Emel Pubblications

EMEL PUBBLICATIONS

Jean Monnet Module on European Monetary and Economic Law

(in Open Access Version)

2016-2019

JEAN MONNET ACTION European Monetary and Economic Law (EMEL)

Table of Contents

Contributions to Collected Volumes

1- “The Constitutionalization of the Washington consensus in the European Union: like giving up the Social Market Economy, in E. Sciso (ed. by)Transparency and Democracy in the Bretton Woods Institutions”, Springer, Giappichelli, Torino, 2017, pp. 91-106.

2- “The European Central Bank and the European Democracy: a Technocratic Institution To Rule All European States?” in L. Daniele (ed. by) “The Democratic Principle and The Economic Monetary Union”, Springer, Giappichelli, Torino, 2017, pp. 249-264.

3- “Economic and Monetary Union and Switzerland: two models compared in the light of the economic crisis”, in V. Salvatore (ed. by) The free movement between Switzerland and the European Union, Giappichelli, Torino, 2016, pp. 35-53.

4- “Il difficile equilibrio tra austerità e solidarietà nell’Unione economica e monetaria” in M. Mascia, F. Velo (a cura di) L’Unione economica europea : aspetti economici, sociali e istituzionali, Cacucci Editore, Bari, 2016, pp. 73-81.

Articles:

1 The Italian’s Succession System after the EU Regulation n. 650/2012” in Contratto e Impresa/Europa, 2018, pp. 476-499.

2 - “The regulation of patrimony within civil law systems: from a unitary to a divisional approach in the management of patrimonial assets and its effects on private international law rules”, in Journal of Private International Law, 2018, pp. 368-382.

3- “The Financial and Economic Crisis: A Missed Opportunity to Rethink the Institutional Architecture of the European Union”, in (La) Cittadinanza europea, 2017, pp. 69-87.

The Constitutionalization of the Washington Consensus in the European Union - giving up the social market economy.

Giulio Peroni*

The expression Washington Consensus, coined in 1989 by the English economist John Williamson, is usually indicated by a set of 10 economic policy prescriptions that constitute the "standard" reform package promoted by the International Monetary Fund (IMF), World Bank, and the US Treasury Department, all based in Washington D.C., for solving the economic crisis of developing countries. The paper, after describing the main characteristics of the Washignton Consensus economy model in the perspective of the international economic law, intends to underline the deep influence of this economic ‘recipe’ on the Maastricht Treaty and on the construction of the European Monetary Union (EMU). In spite of the failure of this model, as showed by the current economic and financial crisis started in 2008, the European Institutions and the EU Member states still do not seem ready to change the primary rules of the EU treaties devoted to the economic and monetary policy, with the real risk of increasing the disaffection of European citizens towards the European Union.

1 The Washington Consensus and its influence on Bretton Woods Institutions

The expression Washington Consensus was used for the first time by John Williamson1 at the end of the 1980s during a conference convened by the Institute for International Economic on the Latin American debt crisis.2 On that occasion, a group of economists and

* Associate Professor in International Law at the School of Law of the University of Milan. Email: [email protected]. This is an Open access version thanks to the fundamental contribution of Jean Monnet Eacea Module European Monetary and Economic Law (EMEL). Please visit https://gperoniemel.ariel.ctu.unimi.it. This study has been published in the in E. Sciso (ed. by) Transparency and Democracy in the Bretton Woods Institutions, Springer, Giappichelli Torino, 2017, pp. 91-106. 1 British economist (born June 7, 1937, Hereford) Senior Fellow at the Peterson Institute from 1981 to 2012. He was project director for the UN High-Level Panel on Financing for Development in 2001 and advisor to the International Monetary Fund (1972–74) and economic consultant to the UK Treasury (1968–70). 2 The Conference in question took place in Barcelona (Spain), in 1989 and Willamson entitled it ‘from the Washington consensus to Global governance’. 1

policy makers investigated the economic reforms in that area of the World and were in agreement with a common set of economic remedies. This favoured structural adjustments with the goal of substituting their traditional state economic system with a market based economic model. Ten reforms were agreed on as a summary of what most economists in Washington thought Latin America ought to be undertaking: 1) Fiscal Discipline; 2) Reordering Public Expenditure Priorities; 3) Tax Reform; 4) Liberalizing Interest Rates; 5) A Competitive Exchange Rate; 6) Trade Liberalization; 7) Liberalization of Private Foreign Direct Investment; 8 ) Privatization; 9) Deregulation; 10 ) Protection of Property Rights. In particular, for Williamson, the mentioned policies could be summed up “as prudent macroeconomic policies outward orientation and free market capitalism”.3 In other terms, a group of economic measures able to react to the ‘development theories’ that, for the ‘founding fathers’ of the Washington Consensus, were at the basis of the failed state economic State policies.4 The Washington Consensus became rapidly the core of the Reagan and Thatcher political and economic Agenda, the conservative leaders of two of the most important economies in the World (USA and United Kingdom), influencing strongly their ultra-liberalist macroeconomic policies. In the same period, the Washington Consensus became an expression for the political, administrative and technocratic action of the International Monetary Fund (IMF), World Bank (WB), US Treasury Department, the Federal Reserve Board (FED) and the Inter America Development Bank (IADB).5 The described heterogeneous panorama of technocratic and political actors, geographically all based in the capital of the most world important country, underlines how the Washington Consensus was not only a species of ideological and academic ‘product’ (inspired especially by Milton Friedman and Von Hajek, the ‘founders’ of modern monetarism6 and neo-libelarism7 respectively), but essentially a ‘policy paradigm’. More precisely, this became “a powerful and enduring framework of related ideas and standards

3 See Williamson (2003), pp. 1-3. 4 See Williamson (2009), pp. 7-26. 5 The reference to ‘consensus’ wants in fact to mean that the 10 points, mentioned in the text, were shared by power circles in Washington, including the US Congress and Administration, on the one hand, and international institutions such based in Washington International Monetary Fund and the World Bank, on the other, supported by a range of think tanks and influential economists. 6 In particular, Friedman argued that poor monetary policy by the Federal Reserve (FED) represented the main cause of the Great Depression in the 1930s. In his view, markets naturally move towards a stable center, an incorrectly set money supply can cause market’s failure; in this way, the FED’s failure to offset forces that were putting downward pressure on the money supply and for reducing the stock of money. These were the opposite of what should have been done. His position was criticized by ‘Keynesians’ for which the demand for goods and services is the key to economic output. Because the economy is subject to periodic instability and deep swings, it is dangerous to make the FED obliged to a preordained money target, they argued the FED should have some margin or ‘discretion’ in carry out monetary policy. 7 An ideology and policy model that exalts the value of the free market competition and the minimal state presence in economic and social affairs. Since the 1970s, owing to the economic stagnation and increasing public debt some economists proposed a return to classical liberalism, which in its revived form became neoliberalism. In particular way, Von Hayek argued that government measures aimed at the redistribution of wealth lead inevitably to totalitarims. His point of view was enthusiastically embraced by the conservative political parties in Britain and the United States, which achieved power with the administrations of British Prime Minister Margaret Thatcher (1979–90) and U.S. President Ronald Reagan (1981–89). 2

about policy – a model that specifies both the instruments that should be used in a policy area and the goals that the policy should be addressing”.8 In other words, the main aim of the Washington Consensus paradigm was to remove government intervention in socialist and developing countries and to set up a well functioning market system.9 The undoubted economic success achieved by Thatcherism and Reaganomics (between ’80’s and ‘90’s), was connected to the rapid economic growth registered in many regions of East Asia (the well known Asian Tigers)10 It was also accompanied by the increase of trade and investments (favored by the introduction of the World Trade Organization -WTO in 1994) and gave a decisive impulse to the Washington Consensus’s expansion in world trade and economy. Another decisive factor that determined the large recourse to Washington Consensus paradigm was the IMF’s and WB’s choice to base their macroeconomic conditionality mechanism on the ‘Williamson List’. In particular, the Washington Consensus was implemented by the Bretton Woods Institutions through contract-like documents called Letter of Intents (in the case of IMF) or Letter of Development policy (in the case of the World Bank). In the above documents the total amount of the loan granted to State in economic and financial difficulty with their balance of payments were usually defined together with the repayment schedule and above all a series of economic policy commitments. To avoid borrowers infringe in their commitments, the cited Letters establish payment tranches, along with scheduled reviews of the borrower’s policies. In fact, in the case in which the beneficiary of the loan is found to be out of compliance, the IMF or the WB have the right to suspend their financial assistance. However, the compliance with loan conditions is not easy to implement because of the use by the Bretton Woods Institutions of the cross conditionality mechanism - a practice that consists of including World Bank- related program conditions in IMF programs and vice-versa. Moreover, the IMF’s and WB’s conditionality is traditionally deeply influenced by the US government, who being the major shareholder of both Bretton Woods Institutions,11 is able to exercise a real ‘right of veto’ on every crucial decision, especially on granting of loan to States in difficulty with their balance of payments. This aspect has inevitably favored an unequal use of the conditionality method12 by the International Financial

8 In these terms, see Hall (1993), pp. 275-296. 9 It was also applied for more than two decades in other diverse contexts as Africa, and Asia, as well as in countries emerging from real socialism in Eastern Europe and Central Asia. 10 A group of States (in particular, Hong Kong, Singapore, South Korea and Taiwan) characterized by high levels of economic growth, stimulated by exports and rapid industrialization, which enabled these economies to join the ranks of the world's richest nations. See Stiglitz (1996) pp. 151–177. 11 See https://www.imf.org/external/np/sec/memdir/members.aspx, for IMF Member’s Quotas and Voting Power, and IMF Board of Governors. 12 Conditionality makes reference to the commitments contained within loan or grant contract that developing countries must adhere to if they are to receive all or part of the financial aid. In the case of IMF, it usually imposes two different types of macroeconomic conditions to countries that need its support: quantitative conditions and structural conditions. The first consist of imposing a set of economic targets influencing the level of fiscal deficit or public debt a government is allowed to go into. Structural conditions normally consist of adopting institutional and legislative reforms within countries and include trade reform, privatization and price liberalization. 3

Institutions (IFI) and consequently a different level of compliance by borrowers, depending on their respective bargaining power within the international economic organizations.13 In this scenario, we have to realize that the IFI use the same type of economic intervention focusing essentially on macroeconomic stability and structural adjustment programs for every kind of beneficiary (without considering the specific peculiarities of each national economy).14 This approach was in line with the main aim of the Washington Consensus conditionality mechanism consisting in changing the economic structure of national economies according to the neo liberalist model. The consequence of this ambitious mandate was that IMF and WB, in contrast with their traditional aims,15 were assigned with persuading governments to make politically difficult and raw structural reforms. That was done with the guarantee that the social costs of these last ‘recipes’ would be justified by an increase, in a short term, of their gross domestic production (GDP). This inevitably generated “the appearance of an unprecedented, global natural experiment of the effectiveness of liberal policies in developing countries”.16

Indeed, the Washington Consensus paradigm has been strongly criticized, since the 1990s by a significant number of economists. Joseph Stiglitz, Chief Economist at the World Bank from 1997 to 2000, censured the policies recommended by the IMF in response to the financial crises which occurred in Russia and Asia at the end of the ‘90s.17 Particularly, Stiglitz and Naim18 criticized such policies, arguing that they would lead to recession, because public budget cuts, higher taxes and interest rates would contribute towards the deepening of the economic and financial crisis.

In addition, other economists19 underlined how the social costs imposed by IMF’s and WB’s economic ‘recipes’ were devastating for many countries above all those in the Sub- Saharan Africa. They outlined how the objective of the economic stability and market liberalization had a unequal impact on the poor, leading to greater poverty and unequal income distribution. Despite the negative impact, Bretton Woods Institutions displayed a certain degree of presumption in denying in any way the validity of the criticism leveled at them, limiting their reaction with compensatory programs.

Nevertheless, the massive and uncontrolled financial speculation, which has occurred since 2008, that has produced as it is well known, the worst global economic crisis since the

13 According to Stone Randall (2002), and Dreher, Jensen (2007) pp. 105-124, strategic allies of the US were noted to receive lighter punishments for non-compliance than less important borrowers. 14 The nineties have seen a number of financial crisis among which include: September 1992 European Monetary System (strong devaluation of Italian Lira, British Pound and Spanish Peseta); December 1994 Mexico; June-November 1997 East Asia; July-August 1998 Russia; November 1998-Febraury 1999 Brasil; December 2001 Argentina. 15 For IMF stabilizing currencies and for WB and regional development banks to lend money to finance recovery projects. 16 In these terms, see Babb (2012) p. 280. 17 Cf. Stiglitz (2003). 18 Cf. Naim (2010). 19 Cf. Sahn, Dorosh, Younger (1997). 4

Great Depression (1929),20 and has clearly showed a number of structural limits characterizing the Washington Consensus model. Particularly, we believe that the current global downturn has disclosed two significant aspects. Firstly, the supremacy of the financial sector over the real economy. This fact had, in particular, led to the creation of speculative ‘bubbles’,21 and intensified vulnerability of populations, increasing unequal income distribution and the gap between rich and poor. Secondly, it showed the prevalence of ‘neo liberal’ economic model (in respect of Keynesian theories) that have been used as a basis for formulating and prescribing the macroeconomic policies, elaborated by Bretton- Woods institutions at global level, with particular reference to their structural adjustment programs.

In truth, in the current crisis, there seems to be more awareness of the growing inequalities and the discriminatory concentration of income in the different layers of population. The dramatic rise of the percentage of poor people living longer not only in so- called emerging countries, but also in USA and Europe reveals how unequal income distribution represents the main question that Governments must deal with it in the years to come.22 This scenario, apparently, should represent the basis for overcoming the Washington consensus model, but, with specific reference to the case of Eurocrisi’s, we can observe how this economic paradigm with its distortions, is actually implemented by EU Institutions and European Member states.

20 The current international economic and financial situation has been compared to another well-known event that shocked the World in the early decades of the twentieth century, the Crisis of 1929. Both phenomena would result from a lack of liquidity, suffered mainly by the US credit system, by an excessive liberalism, from a monetary policy too lax by the US Federal Reserve, by a heavy fall in the value of commodities and industrial production levels. However, the current crisis, unlike that of 1929 concentrated mainly in the US and Europe, has affected, though in different ways, all of the economic areas of the Globe. Moreover, it should be noted such as right on the basis of the mistakes made during the Crisis of 1929, in order to ensure liquidity to the market, it has seen in recent years a strong intervention by Central Banks (Federal Reserve, European Central Bank and Bank of England) to support the banking and credit system to boost the real economy, to allow greater circulation of money and facilitate access to credit by companies and individuals in general. For a comparison between the two crises, see Almunia, Bénétrix, Eichengreen, O'Rourke, Rua (2009); Krugman (2009); Sapelli (2008). 21 The subprime mortgage crisis, at the origins of the current worldwide financial crisis, started with the explosion of the american housing ‘bubble’ started in 2001 that reached its peak in 2007. A ‘bubble’ is usually characterized, how occurred in USA house market, by rapid increase in the valuations of real property until unsustainable levels are reached in relation to incomes and other indicators of affordability.

22 Cf. Sumner (2010) 5

2 The Treaty of Maastricht and its limits

The Treaty of Maastricht, or Treaty of the European Union (TEU),23 constituted a turning point in the long and difficult European integration process. By modifying the previous European treaties the original economic objective of the European Economic Community (EEC), building a common market, was outdone and, for the first time, a strong wish of political union was claimed. In particular, Member States, after having transferred their sovereignty to the European Union in the field of trade and competition polices, agreed Monetary Union (EMU). With the introduction of a unified economic and monetary zone Member states decided, particularly, to give up their ius cudendae monetae, in other words the power of each country to exercise exclusive legal control over their own currency trough essentially the exercise of the exclusive authority to designate the legal tender forms of payment, and also the exclusive authority to control the issuance and retirement of their legal tenders.24 The main benefits of the EMU consisted of eliminating fluctuation risks and exchange rates between countries ensuring in this way stable prices for consumers and citizens. By contrast, the disadvantage is that Euro countries have lost their autonomy in taking currency decisions, with the effect that the Euro members are not longer allowed (as happened in the past, during the ‘Monetary snake’-1972, and the ‘European monetary system – EMS - 1979),25 to devalue their currency in order to balance their books and to give new stimulus

23 It was signed on 7 February 1992 and entered in force on 1 November 1993. Its main purpose was to prepare for EMU and to introduce elements of political union like the European citizenship, common foreign and internal policy. Other significant changes were introduced, in particular, we have to remember the following: the establishment of the European Union and introduction of the co-decision procedure, giving Parliament more power in decision-making; new forms of cooperation between EU governments – for example on defence and justice and home affairs. 24 It is in the judgment of the former Permanent Court of International Justice (PCJI) that for the first time we get the official recognition of monetary sovereignty in modern international law. As stated by the PCJI in 1929 in the Serbian loan case “it is indeed a generally accepted principle that a state is entitled to regulate its own currency”. It is on this basis that the State’s sovereignty over its own currency and by implication over both the internal and external aspects of its monetary and financial systems has traditionally been recognized by public international law. See the Case Concerning the Payment of Various Serbians Loans Issued in France (France vs. Serbia). Judgment of 12 July 1929, PCJ Rep. Series A N. 20-21, p. 44. 25 The ‘Snake in the tunnel’ was a mechanism, created by Member States in March 1972, for fluctuations of their currencies (the snake) inside narrow limits against the dollar (the tunnel). Owing to oil crises, policy monetary divergence between its members and dollar weakness (mainly due to Nixon’s unilateral cancellation in 1972 of the direct convertibility of the United States dollar to gold) within two years the snake had lost many of its component parts. Its quick ‘death’ did not diminish the objective to realize in the European community an area of currency stability. A new proposal, took the form of the European Monetary System (EMS) in March 1979, with the participation of all Member States’ currencies except the British pound, which joined later in 1990 but only stayed for two years. The EMS was built on the idea of stable but adjustable exchange rates determined in relation to the newly created European Currency Unit (ECU) – a currency basket based on a weighted average of EMS currencies. Within the EMS, currency fluctuations were kept within ±2.25% of the central rates, with the exception of the Italian lira, the Spanish peseta, the Portuguese escudo and the pound sterling, which were allowed to fluctuate by ±6%. See Victor (1990); van Ypersele, (1985); Giavazzi, Micossi, Miller (1992). 6

to their economy. Monetary policy now became in the exclusive responsibility of the European Union (see art. 3 par. 1, lett. c TFEU). More specifically, monetary policy is managed by European Central Bank (ECB) together with the European System of Central Banks (ESCB),26 to which the European treaties, within a very strict mandate, give strong autonomy and independence in order to ensure a low rate of inflation as established by art. 127 TFEU: “the primary objective of the ESCB shall be to maintain price stability” and that “without prejudice to the objective of price stability” the ECB and the ESCB shall support the general economic policies of the European Union with a view to contributing to the achievement of the other objectives established in the European treaties. These aims are inter alia directed to ensure “a high level of employment [...], sustainable and non-inflationary growth, a high degree of competitiveness and convergence of economic performance”. Thus, the primary rules of EU clearly establish a hierarchy of objectives for the ECB and assigns overriding importance to price stability.27 But, if the Treaty undoubtedly fixes the primary objective of the ECB, it does not give a precise quantitative definition of price stability. It is, on the contrary, a duty of the ECB’s Governing Council to announce what the price stability is: “Price stability is defined as a year-on-year increase in the harmonized Index of Consumer Prices (HICP) for the euro area of below 2%.”.28 On this specific point, it could be useful to remember that ECB’s mandate to pursue price stability is limited in comparison with the task of the other monetary authorities; in particular, with the FED’s multiple-objective mandate - one of the central banking institutions more involved in managing and solving the current crisis. The FED’s statute clearly establishes that “the Board of Governors of the Federal Reserve System and the

26 The Maastricht Treaty contains the institutional arrangements for the conduct of monetary policy in Economic and Monetary Union (EMU) in Europe. The Treaty, which entered into force in November 1993, provides the legal basis for the formation of the European System of Central Banks (ESCB), which includes the ECB and the National Central Banks (NCBs) of the 25 Member States of the European Union (EU). The term Eurosystem stands for a subset of the ESCB that comprises the ECB and the NCBs of those EU Member States that have adopted the Euro. The governing bodies of the Eurosystem are the Governing Council and the Executive Board. 27 The importance of ‘price stability’ is also expressed in other provisions of the treaties especially in articles: 3 par. 2, TEU 119 parr. 2, 3 TFEU, 140, par. 1 TFEU, 141 par. 1 TFEU, 219 parr. 1,2,3 TFEU, 282 par. 2 TFEU. 28 The target of 2% was established by ECB’s Council in the January 1999 (see ECB Bullettin, January 1999, p. 39 ss.). See also article 12.1 of the Statute of ESBC for which “The Governing Council shall adopt the guidelines and take the decisions necessary to ensure the performance of the tasks entrusted to the ESCB under this Treaty and this Statute. The Governing Council shall formulate the monetary policy of the Community including, as appropriate, decisions relating to intermediate monetary objectives, key interest rates and the supply of reserves in the ESCB, and shall establish the necessary guidelines for their implementation. The Executive Board shall implement monetary policy in accordance with the guidelines and decisions laid down by the Governing Council. In doing so the Executive Board shall give the necessary instructions to national central banks. In addition the Executive Board may have certain powers delegated to it where the Governing Council so decides. To the extent deemed possible and appropriate and without prejudice to the provisions of this Article, the ECB shall have recourse to the national central banks to carry out operations which form part of the tasks of the ESCB.”. 7

Federal Open Market Committee shall maintain long-run growth of the monetary and credit aggregates commensurate with the country’s long-run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long- term interest rates”.29 The mentioned limits characterizing the ECB’s mandate have deeply reduced and influenced the Eurotower’s action in front of the effects of the financial crisis and at the same time helped to explain the difficulties encountered till now by the European Union in resolving the dramatic economic scenario that we are living. In fact, the central monetary authorities are usually the only institutions that can, assuming the role of lender of last resort, avoid the panic in financial markets and especially in sovereign bond markets. Central banks can buy governments bonds without any limit and in this way they can, first of all, prevent the State’s default30 and secondly, the current scenario, characterized by strong deflationary tendencies, to give an important stimulus to economic recovery. But, the ECB could not take over the function of lender of last resort for the governments of Eurozone Member states, because that is expressly forbidden by the treaty provisions in particular by Article 123 TFEU.31 Nevertheless, the ECB’s purchase of government bonds, in from some Euro countries (namely: Portugal, Ireland, Italy, Greece and Spain, well known with the depreciatory term of PIGS), started with Security Market Program (SMP),32 even if limited to the so called secondary market.33 The exclusion of the primary market is a consequence of the prohibition of mutualising the public debts among Member states (see art. 125 TFEU)34 that is due to the fact that fiscal policy is firmly in the hands of national governments, even if strictly framed by the Stability Growth Pact (SGP): a set of fiscal rules designed to ensure that Eurozone countries pursue sound public finance and coordinate their economic policies. The approach, here briefly, described, even if partially modified with the adoption of the instruments known as Outright Monetary Transactions (OMT), on September 201235 and

29 Federal Reserve Act, Section 2A, 1913 and subsequent amendements. 30 See Frigo (2012); Tanzi (2012). 31 According to the mentioned rule: ‘Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments’. 32 It consisted of a set of monetary interventions to restore a correct and normal monetary policy transmission mechanism, and thus the effective conduct of monetary policy oriented towards price stability in the medium term. 33 The market place for the bonds that are already issued in the primary market and where the re-selling of government bonds is possible. 34 For which ‘The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.’ 35 See the ECB (2012) p. 7. Thanks to the OMT for the ECB is possible to purchase the sovereign bonds of specific euro area countries, always, on secondary markets with no set ex ante quantitative limits. The ECB 8

above all with the Quantitative Easing (QE), on January 2015 reflects the Bundesbank’s philosophy, for which the single currency was built on the idea that it was necessary to limit as far as possible the interference of EU Institutions in the field of economic policy. In other terms, Maastricht recognized the EMU as the only mechanism able to control the trend of inflation, as its restraint was considered, by its ‘founding fathers’, to be the sine qua non condition for Eurozone countries to ensure the equilibrium of their respective balance of payments36 and at the same time the compliance with the macro economic criteria and parameters fixed in the articles 121, par. 1, 122, par. 2 e 123, par. 5 of Maastricht and successively transposed in the current article 140 of TFEU. In synthesis, the EMU was built on the unbelievably naïve assumption that there would be no financial and macroeconomic turmoil able to put in crisis its structure, because for the ‘founding fathers’ of the Maastricht treaty it would have been sufficient to ensure at monetary level the price stability, and at fiscal level, the observance of the convergence criteria enshrined in art. 126 TFEU, and numerically expressed in the Protocol n. 12 on excessive deficit procedure.37

3 The Washington Consensus and its influence on the Maastricht Treaty

In the previous paragraphs, we have seen that the expression Washington Consensus was used to identify a set of economic policies essentially based on two fundamental characteristics: macroeconomic stability, consisting in balanced budgets for ensuring price stability, and structural reforms directed to favor market’s competition thanks a wide program of privatization, liberalization and deregulation. We think that Maastricht and also the latest versions of European treaties (Amsterdam, Nice and Lisbon) have deeply embraced the Washington Consensus paradigm even if this economic and political model, as noted before, was strongly criticized and de facto put in crisis by different events.

But, there are various reasons that help to explain the robust influence exercised by the Washington Consesus especially on the Maastricht treaty, and consequently on the legal and

Governing Council’s aim in implementing this programme is to safeguard an appropriate monetary transmission process and the singleness of monetary policy. For the purchasing of the state bonds, the OMT programme establishes that the state in question complies with conditions specified in European Stability Mechanism, that establishes a permanent emergency fund which entered in force in September 2012. 36 The balance of payments is functional to summary, for a specific time period, the economic transactions of an economy with the rest of the World. With reference to the conceptual framework of the balance of payments accounts and the international investment position and national accounts see IMF (2012) pp. 6-20. 37 The ceilings of 3% of Gross Domestic Production (GDP) on budget deficits and of 60% of GDP on government debt: probably the best known elements of the EMU framework. 9

economic structure of the EMU, created by that agreement. Firstly, we have to consider the ‘time factor’. In fact, the Treaty of Maastricht was signed in ‘90s in which the Washington consensus reached its maximum expansion and the most significant economic results, and moreover, in an intellectual and academic environment strongly inspired by the neoliberalism movement. Secondly, a crucial role was played by France and Germany, with the former ready to support, after the fall of the Berlin’s wall (1989), the German reunification, but only within a European framework; and the second willing to accept losing his monetary sovereignty with the sacrifice of its ‘deutsche Mark’ in favor of the Euro under the condition of the constitutionalization, within the primary rules of the European treaties, of the principle of price stability, for prohibiting every kind of economic policy that could favor an uncontrolled rate of inflation. Thirdly, there was the need for the countries historically characterized by an high level of deficit and public debt, like Italy, to introduce an ‘external constraint’ capable of imposing economic policies and structural reforms that their weak political institutions were unable to implement.38

Starting from Maastricht, European policy makers progressively embedded the Washington Consensus prescriptions into the European economic policy, by limiting fiscal policy to automatic stabilization and monetary policy to inflation targeting. Inevitably, the continuous attempt to maintain a balanced budget has reduced public spending. This has progressively limited the presence of the State in the market and in the meantime favored a massive liberalization and privatization of many economic sectors (see infra) which were before, firmly in the hands and under the control of the national governments.

