.400 33.000 35.000 36.800 36.000
Iceland 133 133 137 140 139 132 132 130 125 131 130 123 121 122 Iceland 20.100 21.400 24.200 27.000 29.600 33.500 31.000 32.900 33.600 36.400 44.400 43.800 48.000 32.200
Norway 135 143 147 138 145 165 161 155 156 164 176 183 179 189 Norway 26.100 28.800 31.700 30.400 33.500 40.700 42.300 45.000 43.600 45.400 52.600 57.600 60.200 64.200
Switzerland 153 151 151 149 146 145 140 140 137 135 133 136 140 143 Switzerland 34.300 34.000 32.900 34.300 35.200 37.700 39.400 40.600 39.200 39.600 40.300 41.700 42.000 44.800
Last update: 05/08/2011 Last update: 05/08/2011

Extracted on: 24/02/2012 Extracted on: 17/02/2012
Source of date: Eurostat Source of date: Eurostat
UNIT: Purchasing Power Standard per inhabitant in percentage of the EU average UNIT: Euro per inhabitant
Gross domestic product (GDP) at current market prices at NUTS level 2
(nama_r_e2gdp)
Geo/time 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
European Union (27 countries) 100 100 100 100 100 100 100 100 100 100 100 100 100 100
Vlaams Gewest 144 136 132 130 129 128 126 125 127 128 128 127 127 129
Région walonne 107 102 97 96 95 93 92 91 92 93 93 92 91 94
Bayern 182 172 162 161 159 155 152 150 148 146 143 140 139 141
Galicia 65 65 63 63 64 64 66 67 71 73 76 78 79 82
País Vasco 94 96 94 96 100 101 104 106 111 114 118 121 123 127
Cataluña 96 99 97 97 100 100 103 104 108 109 110 111 110 111
Bretagne 116 114 111 111 109 107 107 105 107 108 108 107 103 106
Corse 101 97 96 96 97 93 94 92 93 93 93 94 91 95
Valle d’Aosta/Vallée d’Aoste 138 146 138 136 130 126 130 129 133 131 128 124 121 122
Provincia Autonoma Trento 126 139 138 137 137 134 134 133 133 130 126 124 123 124
Sardegne 76 83 85 84 83 82 84 82 84 84 82 81 79 79
Friesland (NL) 119 114 111 112 111 113 117 114 116 111 113 113 114 119
Wales 87 88 102 103 104 110 108 108 102 103 102 102 101 87
Scotland 102 105 122 124 126 134 131 132 125 129 129 130 130 115
Northern Ireland (UK) 82 85 100 103 106 114 112 111 105 109 109 109 108 94
Belgium 146 139 133 132 131 129 127 127 128 129 129 127 126 129
Denmark 181 179 175 172 172 171 169 168 169 168 170 170 167 170
éire/Ireland 97 104 120 125 135 145 153 162 169 169 173 176 174 162
Greece 65 67 69 66 68 66 68 70 75 77 78 80 81 84
Luxembourg 264 254 240 240 259 264 258 262 276 277 290 303 313 324
Austria 156 151 141 140 139 136 133 132 133 131 132 131 131 136
Portugal 61 62 62 64 65 65 66 65 66 65 65 64 64 65
Finland 133 128 130 132 133 134 136 135 134 134 133 133 136 139
Sweden 150 160 156 151 154 159 144 146 151 150 147 148 147 144
Iceland 137 139 149 159 166 176 156 161 162 168 197 185 192 128
Norway 178 187 195 179 188 213 214 219 210 209 234 243 241 256
Switzerland 234 221 203 202 198 198 199 198 189 183 179 176 168 179
Last update: 05/08/2011

Extracted on: 24/02/2012
Source of date: Eurostat
UNIT: Euro per inhabitant in percentage of the EU average
On behalf of the Centre Maurits Coppieters and our partners I sincerely wish
to thank the author of the report for his groundbreaking approach to the
subject and his passionate, conceptually robust and well structured factual
presentation.
Finally I also wish to thank you (the reader) for your interest in our organi-
zation and for reviewing our modest contribution to a much wider European
political debate in this area.
Günther Dauwen
Secretary of Centre Maurits Coppieters
www.ideasforeurope.eu
Centre Maurits
Coppieters Goals of the European Political Foundation
CENTRE MAURITS COPPIETERS (CMC)
According to its general regulations, the Centre Maurits Coppieters

