No convincing blueprint for euro ‘democracy’

From Prof Ernst-Ulrich Petersmann.

Sir, European Union institutions and also Wolfgang Schäuble, the German finance minister, have proposed linking the next election of the European parliament with a popular election of the EU Commission president in order to strengthen the democratic legitimacy of EU governance, notably in future “excessive deficit”, economic policy surveillance and other euro governance procedures. But should a currency be democratised?

The governance of the euro remains characterised by multi-level constitutional restraints, independent central banks and increasing judicial safeguards at national and EU levels. Empirically, the protection of price stability by the EU central bank system was more successful than economic and fiscal policy co-ordination or the protection of rule of law by the EU’s political institutions. As only four of the 27 member states of the European monetary union comply with the fiscal and debt disciplines of the Lisbon treaty, the fiscal compact treaty of March 2012 has further strengthened judicial remedies vis a vis excessive government deficits (Article 8).

Both national courts (such as the German constitutional court) and the European Court of Justice have emphasised the constitutional limits of euro governance. As the euro crisis is primarily a crisis of national fiscal, debt, economic and labour market policies and of democratic politics in Greece and other euro countries, additional EU disciplines and conditionality of financial assistance are certainly warranted. There are also sound economic reasons for maintaining a “healthy separation between those responsible for tax and spending and those responsible for money creation” as explained in the FT by Charles Plosser in May (“When a monetary solution is a road to perdition”, Comment, May 18).

Members of the European parliament are better known to many EU citizens for their frivolous financial claims than as guardians of the rule of law in EU governance. If the eurozone summit statement of June 2012 is correct “that it is imperative to break the vicious cycle between banks and sovereigns”, reasonable EU citizens should insist more on strengthening legal accountability and rule of law in financial markets and euro governance than on “democratising the euro”.

Just as Giovanni Sartori’s classic study The Theory of Democracy Revisited concluded that “democracy is a pompous word for something that has never existed”, financial politics in Greece, Ireland and other democracies (such as Iceland) suggests that majoritarian democracy without rule of law offers no convincing blueprint for the necessary reforms of euro governance.

Also, economists need to think beyond utilitarianism and heed the advice of Adam Smith that the legitimacy and efficiency of rules-based market economies depend on respect for principles of justice such as rule of law, subsidiarity and limited delegation of powers.

Ernst-Ulrich Petersmann, Emeritus Professor of International and European Law, European University Institute, Florence, Italy