However, the legal framework on which the Euro is built has been criticized in many occasions, but most of the criticism were internal to the mainstream as only marginal corrections were requested.39 As observed by Fitoussi and Saraceno “...paradoxically, the build up of public debt that followed the effort to save the financial sector and the economy from collapse in 2007-2009, led to a renewed emphasis on the need to constrain fiscal policy’ with the effect that ‘Germany and EU institutions blamed the crisis on public finance excess, imposing austerity and the signature of the fiscal compact to introduce the balanced budget requirement in member countries constitutions.”.40

38 The EU’ s role as external constraint for Italian economy and policy is common among commentators and the public. There is the idea that Italy is unable to take care of itself without the help of the EU institutions. In particular way, many authors consider the pressure of EU on Italian government absolutely necessary in order to ensure the equilibrium of the public budget and in order to abandon dangerous expansionary economic policies. See Mittestainer (2014). 39 See Wyplosz (2002); Buiter (2003); Buti, Eijffinger, Franco (2003). 40 Cf. Fitoussi, Saraceno (2013). 10

4 No changes in the European approach to monetary and economic policy despite the crisis.

The sovereign debt Crisis of the PIGS States,41 represented one of the most important effects of the economic and financial downturn, started in the USA in late August 2007. More precisely, the issue of sovereign debt is the climax of the economic and financial Crisis and it is the direct consequence of the incapacity of PIGS to comply with the macroeconomic rules established by the Maastricht provisions. This topic has not only shown the fragilities of the global financial system and, in particular, of the EMU42 in front of speculative attacks,43 but above all it helps to outline the lack of confidence of the financial operators in the economic stability of the Euro area and on the survival of its single currency: the Euro.44 For many observers, it is not possible to exclude ex ante the possibility that one of the PIGS could leave the Euro zone in the future.45 At the moment, this is an hypothesis not mentioned in any article of the European treaties.46 If it were to happen, the economic effect on the Euro zone could be devastating. In fact, an exit from the Euro by one of its members would mean that country is no longer able to satisfy the EMU macroeconomic conditions and above all to repay its debts to its internal and foreign creditors. In order to avoid this dramatic scenario, the European Union has, during the last five years, developed a policy package for solving the debt crisis and increase the lost competiveness and stimulate the growth of the Eurozone economy. In extreme synthesis, the mentioned economic approach consisted in: 1- Fiscal consolidation with the aim of restoring investor’s confidence became paramount and various austerity measures were endorsed and imposed upon debtor-deficit countries 2- Internal devaluation considered as the key point to recover competitiveness, including essentially nominal wage cuts. 3- Structural reform like liberalization, privatization and deregulation.

41 The Crisis can be divided in two different phases: a first stage corresponding to the burst of the financial downturn (2007-2008) and a second stage (2010-2012) that has specific characteristics to Euro zone and this has required many different actions of the European Union Institutions and above all of the European Central Bank. It is important to underline that until 2010 the interest rate spreads on sovereign bond issued by each of the State member of Euro zone did not represent for European Monetary Union a problem; in fact, for international investors Greek, Italian, Spanish and German bonds were considered the same. 42 According to De Grauwe (2011), p. 1 “The reason is that national governments in a monetary union issue debt in a foreign currency, i.e. one over which they have no control. As a result, they cannot guarantee to the bond holders that they will always have the necessary liquidity to pay out the bond at maturity. This contrast with stand alone countries that issue sovereign bonds in their own currencies.”. 43 It should be noted that speculative attacks, justified or not by economic fundamentals, always start from small items (e.g. Grecian sovereign bonds) to arrive big ones. The former, because relatively cost less, is used as a test for verifying and implementing strategies against the latter, normally most expensive. 44 See De Grauwe (2010); Hall, Peel (2010); Canale, Napolitano (2009). 45 See Proctor (2006); Athanassiou (2009). 46 See Peroni (2015) pp. 85-108.

These objectives have been translated in particular, in so called ‘Six pack’, a set of European legislative measures directed to reform the Stability and Growth Pact and introduce greater macroeconomic surveillance which refers to all EU member states and also in the Treaty on Stability, Coordination and Governance (TSCG) an international agreement, by which 26 EU (with the exception of United Kingdom and Czech Republic) members committed themselves to a lower limit for a structural budget deficit of 0,5% of GDP, in order to ensure the equilibrium of public counts. A latere of these fiscal mechanisms, we have to mention the European Stability Mechanism (EMS) that establishes a permanent emergency fund for the Member states in financial difficulty. The EMS, through the instrument of the conditionality, submits every financial assistance from EU institutions and, particularly, by the ECB in respect of the strict budgetary discipline47 expressed by the just mentioned ‘Six pack’ and the ‘Fiscal compact’. The conditionality required by EU institutions (in particular, Commission and ECB) and IMF, the well-known Troika, when supporting countries hit by the sovereign debt crisis (especially Greece, Ireland and Portugal) consisted of fiscal, financial and labor market reforms that assumed these following forms: -fiscal consolidation trough reduction cuts in unemployment benefits and family allowances a decrease in health spending and public investment; privatization (for example, of communication, energy, transport sectors together with a general reduction of state participation in industries); reforms of public administration with reductions in public employment and on increase in personal income tax.48 These measures, based on a clear austerity approach directed to limit in any way public spending, led progressively to a social unsustainable situation, with the effect that the EMU is evolving towards an inconsistent institutional setting. In truth, the EU, in the Article 3, par. 2 TEU, exalts the value of the ‘social market economy’, a system that aim at combining free initiative and social welfare on the basis of a competitive economy. In other words, a ‘Third Way’ which strongly differs from liberalism and socialist economic models, whose main objective is to support equal protection and opportunity of those that are unable to enter the free market labor force. So, while in different countries of the World, especially in the USA, traditionally considered the land of neo liberalism, the social contract gives a low weight to the insurance role of the State, whereas the EU gives traditionally a significant importance to the social role of that governments play trough the so called welfare state model. On the other hand, this is in line with the principle of solidarity that sharing both the advantages, prosperity, and the burdens equally and justly among Member states. A principle, expressed several times in the text of the European treaties,49 but as concerns the area of economic and

47 These new treaties raise interesting questions with particular reference to their compatibility with the EU legal order. On this specific point see Peroni (2012), pp. 151-185; Peroni (2011); Tosato GL (2012); Bonvicini, Brugnoli (eds), (2012); De Witte (2011). 48 See Hermann (2013); Vaughan (2014). 49 See articles: 2 TEU, 3, par. 2 TEU, 21 TEU, 24, par, 2 TEU, 31 TEU, 67, par. 2 TFEU, 80 TFEU, 122 TFEU, 194 TFEU, 222 TFEU. 12

monetary policy50 in terms rather limited and invoked, above all, in the context of the so called social protection,51 as happened also in the Chapter IV (Articles 27-38)52 of the Charter of Fundamental Rights of the EU just entitled ‘Solidarity’.53 Owing to the solution adopted till now by EU Institutions for managing and solving the financial crisis, many authors54 affirm that the Union is progressively transforming in an inconsistent framework dismantling its social insurance for satisfying the macroeconomic policies fixed by the EMU, in clear contrast with the value of solidarity before mentioned. This could lead in the medium term to extreme instability and dangerous social consequences, as occurred in last years in Greece.55 In other words, this policy based on the Washington Consensus paradigm seems clearly to betray the value of the cited social market economy.

5 Concluding remarks.

The experience of the European Monetary Union shows how the implementation of the monetary unification represents an objective directed not only to build an efficient and effective single market, but also an effective political union among European nations. However, as the EMU has lacked the typical ‘leap forward’ consisting of the transfer of economic policy from Member States to EU institutions: a step absolutely necessary

50 See Article 122: “1. Without prejudice to any other procedures provided for in the Treaties, the Council, on a proposal from the Commission, may decide, in a spirit of solidarity between Member States, upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products, notably in the area of energy. 2. Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken.”. 51 For example, it was applied by the European Court of Justice in a case concerning complaints by self- employed workers that compulsory contributions to the mutual funds established to provide social protection violated the principles of free competition in the common market as laid down in Articles 81-82 EC (now Articles 101-102 TFEU). In Poucet v. Assurances générales de France (AGF) et Caisse mutuelle régionale du Languedoc-Roussillon (Camulrac), Pistre v. Caisse autonome nationale de compensation de l’assurance vieillesse des artisans (Cancava), Cases C-159/91 and C-160/91, [1993] ECR 637, the French government in its arguments to the Court cited Article L 111-1 of the Social Security Code, which defines the principles of social protection in France: solidarity and compulsory affiliation. 52 Articles 27 to 34 bear directly on employment and industrial relations: Workers’ right to information and consultation (Article 27), Right to collective bargaining and action (Article 28), Right of access to placement services (Article 29), Protection in the event of unjustified dismissal (Article 30), Fair and just working conditions (Article 31), Prohibition of child labour and protection of young people at work (Article 32), Family and professional life (Article 33), and Social security and social assistance (Article 34). The four remaining articles in the Solidarity Chapter are: Health care (Article 35), Access to services of general economic interest (Article 36), Environmental protection (Article 37) and Consumer protection (Article 38). 53 For an analytical comment see Peers, Hervey, Kenenr, Ward (eds) (2014). 54 See Creel, Saraceno (2009). 55 Cf. Peroni (2013). 13

according to Robert Mundell, the theorist of ‘optimum economic areas’,56 and Werner Plan and the Delors’ White Paper.57 In other words, even before the signing of the Maastricht Treaty, it was clear to European policy makers that for realizing an efficient monetary area, there must be a full free movement of goods and capital, a system of fixed exchange rates and above all an economic fiscal policy not separated by monetary one. Not one of these elements has been fully realized by the European Union to date.58 For all these reasons, it is essential now more than ever to revise not only the quantitative definition of the convergence criteria in order to increase the State’s spending capacity, essentially, for favoring the investments, but above all the neoliberalist vision that inspire the most part of European primary rules devoted to the economic and monetary policy (in particular, Articles 119-144 TFEU). In fact, as long as the Member States continue to prefer the implementation of the target of price stability, as clearly established by Article 3 of the TEU and articles 119 TFEU, 127 TFEU, to the construction of an effective social market economy, it will not be easy for European institutions to give up the Washington Consensus economic political model. In truth, the proposed change could represent a fundamental step for contributing to ensure that European institutions are more responsible towards European citizens for the economic and political choices that the EU must adopt in order to solve the contemporary crisis. The different approach mentioned, connected to the transfer of fiscal policy from each State to the European Union, will probably make a significant contribution in order to solve the Euro crisis. This is a longer term solution, but probably the most effective if we want to give a new value to the European integration process, not only in raw economic and monetary terms about also in social and political ones as whole. .

56 Cf. Mundell (1961). 57 For an accurate reconstruction of the mentioned historical phases cf. Tedeschi (2013). 58 With reference to the limits of the European internal market cf. Gronden (2006); Gareth (2003). 14

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Peroni G (2013) L’azione dell’Unione europea in campo sociale e la crisi economica. In G.P. Milano, L. Daniele, C. Malinconico, M.C. Ciciriello (eds), Il Trattato di Lisbona due anni di applicazione. Atti della Giornata di studio in ricordo di Francesco Caruso (Roma, 7 ottobre 2011). Editoriale scientifica, Napoli, pp. 409-424. Peroni G (2015) Il recesso dall’euro: una via percorribile, ma non auspicabile. Studi sull’integrazione europea, pp. 85-108. Proctor C (2006) The Future of Euro. What Happens if a Member State Leaves? European Business Law Review, pp. 909-937 Sahn DE, Dorosh PA, Younger SD (1997) Structural Adjustment Reconsidered: Economic Policy and Poverty in Africa. Cambridge University Press, Cambridge Sapelli G (2008) La crisi economica mondiale: dieci considerazioni Bollati Boringhieri, Torino Stiglitz JE (1996) Some lessons from the East Asian miracle. The World Bank Research Observer, pp. 151– 177 Stiglitz JE (2003) Globalization and its Discontents. W.W. Norton Company, New York, London Stone Randall W (2002) Lending, Credibility: The International Monetary Fund and the Post-Communist Transition. Pricenton University press, Princeton. Sumner A (2010) Global Poverty and The ‘New Bottom Billion’: What if Three-Quarters of the World’s Poor Live in The Middle-Income Countries. IDS Research Summary of IDS Working paper 349, IDS, Brighton Tanzi A (2012) Sull'insolvenza degli Stati nel diritto internazionale. Rivista di diritto internazionale, pp. 66- 88. Tedeschi P (2013) Una moneta comune in Europa? Dal Piano Werner all’Euro: un’integrazione incompiuta e quindi pericolosa. Rivista di Storia Economica, pp. 319-341 Tosato GL (2012) L’integrazione europea ai tempi dell’euro. Rivista di diritto internazionale, pp. 681-703 Van Ypersele J, Koeune J C (1985) Il sistema monetario europeo: origini, funzionamento e prospettive Ufficio delle Pubblicazioni ufficiali delle Comunità europee. Lussemburgo Vaughan D (2014) The European Social Model in Crisis: Is Europe Losing Its Soul? International Labour Organisation, Geneva Victor JL (1990) Dal sistema monetario all’unione monetaria. Ufficio delle Pubblicazioni ufficiali delle Comunità europee. Lussemburgo Williamson J (1990) Introduction. In: Williamson J (ed.) Latin American Adjustment: How much Has Happened? Institute for international Economics, Washington, pp 1-3 Williamson J (2009) A short history of the Washington consensus. Law Business Reviews of the Americas, pp. 7-26 Wyplosz C (2012) Fiscal discipline in Emu: Rules or institutions’, Paper prepared for the April 16, 2002 Meeting of the Group of Economic Analysis of the European Commission. http://ec.europa.eu/dgs/policy_advisers/archives/experts_groups/docs/wyplosz.pdf

The European Central Bank (ECB) and the European Democracy: a

Technocratic Institution To Rule All European States?

Giulio Peroni*

Abstract The Crisis has shown how the financial markets move very rapidly and the reaction times of democratic institutions are to slow for preventing the negative effects of financial turmoil. In this framework, the ECB has been very active since the beginning of the economic crisis and its action helped the

Eurozone to avoid its collapse. Nevertheless, the ECB’s action has been strongly criticized because it would appear to contravene the EU rules and have probably had the effect to modify its role. The ECB would be not more a technocratic institution, but the central hub of the EU economy policy making, without any democratic effective control. This chapter intend to underline how the supposed democratic deficit can be avoided or limited by strengthening the

ECB’s transparency accountability, safeguarding its independence from political influence.

Contents

1.- The Crisis and the Reasons of the ECB’s Action.

2.- The ECB’s Action: A Necessary Intervention to Safeguard The Euro.

3. The Critics Moved to ECB: A Technocratic Institution Free to Act without any Democratic Control?

4.- Improving the ECB’s Transparency and Accountability, Defending its

Independence.

1. The Crisis and the Reasons of the ECB’s Action.

The Crisis, that hit the global economy, since the Summer of 2007, is usually described with the metaphor: ‘A perfect storm’. In fact, no other economic and financial turmoil, after the end of the II World War, has been as deep as the current recession.1

For finding an economic event so serious, we have to call to mind the Great

Depression of the 1929s.2 During the course of the financial turmoil, governments, and monetary authorities have clearly demonstrated of being well aware of the need not to repeat the errors of the past. In fact, monetary policy has been more aggressively and governments have, with their fiscal policy, sought to stimulate as much as possible the respective industry with the aim to protect their economy. Besides, on the contrary of 1929’s crisis

1 Roubini, Uzan (2005); Jorda et al (2016); Christodoulakis (2015). 2 Almunia et al. (2009); Krugman (2009). 3

experience, political and technocratic authorities have not resorted to protectionism, safeguarding, in this way, the free international trade.

The Crisis was preceded by a relatively long period of rapid credit growth, large availability of liquidity, development of bubbles, especially in the real estate sector that interacted with new, complex and opaque financial products with companies that failed to follow their own risk management procedure and with regulators and supervisors that not succeeded in keeping under control excessive risk taking. In said framework, it was very easy for many banks and financial players to veil the underlying economic risks to their customers.

When the Crisis broke in the August of 2007 in the USA, owing to the burst of the real estate bubble, strictly linked to the phenomenon of subprime loans,3 uncertainty, among economic operators, arose, with reference, above all, to the capacity of banks to manage the mentioned risks. As a result, the interbank market virtually closed and risks premiums on interbank loans soared. Banks faced a severe liquidity problem. Besides, being the Crisis born in USA, there was the belief that the European Union (EU) economy would have not suffer the financial turmoil’s, as characterized by a sound financial positions of its banks and firms.

In September 2008, the panorama dramatically changed with the default of

Lehmann brothers,4 a global bank that almost brought down the world’s financial institutions. Panic broke in markets, confidence collapse and investors decided massively ‘to get rid’ of their positions. At the same time, the

3 Markan (2015); Mostacci (2009). 4 Markan (2015). 4

transmission of financial deterioration to the real economy evolved rapidly putting especially in emergency the fiscal positions of the so called PIGS states

(Portugal, Ireland, Italy, Greece and Spain),5 owing to their low rate of gross domestic production (GDP).

So, it happened that PIGS were not to be longer able to respect the strict fiscal constraints established by the Maastricht Treaty, in the articles 121 par.

1, 122 par. 2 e 123 par. 5 (then transposed with the Lisbon Treaty, in the article

140 of TFEU) and in the Stability Growth Pact (SGP).6

Thus, it spread the idea that it would be very difficult for PIGS countries to repay or refinance their public debt, without the financial assistance of third parties, especially with the aid of the International Monetary Fund (IMF).

Inevitably, the issue of sovereign debt rose,7 representing the climax of the current economic and financial aftermath.

This last topic has clearly shown the fragilities of the Economic and

Monetary Union (EMU)8 in front of financial and economic downturn of particular intensity, and above all the lack of confidence of the financial markets in the economic stability of the Euro zone and in the survival of its single currency: the Euro.9 In fact, even if the possibility of one of Euro members leaves the Eurozone is not mentioned by any primary rules of the EU

5 Weeks (2014); Rosenthal (2012). 6 On the SGP and its functioning see Hahn (1998), more recently Louis (2007). The SGP was fortified, expanded and supplemented by the so-called ‘Six Pack’ (five regulations and one directive entered into force on 13 December 2011). See Laffan, Schlosser (2016). 7 Cisotta, Viterbo (2012); Napoletano (2012); Starita (2013); Viterbo (2014); Gros, Mayer (2010). 8 De Grauwe (2011). 9 De Grauwe (2010); Peel (2010). 5

treaties,10 this solution has not been excluded.11 But, if it were to happen, the legal, economic and political effects on the Euro zone could be probably very severe.12 In fact, firstly, an Euro exit would definitively certificate the inability, by one of its members, to respect the EMU macroeconomic provisions and to repay its debts. Secondly, it would be evident for the EU the impossibility to continue in the path of the economic and political integration between the

Member states, as, despite all the limitations that characterize it, the EMU remains the unique example of sovereign power completely delegated from

Member states to European Union.

In order to avoid the dissolution of the Euro zone, the EU has, during the last six years, developed a set of new rules, directed to the creation of a crisis management system. It is the case, for example, of the European Stability

Mechanism (EMS), that establishes a permanent emergency fund which entered in force in September 2012, and the so called Fiscal Compact, agreed in March 2012, that mainly increases budgetary discipline.13

At the same time, the Euro Members in financial difficulty, for meeting the strict budgetary constraints imposed by the Maastricht provisions and for recovering the confidence of financial markets, have taken significant fiscal

10 The Article 50 TEU only provides the possibility for a Member state to withdraw the EU intended as whole. 11 On the admissibility of a withdrawal from the euro zone, see Peroni (2015); Hofmeister (2011); Dammann (2013). For an opposite point of view, see Athanassiou (2009). 12 Goodhart (2007); Gross, Gummer (2014); Villata (2013). 13 These new international treaties raise interesting questions with particular reference to their compatibility with the EU law as represent a solution of the crisis that is outside the European institutional system. See Rossi (2012); Baratta (2012); Tosato (2012); Craig (2012); De Witte (2011). 6

measures according to a political and economic model, strongly inspired to the so called Washington consensus paradigm.14

All that has, inevitably, involved a general impoverishment of different layers of european population, in some cases jeopardizing even the access to certain essential services, like education and health. Besides, the aforementioned measures have had the effect to greatly exacerbate the social tensions within PIGS citizens, also due to the political contexts of said countries, characterized by a high level of unemployment rates and an increasing demand of economic support by a large number of people.15

2.- The ECB’s Action: A Necessary Intervention to Safeguard The Euro.

Within the framework described, a central and decisive role in managing the

Crisis has been carried out by the European Central Bank (ECB),16 the monetary authority of the 19 EU countries which have adopted the Euro, whose main task is to ensure the price stability,17 in order to preserve the purchasing power of the single currency.

14 Essentially characterized by a strong reduction of public sectors to finance, particularly, welfare system associated with a significant increase of taxation. See Peroni (forthcoming). 15 Viterbo, Costamagna (2013); Fabbrini (2014); Peroni (2013); De Pasquale (2014). 16 On the legal nature, structure, functions and objectives of ECB: Zilioli, Selmayr (2007); Malatesta (2003); de Haan (2005); Harold (2012). 17 Price stability is mentioned in Articles 3 TEU, 119 par. 2 and 3 TFEU; Article 127, par. 1 TFEU and in Article 2, par. 1 of the Statute of the ESCB and ECB. Price stability is also one of the convergence criteria for the adoption of the Euro (see Article 140, par. 1 TFEU). The mandate of ECB is essentially confined to the maintenance of price stability. Contrary to the U.S. Federal Reserve that is also committed to support growth and employment. According to the liberal theory, see Arndt (1996), price stability can be regarded as a value that stands above democracy. 7

The ECB has been very active since the beginning of the Crisis, and its action helped the European financial and banking sector to avoid their collapse and to limit the consequences for the real economy. In particular way, the ECB has had to react strongly to unprecedented threats to monetary stability in the

Euro area, owing to the ‘burst’ of sovereignty debt crisis of PIGS countries. In particular, the ECB’s policy answer to the crisis was essentially aimed at ensuring the provision of liquidity and repairing the bank lending channel. In order to purse this aim, the ECB, in full consistency of its mandate reduced its key policy interest rate rapidly between October 2008 and May 2009 from 4,

25% to 1% and increased the average maturity of its refinancing operations from months to years.

The ECB took also additional non standard measures18 to ensure that its interest rate decisions were transmitted effectively to the ‘real economy’ despite the volatilities of the financial markets. The main ECB’s idea was to give support to banks that cannot easily access the money markets or other sources of finance and so have difficulty in providing credit to firms, companies and individuals. Consequently, the ECB for enhancing the provisions of liquidity to the banking system, decided to introduce two very long term refinancing operations (LRTO)19 with a maturity of three years which were conducted in December 2011 and in February 2012. In addition,

18 On ECB unconventional measures see Contaldi (2014); Bassan (2015); Cafaro (2013). From an economic perspective see Eser, Schwaab (2013); Szczerbowicz, (2015). 19 Buiter, Rahbari (2012). 8

the ECB adopted the Securities Market Programme (SMP)20 and the Covered

Bonds Purchase Programme (CBPP)21 used to buy particular assets like government bonds from PIGS States in order to address the acute tensions in the financial markets and to repair the monetary transmission channel in the

Euro area.

Owing to the limited impact and short lived of those measures, the ECB announced the Ouright Monetary Transaction (OMT)22 with the end to purchase unlimited amounts of government bonds of Member States subject to

EMS financial program. Indeed, the OMT has not yet been used, but its announcement had a significant impact on government bond yields on the

EMU Member states as it demonstrated the determination of the ECB to safeguard the stability of the Eurozone.23

20 The SMP is a measure of monetary policy and consist of an open market operation directed to ensure liquidity in those market segments that are dysfunctional. It found its legal basis in the Article 12, par. 1, Article 13, par. 1 and in particular in the Article 18, par. 1 of the ESCB Statute. This is a protocol (n. 4) to the European Treaties and has according to the Article 51 TEU the same legal value of the EU primary rules. On the implementation of the SMP, during the development of the financial crisis for the purchase of the PIGS bonds, see Pace (2014). 21 It was adopted by the ECB Governing Council in 2009 to stabilize financial market and help resolve banks' refinancing problems It is also a programme finalized to improve the transmission of monetary policy by easing the provision of credit, and return inflation rates to levels closer to 2%; the inflation target usually fixed by ECB (see also note n. 29). 22 See the ECB (2012), p. 7. Thanks to the OMT for the ECB, it is possible to purchase the sovereign bonds of specific euro area countries, always, on secondary markets with no set ex ante quantitative limits. The ECB Governing Council’s aim in implementing this program is to safeguard an appropriate monetary transmission process and the singleness of monetary policy. For the purchasing of the governments bonds, the OMT program establishes that the State in question complies with conditions specified in European Stability Mechanism, as we have seen before, that establishes a permanent emergency fund which entered in force in September 2012. 23 In these terms consider the famous Draghi’s phrase ‘The ECB within its mandate will do whatever it takes to save the euro and believe me it will be enough’, uttered during a financial conference in London in the July 2012, that signed the beginning of the OMT program of bond purchase for Eurozone states that were in a situation of financial and economic crisis. The integral Draghi’s speech can be consulted in http://www.ecb.europa.eu/press7key/date72012/html/sp120726.en.html. On the influence of Draghi’s speech on the evolution of the economic crisis in the eurozone see Eichegreen (2013). 9

Nevertheless, the ECB’s action has been strongly criticized because it would appear to contravene the EU legislation which clearly prohibits any monetization and bail-out options and any form of financial and economic solidarity between EU and its Member states.24 Specifically, Article 123 TFEU

(repeated in the Article 21 of the Statute of the ESCB and the ECB) forbids any form of monetary financing of deficits or public debt; while Article 124 TFEU rules out privileged access to financial institutions by the public sector and the

Article 125 TFEU, with the ‘no-bail-out clause’, precludes EU institutions and any one member State becoming liable for the financial liabilities of another

State of the Eurozone, with the one exception concerning ‘mutual financial guarantees for the joint execution of a specific project’.25

The mentioned EU primary rules are based on clear and sound economic principles and are an essential part of the EU ‘budgetary code’ that establishes the responsibility of each Member state for its own public finance.26 So, it is evident the objectives to avoid: firstly, financial transfers between European

Institutions to Member states and among them, that could favour significant

‘moral hazard effects’27 in the beneficiary countries encouraging opportunistic behaviour, undermining the credibility of the EMU within the international and

24 Kontochristou, Masha (2014); Closa, Maatsch (2014); Peroni in Mascia, Velo (eds) (2015). 25 The above mentioned three prohibitions are linked with the obligation of Member States under Article 126 TFEU to avoid excessive deficits and with correlated SGP. 26 The States have to finance themselves, if necessary, on the Market and at the conditions set by the Market. The Market is the ‘Judge’ of their financial health. A Member state must borrow on the financial markets in the same way as, and in competition with, other borrowers, including large corporations. Townsed (2007). 27 According to Mankiw (2007) moral hazard is ‘the tendency of a person or entity that is imperfectly monitored to engage in undesirable behaviour.’. 10

financial community;28 secondly, the monetisation of sovereign debt, that could lead to a higher inflation and an instability of the prices. Indeed, at the moment, this last risk is avoided by the fact that the price level in the Euro area has been falling since late 2011 and has been below one per cent since October 2013. In this view, it is possible to affirm that a slight rise of prices, as a possible effect of ECB purchasing sovereign bonds, not only can be considered acceptable, but useful in preserving the financial stability of the EMU.29

3. The Critics Moved to ECB: A Technocratic Institution Free to Act without any Democratic Control?

The strong activism that has characterized up until now the ECB’s action, since the beginning of the Crisis, would have probably had the effect to modify its role.30 The ECB would be not more only a technocratic institution, devoted to manage the EU, monetary policy for ensuring price stability and the Euro’s purchasing power, but the central hub of the European economy policy

28 This could be the risk if the ECB guarantees that money will always be obtainable to pay out sovereign bond holders, it could lead governments to issue too much debt. See De Grauwe (2011). 29 While the Treaty clearly establishes the fundamental objective of the Eurotower, it does not give a quantitative definition of what is meant by price stability. The ECB’s Governing Council announced a quantitative definition of price stability in these terms: ‘Price stability is defined as a year-on-year increase in the Harmonized Index of Consumer Prices (HICP) for the euro area of below 2%.’. ECB (2003). 30 De Sousa, Papadia (2013); Buiter, Rahbari (2012); De Grauwe (2009); Quadrio Curzio (2012); Peroni (2012). 11

making,31 able of imposing, thanks to the recourse to the conditionality method,32 its economic recipes to the Eurozone’s countries, without any effective democratic control33 by both national parliaments and the European one.