asbl-vzw persues the following objectives and references:
 Observing, analysing and contributing to the debate on European public

policy issues with a special focus on the role of nationalist and regionalist
The European Parliament recognized the Centre Maurits Coppieters (CMC) movements and the process of European integration;
as a Political Foundation at a European Level in 2007. Since then the CMC has  Serving as framework for national or regional think tanks, political founda-
developed political research focusing on European issues, also in the fields tions and academics to work together at European level;
of multilevel governance, management of cultural and linguistic diversity  Gather and manage information for scientific purposes on all nationalist
in complex (multi-national) societies, decentralization, state and consti- and regionalist movements, organisations, structures,… in all its appea-
tutional reform, succession of states, conflict resolution and protection of rances situated in a European context;
human rights.  Making available information to the public on the implementation of the
principle of subsidiarity in a context of a Europe of the Regions;
So far, every little step has been important to the steady consolidation and  Promoting scientific research on the functioning and the history of all
growth of the Centre, that’s why I’m especially proud of this publication. national and regional movements in the EU and making the results public
Indeed, it undoubtedly represents a crucial contribution to the current state to as many people as possible;
of affairs and will certainly have a notorious impact both in the Academia  Developing actions to open information sources and historical informa-
and among European decision makers in a broad sense, including European tion sources in a structured and controlled way with the aim to build a
Institutions (like the European commission, European Parliament, Council common data network on issues of Nationalism and Regionalism in
and Committee of the Regions), other political actors, think tanks, research Europe;
centers and contributors to the European integration process.  Maintaining contacts with all organisations who are active in national
movements and with the Institutions of the EU;
The Centre Maurits Coppieters asbl-vzw takes all the necessary actions Among other things, Coppieters was the author of: ‘Het jaar van de Klaproos’;
to promote and achieve the higher stated goals always observing the ‘Ik was een Europees Parlementslid’; ‘De Schone en het Beest’. He is Honorary
principles on which the European Union is founded, namely the principles member of the EFA.
of liberty, democracy, respect for human rights and fundamental freedoms,
and the rule of law.
Members of the CMC
Arritti, 5, Bd de Montera, 20200 Bastia, Corsica