Traditionally, monetary policy includes balancing the parliament and the government control on the one hand and the central monetary authority on the other, while, in the EU the ECB has no equivalent counterpart, considering also that the Eurotower is further strengthened by the fact that it does not interact with different national governments. This aspect implies that political pressure is within the European context weaker than the national one.

In support of the thesis for which ECB is fundamentally free to act enough to change its role becoming a ‘policymaker’, the critics of the Eurotower’s action make reference to two recent significant events.34 The first, occurred at the end of June 2015, when the Eurotower decided not to offer the Greek banking system any emergency liquidity assistance (ELA) until the celebration of referendum, wanted by Tspiras’s government, to decide whether Greece was

31 Wilsher (2014); Lombardi, Moschella (2016); Braun (2015); Giannone (2015); Fontan (2014); Torres (2013). 32 Conditionality makes reference to the commitments contained within loan or grant contract that countries in financial difficulty must adhere to if they are to receive all or part of the financial aid requested. In the case of Greek crisis, we assist to two different types of macroeconomic conditions: quantitative conditions and structural conditions. The first involved a set of economic targets influencing the level of fiscal deficit or public debt that a government is allowed to go into. Structural conditions implied institutional and legislative reforms including deregulation, privatization and liberalization. See Featherstone (2015). 33 Democratic control usually consists of monitoring and checking that the people exercise over their representatives and institutions to verify how they get and use the delegated power. In the recent years, the democratic control of the Union governance has received particular attention because it is functional to guarantee the legitimacy of the acts of the EU institutions; in other words, the justification, the acceptance of authorities and of their exercising power. On this topic see Crum (2013). 34 Giannone (2015). 12

to accept the bail out conditions proposed by the ‘Troika’. In this case, it has been claimed that the ECB’s determination represented a clearly political decision that has nothing to do with its core function, which is to ensure the price stability. On the contrary, it was a form of pressure to Greek people in order to influence the outcome of the referendum. The ECB proved to be an institution free to act without reference to any democratic authority that can choose to openly intervene in a democratic process in a Eurozone State.35

Secondly, other events could seem to confirm ECB’s political intervention in the internal affairs of EU Member.36 Particularly, we have to remember the confidential letters sent to Italian and Spanish Governments on August 2011, considered as the manifesto of the monetary and economic policy of ECB, demanding budget cuts and far reaching reforms in return for the purchase of

Italian and Spanish bonds. Particularly, for the ‘Eurotower’ the Italian and

Spanish governments needed to take immediate and drastic measures to ensure the sustainability of their public finance, considered this last the essential condition to guarantee the irreversibility of their participation to the Eurozone and to restore the investor confidence. For the ECB, these aims had to be achieved ‘mainly via expenditure cuts: reducing the cost of public employees, by strengthening turnover rules and if necessary, by reducing wages and by full liberalization of public services…though a large scale of privatizations’. These economic objectives have been considered on one hand as the necessary

35 Majone (2014); Bredt (2011). 36 Tremonti (2013) 13

condition for the Eurotower to purchase in the secondary market37 the sovereign Italian and Spanish bonds and on the other hand, the pretext for the final assault on the welfare state, public services and goods and labour, perfectly in line with the Washington consensus economic model.38

The critics to ECB’s action concerned also the method suggested by the

Eurotower to adopt for carrying out said policies: ‘in view of the severity of the current financial market situation… all actions listed… be taken as soon as possible with decree laws followed by Parliamentary ratification’. This last passage of the letter has been considered the clear determination of the ECB to suspend democracy, transforming national governments and above all national parliaments into mere executors of its economic political actions without any power to propose, debate and amend laws by national parliaments.

In truth, we believe that the critics moved till now to the ECB’s action are in most cases specious and strongly characterized by populist traits. It is unquestionable that the ECB is succeeded, over the course of the Crisis, in inserting itself, at European and national level, in all most important economic and political decisions, becoming, probably, a ‘policymaker’. However, the crisis has required massive sustained intervention by all central banks, not only by ECB, and the measures taken by the ‘Eurotower’, in the EU ‘hour of need’,

37 Secondary markets are markets where government securities are traded after they have been issued or sold on primary market. The secondary market is an important source of price signals and is therefore essential for the orderly funding of government financing requirements, especially in less-developed. On the contrary, the primary market is the market where government securities are first issued and sold, typically by means of some form of tender or auction process. 38 See supra note n. 14. 14

have been absolutely necessary to safeguard the single currency, and received a formal investiture at European political, institutional and legal level.

Particularly, we observe how with the Treaty establishing the ESM the EU members have given a clear mandate to ECB to negotiate the conditionality that characterizes ESM’s lending activity with regard the approval of financial aid to States in difficulty (in these terms, see the article 4, par. 4 and 5, par. 6, lett. g).39 At the meantime, the EU Court of Justice with some important decisions,40 considered the monetary measures taken by the ECB in line with the primary provisions established by the EU treaties as able to restore the proper functioning of the monetary transmission mechanisms severely compromised by the Crisis, in order to guarantee the unity of the monetary policy and to save the single currency.

So, we consider that the question of the lack of democracy about ECB’s action is misplaced, because the Euro tower’s action occurred in the light of exceptional circumstances. An extraordinary moment characterized by the presence of global financial markets players, that have currently the power to overflowing and even to ignore the national borders.41 At the moment, financial markets players are able to force national governments and other

39 With reference to the validity of European Council Decision 2011/199/EU of March 2011 amending Article 136 of TFEU with regard to the introduction of ESM see the Pringle Judgement of 27 Novembre 2012, Thomas Pringle against Government of Ireland case – Case C-370/12. 40 See in particular way the Gauweiler Judgement of 16 June 2015, Peter Gauweiler against Deutscher Bundestag, case C-62/14. In that occasion, the Court of Justice confirmed the legality of the OMT. Consider also that on October 7, 2015, the General Court of the EU issued its decision in Alessandro Accorinti and Others v. ECB and ruled that the Eurotower was not responsible for the losses of private investors resulting from the restructuring plan of Greece’s public debt. 41 We make reference, in particular way, to hedge funds, sovereign wealth funds, rating agencies. See, respectively, Paredes (2006); Bassan (2011); Gigante, Ligustro (2010). 15

political institutions to follow their respective dictates, even if these are contrary to the political programs chosen by the sovereign people trough democratic election.

In other words, the ECB has become necessarily the supervisor of the

National Governments in driving their political economy only when the latter have shown that they are not being able to manage the effects of the sovereign debt Crisis in front of the speculative attacks moved by the financial markets.

On the contrary, we think that the described attacks to the ECB are essentially useful for masking other critical aspects connected with the current crisis, as for example the weakness shown by other European institutions in the managing the Crisis and in trying to establish a new model of economic governance.42 In fact, the Crisis has clearly highlighted how the markets have the power to move capitals to countries and places where they can increase their profit, with the effect that each State, for being more attractive than any other, aims at demonstrating its ability to satisfy the wishes of financial players. We are in front of an ‘external constraint’, probably favoured by the lack of a set of rules at international level able to regulate effectively financial markets and services.43

At the moment, it seems that only satisfying market needs States succeed in refinancing their public debt on the international financial market. This aspect inevitably raises the crucial question of the temporal dimension of the different interests involved. In fact, in most cases the interest of markets is clearly in

42 See Strengthening Economic Governance in the EU. Report of the Task Force to the Euroepan Council, 21 October 2010; Blanke (2011). 43 Gari (2014). 16

contrast with those of modern democracy usually founded on the scrutiny of their respective Parliaments. Markets are usually looking for short-term private earnings, and normally operate according to mere selfish logic, while governments have the duty to define and implement reforms that require long- term for being understood and accepted by their citizens. Nevertheless, not infrequently governments are induced to adopt in short-time, on the basis of conditions of urgency and necessity, as happened during the Crisis, specific economic policies, with the aim to please immediately the markets even when it is clear that these policies, not match the real and general interests of the

Nation.

The approval of fiscal measures that can have a particular impact on the life of people, like occurred, for example, in Italy with the introduction of the reform of pension system, with the so called ‘Legge Fornero’,44 require time and involve debates, round tables, conferences, meetings and discussions that in any modern democracy are essential. But, all that increases uncertainty about the final outcome and thus induces markets players to rapidly liquidate their investments.

This occurred in Greece last Summer 2015, during the period of Tsipras referendum. We assisted to a strong increase in the budget deficit, public debt and the need for an even larger support package. Probably, the total cost of funding to Greece would have been lower, if the decisions of its government had been taken more quickly.

44 See Legge 28 giugno 2012, n. 92 Disposizioni in materia di riforma del mercato del lavoro in una prospettiva di crescita. Gazzetta Ufficiale della Repubblica Italiana, Serie Generale n.153 del 3-7-2012 - Suppl. Ordinario n. 136. 17

This is the framework within which the ECB has been asked to act. In addition, we have to remember that the national parliaments and governments of the members of the Eurozone decided with the signature of Maastricth treaty to transfer their control over monetary policy without recognizing to European

Parliament (EP) any authority in this area. Inevitably, the ECB results free to operate in a European political vacuum, without any European institutions able to balance its powers, with the only exception represented by the European

Court of Justice,45 and in the absence of an effective mechanism able to prevent the market speculative attacks to sovereign debt of State. 46

4.- Improving the ECB’s Transparency and Accountability, Defending its

Independence.

It is a general principle of democracy that any entity or person with an authoritative power, whose exercise can produce effects on population, must be considered accountable for its actions in front of its community. But, on one hand, if the technical and complex issues of monetary policy require that the

ECB must be independent47 from any form of political influence,48 on the other

45 According to the Article 263 TFEU ‘The Court of Justice of the European Union shall review the legality of legislative acts, of acts …of the European Central Bank intended to produce legal effects vis-à-vis third parties.’. 46 On the legal effects depending on State’s default see Malaguti (2011); Tanzi (2012); Frigo (2012). 47 On the independence of ECB, see Beukers (2013); Hayat, Farvaque (2012). 48 It is a common opinion that central banks need to be credible in front the market players to carry out effectively their function. Fort this reason, said credibility is best achieved trough transparency of its actions and independence from governments. 18

hand, we can not consider that the ECB could be free of responsibility towards

European citizens who endure, now more than ever the effects of its monetary decisions.

Particularly, it has been noted that ECB, differently from what happens for other monetary authorities, has a double form of independence with reference to the fundamental target of price stability: goal independence (the governments, usually, fix the politically acceptable level of inflation) and the instrument independence (the governments usually leave free the monetary authority to decide how best achieve the inflation target). The said double independence would be at the basis of the issue of the lack of democracy concerning the ECB’s action. Thus, in order to solve that issue, the Eurotower should ‘evolve towards a governance model excluding goal independence.’49

In the light of the current situation, we believe that the democratic legitimacy of the ECB’s action can not be satisfied by the exclusion of the

ECB from the quantitative determination of the rate of inflation, even if a specific inflation target set with the ‘contribution’ of the other EU institutions

(especially, the EU Commission and the EU Parliament) could better define the

ECB’s mandate.

In truth, we consider that a strengthened accountability of the Eurotower which implies a deep reform regarding the transparency of the decision-of its managing board could be the ‘key’ to make the ECB’s action more acceptable

49 In said terms, see Majone (2010); Gormley, de Hann (1996). 19

to EU citizens.50 In fact, the accumulation of influence and power at ECB level has not been matched by significant improvements in the transparency and accountability of its decisions. In these terms, the Eurotower seems to lack of the good practices implemented by its central banking peers around the World, with particular reference to the publication of meeting minutes and voting records; the external independent membership of boards and a strong parliamentary oversight.51

Central banks, in order to carry out their functions effectively, need to be credible in front of market actors and the general public. For this reason, it is a general opinion, that their credibility is best achieved through independence from any form of political influence and the transparency of its operations.

Transparency applied to central banks should cover a wide range of issues, concerning above all the econometric targets, models and the effectiveness of monetary instruments used, the way and the reasons by which monetary decisions are taken.52 The release of minutes and voting records could be a good way to ensure transparency;53 but, at the EU level, this is a method, at the moment, not considered, according to the Article 10, par. 4. of the Protocol n. 4 on the Statute of ESCB and ECB.

Transparency at ECB’s level should also include prompt announcement of policy decisions and indications of likely future policy actions trough formal

50 On the profile of accountability applied to the ECB see Wandersman (2014); Mény (2014); Kaltenthaler, Miller (2010). 51 See the report ‘Transparency International. The global coalition against corruption. Improving the accountability and transparency of the European Central Bank’. www.transaprencyinetrnational.eu. 52 See Dai (2016). 53 For a different perspective see Bini Smaghi, Gros (2001). 20

and public record of the decision making process without limiting in providing explanations of monetary policy decisions at press conference or in monthly bulletin. In this context, a particular attention could be paid on ECB rules about public access to documents. Indeed, this is a very sensitive issue, because the

EU Treaty, in its Article 15 TFEU, establishes that the ECB is subject to transparency, but only in the exercise of its administrative duties. Said limitation, clearly acceptable when a publication of a document could damage the financial stability of the EU or a Member State, in the other cases, can have the effect to ensure to the ECB a high degree of discretion on which documents to release.

As regard the accountability, usually seen as the counterpart of independence from political pressure in monetary decision-making normally recognized to monetary authorities, ECB should be not considered different from any other public authority. In other terms, if it is fundamental to preserve central bank officials from rushed dismissal or other forms of pressure simply for taking decisions that are not in line with politician determinations, it is also fundamental to strengthen the parliamentary oversight. On this aspect, we know that the ECB is currently accountable to the EP, through the ‘monetary policy dialogues’ with members of the EP Economic and Monetary Policy

Committee.54 Specially, the Eurotower must respond to written questions from

EP Members and ‘Strasbourg’ has the right to request hearings with ECB’s members Executive Board (see Article 284, par. 3 TFEU and Article 15, par. 3

54 Amtenbrink; van Duin (2009). 21

of Protocol n. 4). It also presents its annual report to Parliament. But, a stronger oversight powers should be granted to the EP foreseeing, for example, that membership should be subject to its approval, favoring as much as possible external membership, in order to strengthen the accountability of the boards. In addition, parliamentary control should imply the possibility to conduct investigations, to scrutinize operational budgets and to dismiss board members in cases of malpractices.

All that, without obviously any intention to be exhaustive, can contribute to riduce the distance between the Eurotower and the EU citizens. In addition, it can contribute to give an effective fulfillment to the article 13 TEU that inserted the ECB in the circuit of EU Institutions. This provision, introduced thanks to the Lisbon Treaty, has not only solved the issue about the legal nature of ECB, but, above all it has been allowed to the Eurotower not to be longer considered an ‘external body’ to the EU.

The reforms, briefly suggested, aim at favoring ECB’s action in solving the

Eurocrisis, without forgetting that the EU is still far from having the characteristics of a Federal state. It follows, that any reform concerning, in particular way, the fiscal policy, is doomed to affect deeply the State sovereignty, raising inevitably new crucial legal issues.

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Economic and Monetary Union and Switzerland: two models compared in the light of the economic crisis.

Giulio Peroni*

University of Milano

ABSTRACT: 1.- Preliminary remarks. -2. The root causes of the crisis. -3. The eurozone crisis and the possible dusk of the irreversibility of the euro. -4. The role of the European Central Bank to safeguard the single currency: a discussed but necessary intervention. -5. Switzerland and its economic model in front of the crisis.

1.- Preliminary remarks.

Recent economic data, as processed and disclosed by the Organization for Economic Cooperation and Development (OECD), the International Monetary Fund (IMF) and the Statistical Office of the European Union (Eurostat), seem to indicate that the Crisis that started from Summer 2007 and affected severely the entire international economy, is about to be basically overcome, especially with regard to the situation of the ‘Old continent’: one of the economic and trade area most severely affected by this phenomenon, considered as the worst recession ever occurred in contemporary economic history,1 especially, for the devastating impact produced at

1 The current international economic and financial situation has been compared to another well-known event that shocked the world in the early decades of the twentieth century, the Crisis of 1929. Both phenomena would result from a lack of liquidity, suffered mainly by the US credit system, by a excessive liberalism, from a monetary policy too lax by the US Federal Reserve, by a heavy fall in the value of commodities and industrial production levels. However, the current crisis, unlike that of 1929 concentrated mainly in the US and Europe, has affected, though in different ways, all of the economic areas of the Globe. Moreover, it should be noted such as right on the basis of the mistakes made during the Crisis of 1929, in order to

social level.2 It is sufficient to peruse the data on unemployment, particularly among the youth, or on higher rates of poverty and social exclusion, to realize how the years that passed until now, from the beginning of the crisis in 2007, have been so dramatic to be able not only to strain the Eurozone and the Euro resistance, but the entire European Union (EU) still nowadays under discussion, both at political, cultural and economic level.3 The solution of the nodes listed above, despite the - however still weak - recovery occurred, will necessarily take a long time, resulting in the definition of new models of welfare, production and labor policies. The reform of these specific sectors has been, many times, the answer that various European governments have tried with the aim of overcoming the crisis. Their action has been primarily based on the adoption of economic measures based on principles of strict austerity, measures that in most of the cases were functional to the containment of the social spending, traditionally considered as unproductive. This is a choice that, however, did no more than exacerbate tensions within the different European countries, considering that during these years, the demand for social services and income support has inevitably been increased from a growing number of people who found themselves deprived of sources of income, and therefore of sustenance, because of the fact that the crisis passed from a purely financial crisis to a real economic one, with the result of tens of thousands of active people expelled from the world of work. There was a perverse effect, if not paradoxical.4 Just when solidarity and social protection systems were most needed both at European level and for each Member States, under strong pressure of the European institutions (mainly the Commission and the European

ensure liquidity to the market, it has seen in recent years a strong intervention by central banks (Federal Reserve, European Central Bank and Bank of England) to support the banking and credit system to boost the real economy, to allow greater circulation of money and facilitate access to credit by companies and individuals in general. For a comparison between the two crises, see M. ALMUNIA-A.S. BÉNÉTRIX- B. EICHENGREEN- K.H. O'ROURKE-G. RUA, From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons, Cambridge MA, National Bureau of Economic Research, Inc, 2009; P. KRUGMAN, The Return of Depression Economics and the Crisis of 2008, Norton Pubblications, London-New York, 2009; G. SAPELLI, La crisi economica mondiale: dieci considerazioni, Bollati Boringhieri, Torino, 2008. 2 On this point, see A.M.VITERBO- F.COSTAMAGNA, L’impatto sociale della politica di condizionalità nel contesto della crisi dell’euro, in N. NAPOLETANO - A. SACCUCCI (eds) Gestione internazionale delle emergenze globali. Regole e valori, Editoriale Scientifica, Napoli, 2013, p. 167 ss; G. PERONI, L’azione dell’Unione europea in campo sociale e la crisi economica, in G.P. MILANO- L. DANIELE- C. MALINCONICO- M.C. CICIRIELLO (eds), Il Trattato di Lisbona due anni di applicazione. Atti della Giornata di studio in ricordo di Francesco Caruso (Roma, 7 ottobre 2011), Editoriale Scientifica, Napoli, 2013, pp. 409-424. 3 Consider, for example, the question of the possible Brexit, in other words, the exit of United Kingdom from the European Union, on which British citizens will be called to express themselves, it seems, by 2017. 4 Cf. G. PERONI, Il difficile equilibrio tra austerità e solidarietà nell’Unione economica e Monetaria, contributo in corso di pubblicazione in Raccolta degli Atti del Convegno AUSE The European Economic Union: Economic, Social and Institutional Aspects, Venezia, 17-19 Luglio, 2015.

Central Bank - ECB) and the IMF,5 national governments intervened to reduce social spending: on the one hand, to meet the budget imposed by strict budgetary constraints requirements that characterize the Economic and Monetary Union (EMU), and on the other hand, to reassure international financial markets worried about a possible default of any of the most exposed European countries to the crisis; particularly, the so-called PIGS (Portugal, Ireland, Greece, Spain and Italy).6 It happens thus, that an ever-increasing slice of European citizens point at the European Union as the responsible for the significant deterioration of their living conditions, rather than to their political classes, not seeing any longer the integration process as an opportunity for economic, cultural, political and social growth, but rather as a brake, if not even an obstacle to the legitimate expectations of helping to build a better society. Obviously, the economic crisis also hit Switzerland, one of the world countries with among the highest per capita income and one of the most industrialized economies. However, negative impact on the Swiss Confederation was less significant than what happened in the EU, both in terms of the decline in unemployment, both on the reduction of the gross domestic product (GDP), the index that measures the ability to produce wealth by each country.7 The above-mentioned difference, in the opinion of the writer, is due to several factors, starting from the most basic such as, above all, the different territorial dimension and population. However, the profiles that appear to better distinguish the effectiveness of the reaction of the EU and Switzerland with respect to the current economic crisis seem to be two, even closely intertwined. I refer, first, to the fact that, despite several reform measures that have occurred in recent years, the EU tax policy is still a prerogative of the Member States, unlike the monetary policy, which was devolved for exclusive title to the ECB and the European System of Central Banks (ESCB); on the other hand, the presence of central monetary authority does not have the same range of tasks and tools, which instead have other central monetary institutions, such as the Swiss one. 8 The latter,

5 On the IMF's role in the solution of the financial crisis with specific reference to the European case, see G. ADINOLFI, Il sostegno congiunto UE-FMI: è necessario un ripensamento della politica di condizionalità?, in G. ADINOLFI, M VELLANO (eds), La crisi del debito sovrano degli stati dell’aerea euro. Profili giuridici Torino, Giappichelli, 2013, pp. 3-27. 6 Acronym with a clear depreciatory value, also used as a technical term for a group of European States which, despite the diversity of their economies, are united by their inability to comply with the so-called Maastricht criteria included in art. 140 TFEU, and by the fact that financial speculation has severely hit the prices of their sovereign bonds, especially in the period 2011-2013. 7 With regard to Switzerland's economic position in the current global economic context, see in particular the 107th of the Swiss National Bank 2014 Annual Report, available on the web page www.snb.ch/it/mmr/reference/annrep_2014.../annrep_2014_komplett.it.pdf. 8 On this point, compare in particular art. 3 of the Protocol 4 on the Statute of the European System of Central Banks and of the European Central Bank concerning the duties of the ‘Eurotower’ with art. 5 of the Federal Act on the Swiss National Bank.

however, operates in a political and economic context in which fiscal sovereignty, unlike what happens at EU level, is not only shared between ‘Berne’ and the individual cantons and municipalities that compose the Swiss Confederation,9 but, also, strongly participated by the Swiss citizens through referendums and laws by popular initiative.

2.- The root causes of the crisis.

To understand the reaction to the economic crisis by both the EU side and the Swiss side, it is appropriate to carry out some considerations about the reasons by which the phenomenon under investigation was originated, appropriately taking into account that the crisis is the result of a very complex mix of causes, not only of economic nature but also political and legal. Under the first point of view, we observe the intervention of several factors, such as: a strong increase in commodity prices since 2008, especially oil, whose price has reached a record level of $ 147 per barrel in June of that year;10 the emergence of a heavy food crisis caused by the sharp rise in wheat prices, favored by the adoption of de-coupling policies,11 the unresolved financial crisis generated by the speculative bubble of the ‘Internet values’12 that began in 2001 and, finally, the excessive ease for individuals to obtain credit, resorting to the instrument of sub-prime mortgages for the purchase of properties in the United States, which was followed by the failure of several insurance companies and banks, of which it should be mentioned the most striking case related to the default of Lehmann Brothers; entities all heavily exposed to the securitization linked to the granting of that type of loans.

9 It is worth remembering how Switzerland was born in 1291 under an alliance intervened between the different cantons and then evolved from Confederation in effective federal state in 1848, when it was approved the first Constitution, federal and liberal. In 1874, came into force a new Constitution (reformed, then, in 1999) that determined the transition from a representative democracy to a semi-direct democracy, in which the popular vote, with, above all, the implementation of the referendum instrument still plays today a decisive role in the assumption of the most significant decisions of the Swiss policy. A smooth study on institutional and Swiss political, economic cultural model is in the volume of S. GEROTTO, Svizzera, Bologna, Il Mulino, 2011. 10 Consider that in January 2016, oil prices are around $ 35. On this point, see the constantly updated data of the respective prices on the site www.borsaitaliana.it. 11 It is an agrarian policy instrument through which the state aids are granted independently from production. In other words, farmers are free to produce or not to produce, receiving, however, the relevant assistance in the form of a single payment. On this specific profile, see G. PERONI, Il commercio internazionale dei prodotti agricoli nell’accordo WTO e nella giurisprudenza del Dispute settlement Body, Giuffrè, Milano, 2005, pp. 87-115. 12 Speculative bubble means a particular situation of the market where there is a considerable and unjustified increase in the prices of certain goods and services, due to a sudden increase in demand and limited in time. For further information, please refer to J.E. STIGLITZ, I ruggenti anni Novanta. Lo scandalo della finanza e il futuro dell’economia, Einuadi, Torino, 2004; nonchè N. ROUBINI, M. UZAN, International Financial Crisis and the New International Financial Architecture, Edward Elgar Publishing, Cheltenham -Northampton, 2005, pp. 56-130.

The reasons behind the crisis, however, as noted above, are not only economic.13 You can not fail to observe how, perhaps with rare exceptions, current political classes are characterized by the absence of charismatic figures, able not only to ‘take head’ and face with determination the events occurred, but, in particular, also able to know how to make real ‘operation truth’ towards their respective citizens. In other words, it seems that the current European political élites have not yet had the courage to explain the reasons of the crisis and why proves necessary to adopt specific measures, rather than others. In other words, the European Union and their respective Member States have not appeared to be capable, so far, to describe what future they imagine for the current generation and the next one, in the light of the current recession and the sacrifices imposed to date by a large part of the Old Continent's population. The absence of a genuinely shared EU-wide strategy on how to deal with the phenomenon under consideration is evident also regarding at the plurality of tools created to tame it by the European Union during these years (think, just to name a few, to the Euro Plus Pact, the Six Pack, the European stability Mechanism - ESM and the treaty on Fiscal Compact).14 The feeling one gets is one for which both the European and national political classes have not been able to deal with the crisis, using solutions sometimes confused that favored, faultlessly, the clear affirmation of populist movements with strong anti-European traits, especially within the most affected countries, such as Greece. A way of partially acquitting the confusion that has characterized the action of the various European political leaders, is undoubtedly the absence of supranational institutions capable of effectively managing the economic and monetary effects of the globalization of trade, mainly realized thanks to the introduction in 1994 of the Agreement establishing the World Trade Organization (WTO).15

13 On this specific issue, please refer to the considerations set forth in the following paragraph. 14 On the nature and operation of these tools, please refer to G. PERONI, La crisi dell’euro: limiti e rimedi dell’unione economia e monetaria, Giuffrè, Milano, 2012, pp. 151-199. 15 From a legal and economic perspective, globalization is based on the process of progressive integration of markets by virtue of the gradual liberalization of trade. it is worth pointing out that economic globalization is not, as has sometimes been led to believe, a recent phenomenon, but even dating back to the first half of the nineteenth century, when the liberal ideas of Adam Smith and David Ricardo, expressed respectively in the Inquiry into the Nature and Causes of the Wealth of Nations (1776) and On the principles of political economy and taxation (1817), have begun to be reflected into a systematic policy of relaxation of protectionist measures, first in United Kingdom and then in the other major industrialized countries of that time. Only with the establishment of World Trade Organization (WTO) which took place during 1994 with the signing of the Marrakesh Agreements, whose task is to liberalize international trade, in the widest possible way, globalization began to be extensively discussed. In fact, economic activity has taken precisely during these last years thanks to this set of international treaties, increasingly a supranational level under the influence also of other different factors, such as the movement of capitals,

The globalized world today is, in truth, devoid of real international centers of political-economic power, 16 capable to effectively govern such epochal phenomena as the present one and that are, by now, far beyond the intervention capacity of individual states and, in particular, of the United States, which has traditionally been seen as the only true "Super Power" existing economic in the world. Besides, effective regulatory reform at the base of the governance of the international economy, introduced in July 1944 in Bretton Woods, has not yet been realized, and this in spite the obvious fact that the macroeconomic scenario has completely changed. Today there are new economic realities as the countries of the BRICS area, especially China, as well as other new economic actors such as credit rating agencies and, above all, sovereign wealth funds and hedge funds capable, in the first case to address the choices investment of economic and financial operators; while, in the second and third case of earn profits equal to the GDP of medium-sized industrialized countries and and therefore able to move up in their cheap money supply, choices that might be capable to destabilize any financial balance so far achieved. To all that has been up to now described, it must be added the absence of international rules governing the movement of capitals and the financial services to avoid financial turmoil such as those that occurred recently. On this point, it is enough to remember the reduced regulation, moreover reached with difficulty, existing in the context of GATS, which is deputy to the regulation in the field of the services within the framework of WTO system. The existing legal vacuum at international level has inevitably favored the financial speculators including the various hedge funds 17 private equity funds, 18 and

the dominance of exclusively financial exchanges on those of the real economy, the advent of new information and telecommunication technologies, like internet. 16 The response to the crisis by international economic organizations, especially the International Monetary Fund and the World Bank ,is not particularly effective, due to the limitations that characterize them, both at the level of functioning of its governing bodies, both for the not always appropriate legal instruments to which they can have recourse for the effective implementation of the decisions taken. As meaning that the role of international institutions has been enhanced, but the statement of an effective global economic governance is still far from being realized, see G. NAPOLITANO (eds), Uscire dalla crisi. Politiche pubbliche e trasformazioni istituzionali, Il Mulino, Bologna, 2012. 17 Hedge funds are a special category of mutual funds, which owe their name to the fact that managers can use all the financial instruments that the market has, and therefore, from derivatives, to shares, bonds and debt securities in general. They usually are made according to the laws of countries considered off-shore and, as such, as well as subjected to a very favorable tax regime, even on a dimly stringent discipline in prudential terms and protection to the private investor. With regard to off-shore markets see A. ZOROMÈ, Concept of Offshore Financial Centers: in Search of an Operational Definition, in IMF Working Paper (WP/07/87), April 2007; V. T. CANOVA, The Transformation of U.S. Banking and Finance: from Regulated Competition to Free Market Receivership, in Brooklyn Law Review, 1995, pp. 1295-1354; with reference to the hedge funds see V. LAZZERI, Economia e finanza degli hedge funds, in Banca, Impresa e Società, 2000, pp. 383-414; T.A. PAREDES, On the Decision to Regulate Hedge Funds: the Sec’s Regulatory

sovereign wealth funds,19 who have benefited of finding an open field in their constant quest for maximized profits, taking advantage of the lack of rules to establish effective mechanisms for the management of the crisis.