Maurits Coppieters
(Sint-Niklaas, 1920 – Deinze, 2005) Fundación Alkartasuna Fundazioa, Portuetxe 23, 1º, 20018 - Donostia /
San Sebastian - Euskadi, www.alkartasunafundazioa.org
The Fleming Maurits Coppieters studied history and later became a Doctor
Fundació Emili Darder, Isidoro Antillon 9, Palma de Mallorca,
of Laws and obtained a master’s degree in East European studies. During
Iles Baleares, www.fundacioemilidarder.cat
the Second World War, he refused to work for the German occupier. After
many years as a teacher, he worked as a lawyer for a while. He was one of the Fundació Josep Irla, Calàbria 166, 08015 Barcelona, Catalunya, www.irla.cat
people who re-established the Vlaamse Volksbeweging (Flemish People’s
Movement), of which he was the President from 1957-1963. Fundacion Aragonesista 29dejunio, Conde de Aranda 14-16, 1°, 50003
Zaragoza, Aragon, www.chunta.org/29j.php
Coppieters’ political career began when he became a member of the Fundación Galiza Sempre, Av. Rodriguez de Viguri 16, Baixo 15702
Flemish-nationalist party Volksunie (VU) which was formed in 1954. With Santiago de Compostela - Galiza, www.galizasempre.org
the exception of two years, Coppieters was a town councillor between
1964 and 1983. He was also elected as a member of the Belgian Chamber Home of the Macedonian Culture, Stefanou Dragoumi 11, P.O. BOX 51,
(1965-1971) and Senate (1971-1979). At the same time, Coppieters became 53100 Florina
President of the newly formed ‘Cultuurraad voor de Nederlandstalige Cultuur-
LINK, Woeringenstraat 21, 1000 Brussels, Flanders
gemeenschap’ (Cultural Council for the Dutch-speaking Community, from
which later the Flemish Parliament emanated), when the VU formed part of Welsh Nationalism Foundation.
the government. In 1979, Coppieters was moreover elected during the first www.welshnationalismfoundation.eu
direct elections for the European Parliament.
associated members
As a regionalist, he became a member of the Group for Technical Coordi-
Kurdish Institute of Brussels, Rue Bonneelsstraat 16, 1210 Brussels
nation and Defence of Independent Groupings and Members in the
www.kurdishinstitute.be
European Parliament (TCDI). Among other things, he made a name for
himself when he championed the cause of the Corsicans. In the meantime, Transylvanian Monitor, Str. J. Calvin 1, 410210 Oradea, Romania
Coppieters also played a pioneering role in the formation of the European
Free Alliance, of which he became the Honorary President and in whose Centre International Escarré per les Minories Ètniques i les Nacions
expansion he continued to play a role, even after he said farewell to active C/Rocafort, 242, bis, 08029 Barcelona, Catalunya, www.ciemen.org
politics in 1981. In 1996, Coppieters joined forces with the president of the
Istituto Camillo Bellieni, Via Maddalena 35, 07100 Sassari
Flemish Parliament, Norbert De Batselier, to promote ‘Het Sienjaal’, a project
www.istituto-bellieni.it
with a view to achieve political revival beyond the party boundaries.
Coppieters died on November 11, 2005. Free State of Rijeka Association, Užarska 2/3, 51000 Rijeka - Fiume
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— European Council (2011): “Conclusions”, 20 April. Available at: http://
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— Vence, X. (2005): “O fracaso neoliberal na Galiza, Vigo”, Edicións A Nosa
Terra
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A ollada exterior do nacionalismo galego”, Santiago, Fundación Galiza
Sempre Editorial
CMC asbl, Centre Maurits Coppieters, Boomkwekerijstraat 1/4, 1000 Brussels
— Vence, X. (2011): “Crise e radicalización neoliberal. As alternativas www.cmc-foundation.eu
silenciadas”, Santiago, Ed. Laiovento
Publication date
2013
— Whitney, M. (2011): “Draghi’s Real Goal in the Eurozone”, CounterPunch.
23-24 December. Available at: http://www.counterpunch.org/2011/ Publication series and number
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— IMF World Economic Outlook Database. September 2011: Available at: Authors
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Alberto Turnes
— IMF. World Economic Outlook Database. Abril 2012 Alba Nogueira
Translation
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Dobra forma
Available at: http://databank.worldbank.org/ddp/home.do
Coordination
— Eurostat. http://eP.eurostat.ec.europa.eu/portal/page/portal/sector_ Ignasi Centelles
accounts/data/database
Scientific board
— ECB (graphs 8 and 9). Alan Sandry. Advisor on the field of Political Science
http://www.ecb.int/stats/money/long/html/index.en.html Luc Boeva. Advisor on the field of History of Nationalism
Xosé Manoel Nuñez-Seixas. Advisor on the field of Contemporary History
Carmen Gallego. Advisor in the field of Anthropology
Josep Huguet. Advisor in the fields of Contemporary history and Public governance
Jaume Garau. Advisor in the fields of economic development and promotion
Graphics and Layout

Wils&Peeters - Lier
Printing
Drukkerij De Bie - Duffel
© CMC, Centre Maurits Coppieters- asbl, Brussels, January 2013
No items of this publication can in any way be copied or used without

the explicit permission of the author or editor.
Previous Centre Maurits Coppieters studies
CMC 2012 — The Future of Europe An integrated youth approach
CMC 2012 — The Ascent of Autonomous Nations 2nd edition The institutional
advantages of being an EU member state, by Matthew Bumford
In a joint effort with the Welsh Nationalism Foundation
CMC 2012 — Variations autour du concept d’empreinte culturelle Définition

du concept et metodes de Mesure, by Elna Roig Madorran et Jordi Baltà
Potolés
CMC 2011 — Approaches to a cultural footprint Proposal for the concept and
ways to measure it, by Elna Roig Madorran and Jordi Baltà Potolés
CMC 2010 — The Internal Enlargement of the European Union 3rd edition
Analysis of the legal and political consequences in the event of secession or
dissolution of a Member State, by Jordi Matas, Alfonso Gonzalez, Jordi Jaria
and Laura Roman. In a joint effort with Fundació Josep Irla
CMC 2009 — Electoral contestability and the representation of regionalist

and nationalist parties in Europe, by Simon Toubeau
CMC 2008 — A different kind of kinetics Establishing a network of heritage

and research institutions for the (historical) study of national and regional
movements in Europe, by Luc Boeva
Previous Centre Maurits Coppieters policy papers
CMC 2012 | 3 — Making ideas spread New Media, Social Networks, Political
Communication, advocacy and campaigns, by Jorge Luis Salzedo Maldonado
CMC 2012 | 2 — The size of states and Economic Performance in the