3. The eurozone crisis and the possible dusk of the irreversibility of the euro.

Also the crisis of the Eurozone falls within the complicated framework herein disclosed, or more properly, the crisis of the EMU and, consequently, of the single currency (Euro), which is its most important expression. All this is a direct result of the strong speculative movement that has affected, especially in the period 2011- 2012, the trend of stock prices of the public debt of the PIGS which entailed the emersion of the issue of the sovereign debt crisis for the first time in Europe. In other words, was revealed the real possibility that some of these countries were no longer able to meet the strict European budget constraints and basic assumptions of EMU, and so compelled to

Philosophy Style and Mission, in University of Illinois Law Review, 2006 pp. 975- 1027. 18 These are investment vehicles that employ the money of their lenders for the acquisition of companies or equity interests in companies under special conditions (in the process of setting up, developing or even in the course of insolvency) in order to grow their own asset value with a view to their subsequent sale to other parties, with the aim of profiting from the initial purchase price and that of sale. On this point, see R. KULMS, Capitale privato ed investimenti: Governance d’impresa attraverso il diritto societario?, in Rivista di Diritto Societario, 2009, pp. 433-455. 19 The Sovereign Funds are basically public investment instruments, directly controlled by the State to which they belong, and are used to engage in financial instruments (shares, bonds, real estate) and other activities, tax surpluses or foreign exchange reserves, resulting, above all, from the sale of raw materials (mainly oil and gas). Among the most important Sovereign Funds by size, should be mentioned those of Abu Dhabi, Norway, Saudi Arabia, China, Singapore, Kuwait, Russia, Libya and Qatar. They represent the rise of a new form of capitalism, which poses particular problems precisely in the light of the current crisis. In fact, they are among the few liquids investors, taking advantage of ‘low prices’ of the shares of many European and US companies. In this way they are able to acquire more and more significant investments in strategic sectors of the different national economies and, inevitably, in the future this fact could lead them to modify the low profile from them so far held, consisting in systematic waiver to elect its representatives to the governance of companies in order to reassure the shareholders as the stakeholders and the various national policy makers on purely financial purposes and non- strategic policies of their investments. For a debate of the different profiles indicated see F. BASSAN, The Law of Sovereign Wealth Funds, Edward Elgar Publishing, Cheltenham-Northampton, 2011; ID., Una regolazione per i fondi sovrani, in Mercato concorrenza e regole, 2009, pp. 95-132; A GIGANTE, A. LIGUSTRO, Il diritto internazionale degli investimenti alla sfida dei fondi sovrani, in Diritto pubblico comparato ed europeo, 2010, pp. 1179-1221.

terminate from the Euro or even expelled;20 undermining, thus, not only the existence of Economic and Monetary Union,21 but, above all, the supposed irreversible nature of the single currency. 22 In the opinion of those who admit it,23 such a character would derive from art. 140 TFEU, which replaced artt. 120 (part 1), 122 (par. 2) and 123 (par. 4) TEC, with which have been set the relevant parameters or macroeconomic convergence criteria, with respect to which a State, once he has met them, would be obliged to assign the respective monetary sovereignty to the EU and, consequently, to adopt the euro without any ‘way out’, according to the so-called all or nothing approach, with the only exception of those countries provided with a specific opt-out clause.24 On this point, it is worth remembering as in another study25 it has been tried to demonstrate, in truth, how this irreversible nature does not exist so much as in terms of primary EU law, as under international law of treaties, by which the first is originated. It is possible to leave the single currency willfully, with the termination mechanism, or being eventually deported if no longer able to meet the conditions at the base of its adoption, although this is an option of strong and currently unpredictable economic, political and legal consequences. In fact, it should be remembered how Euro is not just the end result of a long historical and political process that started from the

20 On the trends of conflicting currency euro in 2007-2011, please refer to the web pagehttp://www.ricerca24.ilsole24ore.com/piucercati/PAGES/storico+cambio+euro +dollaro.html. 21 Cf. P. DE GRAUWE, Crisis in the Eurozone and How to Deal with it, in CEPS Policy Brief, No. 204, 2010, February; B. HALL, Q. PEEL, Paris and Berlin at Odds over Default System, Financial Times 2010, Oct. 26; R. CANALE, O. NAPOLITANO, The Recessive Attitude of EMU policies: Reflections on the Italian Experience, 1999-2008, in MPRA Paper No. 20207, 2009. 22 Cf. C. PROCTOR, The Future of Euro. What Happens if a Member State Leaves? in European Business Law Review, 2006, pp. 909-937; P. ATHANASSIOU, Withdrawal and Expulsion from The EU and EMU: Some Reflections, ECB Legal Working paper Series n. 10; December 2009, pp. 1-43. 23 Cf. P. ATHANASSIOU, ibidem.; M. LORCA SUSINO, The Euro in The 21 Century: Economic Crisis and Financial Uproar, Routdlege, London, 2013, pp. 1-31; P. BAGUS, The Eurosystem: Costs and Tragedies, in D. HOWDEN (ed), Institutions in Crisis: European Perspectives on the Recession, Routdlege, London, 2011, pp.117- 141; H. HOFMEISTER, Goodbye Euro: Legal Aspects of Withdrawal from the Eurozone, in Columbia Journal of European Law, 2011, pp. 111-134; J. C. DAMMANN, The Right To Leave the Eurozone, in Texas International Law Journal, 2013, pp. 125-155. 24 Opting out is the exception that, in order to prevent a general stalemate in the European integration process, it is given to Member States not wishing to join the other Member States with regard to a specific sector of Community cooperation. Under this principle, the United Kingdom asked not to participate in the third stage of EMU and similar treatment was granted to Denmark. Similarly, it has happened with regard to the Schengen acquis subject to partial adoption agreements, as Ireland, the United Kingdom and Denmark can decide, case by case, whether to participate in whole or in part to the measures provided for therein. 25 See G. PERONI, Il recesso dall’euro: una via percorribile, ma non auspicabile, in Studi sull’integrazione europea, 2015, vol. 1, pp. 85-108.

beginning of the communitarian phenomenon, 26 manifesting itself only with its actual adoption on January 1, 2002, but, above all, Euro represents the first form of real European federalism, with which some EU Member States have decided to forgo one of their own specific and typical sovereign function: the power to issue currency.27 Give up the Euro means, in other words, to abdicate the idea that, in the future, it may be realized the project, supported by Churchill first, 28 of building the United States of Europe, of which the Economic and Monetary Union is, at the time, in a federalist perspective, the most significant element hitherto reached, despite the limitations that characterize it.

4. The role of the European Central Bank to safeguard the single currency: a discussed but necessary intervention.

Until now, in the management of eurozone’ crisis, the action undertaken by the European Central Bank (ECB) has been crucial29

26 When the European Economic Community (EEC) was established in 1957, the theme of monetary cooperation among the Member States was absent from the respective political agenda, because the attention of those countries was aimed at, above all, the creation of a commercial area of free trade, which is then manifested in the most evolved form of a customs union. However, it was already clear at the European level, the need to define a set of rules that would be able to ensure some form of monetary cooperation in order to more effectively regulate the payment system in the view of reaching itself a full realization of trade between the EEC member countries. On the long path that led to the adoption of the Euro, see M. G. TENAGLIA AMBROSINI, La moneta e l’Europa: da Bretton Wodds a Maastricht e oltre, Giappichelli, Torino, 1996. 27Monetary sovereignty consists in the possibility of emitting metal and paper currency, decide the cut, the size, the nomen, the legal tender, its possible substitution to another, determining the conversion rate, as well as the circulating amounts thus influencing both the internal value as the external one and the resulting inflation rate, up to get power to impose the restriction on relative movement to affect the free circulation of capitals as much of the payments. For a detailed reconstruction of the concept of monetary sovereignty see T. TREVES, Il controllo dei cambi nel diritto internazionale privato, Cedam, Padova, 1967, pp. 14-20; D. CARREAU, Souveraineté et Coopération Monétaire Internationale, Editions Cujas, Paris, 1971, pp. 52-54; M. R. SHUSTER, The Public International Law of Money, Clarendon press, Oxford, 1973, pp. 9-12; G. BURDEAU, L’Exercice des Competences Monetaires par les Etats, in Recueil des cours de l’Académie de droit international de La Haye, 1988, pp. 236-237; C. PROCTOR, Mann on the Legal Aspects of Money, Clarendon press, Oxford, 2005, pp. 500-503; R. M. LASTRA, Legal Foundations of International Monetary Stability, Oxford University Press, Oxford, 2006, pp. 16-17. 28 In the popular “Speech to the academic youth” held at the University of Zurich in 1946, Churchill formulated the conclusions he had drawn from the lessons of history: "Yet all the while there is a remedy which (...) would in a few years make all Europe (...) and free (...) happy. (...) It is to re-create the European Family, or as much of it as we can, and to provide it with a structure under which it can dwell in peace, in safety and in freedom. We must build a kind of United States of Europe. ". The extract of Churchill's speech is widely available online. 29 On the European Central Bank, see A. MALATESTA, La Banca centrale europea, Gli aspetti istituzionali della banca centrale della Comunità europea, Milano, Giuffrè, 2003; S. ORTINO, La Banca centrale nella costituzione europea, in Quaderni costituzionali 1993, pp. 33-69; ID., La cooperazione internazionale e transfrontaliera in materia di vigilanza bancaria. Il ruolo della Banca centrale europea, in AA. VV., Istituzioni, mercato e democrazia. Liber amicorum per gli

both in trying to prevent the gap between the interest rates on government bonds of different European countries from reaching unsustainable levels (the so-called spread), and to prevent the European financial banking system from being affected by a dangerous liquidity crisis, that might have generated a real credit crunch, shorting, thus, the whole continental banking system. On this point, among the various measures taken by the ‘Eurotower’ deserve to be remembered, in addition to the repeated and strong reduction in the official discount rate (which was brought on November 7, 2013 at a level never before reached 0.25 %),30 also the Security Market Program (SMP), the Long Term Refinancing Operation (LRTO), the Outrights Monetary Transaction (OMT) and, finally, the latest Quantitative easing (QE). In particular, it should be emphasized how through the SMP has in fact started, beginning in 2010, the buyback program on the secondary market for debt securities of those European countries (Italy, in particular) who have found themselves at the center of speculative action by the international financial markets. Subsequently, with the ECB's LTRO program, the ‘Eurotower’ intervened in support of the Italian and Spanish banking systems by ensuring very low rate loans to supply continuous liquidity to the banking industry in these countries in order to maintain adequate circulation of money among the banking and financial institutions themselves and between them and the companies. Through the OMT instrument it has been permitted, on paper at least, to the ECB to buy unlimited secondary market of short-term bonds (1-3 years) from the Member State interested in receiving the necessary financial support, on condition that this last agree to adopt a specific structural economic reform program, worth failure to deliver the applied aid program. Finally, it should be mentioned the QE, an extraordinary measure that aims to boost the eurozone economy, bringing down the cost of government debt and the interest rates of the respective government bonds, reviving the credit market and stopping deflation, in other words, the decline in consumer prices that exists today throughout Europe. It is a measure by which the Central Bank carries out the planned purchases of financial securities (in particular, government bonds) traded in the market. In addition to give the

ottanta anni di Alberto Predieri, Giappichelli, Torino, 2007; A. PREDIERI, Euro poliarchie democratiche e mercati monetari, Giappichelli, Torino, 1998. On Economic profiles, please refer, on all, T. PADOA SCHIOPPA, La lunga via per l’euro, Il Mulino, Bologna, 2004; ID., L’euro e la sua banca centrale. L’Unione dopo l’unione, Il Mulino, Bologna, 2004; C. GIANNINI, L’età delle banche centrali. Forme e governo della moneta fiduciaria in un prospettiva istituzionalista, Il Mulino, Bologna, 2004. 30 On this point, it is worth observing G. CONTALDI, voce Politica economica e monetaria (Diritto dell’Unione europea), in Enc. dir., Annali VII, Giuffrè, Milano, 2014, p. 826, according to which: the operations on the interest rate, although falling within the monetary policy instruments pertaining to the ECB, if are such as to determine an extremely low percentage of the cost of money, such that the costs for banks to obtain loans from central institution are practically eliminated, in practice we witness "... an exceptional use of powers" attributed to the monetary Authority.

benefits to public finances of governments, which would then have a bit more resources to address towards economic growth, quantitative easing may be deemed to have positive effects on the banking system. The Central Bank, in fact, buying the government securities held in European banks, would stimulate them to expand lending to households and businesses, encouraging, in this way the economic recovery, averting the risk that deflation will become increasingly affective.31 The measures briefly described before, have been currently defined as unconventional as they do not find their direct legal bases in the primary provisions of the Treaties. It has, moreover, been claimed that these tools are poorly compatible with the prohibition set forth in art. 123 TFEU to provide credit facilities to the Member states and to local governments. The activism of the ECB would, therefore, not only resulted in a deviation from its mandate, clearly expressed in the Treaties, but, indeed, a change in one of its material tasks. On this point, it should be noted that the ECB, together with the ESCB, has, as its main task, to ensure price stability, objective clearly stated in art. 127 TFEU and reaffirmed by art. 282 TFEU. A theme, that of price stability, which is also found in other primary rules in the European Union; in particular, art. 3, par. 2 TEU and art. 119, par. 2 TFEU, becoming a real ‘value’ that somehow all European policies that involve spending, should strive. This fact derived primarily from reading art. 119, par. 2, TFEU, where it establishes a real hierarchy between the above mentioned objective and the one subordinate to it, of contributing to realization of all those functional economic policies to create an open market economy based on the principles of free competition. Price stability, in short, was elevated to essential condition, so that other economic policies could be more effective. However, there have been immediately criticism against this approach,32 as it would deprive the ECB, in contrast to every other central banks, of any form of discretion in the conduct of monetary policy, making it impossible to put such a policy at the service of more general aims of economic policy. In fact, the discretional power would not be excluded, but limited.33 In other words, the objective of price stability would be so pervasive that only when two monetary policy measures are equally able to ensure the said stability, then the ECB will be able to give priority to the policy that best realizes the support for economic action; otherwise, if there are several options available, it should

31 A phenomenon considered even more dangerous than an even sensitive increase in inflation, as in economics it is believed that falling prices generate an expectation of additional future losses, bringing individual traders to continually postpone purchases and, thus, leading to a sharp decrease of economic activities and consumption block. 32 Cf. A. MALATESTA, cit., p. 31; G. LA MALFA, L’Europa legata. I rischi dell’Euro, Rizzoli, Milano, 2000, p. 90 ss. 33 Cf. R. SMITS, The European Central Bank Institutional Aspects, Law International, The Hague-London-Boston, 1997, p. 187.

always chosen the one that ensures the stability of prices, regardless to its impact on the economy.34 From the reasoning briefly carried out, one senses why the extraordinary measures taken by the ECB in the course of the economic and financial crisis have undergone of heated debate, so much that on several occasions even the EU Court of Justice was called to rule on the legitimacy of the cited measures. Trying to synthesize the positions intervened, it seems possible to say, on the basis of the assessments made by the Court of Luxembourg, 35 that in case of extreme economic situations, the conduct of monetary policy can not be detached from the overall economic environment. In other words, it can not be prevented to the ECB opportunity to practice temporarily expansionary monetary policy in order to counteract the dangers of large entities that threaten the stability of the currency.36 Besides, the ultimate purpose and raison d'être of any central bank is to support confidence in the currency. A purpose that justifies the adoption of any actions that will allow the survival of the currency, because a central institution exists as long as there is a currency that is called to be issued and its circulation to be governed.37 It can so be explained, even resorting to the theory of the implied powers,38 how the measures taken to ‘Eurotower’ meet the

34 The stability to which we refer is the internal one of the currency, while the external one, or exchange rate stability, is not considered. It has been defined by the Governing Council of the ECB as ‘an increase in the twelve months of the Harmonised Index of Consumer Prices - HICP - for the euro area of below 2%’, to be maintained in the medium term. On this point, see ECB Monthly Bulletin June 2003, p. 85 ss. Moreover, the internal stability should not be understood in absolute terms, in the sense that a modest increase in the total inflation rate is acceptable in the view of avoiding a dangerous flare-deflationary. 35 Cf., in particular, the recent case Gauweiler Case C-62/14, judgment of the Court (Grand Chamber) of 16 June 2015 on the request for a preliminary ruling by the Federal Constitutional Court (BVerfG) of the Federal Republic of Germany (FRG) on the legitimacy of the OMT program (Outright Monetary Transaction). For a comment, see L. SCIPIONE, Prime riflessioni sulla legittimità delle OMT e sul ruolo della BCE alla luce di una recente sentenza della Corte costituzionale tedesca, in Dir. banca e mercato fin., 2014 pp. 183–235; E. MOSTACCI, Dal ‘dialogo’ al decalogo: le OMT nel primo rinvio pregiudiziale del ‘Bundesverfassungsgericht’, in Diritto pubblico comparato ed europeo, 2014, pp. 36 – 43. The case is part of the OMT jurisprudential trend on the ECB's monetary policy started with the leading case Pringle C-370/12; E. GAMBARO EDOARDO, F. MAZZOCCHI, Le regole dell'Unione europea alla prova della crisi dei debiti sovrani: il caso Pringle, in Dir. comm. Inter., 2013, pp. 545 – 569. 36 Cf. C. WALDHOFF, Art. 127, in SIEKMANN (ed), Kommentar zur Europaisschen Wahrungsunion, Tubingen, 2013. p. 287. 37 On this profile see G. NAPOLETANO, Il ruolo delle banche centrali nella gestione della crisi dell’eurozona: osservazioni su alcuni aspetti istituzionali, in G. ADINOLFI, M. VELLANO (eds), La crisi del debito sovrano, cit., p. 69 ss. 38 It is a theory developed with regard to the phenomenon of international organizations that an international tribunal may use all means at its disposal to achieve the aims of the organization's founding treaty itself, even when these resources are not expressly provided for in the text of the Treaty. In the TFEU, there is a specific provision such as art. 352 TFEU which recalls the above theory.

criterion of the practical effect. Saving the Eurozone and, therefore, the single currency is a sine qua non for the achievement of all the other economic and social objectives that the European Union stands for, beginning with its existence as a political, economic and commercial entity, within the international community.39

5. Switzerland and its economic model in front of the crisis.

Switzerland, like already partially observed at the beginning of this paper, is traditionally perceived as a ‘happy island’ from an economic and social viewpoint;40 just to name a few, think of the level of average wages, the low level of taxation or even the high rate of internationalization of its manufacturing base.41 It is, moreover, a purely liberal economy, therefore with limited presence of the State in the economy, supported by a banking system among the most developed and solid in the world, at the extent that the major Swiss banks control a sizable share of the market global asset managed abroad, this way making the Swiss Confederation and, in particular, Zurich one of the major international financial centers. The economic strength of Switzerland is, in truth, also the effect of a marked political stability; result, in its turn, of a quite peculiar institutional system and a traditionally based fiscal policy on international tax competition and the preservation of a high level of secrecy in the banking and in financial sector. 42 These aspects, together with the fact that the Swiss economy appears scarcely integrated with the European one 43 although its high level of internationalization, have undoubtedly helped to mitigate the negative effects of the crisis in the Swiss Confederation.

39 Cf. G.L. TOSATO, L’integrazione europea ai tempi della crisi dell’euro, in Riv. Dir. Inter., 2012, p. 689; M. RUFFERT, The European Debt Crisis and European Union Law, in Common Market Law Review, 2011, p. 1787 ss.; ECB Monthly Bulletin June 2009, p. 9 ss and October 2012, p. 7 ss. 40 On this point, see the report published by Il Sole 24 ore on April 24, 2015, p. 14 in which Switzerland is appointed to be the best country in the World to live in. 41 See S. GEROTTO, cit., pp. 16- 21, which shows that the average salary of an employee in Switzerland in 2007 was € 46,058, against 23,206 of an Italian equivalent; while taxation in 2005 according to OECD data represented 29.7% of GDP against 41.6% in Italy. Always on the basis of OECD in 2000, Switzerland exported 46.8% of its GDP, while importing 41.6 of the respective GDP with a positive net balance of 4.15. A figure that would highlight the strong internationalization of the Swiss economy. 42 The international comparison of the total tax rate (TTR), that is the overall tax burden, shows that Switzerland is a tax system that is constantly very competitive compared to other highly developed countries. The TTR measures the amount of all taxes and the compulsory social security contributions borne by the business as a percentage of commercial profits. For an evaluation of the tax burden in the various European countries, please consult the website http://www.doingbusiness.org. 43 On several occasions, the Swiss electorate has expressed the wish not to integrate within the European Union system, so that the Swiss authorities have been forced to conclude a whole series of bilateral agreements with the EU to remedy the lack of integration.

However, in recent years the country, under pressure both from the United States, both from different European countries and on all France, Germany and Italy, had to make considerable efforts in particular to adapt to international standards in the area of fiscal transparency, also because of the financial nature of the ongoing recessionary phenomenon that has affected even national giants of finance, such as the Union de Banques Suisses (UBS). In the reports produced by OECD related to this aspect, Switzerland has moved from the list of financial centers that had not yet reached such standards to the list of the fully compliant countries.44 It marks a change in pace that the federal government wanted to achieve, especially for international image: deleted, or at least mitigated, the collective that Switzerland is merely a tax haven, and not a significant economic and industrial power at global level, instead. An economic force that is based a lot, as mentioned above, on tax competition over other European (and others) legal systems, so much so that Switzerland became the headquarters for various multinational companies.45 The competition on the side of taxes and fees is a profile that is a real feature of the liberal conception that underpin the economy of the Swiss Confederation; so much to be enshrined in the Constitution itself and be fully implemented, in particular, internally, between the twenty-six Swiss cantons and, within each canton, between any individual municipalities of which it is composed.46 Tax competition is, therefore, a structural feature of the Swiss economy, where all the cantons have full liberty in matters of taxation, in relation to the quantitative aspects of taxation, in particular concerning the determination of the applicable rates. Each canton is, therefore, free to experiment with novel solutions and tax, and then, depending on the results, those solutions can be adopted, maintained and possibly imitated by others. In summary, we are seeing a form of fiscal sovereignty shared between the federal government, cantons and municipalities, which is itself essential precondition for that tax competition which, undoubtedly, has allowed Switzerland to cushion much more the effects of the economic crisis compared to other European countries, both in terms of contraction of gross domestic product both of the unemployment rate growth, thereby maintaining in time attractiveness to foreign investment and foreign capital: an actual "engine" of the economy in general.47 Nevertheless, the broad fiscal freedom, left to the individual cantons and municipalities, is balanced by an equalization system that

44 See, on this point, the Federal Department of Finance report on the results of the consultation procedure on the approval and implementation of the Council of Europe and OECD Convention on Mutual Administrative Assistance in Tax Matters, of June 2015, drawn up by Secretary of State of Finance, available on the web page https://www.admin.ch/documents. 45 Cf. the data reported by www.dirittosenzafrontiere.ch. 46 Cf. articles 126 to 135 of the Swiss Constitution, available on the web page https://www.admin.ch/opc/it/classified-compilation/19995395/index.html. 47 Cf. econometric data reported by the Swiss National Bank in the 107 ° of the 2014 Annual Report referred to in the preceding note 7.

revolves around the balance budget rule in art. 126 of the Swiss Constitution, where, in terms of financial management, it is established that "The federal government balances in the long term, its exits and entrances”. The said disposition continues by establishing, in the second paragraph, that "The maximum amount of total expenditure to be allocated in the budget depends on the estimated total revenue, taking into account the economic situation". Therefore, the expenses can only be increased if their financing is secured by additional revenue or corresponding waivers and any tax cuts should be matched by a proportional reduction in expenses. The constitutional rule of a balanced budget grants freedom to the cantons in deciding which tax policy to pursue, but it is a freedom that can not result in a debt out of control, which could still undermine the economic stability of the Swiss Confederation. The equalization system provides, then, the reduction of inequalities between the different geographical areas; in other words, it provides for the transfer of resources from the richer cantons to weaker ones, according to a model known as ‘burden compensation’, assessed according to two criteria: the geo-topographical (which usually incur peripheral cantons) and socio-demographic (relative to population density).48 These are rules that the European Union endorsed only in part and recently. I refer to the provision on the so-called balanced budget laid down by the well known Treaty on the Fiscal Compact, 49 according to which, pursuant to art. 3, par. 1, letter. a, it is imposed a balance on surplus in public accounts on EU Member States, only admitting temporary deficits and at the presence of negative economic cycles or of serious economic crisis, to the extent that this exception does not undermine the maintenance of accounts and therefore, the sustainability of public debt in the long run. Beyond the criticism concerning the manner in which it was adopted within the European Union and individual Member States respective jurisdictions,50 that is

48 Cf. B. REGAZZONI, L’esperienza del federalismo in Svizzera, in www.federalismi.it., 2011, ID., Dieci anni di freno all’indebitamento in Svizzera, in www.federalismi.it, 2012. 49 The fiscal compact formally the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, also referred to TSCG, is an intergovernmental treaty that introduced a new stricter version of the Stability Growth Pact. It was signed on 2 march 2012 by all EU member States with the exception of Czech Republic and the United Kingdom. On this subject see L. S. ROSSI, Fiscal Compact e conseguenze dell’integrazione differenziata nell’UE, in P. BONVICINI – F. BRUGNOLI (eds), Il Fiscal Compact Roma, 2012, p. 29 ss; G.L. TOSATO, Il Fiscal compact, in G. AMATO, R. GUALTIERI (eds), Prove di Europa unita. Le istituzioni europee di fronte alla crisi, Passigli Editore, Firenze, 2013, p. 27 ss.; G. PERONI, La Crisi dell’euro, cit., pp. 171-185. 50 Cf. G.L. TOSATO, Qualche riflessione sul nuovo trattato europeo, in Affari internazionali, Rivista on line di Politica, strategia ed economia, as of 21-12-2011; ID., Il nuovo trattato europeo e le Istituzioni dell’Ue, in the same Rivista, as of 03- 01-2012; L.S. ROSSI, Quattro opzioni per il futuro dell’UE, in the same Rivista, as of 20-12-2011; A. BRANCASI, L’introduzione del principio del c.d. pareggio di bilancio: un esempio di revisione affrettata della Costituzione, in www.forumcostituzionale.it; D. CABRAS, Il pareggio di bilancio in Costituzione: una regola importante per la stabilizzazione della finanza pubblica, ibidem. For a

a rule that, if it was adopted before the crisis, it might have helped to make more consistent the economic situations of the eurozone countries, reassuring in doing so most of the financial markets. The EU, however, has not yet provided any form of tax burden sharing, as any community or union should somehow predict internally. In truth, the one just mentioned is a very complex issue, since it is known that the European Union, in several points of its founding treaties, recalls the value-principle of solidarity, in order to foster the construction of a social market economy.51 However, this solidarity will evaporate entirely when it comes to establish forms of financial solidarity between Members; in these terms, it is absolutely clear art. 125 TFEU which prohibits any form of mutualisation of public debt. In the case of Switzerland, moreover, it was not only the particular system of fiscal policy on which the Swiss economy rests that allowed to cushion the effects of the crisis, but also the specific action of the respective Central Bank who led a currency policy, especially in the period 2011-2014, aimed at maintaining over time the exchange rate between the Swiss Franc and the Euro stable. The parity between the two currencies was fixed at the rate of 1 Franc and 20 cents for one Euro, so that the national currency would not valorize to much against the Euro, fact that would have lent to obvious repercussions on Swiss exports, already hit by the global crisis.52 This set of measures adopted by the Swiss National Bank (SNB) (such as the progressive reduction in the official discount rate, the opening of credit to financial institutions and credit residents, the purchase and sale of securities in foreign currency) have been instrumental in the pursuance of the main objective of its mandate, which, as in the case of the ECB, is to ensure price stability. comparative commentary F. FABBRINI, Il pareggio di bilancio nelle Costituzioni europee, in Quaderni costituzionali, 2011 pp. 933-935 R. PEREZ, La nuova disciplina del bilancio in Germania, in Giornale di dir. amm., 2011, pp. 95-99. 51 Cf. G. PERONI, Il difficile equilibrio…, cit. 52 To maintain the minimum threshold in the exchange rate, in fact, the SNB undertook in recent years to buy massive amounts of euro to offset the demand for Swiss francs, enough to lead some to question this policy. Over the past three years, moreover, the budget of the SNB has risen far over 500 billion francs dangerously approaching to the total value of federal GDP with about 45% of the reserves consisting of euro, in continuous devaluation against the dollar. It explains in doing so, the decision of 15 January 2015 by which the Central Bank, surprising the currency markets and stock exchange, has announced the immediate abandonment of the minimum exchange rate of CHF 1.20 per euro rate. The Central Bank justified its decision by pointing out that his ‘exceptional and temporary measure has protected the economy of Switzerland that was likely to suffer serious damage.’. Communicating the end of the minimum threshold, the SNB has also led to -0.75 percent the interest rate that is applied to banks' funds that are deposited at the same SNB. The main policy rate on the franc, Libor, has been adjusted downwards and is now at -1.25 and -0.25 per cent (up to now had been -0.75 and +0.25 percent). These are measures which, according to the main economic observers would have the advantage in the medium term to cushion the negative effects of the free currency fluctuation involving for many companies to adopt cost-cutting measures involving in turn possible wage reductions, increased time of work, transfer of jobs overseas to low-value added activities and need to re-think and innovate production systems goods and supply of services.