European Union, by Albert Castellanos i Maduell, Elisenda Paluzie I Hernàndez
and Daniel Tirado i Fabregat. In a joint effort with Fundació Josep Irla
CMC 2012 | 1 — 2014-2020 Un autre cadre financier pluriannuel pour une

nouvelle Europe Pour une Europe des peuples, by Roccu Garoby.
In a joint effort with Arritti
CMC 2011 | 3 — From Nations to Member States, by Lieven Tack, Alan Sandry
and Alfonso González
CMC 2011 | 2 — Diversité linguistique Un défi pour l’Europe
CMC 2011 | 1 — Tourism and identity, by Marien André

In a joint effort with Fundació Josep Irla
CMC 2010 | 1 — Language Diversity A challenge for Europe
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Xavier Vence - Alberto Turnes - Alba Nogueira | An alternative economic governance for the European Union 1

With the collaboration by ICEDE members

Centre Maurits Coppieters

It is, therefore, time to define what type of EU we want: a multi-speed Europe,

The competitiveness policy and internal market as key instruments that

The development of a common fiscal policy that grants a greater capacity

However, over and above the inability of the institutional architecture

Finally, we have also considered, keeping in mind the future prospects

introduction head that “governed” the whole edifice.

Although the greatest possible macroeconomic stability is necessary for

Europe openness to trade, exposing them to extreme international competition

The economic policy measures adopted, focusing on drastic adjustment and

The economic circumstances which the European Union is experiencing

1.1. Economic growth and the stagnation

Before studying the disparities in economic growth in European regions, it is

Graph 1 presents trends in economic growth for the European Union as a

In comparative terms, depending on the unit of comparison used, the

These disparities, which may certainly already appear significant, rise in a

Graph 6: Trends in the distribution of per capita GDP (sigma congervence),

If, as before, we consider the dispersion of absolute levels of per capita

deindustrialisation, driving their economies towards a model which has 100

turned out to be self-destructive. 80

Source: Panorama of European Specialisation CEPII 2011

Source: Panorama of European Specialisation CEPII 2011

Source: Compiled by the authors. IMF data

1.3. Recently integrated countries

Although economic attention has focused on the depression in the “PIIGS”,

These countries have had to be “rescued” after suffering a steep economic

Source: Compiled by the authors. IMF data

economic Woods system of international regulation. This was what would be

The Euro Plus Pact7 contains a package of measures to strengthen the

The new pact has four fundamental pillars:

1. Salary deflation through far-reaching deregulation of collective bargain-

axioms but, to a greater extent, a deliberate strategy to bring about severe

Inadequate finance 24,1

New competitors in the market 21,1

qualification, enterprise size, sector or trade union membership. Source: INE

balance in the medium to long term; competitive and innovative sectors

When a country requests a loan in a currency over which it has no control,

2.3. Contrast between the ECB and the US

Further, and against a background of financial globalisation, speculators

But the independence of the bank cannot be authoritarian but should be

3 The financial bringing about a better placement of financial assets.

The European Commission has powers to initiate financial regulation in

• Problems associated with asset valuation. Hitherto, asset valuation

The option to dilute initial control of activities, simplifying and reducing

A programme of reforms such as that undertaken with the Services

small countries by Castellanos i Maduell et al. (2012).

If we carry out a similar exercise to compare the economic trends in the

20.000 País Vasco

in the EU: threats

Monetary Union - the eurozone - is composed of 17 different countries whose

Last update: 05/08/2011 Last update: 05/08/2011

Last update: 05/08/2011

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— Alesina, A. Spolaore, E. (1995): “On the number and size of nation”,

— Alesina, A. (2003): “The size of nations”, Cambridge, Mass. MIT Press

— Alonso, A. Albrieu, R. Fanelli, J.M. Riveros, A. Steinberg, F. (2011): “Crisis

— Álvarez, I. Luengo, F. (2011): “Competitividad y costes laborales en la EU:

— Amendola, M. & J.L. Gaffard (2011): “Capitalisme et cohésion sociale”,