However, it can not do without observe how this objective for the Central Bank should be measured on the Swiss cyclical economic situation, implying that the monetary policy should not only not to be considered with priority over the economic, but it can not be separated from this last, in order to ensure the stability of the Swiss economic system.53 Therefore, Switzerland can teach much to the European Union. First, it shows how the monetary and economic policy can not be decided at different levels. It is unlikely, in other words, to transfer the monetary policy, such as so far occurred, to the European institutions, in particular the ECB and the ESCB, without providing for a transfer of power, at least partial also from a fiscal policy point of view. Otherwise, as repeatedly stressed in the literature, 54 it creates a dangerous asymmetry capable, sooner or later, to undermine the building of any monetary union.55 Also, it can not be built a union of this type without providing the respective authorities who chairs, of all those powers and resources which traditionally have all central banks to deal with crisis situations of extreme gravity that might impair the existence of the currency and the authority that controls it. The crisis should have taught that no set of rules for monetary policy even if very stiff and difficult to modify, such as those laid at the basis of the ECB, is able, to prevent the development and functional transformation of the same central monetary authority, when the estate of the currency for the defense of which have been established is in danger. This is in fact what happened thanks to a ‘useful’ interpretation made by Eurotower and supported by the Court of Justice, of the primary provisions of the treaties governing the monetary policy. Both institutions, probably aware that this policy is not an ‘exact science’, but rather variable and changeable depending on the economic situation, have, properly, provided that it could adopt other more effective tools, awaiting sooner or later to be given greater flexibility in its conduction starting from a profound reform of the primary rules contained in the European treaties.

53 See, in this regard, the Federal Act on the Swiss National Bank, in particular Articles. 5, 9 and 11 on the tasks and relations with the operators of the financial market and with the federal government. 54 Over all, Robert Mundell, theorist of the so called ‘optimum currency monetary areas’ with the related paper A Theory of Optimum Currency Areas, in American Economic Review, 1961, pp. 657-665. 55 See G. PERONI, The failure of the Latin Monetary Union: a Forerunner of Euro Crisis?, in R. LEBOUTTE, S. APRILE (EDS.), Un Europe de papier: projets et programmes européennes au milieu du XIX siècle, Editions du Septentrion - Universitè de Lille, Lille, 2015, pp. 235-247.

Il difficile equilibrio tra austerità e solidarietà nell’Unione economica e monetaria.

Giulio Peroni*

Università degli Studi di Milano

La crisi economica e finanziaria internazionale,1 unitamente alle misure assunte dagli Stati 1 per farvi fronte, ha comportato, di norma, una forte contrazione della spesa sociale nei confronti dei rispettivi cittadini. In specie, ciò è accaduto in Europa in alcuni paesi dell’Area euro noti come

PIGS countries; in altri termini: Portogallo, Italia, Irlanda, Grecia, Spagna. Si tratta, di Paesi che, pur con storia e condizioni economiche ben diverse tra loro, sono stati (e in parte lo sono ancora) accomunati dall’incapacità di rispettare le regole “auree” stabilite dal Trattato di Maastricht per l’adozione della Moneta unica concernenti, in particolare, il rispetto del rapporto: deficit – prodotto interno lordo entro il 3% e di quello tra il debito pubblico-prodotto interno lordo entro il 60%.

La risposta alla crisi, da parte di detti Paesi, si è fondata soprattutto sull’adozione di misure economiche ispirate a principi di rigida austerità, dirette a contenere per lo più la spesa sociale, al fine di ridurre tanto il deficit, quanto il debito pubblico così da potere soddisfare, anche a costo di pesanti sacrifici, i summenzionati parametri di Maastricht.

Tuttavia, nella maggiore parte dei casi, gli effetti derivanti da politiche economiche adottate sul fronte della riduzione della spesa sociale non hanno fatto altro che acuire le tensioni sociali all’interno di detti Paesi, in quanto, a causa della sua trasformazione da crisi puramente finanziaria a crisi dell’economia reale, complice anche la crescente perdita di posti di lavoro, si è registrata inevitabilmente una crescente domanda di servizi sociali e di sostegno finanziario da parte di strati

* Associate Professor in International Law at the School of Law of the University of Milan. Email: [email protected]. This is an Open access version thanks to the fundamental contribution of Jean Monnet Eacea Module European Monetary and Economic Law (EMEL). Please visit https://gperoniemel.ariel.ctu.unimi.it. This study has been published in the in M. Mascia, F. Velo (a cura di) L’Unione economica europea : aspetti economici, sociali e istituzionali, Cacucci Editore, Bari, 2016, pp. 73-81. 1 Sulle origini ed effetti della crisi economica e finanziaria mi si consenta di rinviare a PERONI, GIULIO, La Crisi dell’Euro: limiti e rimedi dell’Unione economica e monetaria, Milano, Giuffrè, 2012, pp. 10-21.

sempre più ampi della popolazione. Si è avuto, dunque, un effetto perverso, per non dire a tratti paradossale. Proprio quando si avrebbe avuto più bisogno di solidarietà si è, invece, intervenuti da parte dei Governi a ridurre la spesa sociale per soddisfare le esigenze di bilancio imposte dai rigidi vincoli europei, con la conseguenza, che sempre più cittadini PIGS (e non) additano l’Unione europea, invece che i rispettivi ceti politici, la responsabilità del sensibile peggioramento delle relative condizioni di vita. 2 Tale tipo di condotta, chiaramente ispirata a principi di rigore e austerità, laddove non è stata accompagnata da profonde riforme del mercato del lavoro, della pubblica amministrazione, della fiscalità, ha avuto come ulteriore risultato quello di aumentare la povertà e l’esclusione sociale, nonché il livello di diseguaglianza tra i diversi ceti socio-economici. Tali esiti sarebbero ad avviso di vari osservatori, la diretta conseguenza del prevalere nell’ambito delle relazioni economiche internazionali della cosiddetta ideologia neoliberista che, come è a tutti noto, ha trovato prima nella

Scuola austriaca di Von Hayek e, poi, in quella di Chicago, capeggiata da Friedman, i suoi massimi esponenti. In estrema sintesi, per tali economisti, lo Stato non deve essere tenuto a svolgere interventi di giustizia sociale e, tantomeno, politiche di redistribuzione del reddito, limitandosi a svolgere, semmai, un ruolo di controllore del Mercato, per sua natura capace di autoregolamentarsi autonomamente e di trovare un proprio equilibrio.

E’ opportuno ricordare che il pensiero neo liberista ha fortemente influenzato l’agire di due tra le maggiori potenze capitalistiche globali: Stati Uniti e Gran Bretagna, raggiungendo la definitiva affermazione negli anni’80; nel primo caso, con la nota reaganomics e nel secondo, con il cosiddetto thacerismo. L’influenza neo liberista non si è limitata, però, ai governi dei due paesi anglosassoni, bensì ha coinvolto anche le due maggiori organizzazioni internazionali economiche: il

Fondo Monetario Internazionale (FMI) e la Banca Mondiale (BM),2 espressione tipica del

2 Sul Fondo monetario internazionale si veda ADINOLFI, GIOVANNA Poteri e interventi del fondo monetario internazionale, Padova, Cedam, 2012; JOYCE, JOSEPH P., The IMF and the global crises: Phoenix rising, Cambridge, Cambridge university press, 2013; ROGERS, CHRISHOPHER J., The IMF and european economies: crisis and conditionality, New York, Palgrave Mc Millan, 2012; con riguardo alla Banca Mondiale cfr. VEZZANI, SIMONE, Gli

cosiddetto multilateralismo economico organizzato. Ciò, in vero, non è un caso; infatti, come si avrà modo di sottolineare meglio più avanti, Stati Uniti e Gran Bretagna sono tra i cinque maggiori azionisti di tali enti sovranazionali, da sempre impegnati nella gestione delle crisi economiche di rilievo globale.

L’Unione europea, al contrario, ha cercato di ispirarsi, sin dal suo nascere, ad un modello economico diverso, seppure sempre di stampo mercantilistico e capitalistico. Si tratta della 3 cosiddetta economia sociale di mercato,3 ove a fianco della libertà d’azione economica riconosciuta al singolo si imputa allo stesso l’assunzione di un certo grado di responsabilità sociale; in altri termini, vi è la consapevolezza che l’agire economico può avere verso i terzi determinati effetti diretti e indiretti di significativo impatto sociale. Dando questa chiave di lettura all’economia, quest’ultima deve proporsi quale obiettivo finale quello di garantire sia la libera iniziativa individuale, la libertà di mercato e la proprietà privata sia la giustizia sociale cercando di armonizzarle tra di loro. Laddove, il Mercato non vi riesca, attraverso le sue dinamiche, deve necessariamente intervenire lo Stato cercando di assicurare la maggiore giustizia sociale possibile, con un’efficace politica di redistribuzione delle risorse pubbliche.

L’economia sociale di mercato trova, quindi, un suo pieno riconoscimento in una delle primissime norme dei trattati europei e, precisamente, all’art. 3 del TUE. Da tale norma, si ricava come il modello economico in questione sia preordinato a realizzare la piena occupazione e il progresso sociale, assicurando, al contempo, un elevato livello di tutela e di miglioramento della qualità dell'ambiente, nell’ottica del cosiddetto sviluppo sostenibile, così da combattere l'esclusione

accordi delle organizzazioni del gruppo banca Mondiale, Torino, Giappichelli, 2011; SEATZU, FRANCESCO, Il panel d’ispezione della banca mondiale: contributo allo studio della funzione di controllo nelle banche internazionali dello sviluppo, Torino, Giappichelli, 2008; CHOSSUDOVSKY, MICHEL, La globalizzazione della povertà: l’impatto delle riforme del fondo monetario internazionale e della Banca mondiale, Torino, Edizioni Gruppo Abele, 1998; PHILIPS, DAVID A., Reforming the World Bank: twenty years of trail and error, New York, University Cambridge press, 2009. 3 Cfr. DE PASQUALE, PATRIZIA, “L'economia sociale di mercato nell'Unione europea”, in Studi sull'integrazione europea, vol. 25, n. 2, 2014, pp. 265 – 278; VELO, DARIO, “Social Market Economy and the Future of European Unification”, in The Euro Atlantic Union Review, vol. 1, n. 0, 2014, pp. 23-52.

sociale e le discriminazioni e promuovere la giustizia e la protezione sociale, la parità tra donne e uomini e, infine, la solidarietà tra le generazioni.

Il quadro degli obiettivi indicati, unitamente al valore della solidarietà tra Stati membri, richiamato sempre nella disposizione citata, ha il merito di “funzionalizzare” il tradizionale principio della concorrenza e del libero mercato al perseguimento di obiettivi spiccatamente sociali.

“Funzionalizzazione” che viene perseguita anche attraverso la previsione della “clausola sociale 4 orizzontale” di cui all’art. 9 TFUE,4 disposizione da cui si ricava la volontà di imprimere una maggiore coerenza alle azioni poste in essere dalle Istituzioni europee in tema di integrazione economica e sociale, in modo da coniugare le ragioni del Mercato con quelle del Welfare.

Tuttavia, l’art. 3 TUE prima citato antepone alla realizzazione dell’economia sociale di mercato il perseguimento dell’obiettivo-valore della stabilità dei prezzi. Quest’ultimo, come si ricava dall’art. 119 par. 2 TFUE, è alla base della costruzione della Moneta unica e trova, poi, una sua declinazione in alcune norme fondanti la costruzione monetaria che, inevitabilmente, hanno condizionato e, tuttora, influenzano le politiche di bilancio degli Stati membri, ispirate, come già osservato, ad un forte rigore nel controllo della spesa pubblica. Faccio, in particolare, riferimento agli artt. 123 e 125 TFUE di cui infra.

Dunque, l’economia sociale di mercato ha in sé un forte connotato solidaristico, tanto che l’espressione “solidarietà”, risulta espressamente richiamata in diverse disposizioni contenute nei trattati europei. Tuttavia, detta espressione non trova spazio nelle norme dedicate alla politica economica e monetaria dell’Unione, salvo il caso dell’art. 122 TFUE ove si parla di “spirito di solidarietà” tra Stati membri, nel caso in cui uno di essi si trovi in una situazione di scarsità di particolari prodotti, in specie di quelli a carattere energetico.

4 Cfr. FERRARA MARIA D., “L'integrazione europea attraverso il "social test": la clausola sociale orizzontale e le sue possibili applicazioni”, in Rivista giuridica del lavoro e della previdenza sociale, vol. 24, n. 2, 2013, pp. 295 – 320.

Cosa ricavare da questo tipo di atteggiamento? Probabilmente che, a livello europeo, in merito ai profili prettamente monetari e fiscali, la solidarietà, salvo il caso del citato art. 122 TFUE, dunque, in situazioni che sembrano richiamare più che altro condizioni emergenziali di carattere umanitario e non di vero e proprio shock finanziario, come accaduto a partire dal 2008 (incipit della crisi) può essere solo di un tipo e, precisamente, di natura condizionata. Questo, d’altronde, è lo schema a cui si è ricorso con riguardo al salvataggio della Grecia da un suo possibile default, con 5 conseguente rischio di un suo possibile exit dall’Eurozona.5

Sul punto, giova evidenziare come il modello dell’aiuto economico condizionato non è nuovo nello scenario geopolitico ed economico internazionale. E’, infatti, lo schema tipico su cui si fonda l’azione di politica economica tanto del FMI, quanto della BM, per cui l’assistenza finanziaria concessa da dette Istituzioni internazionali è usualmente subordinata all’adozione, da parte degli Stati membri beneficiari del relativo aiuto, da un lato, di politiche di forte liberalizzazione e privatizzazione (consistenti per lo più nella deregolamentazione di alcuni settori del Mercato, nell’introduzione di tariffe per l’accesso ai servizi pubblici, nell’aumento dell’imposizione fiscale, nella riforma del mercato del lavoro e della pubblica amministrazione) e dall’altro lato, di decisa contrazione della spesa pubblica che comporta, come già evidenziato, una sensibile limitazione nella prestazione dei servizi sociali, talvolta anche di quelli indispensabili, nei confronti degli individui.

L’obiettivo finale che ispira dette misure è quello di consentire agli Stati di essere appetibili agli investitori, in specie quelli esteri, e di potersi, così, rifinanziare sul mercato internazionale dei capitali con maggiore facilità, senza dovere ricorrere a prestiti bilaterali o sovranazionali per fare fronte alle proprie esigenze di bilancio. Tale modello, noto anche con Washington consensus, trova una sua logica nella natura e struttura stessa di dette Organizzazioni internazionali. Si tratta di enti sovranazionali che, sulla scorta del principio plutocratico che sta alla base della rispettiva

5 Cfr. PERONI, GIULIO, “Il recesso dall’Euro: una via percorribile, ma non auspicabile”, in Studi sull’integrazione europea, vol. 27, n. 1, 2015, pp. 85-108.

costruzione giuridica, ricalcano il modello privatistico tipico delle società per azioni sia sotto il profilo della relativa governance, per cui chi detiene maggiori quote di capitale più conta in seno ai rispettivi organi decisionali, sia per il fatto che il rispettivo “scopo societario” non consiste solo nell’assicurare la stabilità dei cambi, nella correzione degli squilibri della bilancia dei pagamenti, nel contenimento dei debiti e deficit pubblici, ma anche nel realizzare profitto, sottoforma di pagamento di interessi sui prestiti concessi ai vari Stati membri. In questo modo, infatti, tanto 6 l’FMI, quanto la BM possono ricavare ulteriori risorse per finanziare i rispettivi piani d’aiuto economico.

Tale modello è stato ripreso, nei fatti, dall’Unione europea quando si è trattato di concedere assistenza finanziaria agli Stati in difficoltà, come avvenuto nel caso della Grecia, rispetto alla quale si è proceduto, prima dei provvidenziali interventi della Banca Centrale Europea (BCE) con il meccanismo del Security Market Programme (SMP), poi sostituito dall’Outright Monetary

Transactions (OMT) e, infine, dal cosiddetto Quantitative easing (QE),6 ad assicurare linee di assistenza finanziaria ricorrendo alla stipula di accordi internazionali di prestito. Tramite detti accordi, le somme concesse a titolo d’aiuto sono state erogate sotto forma di tranches, subordinate ognuna al soddisfacimento di determinate condizioni di politica economica da parte dei Governi dei Paesi coinvolti nei relativi programmi d’aiuto.

Tale policy trova, peraltro, una sua giustificazione negli art. 123 e 125 del TFUE, prima richiamati. Con la prima disposizione, si pone il noto divieto di bail out, per cui la BCE e le Banche

Centrali Nazionali (BCN) non possono finanziare gli Stati partecipanti all’Unione economica e monetaria, acquistando il rispettivo debito pubblico sul mercato primario; diversamente, si andrebbe a ledere il principio posto a base del Mercato unico europeo, per cui in un’economia ispirata alla libera concorrenza, gli Stati devono essere parificati agli altri soggetti-operatori economici di modo che le risorse di cui necessitano debbono trovarle nel Mercato in modo autonomo, come qualsiasi

6 Cfr. TRIULZI, UMBERTO, “La banca centrale europea motore dell’unificazione politica”, in I federalismi.it, n. 3, 2015, p. 1-8.

altro operatore economico-commerciale. E’, tuttavia, notorio come le norme indicate non siano state in grado di evitare il verificarsi della crisi del debito sovrano all’interno dell’Area euro evidenziando, così, l’assenza di efficaci meccanismi di prevenzione e repressione di detti fenomeni di particolare impatto economico e sociale. L’urgenza delle risposte richieste dai mercati finanziari ha portato l’Unione a formulare alcune soluzioni che, in parte, sembrano essere state decisive, quantomeno nel circoscrivere il problema in esame e a evitare il cosiddetto effetto contagio tra i vari 7 Paesi membri.

Faccio riferimento all’introduzione del Meccanismo europeo di stabilità (MES) e al cosiddetto Fiscal compact.7 Con il primo strumento, si è voluto assicurare ai paesi in difficoltà finanziaria, non più in grado di finanziarsi sui mercati, di ricevere aiuto finanziario dagli altri partners europei in un’ottica si solidarietà reciproca, seppure condizionata secondo il modello del

FMI e BM, prima citato. Con il secondo, si è voluto, invece, prevedere un insieme di regole con le quali vincolare ancora di più gli Stati a seguire politiche economiche improntate al controllo della rispettiva spesa pubblica, tanto che per potere accedere alle risorse messe a disposizione dal MES è necessario sottoscrivere il Fiscal compact, accettandone in toto le rispettive regole. Detto accordo,

(che si colloca, come nel caso del MES, nell’alveo del diritto internazionale essendo stati i suddetti strumenti adottati entrambi mediante trattato) prevede, all’art. 3 co. 1, lett. a, la regola del

“pareggio di bilancio”.8 In altri termini, si impone agli Stati di non spendere più di quanto si ha e, quindi, di non operare in deficit e, dunque, di creare nuovo debito pubblico.

La norma summenzionata è stata criticata perché impatterebbe notevolmente sui sistemi economici degli Stati. Sancirebbe, di fatto, il trionfo delle politiche di austerità e impedirebbe, invece, il ricorso a politiche di stampo keynesiano, ispirate tradizionalmente alla cosiddetta spesa pubblica virtuosa, quella indirizzata a favorire la crescita e l’occupazione attraverso investimenti

7 Con riguardo ai due strumenti summenzionati si rinvia a PERONI, GIULIO, La Crisi dell’euro, cit., pp. 157-185. 8 MONE, DANIELA, “La costituzionalizzazione del pareggio di bilancio ed il potenziale vulnus alla teoria dei contro limiti”, in Rivista AIC, vol. 20, n. 3, 2014, pp. 1-29; CRISMANI, ANDREA, “Regole di copertura finanziaria e pareggio di bilancio”, in Giurisprudenza italiana, n. 5, 2014, pp. 1173-1179.

pubblici in infrastrutture e altro. Se così fosse, si porrebbero effettivamente alcuni problemi. Da un lato, si dovrebbe verificare la compatibilità di quella regola con i principi a cui la Nostra Carta costituzionale si ispira e che per accogliere quella regola è stata modificata in modo decisamente frettoloso dal Parlamento nazionale; dall’altro lato, accertare la sua conciliabilità rispetto all’obiettivo di realizzare, a livello europeo, un’economia sociale di mercato, come stabilito all’art.

3 TUE. Infatti, se si impedisce allo Stato o gli si riduce alquanto il margine di manovra in termini 8 di spesa, come è sino ad ora successo, è ben difficile che i fallimenti a cui ci ha abituato sin qui la politica di austerità, possano essere ulteriormente evitati realizzando un’effettiva giustizia sociale che non può essere raggiunta solo attraverso nuove tasse, tagli di spesa, liberalizzazioni e privatizzazioni.

In questi termini, ritengo si possa ricostruire il senso dell’ambiguo referendum greco voluto nel Luglio di quest’anno (2015) dal Governo Tsipras. Una consultazione che, al di là del quesito decisamente poco comprensibile che l’ha caratterizzato e della demagogia che l’ha fortemente ispirato, con cui si è, in vero, voluto cavalcare facilmente lo scontento popolare, evidenzia come l’Unione europea debba recuperare la propria visione sociale dell’economia anche con riguardo al tema della politica economica e monetaria. Ciò comporta, inevitabilmente, dovere mettere mano alle norme primarie dei trattati, diversamente si continuerà ad avere una politica monetaria ed economica avulsa da quei valori e principi che vorrebbero ispirarla, ma che nei fatti non accade, quando si ha a che fare con l’UEM.

Quando si è costruita l’Unione monetaria, complice un periodo di espansione e crescita economica, si è pensato erroneamente che fosse sufficiente prevedere dei parametri econometrici comuni per assicurare stabilità a quell’architettura economico e monetaria, senza considerare il forte grado di disomogeneità che, tuttora, caratterizza i diversi Paesi dal punto di vista dei rispettivi tessuti economico-produttivi. Fintantoché, vi è stata crescita economica, le asimmetrie che hanno

viziato e, tuttora, inficiano la costruzione dell’Euro sono passate quasi inosservate, per poi manifestarsi, con tutta la loro virulenza con lo scoppio della crisi economica.

La necessità di mettere mano a quelle norme e di prevedere un’effettiva clausola di solidarietà finanziaria tra gli Stati, che non si traduca, si badi bene, né “in pelosi ed inutili aiuti a pioggia”, né in aiuti non economicamente sostenibili da parte dei beneficiari, si impone.

Diversamente, risulterà sempre più arduo evitare il ritorno dei nazionalismi e il disgregarsi della 9 costruzione europea.

Detti fenomeni sembrano, in vero, sempre più accentuarsi, nel momento in cui a Bruxelles non ci si rende conto che ci sono, soprattutto, in Grecia, ma anche in altri Paesi, crescenti strati di popolazione che vivono in miseria, tanto da non vedersi nemmeno garantiti i cosiddetti diritti economico e sociali essenziali. Vale a dire quell’insieme minimo di prestazioni a cui uno Stato è tenuto per garantire agli individui la possibilità di condurre una vita dignitosa attraverso il soddisfacimento dei loro bisogni essenziali: quali salute, educazione, alimentazione, abitazione. Si tratta di diritti che sono riconosciuti all’art. 34 della Carta dei diritti fondamentali dell’Unione

Europea e richiamati dall’Unione con l’art. 6 del TUE, ove, almeno a livello formale, si riconosce a quel documento giuridico la stessa forza e valenza delle norme contenute nei trattati istitutivi.

E’, peraltro, al suddetto nucleo di diritti che il Comitato economico e sociale dell’Organizzazione delle Nazioni Unite e il Comitato europeo dei diritti sociali hanno fatto riferimento nei casi portati alla loro attenzione, nel tentativo di trovare un giusto equilibrio tra le esigenze di bilancio con quelle sociali; evidenziando come la riduzione delle risorse disponibili non possa mai giustificare l’adozione di provvedimenti che non tengano conto degli strati più disagiati

della popolazione, riconoscendo agli stessi la possibilità concreta di accedere ai servizi essenziali alla persona.9

Ecco allora che, laddove, non arriverà l’Unione europea con le sue Istituzioni a mettere un serio limite al ricorso alle politiche di austerità imposte sino ad ora agli Stati membri maggiormente coinvolti nella crisi, gli stessi non potranno, ovviamente nei casi più estremi, prima di essere travolti dai rispettivi populismi, fare altro che ricorrere alla “teoria dei contro limiti”. In altri termini, 10 disapplicare il diritto comunitario, in deroga al principio del primato di quest’ultimo sui diritti nazionali, di modo da tutelare i valori fondanti delle proprie costituzioni, tra cui usualmente ricorre anche la tutela dei diritti economico e sociali dell’uomo a tutela della sua dignità come individuo.

Se ciò accadrà, sarà, probabilmente, la certificazione del fallimento dell’esperienza europea dal punto di vista dell’integrazione economica e sociale. Un prezzo che, nel Mondo globalizzato di oggi, nessun Paese membro, nemmeno la virtuosa Germania, può permettersi, pena la rispettiva irrilevanza nel contesto internazionale dominato da nuove potenze mondiali come la Cina e i Paesi dell’area BRICS (Brasile, Russia, India, Cina e Sud Africa).

9 Cfr. PICONE, PAOLO, “Capitalismo finanziario e nuovi orientamenti dell’ordinamento internazionale”, in Diritti umani e diritto internazionale, vol. 22, n. 1, 2014, pp. 5-26; COSTAMAGNA, FRANCESCO, “Riduzione delle risorse disponibili e abbassamento dei livelli di tutela dei diritti sociali: il rispetto del nucleo minimo quale limite all’adozione di misure regressive”, in Diritti umani e diritto internazionale, vol. 23, n. 2, 2014, pp. 371,-388; CISOTTA, ROBERTO - GALLO, DANIELE, “Il tribunale costituzionale portoghese. I risvolti sociali delle misure di austerità ed il rispetto dei vincoli internazionali ed europei”, in Diritti umani e diritto internazionale, vol. 20, n. 2, 2013, pp. 465-480; ADINOLFI, GIOVANNA, “Aggiustamento economico e tutela dei diritti umani: un conflitto inesistente per le istituzioni finanziarie internazionali?”, in Diritti umani e diritto internazionale, vol.23, n. 2, 2014, pp. 319-350; VITERBO, ANNAMARIA, “I meccanismi per la risoluzione della crisi del debito sovrano: alla ricerca di un difficile bilanciamento tra interessi pubblici e privati”, in Diritti umani e diritto internazionale, vol. 23, n. 2, 2014, pp. 351-370.

GIULIO PERONI*

The Italian Succession’s System after the EU Regulation n. 650/2012

CONTENTS: 1. Introduction. – 2. Overcoming the Italian system of conflict of laws on succession matters. – 3. The inspiring principles of the Re- gulation n. 650/2012 on succession matters and their impact on Italian PIL system. – 4. The impact of the Regulation on Italian internal succession system. – 5. Article 25 on the ‘Agreement as to Succession’ and the ‘European Certificate of Succession’: two significant innovations for the Italian succession system.

1. – An important step towards realizing a European private international law1 is represented by the EU Regulation n. 650/2012 on Succession of 4 July 2012 (hereinafter, for brevity, ‘The Regulation’), adopted on the basis of the Article 81, par. 2 of the Treaty on the Functioning of European Union (TFEU), as it reduces the space of the EU Member States’s systems of conflict of laws, for the benefit of uniformity of legislation and legal certainty at European level2, in a sector usually characterized by a high level of complexity and many practical drawbacks3.

* Associate Professor in International Law at the School of Law of the University of Milan. Email: [email protected]. This is an Open access version thanks to the fundamental contribution of Jean Monnet Eacea Module European Monetary and Economic Law (EMEL). Please visit https://gperoniemel.ariel.ctu.unimi.it. This study has been published in the Contratto e Impresa/Europa, 2018, pp. 476-499. 1 In the adoption of this Regulation did not take part Denmark, United Kingdom and Ireland. These States are not bound by it or subject to its application. In particular, United Kingdom and Ireland have the right to notify the intention of accepting this Regulation after its adoption in accordance with Article 4 of the Protocol n. 21 on the positions of said countries in respect of the European Union (see, in particular, Whereas 82 and 83). Obviously, with the ‘Brexit’ it will be not practible for UK the exercise of said right. On the impact of the Regulation on UK system see J. A MCLEAN, The UK and the European Succession Re- gulation: Fog over the Channel – Potential pitfalls for the Unwary, in Edimburgh Law Rev., 2018, pp. 86-93. 2 In these terms, see C. MARTINEZ ESCRIBANO, Consequences of The European regulation in Euroepan Property Law, in EPLR, 2017, pp. 553-574; J. CRIVELLARO, S. HERZOG, M. MARNINS, The EU Succession Regulation and its Impact for non Member States and non Member State nationals, in Trust and Trustees, 2016, pp. 227-231; M. ZALUCKY, New Revo- lutionary European Regulation on Succession Matters. Key, Issues and Doubts, in Revista de Derecho Civil, 2016, pp. 165-176; A. FUCH, The New EU Succession Regulation in a Nu- tshell, in Era Forum, 2015, vol. 16, pp. 119-124. With reference to the Italian legal literature, see BONOMI, WAUTELET (eds) Il regolamento europeo sulle successioni. Commentario al In fact, until its introduction, each EU Member’s State legislation in the succession field differed deeply with reference to respective domestic private international law regime and with regard to the substantive law. This is due fundamentally owing to the recourse to two different principles: the one of the unity of the succession opposite the other of the scission of the applicable laws. As to the relevant laws different criteria apply: the one of the law of the domicile opposite of the law of the nationality of de cuius4. This diversity of discipline, inevitably, involved, in the field of cross-border successions, concerning restrictions to the free movement of people and capitals in Europe (as observed by EU Commission in many occasions in its reports), with inevitable detriment for the European single market5. However, with the ‘Regulation’, the European Legislator has unifor- med only the Private international law of the Member States and not their substantive law. In fact, this specific branch of law is deeply rooted within the legal culture of each State, and particularly with their respective vision

Reg. 650/2012 applicabile dal 17 agosto 2015, Milano, 2015, in particular pp. 1-18; A. BO- NOMI, Il regolamento europeo sulle successioni. Riv. dir. int. priv. e proc., 2013, pp. 291- 324, in particular 294; T. BALLARINO, Il nuovo regolamento sulle successioni, in Riv. dir. int., 2013, pp. 1116-1145, in particular 1118-1119; P. FRANZINA, Ragioni, valori e colloca- zione sistematica della disciplina internazionalprivatistica europea delle successioni mortis causa, in P. FRANZINA, A. LEANDRO (eds), Il diritto internazionale privato europeo delle successioni mortis causa, Milano, 2013, pp. 1-24, in particular 5-8; P. FRANZINA, A. LEAN- DRO, Il nuovo diritto internazionale privato delle successioni per causa di morte in Europa, in Nuove leggi civ., 2013, pp. 275-340; D. DAMASCELLI, Diritto internazionale privato delle successioni: dalla legge 218/1995 al regolamento UE 650/2012, Milano, 2013, in particular pp. 33-47; A. DAVÌ, A. ZANOBETTI, Il nuovo diritto privato delle successioni, Torino, 2014, in particular pp. 1-12. 3 In the European Union every year, according to the European Commission (see Cross Border Successions. A Citizens Guide. How EU Rules Simplify International Inheri- tance, 2017) take place 450 000 cross-border successions which represent a considerable economic value, estimated in EUR 120 billion. For ‘Bruxelles’ the main obstacle for the succession with cross borders implications is the uncertainty of the rules governing this sector of the law across Europe and this inevitably limits the circulation of wealth within EU. 4 In Europe, there are essentially two types of inheritance law. The scission system (known in France, United Kingdom and Belgium) and the law of the unity estate (currently applied in Germany, Spain, Italia or Portugal). The first has the effect to apply different rules to immoveable property which will be dealt with under the law of the place the property is situated and moveable property which will be governed by the law of the person’s domicile. 5 It requires for its correct functioning a full implementation of the four-fundamental freedoms on which the European economic integration process has been built since the 1958. See ‘The Green Paper: Succession and Wills’ (doc. com [2005] 65 def.9). In this document, the European Commission underlined how the difficulties involved in a transnational succession mostly flow from divergences in the substantive rules, the procedural rules and the conflict rules applicable in the Member States. The movement of people, one of the founding freedoms put at the basis of the EU, within the European State members connected to the increasing phenomenon of marriages between nationals of different countries can strongly influence matters relating to succession and wills. on the legal institute of private property6. So, each State is usually, reluc- tant to give up its sovereignty in said particular field of law7. On the other hand, the regulation of succession matters requires not only social, political and economic evaluations, but inevitably implies the adoption of legislative and political choices that can have a significant impact on the before mentioned institute of private property and, generally, on the whole system of the rights in rem8. It is worth remembering that within the Common law legal system, property right, jointly to the system of right in rem is the part of law that governs the different forms of ownership and tenancy in real property (land as distinct from personal or movable possessions) and in personal property. In the Civil law system, on the contrary, there is a division between movable and immovable property. Movable property generally corresponds to personal property, while immovable property corresponds to real estate, and the associated rights and obligations thereon. Nevertheless, the Regu- lation provides the opportunity, above all, for the romanistic systems of law, and in particular for the Italian Legislator, to reconsider certain founding principles of respective successions system regarding especially with reference to the protection of reserved heirs and the invalidity of agreements on succession rights.

6 Private property is a legal notion defined and enforced by a State’s political system and it is different from property which is owned by a state entity; and from the collective property, which is usually owned by non-governmental entities, and it can concern consumption goods and capital goods. 7 The prevision of vacant inheritance, that establishes the succession of the State in the case of absence of legitimate heirs of the deceased, confirms the volunteer of the State to exercise its sovereign power in matters of succession. In general, on the exercise of the State’s sovereignity in Private International Law see E. VITTA, Diritto internazionale privato, Tori- no, 1975, p. 170 and ‘Memoriale e progetto di legge’, in Consiglio Nazionale del Notariato, Problemi di Riforma del diritto internazionale privato italiano, Milano, 1986, p. 132 ss.; R. QUADRI, La successione dello Stato in diritto internazionale privato, in Riv. dir. int., 1958, pp. 575-580. 8 On the evolution of the concept of property see I. MURTAZASHVILI, J. MURTAZASH- VILI, The Origins of Private Property Rights: States or Customary Organizations?, in J. In- stitutional Economics, 2016, pp. 105-128; D. FITZPTRICK, Fragmented property systems, in Univ. Pennsilvania J. Int’l Law, 2016, pp. 137-193; ID., Evolution and chaos in property rights systems: The Third world tragedy of contested access, in Yale Law J., 2006, pp. 996- 1048; H. GINTIS, The evolution of private property, in Journal of Economic Behavior and Organization, 20017, pp. 1-16; S. LEVMORE, Two stories about the evolution of property rights, in J. Legal studies, 2002, pp. 421-451; TENELLA SILLANI, I diversi profili del diritto di proprietà nel XXI secolo: brevi spunti di riflessione, in Rass. dir. civ., 2013, p. 1058-1076; G. DONADIO, Diritto privato europeo e trasferimento della proprietà. Scenari attuali e prospettive future nella ricerca di una possibile armonizzazione, in Nuova giur. civ., 2012, pp. 151-175; C. Salvi, La proprietà privata e l’Europa. Diritto di libertà o funzione sociale?, in Riv. crit. dir. priv., 2009, pp. 409-455. The ‘Regulation’, here considered, is a text, extremely, dense and complex, composed by 84 articles divided into seven Chapters, preceded by a Preamble consisting of 83 Whereas. At the moment, it results the longer and more detailed European legal act, till now devoted by the European Legislator to Private international law issues.9 At the same time, it is the legislative text more impressive both at internal and international level devoted to the topic of international succession.10 In other terms, there is not other domestic law or international convention that has the same level of complexity. This probably helps to understand the decision, before the effective implementation of the Regulation occurred on 17 August 2015, to give an adequate period of time to promote its study and dissemination, above, all among the different legal operators.11

2. – The first aspect that stands out with the entry in force of the Regu- lation is a de facto overcoming of the five articles (from 46 to 50) dedicated by Italian Pil rules (inserted in the Law n. 218/1995)12 to the area of

9 It is known that the Treaty of Amsterdam (1997) introduced changes that affected the field of PIL, introducing ‘The Europeanisation of PIL”. This phenomenon can be seen as a process whereby before the European Community and now the European Union have given itself powers to create PIL rules, through the Article 81 TFEU (ex Article 65 TEC). This concerns procedural law (jurisdiction on the one hand and recognition and enforcement on the other) as well as rules of applicable law; in short, all PIL traits. For further details on the complex theme of the Europeanisation of PIL see J. BASEDOW, The Communitarization of the Conflict of Laws under The Treaty of Amsterdam, in Common Market Law Review, 2000, pp. 687-708; F. POCAR, La comunitarizzazione del diritto internazionale privato: una ‘Eu- ropean Conflict of Laws Revolution’?, in Riv. dir. int. priv. e proc., 2000, pp. 873-884; A. BONOMI, Il diritto internazionale privato dell’Unione europea: considerazioni generali, in ID. (ed), Diritto internazionale e cooperazione giudiziaria in materia civile, Torino, 2009, pp. 1-42; V. VAN DEN EECKOUT, The Instrumentalisation of Private International Law – Quo Vadis? Rethinking the “Neutrality” of Private International Law in an Era of Globali- sation and Europeanisation of Private International Law, pp. 387-406 available at SSRN http://ssrn.com/abstract=2485779 or http://dx.doi.org/10.2139/ssrn.2485779, accessed 29 September 2015. 10 At supranational level, on the subject of succession matters must be remembered the following international legal acts: Convention providing a Uniform Law on the Form of an International Will, concluded in Washington on 26 October 1973, ratified by Italy with Law n. 387/1990 (in Suppl. Ord. GU 31 dicembre n. 297); The Basel Convention on the Estab- lishment of a Scheme of Registration of Wills on 16 may 1972, ratified by Italy with law n. 307/1981 (in Suppl. Ord. GU 16 giugno n. 163). There are also others multilateral conventions of particular importance regulating succession matters which Italy concluded. It is the case of: The Hague Convention concerning the international administration of the estates of deceased persons (on 2 October 1973); The Hague Convention on the applicable law to succession to estates of the deceased persons concluded (on 1 August 1989); The Hague Convention on the Conflicts of law relating to the form of testamentary dispositions (on 5 October 1961). 11 In fact, the EU Regulation n. 650/2012 (OJ L 201 of 27.7.2012), entered in force on 16.8.2012. 12 In Italy, issues of Private international law are governed by Law 218 of 31 May succession matters, with the effect that the mentioned provisions, on the basis of the articles 83, par. 1 and 84, par. 2 of the Regulation, will continue to apply only with reference to successions opened prior to 17 August 2015; while, for the successions opened starting from that date, in conformity with the principles governing the relations between European Union and Member States13, the Italian rules will be not more applied in favor of the corresponding European provisions intervened on the matter in que- stion14. On this specific point, it is useful to underline that owing to the er- ga omnes application of the Regulation (see Article 20)15, jointly to the rules of the Italian Law n. 218/1995 on the designation of the applicable law (see articles 46-48)16, the conflict rules about the general issues on appli-

1995 (in GU n.128 del 3-6-1995 – Suppl. Ord. n. 68), which replaced sections 16 to 31 of the general legal provisions of the Civil Code (1942). These last provisions, although clear and systematically coherent were considered too rigid and incomplete to satisfy the new needs of International private affairs. For some comments, on the new italian system of conflict of rules (Law n. 218/1995) see S. BARIATTI, La riforma del sistema di diritto internazionale privato e processuale, Milano, 1996; P. PICONE, La riforma italiana del diritto internazionale privato, Padova, 1998; GAJA (ed), La riforma del diritto internazionale privato e processuale: raccolta in ricordo di Edoardo Vitta, Milano, 1994; N. BOSCHIERO, Appunti sulla riforma del sistema italiano di diritto internazionale privato, Torino, 1996; AA.VV., Commenta- rio del nuovo diritto internazionale privato, Padova, 1996. A number of themes falling under Private international law (and others only somewhat connected to it) are governed in Italy by special laws, it is the case of: international adoption (Law 4 May 1983 n. 84), industrial property rights (article 120 d.lgs. 30-2005), navigation (articles 4-14 preliminary provisions of navigation Code), the dissolution of marriage (Law n. 898-1970); the marriage of citizens abroad and aliens in Italy (articles 115-116 Civil Code), the treatment of aliens (Article 16 of the Preliminary provisions of Civil Code), notifications abroad (article 142 Code of Civil Procedure) taking evidence abroad (Article 204 Code of Civil Procedure). Many of these matters, in the course of time, have found their regulation in International conventions and European legal acts. 13 The ‘precedence principle’ is one of the founding principle of the EU law, according to it that legal system is superior to the national laws of Member States. Besides, the precedence principle applies to all European acts with a binding force (regulations, directives and decisions). Therefore, each Member States, on the basis of the mentioned principle, may not apply a national rule which contradicts to European law. In this way, it is guaranteed the su- periority of European law over national laws and it is a fundamental legal value of European legal order. As with the direct effect principle, it is not inserted in the Treaties, but has been enshrined by the Court of Justice of the European Union (CJEU). The CJEU enshrined, for the first time, the precedence principle in the Costa versus Enel (case 6/64) of 15 July 1964 (see https://curia.europa.eu/.) 14 An earlier implementation of the regulation on successions before the date of its entry in force was possible but depended on a unilateral decision of the courts or legislators of each Member State. On this aspect, see DE VAREILLÈ-SOMMIÈRES, Pour une meilleure consolidation européenne des dispositions de planification successorale prises le 17 aout 2015 relativement à une succession international, Dalloz, 2012, pp. 2321-2322. 15 Universal application: “Any law specified by this Regulation shall be applied whether or not it is the law of a Member State”. 16 Particularly, according to the Article 46 of Law n. 218/1995: “1- Succession shall be governed by the national law in force for the deceased whose estate is in question at the moment of death. 2- The person whose estate is in question may submit his succession with an cable law will be directly regulated by the new European provisions, concerning the method of renvoi, the limit of public order and the reference towards States having a non-unified legal systems will no longer operating according to Italian PIL rules17. On the contrary, Italian PIL rules about the recognition and enforcement of foreign judgments (see, in particular, the Article 64 of the Law n. 218/1995)18 will continue to operate in the case of legal decisions coming from countries outside the European Union. In fact, Chapters II and V of the ‘Regulation’ deal solely with the circulation of foreign judgments coming from countries belonging to the European Union.19 Even, the Italian PIL rules directed to determine which courts have ju- risdiction20 in matters of succession (see the Article 50 of the Law n. 218/1995)21 will be also set aside; it follows that, according to the new Eu- expressed statement in testamentary form, to the law of the State in which he resides. The choice of law shall not be effective if, at the moment of death, he was no longer resident in that State. In the case of succession to an Italian national, the choice of law shall not affected the rights that Italian law confers on the heirs who a are resident in Italy at the moment of the decease of the person whose estate is in question. Partition of a succession shall be governed by the law applicable to the succession, unless the co-heirs have agreed to designate either the law of the place where the succession is opened of the law of the place where or more assets of the estate are located”. 17 Article 19, par. 2, of the law n. 281/1995: ‘If a person has more than one nationality, the law of the State to which he is most closely connected shall be applied. Where the person has Italian nationality as well as others, the Italian nationality shall take priority’. 18 Foreign judgments will be recognized in Italy, provided that certain conditions are complied with. On the basis of the article 64 of Italian Law n. 218/1995 these conditions include general adherence to the Italian rules as to jurisdiction to due process and to respecting the essential rights of defence and public order. As regards legal instruments drawn up abroad, according to Article 106 of Italian Notarial law (Law n. 89 of 16 Febbraio 1913) it is necessary the deposit of foreign deeds with an Italian notary before they can be relied upon in Italy. This is a form of legal control by which to verify the respect of the Italian mandatory provisions. See P. BOERO, La legge notarile commentate con la dottrina e la giurisprudenza, Torino, 1993, pp. 563-566; G. CASU, Deposito di atto estero presso notaio, in CONSIGLIO NAZIONALE DEL NOTARIATO, Dizionario giuridico del Notariato, Milano, 2006, p. 379; P. PASQUALIS, Gli atti pubblici provenienti dall’estero, in P. PERLINGIERI (ed) Trattato di diritto civile del Consiglio Nazionale del Notariato, Napoli, 2007, p. 594. 19 As Denmark, Ireland and the United Kingdom are not part of the Regulation, succession procedures handled by the respective authorities will continue to be governed by their national rules (see also supra note n. 1). 20 As a general rule, the courts of the Member States in which the deceased person had his habitual residence at the time of death shall have jurisdiction to rule on the succession as a whole (see Article 4). It is also possible for the ‘parties concerned’ to enter into a choice of court agreement if the deceased chooses the applicable law to his-her succession according to the Article 22. The Court of a Member State which law had been chosen by the deceased pursuant to article 22 shall have jurisdiction to rule on the succession on certain conditions (see article 7). The Regulation clarifies that the term ‘courts’ means not only any judicial authority, but also all authorities and legal professionals dealing with succession matters, such as in Italy the public notary (see Article 3, par. 2). 21 Article 50 of Italian Law n. 218/1995 provided that the national courts have juris- ropean rules, the Italian jurisdiction would occur, essentially, in two different cases: 1) when de cuius had its habitual residence in Italy; 2) if, de cuius not being resident in a Member State, but having been previously Ita- lian citizenship, at the moment of death, has left his/her property in Italy. On said paper, it is possible to observe how the Article 10 of the Regu- lation provides different hypotheses of subsidiary jurisdiction, whose common denominator is represented by the presence of hereditary assets in the State of the legal authority involved in the succession matter. On the contrary, to the provisions of the Article 50 letter c) of the Law n. 218/1995, there is not any reference to the economic value of hereditary assets, being this profile irrelevant for the European Legislator for the determination of jurisdiction. However, the provisions on jurisdiction inserted in the Regulation can lead to the phenomenon of ‘positive conflicts’ both within the European Union and in relations with third States22. In these terms, the Articles 17, on lis pendens23, and 18, on ‘related actions’24, can reduce the risk of parallel proceedings and contradictory decisions. But, said provisions are applicable only between Member States, while nothing is said when the same cause of action is brought before the Court of a third State25. Despite, the diction if: ‘a) - the deceased was an Italian citizen at the time of their death; b)- the succession was opened in Italy (in other terms, generally, it is competent the local court of the place where the deceased was last domiciled); c) – the largest share of estate property is located in Italy; d) - the defendant in legal proceedings is domiciled or resident in Italy or they have accepted Italian jurisdiction; e) - the proceedings relate to immovable property located outside of Italy’. 22 Taking into account that the Regulation does not apply to UK and Ireland and Den- mark these States should qualify as third States; in the same sense see D. DAMASCELLI, I cri- teri di collegamento impiegati dal regolamento n. 650/2012 per la designazione della legge regolatrice della successione a causa di morte, in P. FRANZINA - A. LEANDRO (ed), Il diritto internazionale privato europeo delle successioni mortis causa, Milano, 2013, p. 96. 23 “1. Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seized shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established. 2. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favor of that court”. 24 “1. Where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings. 2. Where those actions are pending at first instance, any court other than the court first seised may also, on the application of one of the parties, decline jurisdiction if the court first seised has jurisdiction over the actions in question and its law permits the consolidation thereof. 3. For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expe- dient to hear and determine them together to avoid the risk of irreconcilable decisions resulting from separate proceedings”. 25 See F. MARONGIU BONAIUTI, Jurisdiction under the EU succession Regulation and relationships with Third Countries, in The External Dimension of EU Private International Law After Opinion 1/13; Cambridge, Antwerp, Portland, 2017, pp. 211-226. uncertainties arose with the Owusu’s decision of European Court of Justi- ce26, it must be considered that the PIL rules in force in the different Mem- bers States (for Italy, the article 7 of Law n. 218/1995)27 continue will apply in that specific case. Moreover, the Regulation does not discipline the territorial jurisdiction within each Member State, with the effect that it will continue to be determined in Italy according to the civil procedural rules in force.28 Equally, the Regulation shall not affect the competence of the Member States authorities deal with succession matters. With the introduction of the Regulation, on the basis of its Article 75, par. 2, will be replaced also the provisions contained in international conventions concluded exclusively between Member States, if these treaties concern matters ruled by the Regulation. More specifically, the Regulation will have the effect of making not applicable the provisions included in bilateral agreements concerning jurisdiction, recognition and enforcement of

26 See Case C-281/02 Owusu v. Jackson [2005] European Court of Justice (see http://curia.eu.int/jurisp/cgi-biyform). In this dispute, the European Court of Justice said that a court on which jurisdiction is conferred by Article 2 cannot decline jurisdiction on the ground that the court of a non-Member state would be a more proper forum. This was the case even if the jurisdiction of no other Member state was in issue, or the proceedings involved no factors connecting the situation with another member state. The Court of Luxem- bourg deduced that Article 2 was of a mandatory nature. However, the ECJ in Owusu de- clined to answer whether this applied to other circumstances, including where identical or related proceedings were pending before the courts of a non-member state court. This is known as “The Owusu point”. For a comment see A. BRIGGS, The impact of recent judgments of the European Court on English procedural law and practice, Int’l Lis, 2005, pp. 142-147; ID., The death of Harrods: Forum non conveniens and The European court, in L.Q.R., 2005, p. 535 ss.; C.J.S. KNIGTH, Owusu and Turner, The Shark in the Water?, in Cambridge Law Journal, 2007, pp. 288-301. 27 According to the Article 7 of the Law n. 218/1995: ‘Where in a proceeding a plea of lis pendens is brought concerning an action between the same parties having the same object and the same title, the Italian court may stay the proceeding if it deems that the decision of the foreign court may produce an effect in the Italian legal system. If the foreign court de- clines its jurisdiction or the foreign decision is not recognized under Italian law, the Italian court shall continue the proceeding upon the application of the party concerned. 2. The condition of lis pendens shall be established pursuant to the law of the State where the action is brought. 3. If the outcome of a proceeding in an Italian court depends upon the outcome of a proceeding pending before a foreign court, the Italian court may stay its proceeding where it deems that the foreign judgment may produce an effect in the Italian legal system’. For an accurate analysis of this article see R. LUZZATTO, Commento all’art. 7 legge n. 218/1995, in Riforma del sistema italiano di diritto internazionale privato legge 31 maggio 1995 n. 218 – Commentario, in Riv. it. dir. int. priv. e proc., 1995, pp. 944-947. 28 So, for Italy the respective Code of Civil Procedure will continue to define the competence of the different courts that is, their authority over controversies on the basis of the nature and the subject-matter of the dispute, its value, as well as to the residence of both the plaintiff and the defendant. In Italy, with reference to civil disputes, the court of first instance are the tribunal and for disputes of limited economic value the ‘Giudice di Pace’, while the Court of Appeals can re-examine the merits of the case and the Supreme Court of Cassazione is the ‘Judge’ of last resort which may order a retrial if it finds defects in the way the appellate trial was conducted. judgments in which Italy is part with other European Union countries. On the contrary, the multilateral conventions, in which a EU Member State results of being part, will not be set aside, if they are in force with non-EU member States. Thus, it should remain in force for Italy the Basel Conven- tion of 1972 on the establishment of a system for registering wills, even if it will be necessary any form of coordination with the legal instrument represented by the ‘Certificate of Succession’ (see articles from 62 to 73 of the Regulation). It will also not be prejudiced for Italy the application of the Convention of Washington of 28 October 1973, elaborated by Uni- droit29 and directed to regulate the form of the international will.

3. – The new European rules on succession reflect, in good part, me- thods and principles already present in the Italian system of conflict of laws. Particularly, it is evident the reference to the so-called unitary method for which the same law will be applied to the entire succession, independently where the estate property is located; the large conception of the succession’s statute and the admission of a limited choice of law. Since the previous Italian system of Private international law, included in the preliminary provisions to Italian Civil Code of 1942 (see Article 23),30 according to the mentioned unitary vision, the succession matters were submitted to the national law of the deceased at the time of death.31

29 A Unidroit Convention providing a Uniform Law on the Form of an International Will was concluded in Washington on 26 October 1973 and came into force on 9 February 1978. The EU Member States parties to the Convention are Belgium, Cyprus, Czechoslo- vakia, France, The Holy See, Italy, the United Kingdom, Slovenia, and several non-EU countries including the United States and the Russian Federation. This Convention provides for an international system of registration and a standard form for accomplishing this. 30 The provisions on the law in general, also called Preleggi, are a collection of articles issued by Royal Decree of 16 March 1942 n. 262 which also approved the Italian Civil Code of 1942. Before of the approval of the Law n. 218/1995, the Italian rules of conflict of laws were contained in the articles from 17 to 31 of ‘Preleggi’. On the basis of the Article 23 mortis causa succession were governed, wherever the patrimonial assets were, by the law of the State to which belonged, at the time of death, the person of de cuius. For an analytical comment on the previous Italian system private international law see G. BALLADORE PAL- LIERI, Diritto internazionale privato, Milano, 1974; T. BALLARINO, Diritto internazionale privato, Padova, Cedam, 1982; G. BARILE, Lezioni di diritto internazionale privato, Padova, 1981; S. M. CARBONE, L’avvocato e il diritto privato del commercio internazionale, Diritto del commercio internazionale, 1991, pp. 35-48; R. DE NOVA, New Trends in Italian private International Law, in Law and Contemporary Problems, 1963, pp. 808-821; G. MORELLI, Elementi di diritto internazionale privato, Napoli, 1986; R. QUADRI, Lezioni di diritto internazionale privato, Napoli, 1969; G. SPERDUTI, Saggi di teoria generale del diritto internazionale privato, Milano, 1967; E. VITTA, Corso di Diritto internazionale privato e processuale, Torino, 1991. 31 See A. MIGLIAZZA, Successioni (dir. int. priv.), Novissimo Digesto italiano, XVIII, Torino, 1971, p. 862; E. VITTA, Diritto internazionale Privato, cit., p. 103. This unitary approach32 was confirmed later in the Article 46 of the Italian Law n. 218/199533, but it was partially interrupted by the same article in its paragraph 2. In fact, here, the Italian Legislator recognized the possibility for de cuius to submit own succession to the law of the State in which he/she was resident, declaring explicitly this choice in his/her will. However, the possibility to submit the succession matters according to the unitary method by the recourse to the criterion of nationality or in presence of certain circumstances to the criterion of residence could be frustrated by the functioning of the method of renvoi (see Article 13 of the Law n. 218/1995)34. In fact, in the case where the renvoi would work towards legal systems inspired to the opposite principle of scission, inevitably, there would be a fragmentation of the rules governing the succession matters. Within the described legal framework, the Articles 21 and 22 of the ‘Regulation’ intervene ‘to exalt’ the unity approach, clearly express the aim to submit the discipline of succession matters to only one law, as this goal is considered crucial for the pursuit of the legal certainty and for the predictability of the law applicable to the succession (Whereas 37). In truth, these are considered essential conditions for ensuring in advance the succession’s planning and to remove the difficulties that beneficiaries, administrators and hereditary creditors normally face ‘in asserting their rights in the context of a succession having cross-border implications’ (see Whe- reas 7). However, this remains a potential aim, given the possible functioning of the mentioned method of renvoi, even with the current Regulation

32 The unity of succession is a fundamental principle of the Italian legal system on hereditary matters, both in the sense that all property and the rights of the deceased constitute a single entity passing to their heirs and in the sense that a single body of law is applied to the succession. In other terms, no regard is had to the legal nature of the property and or rights forming part of the estate (for example movables and immovables) or their locations. 33 If the deceased had many nationalities, the laws of the State with the closest connection to the diseased would apply. In the case where one of their nationalities was Italian, this prevail. The applicability of the latter rule may be questionable, considering that the ECJ in the Case C-148/02 (Judgment of 2 October 2003) held that in the event of a plurality of nationalities of EU Member states, it must give priority to the nationality of the forum conflicts with EU law. With reference to the criteria of domicile and, in second instance, of residence were applied only if the deceased was stateless or a refugee (see Article 19 of Law n. 218/1995). 34 According to the Article 13 of the Italian Law n. 218/1995, fundamentally account shall be taken of the renvoi made by foreign private international law to the law in force in another State if: a) – renvoi is accepted under the law of that State; b) – renvoi is made to Italian law. On the effects produced by the introduction of renvoi in Italian system of conflict of laws with particular reference to the succession law see L. FUMAGALLI, Rinvio e unità della successione nel nuovo diritto internazionale privato italiano, in Riv. dir. int. priv. proc., 1997, p. 829-848. (see Article 34) even if, its inclusion constitutes a significant innovation, in the framework of the cited ‘Europeanisation’ of PIL. In fact, it is the first time, that EU legal systems open itself to the method of renvoi, if we compare the ‘Regulation’ to other European legal acts concerning PIL matters (usually, all hostile to admit the functioning of this method), concerning the issues connected to the subject of the applicable law35. Probably, this opening is due to the fact that its use was already permitted by different European legal systems with regard to PIL matters36. ‘The Regulation’, compared to the Italian legislation on Private Inter- national Law, introduces others very innovative aspects. First of all, the adoption, as general rule, of the connecting factor of habitual residence for the determination of the lex successionis, limiting the recourse to the lex patriae only when this law has been expressely chosen by the de cuius in its will. So, we can appreciate an overturning of the criteria previously used by the Italian Legislator in order to identify the lex successionis. In fact, with the Article 46 of the Law n. 218/1995, the rule governing the succession corresponded with the national one of the deceased determined at the time of his death; while, the reference to the law of habitual residence, identified always at the time of death, was possible only through an optio legis made, however, in the form of the will, otherwise the choice of the law could be considered invalid. It is worth remembering that said provision, admitting this right of choice, represented one of the most significant innovations of the new Ita- lian system of conflict of laws introduced with the Law n. 218/1995 which extended the criterion of the party autonomy37 to other private law’s areas,

35 See article 20 of Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), article 24 Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II); article 11 Council Regulation (EU) No 1259/2010 of 20 December 2010 implementing enhanced cooperation in the area of the law applicable to divorce and legal separation. 36 Probably, this opening is due to the fact that the recourse to renvoi was already permitted by different European legal systems with regard to PIL matters. The question of renvoi was discussed, for the first time, with reference a succession matter in France. Pre- cisely, the legal debate was initiated by Forgo case which concerned the succession to the movable property of a Bavarian citizen who had its residence in France, but who had not acquired a legal domicile according to the existing French law. The case gave rise to three decisions by the Cour de cassation. In its first decision the Court applied French law without invoking renvoi, but in its second decision it based the application of French law on a renvoi from Bavarian law and this position was confirmed in the third and last decision. 37 In the field of international commercial contracts, the parties’ freedom to choose the applicable law is widely accepted. The principle of party autonomy is supposed to respect the expectations of the contracting parties and, thus, to favour predictability. Nevertheless, the absence of uniform application of party autonomy can lead to asymmetries on the inter- from its traditional sector of contractual obligations38. The opening of the sector of succession to the mentioned criterion however, was greatly reduced by stringent conditions to which de cuius’s optio iuris was submitted, in particular: 1- the choice of law would not produce effects if at the time of death, the deceased no longer resided in that State; 2- it was not possible the splitting of the choice of law with respect to individual parts of the succession; 3- the need to protect the legal heirs resident in Italy in case of succession to an Italian citizen. Although the use of the habitual residence criterion is one of the most innovative profile of ‘the Regulation’, we have to underline that a definition of ‘habitual residence’ is not given by said European legal act.39 It merely establishes, at the Article 21 par. 1, that ‘the law applicable to the succession as a whole shall be the law of the State in which the deceased had his habitual residence, at the time of death’. However, it fixes, at Whereas n. 23 some criteria for its determination ‘In order to determine the habitual residence, the authority dealing with the succession should make an overall assessment of the circumstances of the life of the deceased during the years preceding his death and at the time of his death, taking account of all relevant factual elements, in particular the duration and regularity of the deceased’s presence in the State concerned and the conditions and reasons for that presence. The habitual residence thus determined should reveal a close and stable connection with the State concerned taking into account the specific aims of this Regulation’.

nationality of contract, the choice’s mode of expression, the proximity of the law chosen, the transnational character of the law chosen, and the role played by overriding mandatory rules and public policy. Those asymmetries lying behind the wide acceptance of party autonomy can cause a lack of predictability. Such profiles having recently been undertaken by the Hague Conference on Private International Law that emphasized the use of soft law principles an appropriate tool to advance towards uniformity in the application of party autonomy in international commercial contracts and not only. On the importance of the criterion of party autonomy in the legal framework of EU regulations devoted to PIL matters, see I. VI- ARENGO, Choice of Law agreements in property regimes, divorce and succession: stress- testing the new EU regulations, in ERA forum, 2016, pp. 543-554. 38 In addition to the rule, above examined, other two provisions of the Law n. 218/1995 are relevant with reference to the criterion of will and precisely: art. 30 par. 1, on patrimonial relations between spouses for which ‘The agreement reached by the spouses with respect to the applicable law shall be valid if it complies either with the law that was chosen or with the law of the State where the agreement was reached’ and the article 56 paragraph 2 on gifts that establishes: ‘The donor may, by an expressed statement made at the moment of the gift, submit the gift to the law of the State of his residence’. 39 The Italian law considers, simply, the ‘residence’ – see Article 43 par. 2 Civil Code – intended as ‘the place where a person usually lives’. Thanks to the introduction of the connecting factor of habitual residen- ce40, it follows that the European citizen can choose the substantive law applicable to his/her succession simply transferring abroad his/her residence. For example, if an Italian citizen willing to disinherit41 your spouse could avoid the application of Italian law moving his/her residence during the last few years of his/her life in Netherlands, where the respective legislation recognizes a reserved share only to the descendants of de cuius. For better understanding the real impact of said innovation, we can also consider the case of an Italian citizen, who made gifts in favor of an ex- traneous and transferred his/her residence in Germany to avoid their reductions. In fact, in this legal system a person, entitled to a reserved share, is considered a simple creditor and can claim only a value equal to the half of what he/she would have in virtue of intestate succession. So, thanks to the Regulation, Italian citizens moving abroad can benefit of legal systems less rigid, which provide a protection merely mandatory in favor of legitimate heirs and characterized by less incisive limitations of testamentary freedom42.

40 On this PIL criteria see M. ATALLAH, The Last Habitual Residence of the Deceased as the Principal Connecting Factor in the Context of the Succession Regulation 650/2012, in Baltic Journal of European Studies, 2015, pp. 130-146. 41 The disinheritance has the effect of depriving a person (normally a legitimate heir) of property that would have been distributed to that person under the laws of intestacy. It is a matter, expressly, included in the scope of the Regulation and of the applicable law under article 23, par. 1, lett. d). The Italian Civil Code has expressly recognized the recourse to this institute only in the article 448 bis (provision inserted with the Law 10 December 2012, n. 219), concerning the forfeiture of the parental responsibility. This is the only case in which it is possible to expressly exclude a reserved heir, while inheritance is admissible with particular limits only for legitimate heir who are not, in the meantime, reserved heirs. On the Article 448 bis see V. VERDICCHIO, La diseredazione per giusta causa (chiose a margine dell’art. 448 bis cod. civ. introdotto con Legge n. 219/2012), in Nuove leggi civ., 2014, pp. 275-281. In general, on the possibility for the de cuius to insert in his/her will a disinheritance clause see A. TORRENTE, Diseredazione, diritto vigente, Enc. dir., 1964, p. 102; M. BIN, La diseredazione, Torino, 1966, p. 109; L. MENGONI, Successioni per causa di morte. Successione le- gittima, in A. CICU, F. MESSINEO (eds), Trattato di diritto civile e commerciale, 1990, p. 2 ss.; G. CAPOZZI, Successioni e donazioni, Milano, 2009, p. 200; M. DI FABIO, In tema di diseredazione (anche) del legittimario?, in Riv. not., 2012, pp. 1228-1235. 42 In Italy, testamentary freedom is limited as certain heirs who are closest to de cuius are entitled to a percentage share that the law reserves to them (the just mentioned ‘reserved heirs’). The testator is free to decide which property is to be left to those entitled to a reserved share, as long as such property forms part of the succession and equals or exceeds the value of the share. The reserved share is guaranteed by law (Article 549 Civil Code) and prevents the testator from imposing charges and conditions on such share. All limitations de- liberately imposed by testator in order to reduce the value of the share are void. It is also important to underline that a testamentary for Italian law disposition that violates a reserved share is perfectly valid until challenged by the person entitled to share. The persons who are entitled to a reserved share are: the surviving spouse, legitimate, legitimated and adopted children, illegitimate and adulterine (but not incestuous) children who have be recognized and legitimate ascendants. On this point, we can note how the Regulation does not foresee, On the contrary, a change of residence of an alien in Italy may imply the application of a legislation more protective for his/her reserved heirs. Besides, the possibility that the succession of an alien, with last residence in Italy, can be regulated by Italian law will probably allow to the Italian legal operator to overcome the difficulties, existing in the past, connected to the application of foreign laws. In this way, it will be possible to avoid the recourse to the limit of public order, in the case where the foreign law results contrary to the fundamental principles of Italian legal system. In these terms, it will also result simpler for the Italian Notary ‘to manage’ the succession of extra European union citizens, holders of regular permit to stay in Italy43.

4. – ‘The Regulation’ in its Article 1 expressly excludes from its scope revenue, customs (usually expression of the State fiscal policy) and administrative matters, as sectors strictly connected to the State sovereignty, particularly, the first two profiles mentioned. Consequently, with regard to fiscal issues, it will happen that if the deceased was resident in Italy, at the moment of his death, the Italian inheritance tax will be applied to all the assets worldwide belonging to him (according to the principle of worldwide taxation). Otherwise, in case of a non-resident, the Italian inheritance tax rate will be applied to all property located in Italy, at the mo-

unlike the Article 46, par. 2 of the Italian Law n. 218/1995, any limit to the choice of law for the protection of the rights of the ‘reserved’ heirs. For this reason, the only legal ‘tool’available for their protection could be represented by the recourse to the limit of public order. However, this provision could offer a strong argument against the public policy nature of the reserved shares rules. In fact, the Article 46 par. 2, of the Law n. 218/1995, in fact, granted Italian resident only the right to claim their reserved share. There is not protection for those people who would like to claim the reserved shares, but they are not resident in Ita- ly. Some authors contested that Article 46, par. 2 was contrary to the Article 3 of the Italian Constitution and Article 18 of the Treaty on European Union, because it creates an unrea- sonable unequal treatment between resident and non-resident people. See on these profiles P. PICONE, La legge applicabile alle successioni, in Studi Marano 1991, p. 77; R. CLERICI, Cri- teri di parità e principio di uguaglianza nel disegno di legge, in G. GAJA (ed), La riforma del diritto internazionale privato e processuale, Raccolta in memoria di Edoardo Vitta, Mi- lano, 1994, pp. 315-320. 43 The permit of stay allows an alien legally residing in Italy to enjoy the same rights as Italian citizens in civil and commercial matters. Thanks to it, it is not necessary to verify the conditions established in article 16 of the Preliminary provisions, concerning the treatment of aliens, which states: “Any alien is admitted to enjoy the civil rights granted to Italian citizens under conditions of reciprocity with the exception of the provisions contained in a legislation of a special nature. This provision also applies to foreign legal person”. This legal document is required in Italy for non-EU citizens (see ‘Testo unico sull’immigrazione’ in Law n. 296/1998 in Gazzetta Ufficiale of 18 August 1998 n. 98). It has an expiry date, is renewable, and is issued (with varying durations of validity) for the first five years of residence in Italy. ment of the opening of the succession (according to the territoriality principle). On the basis of Italian law, the succession tax is levied on the net share of the inheritance passing to the beneficiary (for example, net of liabilities and deductible expenses, like funeral and medical expenses, debts of the deceased), taking into account non-taxable threshold amounts that depend on the relationship between the transferor and recipient. On said point, it is useful to underline that in Italy, the inheritance tax and gift tax are regulated by the Law n. 286/2006 that have re-introduced this form of taxation after a long period of exemption. This provision reestablished into force the inheritance tax rules and the gift tax rules contained in the Law Decree 346/1990 (Inheritance and Gift Tax Code), which previously ruled on inheritance and gift matters. Currently, there are different rates which are applied to each heir according to the different degree of kinship to the deceased.44 The disputes also concerning tax obligations due to the State or other public authority are excluded by the scope of the European Regulation; while the lawsuit about the division between heirs on the respective shares concerning the payment of taxes should be included45. The lex successionis, how identified by the ‘Regulation’, excludes from its scope the case of commorientes46. Said phenomenon happens ‘when two or more persons whose succession are governed by different laws die in circumstances in which it is uncertain in what order their deaths occurred and those laws provide differently for the situation or make no provision for it at all’. The described exceptional situation is resolved by means of a rule of substantive law: the Article 32. This provision, included in the Regulation, establishes: ‘none of these people has the right of succession of the other or others’ with the effect not to determine the application of the Article 21 of the Italian Law n. 218/1995 for which ‘Where sur- vivorship is to be established between two persons and it is not known who

44 The various rates can be summed up in the following way: 4% to be paid for transfers to the surviving spouse and children, with an exemption of Euro 1,000,000 for each beneficiary; 6% to be paid for transfers to brother and sisters of the deceased, with an exemption of Euro 100,000 for each beneficiary; 6% to be paid for transfers to relatives within the fourth degree of relationship to the Deceased, and other relative on the spouse side up to the third degree (no exempt amount is available) 8% to be paid for transfers to any other (unre- lated) parties. Both rates and exemptions according to the current Italian inheritance tax regime are calculated over the whole net value of the assets included in the deceased’s estate. 45 For the Article 752 of the Italian Civil Code each co-heir must pay the debts of de cuius in proportional rate with reference to the share of the inheritance he/she received. 46 The case of commorientes or of simultaneous death is foreseen also in the Article 4 of Italian Civil Code. According to this substantive provision when it is not possible to establish which of two persons died first, the two are deemed to have died at the same time. In this case, there is a presumption that neither of the two persons succeeded the other. deceased first, the time of the decease shall be determined by the law governing that relationship from which the determination is sought’. After the introduction of the Regulation, said rule will continue to operate outside the successions matters, in particular with reference to the sector of life insurance contracts. From the scope of the ‘Regulation’ are excluded, remaining in this way submitted to the national rules, the issues relating to the status of individuals (comprehensive of parent-child relationship, in particular as regards its establishment and disputing); the adoption, when it produces effects on the status of the child; the protection of the adults, the kinship and affinity. Indeed, the distinction between the matters of the status of persons and the succession in terms of classification is easy, since the first concerns the effective existence of the subject and its basic qualities; while, the second concerns the takeover in the legal relations of which a person owns as a consequence of his death. Therefore, the issues concerning the determination of death of the deceased should be included in the field of the status of the person, but the Article 23, par. 2 letter a) of the Regulation provides that the lex successionis governs the causes and the time of the opening of the succession, thus leading to a possible problem of coordination with the rules on the legal capacity and actions of people. ‘The Regulation’ does not rule the determination of the death, disappearance, absence or presumed death, but, only, the consequences of these particular events as capable to determine a succession phenomenon47. In other terms, these questions can stand out as preliminary issues of a succession matter and so, in the most part of cases, the judge, called upon to decide on disputes regarding succession, will rule on them. On this last point, as regards the profile of the applicable law, the Regulation seems to make a choice between the traditional alternatives of the joint solution of preliminary issues or their separated solution, favoring this last option (see in particular the articles 67, par. 1 and 69, par. 2)48. It follows, that it could

47 On the issues about the coordination between these legal institutes and the lex successionis see S. TONOLO, Scomparsa, assenza e morte presunta, in R. BARATTA (ed.), Di- zionari del diritto privato - Diritto internazionale privato, Milano, 2010, pp. 441-442; B. UBERTAZZI, La capacità delle persone fisiche nel diritto internazionale privato, Padova, 2006, pp. 365-370. 48 See art. 67 par. 1 “Whenever foreign judgements or rulings relating to voluntary jurisdiction are not complied with or challenged as to their recognition, as well as where force- able execution is required, any person concerned may request the Court of appeals (Corte d’appello) of the district where enforcement is sought to determine the prerequisites for recognition”. Art. 69 par. 2. “If any of the parties concerned requests the taking of evidence, the application shall be made to the court by lodging a complaint accompanied by a certified true copy of the foreign judgement or ruling ordering the performance of the acts. Where the occur for the Italian Court to be requested to solve a preliminary question in case it was necessary to determine the ‘status’ of a children, on the basis of the law determined by the PIL rule on matters of filiation (see Article 33 of Law n. 218/1995)49 and after to solve the main issue on the basis of Re- gulation’s provisions. Moreover, the quality of heir is usually a consequence of a specific personal condition of the person (the existence of a marriage, family and affinity relationship). The Regulation seems aware of this aspect, especially when it establishes in its Article 68 the contents of the European Certifi- cate of Succession (see infra), imposing, particularly, the indication of the civil status of the deceased as well as the family ties and kinship with the applicant the certificate, the existence of nuptial agreements and the elements from which result the rights and powers of the heirs and legatees. So, this determines that the mentioned Article 22 of the Italian Law n. 218/1995 will remain in force, because, as noted before, from the ‘Scope’ of the Regulation are excluded the ‘matters relating to the disappearance, absence or presumed death of a natural person’. The cited rule disciplines jointly the disappearance, absence and presumed death, legal institutes that deeply differ from each other, above all, for the progression of the measures that can be taken by the national Judge. In particular, the declaration of absence gives rise to a form of limitation of capacity which allows the adoption of conservative measures aimed at pro- tecting the economic interests of the absent person (for example, it is the case of the designation of a special curator). The declaration of absence also involves the possibility of taking important measures such as the right for the heirs and legatees to obtain the possession of the property of the absent. On the contrary, the declaration of presumed death has consequences equivalent to the extinction of the person, determining de facto the end of his general legal capacity. For these legal figures, the mentioned Article 22 makes reference for their regulation to the last national law of the disap- peared. The law, so identified, regulates the conditions for the assessment of the disappearance and for the declaration of absence or presumed death, taking of evidence is requested by judicial authorities, the application shall be transmitted through diplomatic channels”. 49 See art. 33 “The status of a child shall be determined by the child’s national law at the time of birth. Legitimacy of a child shall be determined in pursuance of the law of the State of which either parent is a national at the time of the child’s birth. The child’s national law at the time of birth shall govern prerequisites for, and effects of establishing and chal- lenging the status as child. Legitimacy of a child established under the national law of either parent may not be challenged other than in pursuance of that law”. the kind of measures that can interfere within the patrimonial sphere of the person in question, the right of the spouse of the absent to get an economic support and its amount and the right to be placed in temporary possession of property rights. This law, however, cannot coincide prima facie with the law that governs the succession. This may imply that the possession of the property of the absent or presumed dead, normally disposed in favor of the respective heirs, can occur in favor of other persons that are different from those designated by the lex successionis. Lastly, the Article 22, in its paragraph 2, establishes the criteria for determining the jurisdiction in the matters before briefly described. More specifically, this provision provides that the Italian Judge has jurisdiction not only when the last national law of the person considered was the Italian law, but also in the case where in Italy there was his/her last residence or if, from the assessment of the disappearance, absence or presumed death, can rise effects within the Italian legal system. Another significant aspect concerning the impact of the Regulation on Italian succession system, is represented by the inclusion, among the beneficiaries of the inheritance, of the figure of the ‘surviving partner’ (see Ar- ticle 23, par. 2 lett b of the Regulation). On this specific point, it deserves to be observed that before the introduction of the so called ‘Legge Cirin- na’50 (that has adapted the Italian legal system to the most part of European countries), in Italy the recognition of the civil unions51 between persons of the same sex and generally of new forms of family, not referable to the traditional figure given by the family based on marriage, was not possible. This implied that, if the applicable law was the Italian, the surviving partner can not claim any right about the inheritance of the deceased. So, Ita- lian succession law does not concede automatic succession rights to the

50 Legge 20 Maggio 2016 n. 76, published in GU n. 118 del 21.5.2016. See M. D’AMICO, The New Italian Law on Civil unions: between Rights Recognition and Ideologi- cal Clash, in Notizie di Politeia, 2016, pp. 38-49. 51 The terms used to designate civil unions are not standardized and vary widely from State to State: civil partnerships, registered partnerships, domestic partnerships, significant relationships, reciprocal beneficiary relationships, common-law marriage, adult interdepend- ent relationships, life partnerships, stable unions, civil solidarity pacts, and so on. The exact level of rights, benefits, obligations, and responsibilities characterizing these legal figures, depending on the laws of each State. On this topic, see A. KOPPELMAN, Some Sex Different States: when Same Sex Marriages Cross States Lines, Yale, 2006; J. GUTH, When is a Part- ner not a Partner? Conceptualizations of Family in EU Free Movement Law, in J. Social Welfare and Family Law, 2011, pp. 193-204; A. BONOMI, The Interaction among the Future EU Instruments on Matrimonial Property, Registered Partnership and Successions, in Year- book of Private International Law, 2011, pp. 217-231, S. TONOLO, Le unioni civili nel diritto internazionale privato, Milano, 2007; S. BARIATTI, La famiglia nel diritto internazionale privato, Milano, 2007. surviving partner. The latter could only become an heir, if this is established in a will. Before the introduction of ‘Legge Cirinnà’, the only case, in which the Italian legal system recognized importance to the phenomenon of more uxorio cohabitation, was represented by the succession of the surviving partner in the rental contract for urban real estate52. The ‘Regula- tion’ also excludes, from its scope, the gifts, because these are contracts, usually, included in the ‘Rome I’ regulation on contractual obligations53. However, it is known that some forms of gifts can be classified as mortis causa acts and thus they can integrate an effective agreement as to succession (see infra). On this specific point, it can be useful to consider, in particular, the legal figure of donatio mortis causa which is a gift in prospect of death, precisely when a person apprehending his dissolution near delivers or causes to be delivered to another the possession of any personal patrimonial assets to keep as his own in case of the donor’s decease. Consequently, for these aspects said type of gift may find its discipline within the Regulation on succession and not in ‘Rome I’. This fact may imply, precisely, a further consequence: the restriction of the scope of the Article 5654 of the Law n. 218/1995 that, normally, was used by the Italian legal operator to give a legal framework to the gifts excluded by the scope of ‘Rome I’, essentially, with reference to the legal figure of donatio mortis causa. Owing to the entry in force of the Regulation, the Article 56 will continue to apply only for gifts that do not have a contractual nature; in other terms, for those gifts closely related to family law and matrimonial regime, like propter nuptias gifts (see Article 785 of Italian Civil Code)55.

52 See Articles 6 and 37 of Law 392/1978 (in GU 29 luglio n. 211 ‘Disciplina delle lo- cazioni di immobile urbani (Equocanone)’. For Italian doctrine (see, in particular, G. BONI- LINI, Il mantenimento post mortem del coniuge e del convivente more uxorio, in Riv. dir. civ., 1993, p. 243; COLELLA, Sul riconoscimento del diritto a succedere nella locazione del convivente more uxorio, in Diritto e giurisprudenza, 1988, p. 796, we are in front of a figure of anomalous ex lege legacy, as the beneficiary identified by law does not belong to the group of persons included in the Article 565 of the Italian Civil Code. This provision, where a person dies intestate, provides for legitimate succession, whereby property descends to the family of deceased, in conformity with the degree of kinship down to the sixth degree for the purpose of distribution). 53 Regulation n. 593/2008 of the European Parliament and of the Council of the 17 Ju- ly on the Law applicable to contractual obligations. 54 Article 56 (Gifts): ‘1- Gifts shall be governed by the donor’s National law at the moment of the gift. 2- The donor may, by an expressed statement made at the moment of the gift, submit the gift to the law of the State of his residence. 3- As to form, the gift shall be valid, if it is considered valid either under the law governing its substance or under the law of the State in which the gift was made’. 55 See A. PALAZZO, Le donazioni, in P. SCHLESINGER (ed) Commentario al Codice civile, Milano, 1991, p. 281; A. TORRENTE, La donazione, in A. CICU, F. MESSINEO (eds), On the basis of the articles 21-23 of the Regulation, the lex successionis will be also the law regulating the agreement between parties on the sharing out or the distribution of the estate56. The inclusion, in the scope of lex successionis, of the sharing out is a direct consequence of the unde- niable connection that exists between this type of legal act and succession matters with specific reference to the particular moment represented by the assignment of inheritance estate to the individual beneficiaries57. Unlike what happened in the previous system of Italian conflict of Laws (see article 46, par. 3, Law n. 281/1995) not only the abstract determination of the portions due to the heirs, the attribution of debts, the colla- tion of gifts and the functioning of the so called ‘retratto successorio’ (see Article 732 of Italian Civil Code, for which it must be exercised according to the law governing the lex rei sitae, as it is a preferential right in rem), but, also, the existence, the formal and the substantial validity of the sharing out, the method of formation of portions and their assessment to the heirs, the eviction guarantee, the rescission for a burdensome contract will be regulated by the lex successionis. These aspects, pending the Italian Private international law, on the basis of an agreement between the participants to the sharing out, could be submitted to the law of the place of the opening of the succession or to the law of the place where the most part of assets were located, with the effect, therefore, of subtracting the sharing out to the law that regulated the succession in its whole, even in the case in which that law had been chosen by the de cuius. On the contrary, the question about the legal capacity of the participants to the sharing out is a matter does not fall within the law governing this contract. It follows that, on the basis of the Article 23 of the Italian Law n. 218/1995, this specific profile will be regulated on the ground of the national law of the person in question. As regard the discipline of the procedure applicable to the judicial sharing out, in accordance with the Ar- ticle 12 of the Italian Law n. 218/1995 for which ‘civil proceedings before Italian courts shall be governed by Italian Law’, the law of the process will be the lex fori.

Trattato di diritto civile, Milano, 1956, p. 159. 56 See T. BALLARINO, Manuale di diritto internazionale privato, Padova, 1999, p. 533. 57 The rules devoted to the regulation of sharing out are inserted in the Second Book of Italian Civil Code, the same book dedicated to the discipline of succession matters. 5. – Among the different principles that characterize the law of succession in Italy, two of them seem to be particularly touched by the reform introduced by the EU Regulation on succession. We make reference to the principle of testamentary freedom and to the protection of the rights of reserved heirs. Two principles which restrain each other. In fact, according to Italy law system, persons are free to make will, but families are entitled to inheritance of wealth. In other terms, each person can dispose of his own estate ‘for such time as he shall cease to be’ (see article 587 of the Italian Civil code)58. The law, as it where, recognizes the continuing validity of dispositions made by person entitled to do so over and beyond the cessa- tion of his existence. The protection rights of reserved heirs implies that when a person dies intestate the law provides for legitimate succession59 whereby property descends to the family of the deceased in line with the degree of kinship down to the sixth degree for the distribution’s purpose60. Secondly, the law applies the same principle against the will of testator or the undue generosity of his disposition to ensure a correct distribution of portions of the deceased property to a small group of people qualifying as person entitled to reserved portion61. For a long time, all these aspects have been considered by Italian Le- gislator as a matter of public order and at the meantime they were used to justify the presence in the Italian legal system of the prohibition of inheritance acts directed to safeguard the free decision of the testator and the principle of continuity though succession upon death62. So, in Italy, fundamentally, heirs may only accept or renounce inheritance. More specifically, the Italian legal system prohibits all agreements by which a person disposes of their own succession, including all agreements transferring or renouncing rights upon the death of a living person. In these terms, examples of agreements on succession that are prohibited under Italian law are the sale of future property expected to be part of the succession of a living person or a property division. However, even before

58 Succession by will instead is a disposition of property that is a ‘revocable act by way of which a person disposes of all his property or part of it for the time when he will have deceased to live’ (see the Article 587 of the Italian Civil Code). 59 See on particular Article 565 of Italian Civil Code. 60 Moreover, succession is governed by the law if there is no a written declaration of the intentions of a person concerning descent of his property after his death. In case of a person dying intestate, therefore, the legislator has set forth specific provisions for the disposition of property of the deceased person (see Article 457 of the Italian Civil Code). 61 Including the spouse, the children born in or out of wedlock, the parents and grand- parents where the deceased leaves no issue, see Article 536 of the Italian Civil Code. 62 See Article 458 of Italian Civil Code. the introduction of the Regulation the prevailing opinion of the Italian legal commentators (especially among the Scholars of Private international law)63 was that this kind of agreements was not contrary to international public policy in order to recognize their effects within Italian legal system, if these arrangements had been considered valid in a foreign country. Thanks to the Article 25 of the Regulation, that regulates the ‘Agree- ments as to succession’, any doubt about the recognition of such agreements should be definitively considered overcome. Said article, could have the positive effect to lead the Italian Legislator to recast the Article 458 of the Italian Civil Code, partially and revised recently with the introduction of the so called ‘Family agreements’64. This is a particular contract by which, compatibly with the rules governing family firm and in obedience to the different types of companies, the entrepreneur transfers the firm, wholly or partially, and the shareholder transfers, wholly or partially, his/her shares to his/her descendants65. Finally, from the Regulation arises the European Certificate on Succes- sion (art. 62-73)66, a legal document, that consists in a formal certification

63 See, particularly, G. BALLADORE PALLIERI, Diritto internazionale privato italiano, Milano, 1974, p. 268; E. VITTA, Diritto internazionale privato, III, Torino, 1975, p. 145 ss.; T. BALLARINO, Le successioni nel diritto internazionale privato italiano, in Riv. not., 1986, p. 6; P. PICONE, La riforma del diritto internazionale privato, Padova, 1998, p. 95; A. DAVÌ, Riflessioni sul futuro diritto internazionale privato europeo delle successioni, in Riv. dir. int., 2005, pp. 297-341. 64 See articles from 768 bis to 768 octies of Italian Civil Code. For a comment to this new legal institute, see F. VISMARA, Patti successori nel regolamento UE n. 650/2012 e patti di famiglia: un’interferenza possibile?, in Riv. dir. int. priv. e proc., 2014, pp. 803-818; G. PERONI, Il Patto di famiglia nella prospettiva internazionalprivatistica, dopo il Regolamento UE n. 650/2012 sulle successioni, in Nuovo dir. società, 2015, pp. 40-58; ID., Patti successori, Patto di famiglia e ambito di applicazione delle norme di diritto internazionale privato, in Diritto comm. Int., 2007, pp. 611-640. 65 This new legal institute has the clear purpose to make the succession easier in line with the suggestions elaborated by EU Commission in order to allow the entrepreneur to plan the generational transition of the individual firm or the future governance of the family owned firm. See Commission Recommendation (EC) 94/1069 of 7 December 1994 on the transfer of small and medium-sized ‘Member States are invited to take the necessary measures to facilitate the transfer of small and medium sized enterprises in order to ensure their survival and to safeguard the jobs which depend upon them. 66 The first comments to the introduction to European Succession Certificate were generally very positive, see for example MAX PLANCK INSTITUTE FOR COMPARATIVE AND INTERNATIONAL PRIVATE LAW, Comments on the European Commission´s Proposal for a Regulation of the European Parliament and of the Council on jurisdiction, applicable law, recognition and enforcement of decisions and authentic instruments in matters of successions and the creation of a European Certificate of Succession, in RabelsZ, 2010, pp. 522- 570 and the note Prise de positions sur la proposition de règlement relatif à la compétence. La loi applicable, la reconnaissance et l’exécution des décisions et des actes authentiques en matière de successions et à la création d’un certificat successoral européen, published by Notiares d’Europe-CNEU on http://www.notaries-of-europe.eu, accessed on 29 September 2015. For further comments see C. HERTEL, European Certificate of Succession: content, is- of the facts of the succession of a deceased person. Each Member State had to designate the competent authority to issue it. In Italy67 only a Notary will be competent to release this act which will make easier for heirs to call upon their rights in another Member State or even for an Executor of the will to exercise his power in another State. It shall produce its effects in all Members State, without any special procedure being required (see the Ar- ticle 69, par. 1 and Whereas 71). In particular, the Article 63, par. 3 clarifies that: ‘The certificate shall not take the place of internal documents for similar purposes in the Member States’. Therefore, the European Certifica- te should not be used for the national succession being limited its scope only to cross-border successions. This choice indeed limits the probability of a contrast between the European succession certificate and national documents with similar purposes68. On this point, it is useful to observe that in Italy, it is regularly using the ‘act of notoriety’ that consists of the pro- nouncement of two persons contained in a public document in the presence of the public Notary. In truth, this act has not a particular probative value, as the protection of the third parties is essentially ensured by the mechanism of the ‘apparent heir’69. However, when the European Certificate of succession is issued to be used in another State, it will produce its effects even in the country where it has been issued; otherwise, it would occur a hypothesis of inverse di-

sues and effects, in ERA Forum, 2014, pp. 393-407; M. E. COBELLA, European Certificate on Succession: Preliminary Ideas, in Barataria – Revista Castellano Manchega de Ciencias Sociales, 2015, pp. 103-113; B. KRESSE, Creation of A European Certificate of succession, in A. CARAVACA, A. DAVÌ, H. P. MENSEL, EU Succession Regulation: a Commentary, 2016, Cambridge, pp. 673-685; E. GROSSEN, A Model for the use of the European Certifi- cate of Succession for Property registration, in ERPL, 2017, pp. 523-551. 67 See Article 32 Legge 30 Ottobre 2014 n, 161, Disposizioni per l’adempimento degli obblighi derivanti dall’appartenenza dell’Italia all’Unione europea Legge europea 2013- bis, in Supplemento Ordinario GU n. 261, 10 Novembre 2014. 68 See B. HESS, E. JAYME, T. PFEIFFER, Opinion on the proposal for a European Regulation on succession law–Version 2009/157 (COD) of 16 January 2012. This document is available on internet at http://www.ipolnet.ep.parl.union.eu/ipolnet/cms. See also A. FOTSCHL, The Relationship of the European Certificate of Succession to National Certifi- cates, ERPL, 2010, p. 1259. 69 Anyone in possession of estate assets who believes himself to be the heir, for example, because he was so named in an earlier will later revoked by another, is an ‘apparent heir’. The actual heir can also take action against anyone who has acquired estate property from the apparent heir. Rights of a third party who has acquired for value are protected provided he can demonstrate he has contracted in good faith (Article 534 of the Italian Civil code). Good faith is not presumed and by the same token good faith will not avail a person in possession of estate assets as a result of mistakenly believing himself to be the heir if such mistake was grossly negligent (Article 537 of the Italian Civil Code). scrimination within those legal systems, such as Italy, which do not know legal documents with the same functions of the European Certificate70.

70 See D. BOULANGER, E. CALÒ, C. FOEKHERER, G. LIOTTA, R. SUS (eds), Regola- mento (UE) n. 650/2012 del Parlamento Europeo e del Consiglio del 4 luglio 2012, in materia di successioni – Prime note sulle questioni di maggiore interesse notarile, in Studi e Ma- teriali 2012, p. 1309. The regulation of patrimony within civil law systems: from a unitary to a divisional approach in the management of patrimonial assets and its effects on private international law rules Giulio Peroni*

Private International Law (PIL) does not admit patrimony, usually considered as the totality of the property rights of a person, as an autonomous legal category. Whereas, within civil law systems influenced by Roman Law, at the domestic or internal level, patrimony is a recognised legal concept. But, actually, this unitary vision seems less and less stable owing to the adoption, within said systems, of some types of negotiable instruments that are able to realise different forms of patrimonies. This article intends to underline how civl law systems are gradually affirming a divisional approach about the regulation of patrimony, as traditionally happens at the level of PIL rules. But at the same time, it aims at highlighting how, in particular, by recourse to the use of trusts, it is possible to recover both at the PIL and internal levels a unitary vision.

Keywords: Patrimony; Roman Law: civl law systems; Unitary approach; Divisional approach; Trusts

A. Introduction Patrimony is usually considered as the set of legal relations (assets and liabilities) of economic relevance belonging to a specific person or entity; it is not regarded by Private International Law (PIL) as an autonomous category, neither is it a criterion directed to solve the typical questions of conflict of laws concerning applicable law and jurisdiction. For this reason, at PIL level, the regulation of patrimony generally coincides with that of its individual assets: property, immovables, movables, contracts, torts, credits and debts. This is a direct consequence of the fact that, within the different national legal systems, legislators usually do

not value patrimony as a legal category1 but rather as a system category, as happens, for example, in other typical legal expressions such as good faith and public policy2 in respect to which the legislator does not provide a definition, preferring, on the contrary, to leave this task to the courts and legal scholars. It was, above all, the doctrine of civil law systems to worry about reconstructing the patrimonial phenomenon, according to a unitary vision, for which patrimony was seen essentially as a manifestation of the legal personality of every legal subject in the world of economic relations. In this way, in each civil law system, there has been an identification of patrimony with the person of its holder, with the clear purpose to give a unitary regulation to the patrimonial assets of a person. Nevertheless, this approach has influenced the functioning of certain PIL rules, albeit limited to the sectors of succession and insolvency. In the first case, submitting succession issues to the national law or domicile of the deceased; in the second case, the location of the centre of the debtor’s main interests are usually linked to its ‘headquarters’. But, the aforesaid unitary vision seems actually less and less stable due mainly to the rise of the phenomenon of economic and trade globalisation3 and of Europeanisation of PIL4 that

1 Legal categories are usually central to legal reasoning. It is very difficult to imagine legal reasoning without the use of categories. Categorical thinking usually affects every area of law. See S A Alexander, “The Transformation of Trust as a Legal Category, 1800-1914” (1987) Law and History Review 303. 2 Good faith and public policy are abstract and comprehensive terms used in many areas of the law. Good faith encompass a sincere belief or motive without any malice or the desire to defraud others while public policy are rules with different sources from which parties have no freedom to derogate. They are either created by States unilaterally to protect the fundamental values of their society, or they are created at the regional level, or even at an international-multilateral level. 3 See JH Dunning, Globalization of Firms and the Competitiveness of Nations (Lund University Press, 1990); M Baldassarri, L Paganetto, E S Phelps (eds) International Differences in Growth Rates: Market Globalization and Economic Areas (Palgrave Mac Millan, 1994); K Lynch, The Forces of Economic Globalization: Challenges to the Regime of International Commercial Arbitration (Kluwer, 2003); T Berend, An Economic History Twentieth- Century Europe: Economic Regimes from Laissez-Faire to Globalization (Cambridge University Press, 2006); D Rodrick, One Economics, Many Recipes: Globalization, Institutions and Economic Growth, (Princeton University Press, 2007); D Schneiderman, Constitutionalizing Economic Globalization: Investments Rules and Democracy’s Promise (Cambridge University Press, 2008). 4 It is known that the 1997 Treaty of Amsterdam substantially and controversially changed the EC Treaty and the changes that affected the field of PIL are known as ‘The Europeanisation of PIL”. This phenomenon can be seen as a process whereby the European Community and now the European Union has been given legislative powers to create PIL rules through Art 81 TFEU (ex Art 65 TEC). This concerns jurisdiction, recognition and enforcement of judgments and rules of applicable law; in short all PIL traits. For further details see J Basedow, “The Communitarization of the Conflict of Laws under The Treaty of Amsterdam” (2000) 37 Common Market Law Review 687; P Pocar, “La comunitarizzazione del diritto internazionale privato: una ‘European Conflict of Laws Revolution’?” (2000) 36 Rivista di diritto internazionale privato e processuale 873; A Bonomi, “Il diritto internazionale privato dell’Unione europea: considerazioni generali, in A Bonomi (ed), Diritto internazionale e cooperazione giudiziaria in materia civile (Giappichelli, 2009) 1; V Van Den Eeckout, “The Instrumentalisation of Private International Law - Quo Vadis? Rethinking the ‘Neutrality’ of Private International Law in an Era of 2

has given a great impulse to the growing of the so-called Market of legal rules5 for which every legal system produces different legal techniques for the solution of a given problem and within the said market the law suppliers can meet the need of the law consumers. States, in order to attract more foreign investors and to avoid capital flight and the migration of its own entrepreneurs to other countries (normally, characterised by lower labour costs and taxes), often open their legal systems to legal values and principles and to new types of negotiable instruments developed elsewhere. In this way, they try to adapt themselves to the requirements of market players. It is the case that many EU civil law countries have introduced, over time, ideas from common law countries into their legal systems eg new forms of contracts, like leasing, factoring, joint venture and project financing,6 and legal institutions, like trusts, hitherto unknown to their culture and belonging to that other most important legal tradition in the world. Particularly, thanks to the influence exercised by trusts within civil law systems in recent years, a more widespread variety of negotiable instruments have been introduced, like the Italian atto di destinazione, the Spanish acto costitutivo del par las personas con discapacidad, the French contrat de confiance, and San Marino’s contratto di affidamento fiduciario (see infra). Thus, we observe within the EU continental systems the increase in a different perspective in the management of patrimony, more precisely: a divisional approach, for which diverse property rights, belonging to the patrimony of the same physical or legal person, can be separated from each other, to satisfy different economic purposes of their owner, considered worthy of protection by the relevant national legal order. In other words, there is the creation of different forms of patrimonies potentially submitted to distinct legal

Globalisation and Europeanisation of Private International Law”, in J S Bergé, S Franco and M Gardenes Santiago (eds), Boundaries of European Private International Law (Bruylant 2015) 387. 5 See R A Posner, “Creating A Legal Framework for Economic Development” (1998) 13 The World Bank Observer 3; U Mattei, “Efficiency in Legal Transplants: An Essay in Comparative Law and Economics” (1994) 3 International Review of Law and Economics 12; S Woolcock, The Single European Market: Centralization or Competition among National Rules? (Royal Institute of International Affairs, 1994); HW Sinn, Competition between Competition Rules, (1999) 7273 National Bureau of Economic Research Working Paper 2-36; W Andy, “Public Sector Accounting–Democrat Accountability or Market Rules?” (2004) 24 Public Money and Management 5; R Cotter, Il mercato delle regole, (Il Mulino, 2006). 6 An important role concerning the diffusion of leasing and factoring, that had their origins in the Anglo Saxon systems, was played by the Unidroit Convention on international leasing and on factoring (Ottawa, 28 May 1988). For comment see H Rosen, Leasing Law in the European Community (Euromoney Publications PLC,1991); A Knebel, Der Aufwendungsersatzanspruch des Leasinggebers nach der Unidroit-Leasing Konvention (Peter Lang, 1994); F Ferrari, Il factoring internazionale: commento alla convenzione uniudroit sul factoring internazionale (Cedam, 1999); D Leistner and A Barbara, Internationales Factoringeine rechtsvergleichende Darstellung zum Recht der Bundesrepublik Deutschland, Frankreichs und der Vereinigten Staaten unter Einschluss der UNIDROIT-Konvention uber das Internationale Factoring (1988): mit Vertragsmustern, FCI-Vorschriften und dem Text des Ubereinkommens vom 28 Mai 1988, (C.H. Beck, 1992). 3

disciplines at an internal level, rather than the whole patrimony being treated in the same way. Thus, in civil law systems, the establishment of the divisional approach about the management of patrimony, characterises not only the functioning of their PIL rules (with the exception, before cited, of succession and insolvency), but above all of their substantive rules. However, in the PIL case, the divisional approach consists of breaking patrimony up into its components, recognising each of them as a specific discipline with their own connecting factors (such as the situs of the immovable property or the place where the contract is made or the place where a tort is committed); on the contrary, at an internal level, the divisional approach consists of establishing various pools of patrimonial assets, each one devoted to realising different aims and to guaranteeing special categories of creditors. In addition, it is important to underline that the possibility of submitting patrimony in some civil law systems (at PIL and internal level) to a unitary solution is not excluded thanks to the recourse to the legal institution of a trust. This institution was unknown in civil law systems until the entry into force of the Hague Convention of 1985 on the law applicable to trusts and on their recognition.7 The conflict rules contained in that international instrument have the primary purpose of enabling the recognition of the trust and its legal effects within each Contracting State, if the trust has been constituted under the law of a State which admits it and to which the settlor has made reference in the corresponding constituting act. Particularly, the Hague Convention allows the settlor to put all his patrimonial assets in a trust which is subject to one law only (see Articles 6-8). So, that instrument could appear to be the tool to recover both at internal and PIL level, as we will see infra, a unitary management of patrimony, in a historical moment characterised by the rise of different figures of patrimonial assets.

B. Patrimony in private international law

7 Concluded on 1 July 1985. Entry in force on 1 January 1992. The full text of the convention is available at the web site of the Hague Conference at the page http://www.hcch.net/index_en.php?act=conventions.text&cid=59 (accessed on 12 June 2017). The Convention is in force for 14 States including the following civil law States: Italy, Liechtenstein, Luxembourg, Monaco, Netherlands, Panama and Switzerland, see https://www.hcch.net/en/instruments/conventions/status-table/?cid=59 accessed 25 July 2018. For an analytical comment see A E von Overbeck, Explanatory Report on the 1985 Hague Trusts Convention (HCCH Publications, 1985) and HCCH, Proceedings of the Fifteenth Session (1984)-Trusts, Applicable Law and Recognition (HCCH Publications 1985); J Harris, The Hague Trusts Convention: Scope, Application and Preliminary Issues (Hart, 2002); L Fumagalli, La Convenzione dell’Aja sul trust e il diritto internazionale privato italiano (1992) 42 Diritto del Commercio Internazionale 533; F Albissini, R Gambino, “The Italian Civil Law System and The Hague Convention on Trust” (1993) 2 Journal of International Trust and Corporate Planning 73; J P Beraudo, “La convention de la Haye du 1er juillet 1985 relative à la loi applicable au trust et à sa reconnaissance” (1985-1986) Travaux du comité francais de droit international privé 21. 4

Private International Law (PIL) is usually considered that part of a national legal system which comes into operation when a court is faced with a claim that contains a foreign element. It is only when this factor is present, that PIL has a function to perform. Firstly, to fix the conditions under which the court is competent to entertain such a claim. Secondly, to establish for each class of cases the specific system of law by reference to which the rights of the parties must be determined. Thirdly, to specify the circumstances in which a foreign judgment can be recognised as decisive in the question in dispute and the right vested in the judgment creditor by a foreign judgment can be enforced by action in a specific country. As regards patrimony, we have already noted how it is not usually considered by PIL to be an autonomous legal category nor a legal criterion directed to solve problems of conflict of laws. This is likely due, on the one hand, to the lack of a definition of patrimony and, on the other hand, to the natural variability of its composition as regards quantitative and qualitative assets during the lifetime of its owner. Thus, PIL traditionally prefers to break patrimony down into its basic components: property, immovables, movables, contracts, torts, credits and debts. In this way, each of these elements is submitted to a specific applicable law and, perhaps is the subject of a special jurisdiction rule. It follows further that we may have different patrimonial assets each one submitted to a different applicable law. So, it is impossible to discuss, prima facie, about a law and a forum of patrimony taken as a whole. Therefore, as patrimony is not inserted into the group of legal categories directly considered by PIL, the traditional problem of characterisation does not arise.8 In contrast, from the point of view of substantive law, in civil legal systems, scholars have been discussing for a long time the legal nature of patrimony and its functions. Essentially, under those systems, two different positions can be identified: the subjective9 and the

8 The question of characterisation, sometimes referred to in English as “classification” (Beckett was the first to suggest that classification was linguistically a better term in English than qualification, see “The Question of Classification Qualification in Private International Law” (1934) 15 British Yearbook of International Law 46) of the cause of action, means the allocation of the question raised by the factual situation before the court to its legal category. Its object is to reveal the relevant rule for the choice of law. The rules of any given system of law are arranged under different categories some being concerned with status, others with succession, procedure, contract, tort and so on and until a judge, faced with a case involving a foreign element has determined the particular category into which the question before him falls, he can make no progress for he will not know what choice of law rule to apply. He must discover the true basis of the claim being made. 9 See C Aubry and C Rau, Cours de droit civil francais (Marchal et Billard, 1839); P Cazelles, De l’ideè de continuation de la personne comme principe des transmissions universelles (Rosseau,1905); F S Bianchi, Corso di diritto civile (Turin, 1886) 3-15; G Bonelli, La teoria della persona giuridica (1910) 2 Rivista di diritto civile 498, 614; H Gazin, Essai critique sur la notion de patrimoine dans la doctrine classique (Rosseau, 1910); J P Vershave, Essai sur le principe de l’unitè du patrimoine (Anrt, 1985) 190; G Ripert, Les forces creatrices du 5

objective theory.10 For the first opinion, patrimony must be considered only as a unique and unitary entity, coinciding with the person of its holder. For the second, patrimony is a legal unitary entity able, on the one hand, to be submitted to property or other right and, on the other hand, to be transferred by inter vivos and mortis causa negotiable instruments. Under both doctrinal positions patrimony essentially is aimed at guaranteeing the creditors of its holder. However, as we will see, due to the introduction of new forms of contracts and other negotiable instruments in some continental European countries (above all in Spain, Italy and France), a dynamic approach has emerged that is able to break down patrimony into different patrimonial assets, each one submitted to different regulations. It is the case of the cited contrat de fiducie11 introduced into the French civil code in 2007 or patrimonio di destinazione12 inserted into the Italian civil code in 2006 and of other more specific forms of patrimony like the Spanish regulacion del patrimonio protegido par las personas con discapacidad approved in 2003 and devoted to the economic protection of people affected by disabilities,13 or to the San Marino contratto di affidamento fiduciario by which a person manages another person's patrimony, in the interest of a third person with the effect that the patrimonial assets, submitted to his management, do not overlap with his own patrimonial assets. These legal innovations are characterised by a common feature: to favour the separation of general patrimony of a person, in a manner which is possible for the same person to hold different patrimonial assets, each one finalised to the satisfaction of a specific economic

droit (Rosseau, 1995). 10 See R Gary, Les notions d’universalité de fait e d’universalitè de droit (Sirey, 1932) 303; R Schmidt, Burgerliches Recht (Allgemeiner Teil, 1952); H Lange, Sachenrecht, (Tubingen, 1967) 38-42; J Carbonnier, Droit civil (Paris, 1967) 70; N Coviello, Manuale di diritto civile, (Società editrice libraria, 1929) 252; P Rescigno, Manuale di diritto privato italiano, (Utet, 1977) 442. 11 See G Bellargent, ‘L’introduction de la fiducie en droit francais par la loi du 19 fevrier 2007’ (2007) 58 Revue juridique de l'économie publique 359; Y Emerich, ‘Les fondements conceptuels de la fiducie française face au trust de la common law: entre droit des contrats et droit des biens’ (2009) 1 Revue internationale de droit comparé 49. 12 See G Peroni, “La norma di cui all’art. 2645-ter: nuovi spunti di riflessione in tema di trust” (2006) 20 Diritto del Commercio Internazionale 575; A Morace Pinelli, Atti di destinazione, trust e responsabilità del debitore (Giuffrè, 2007); F La Rosa, Patrimoni e finanziamenti destinati ad uno specifico affare: ottica destinazione, ottica separazione; analisi delle prospettive di sviluppo e dei profili di rischio connessi ai nuovi strumenti di federalismo patrimoniale finanziario (Giuffrè, 2007); M Indolfi, Attività ed effetto nella destinazione dei beni, (Giuffrè, 2010); M Astone Destinazione di beni allo scopo: fattispecie ed effetti (Giuffrè, 2010). 13 See M M Azcano, El patrimonio protegido de las personas con discapacidad: aspectos civiles, (La Ley, 2011); P E Tortajada, El patrimonio protegido de las personas con discapacidad, (Tirant lo Blanch, 2012); A Quesada Sanchez, “El discapacidado y su patrimonio protegido” (2008) 75 Revista del Ministerio de Trabajo y Asunto Sociales 187. 6

interest. It follows that the traditional function of guarantee recognised to patrimony is destined to change. In fact, on assets that form that specific patrimony, only those who result to be creditors against the holder of said specific assets (by virtue of assumed obligations for the realization of the specific aim to which those assets are intended) can be satisfied. In other words, the guaranteed function is not only limited to a restricted group of creditors but, at the same time, specifically oriented to the satisfaction of specific interests, appreciated by the legal order, such as those described before. It happens, independently, from the traditional function of recognized patrimony: to guarantee the creditors of its holder, in the event of the non- performance of an obligation or of other breaches of legal duty. This approach clearly shows the opening of the continental legal orders to the cited dynamic vision about the management of patrimonial assets, no longer inspired by a static conception of patrimony, for which a physical or legal person can be the holder of only one patrimony.

C. The notion of patrimony according to the ‘subjective’ and ‘objective’ theories, their influence on civil law systems: a comparison with common law

To understand the role that patrimony can perform within Private International Law according to the perspective of Civil Law, it is useful, first of all, to remember that it constitutes a system category and not a legislative category. In other words, patrimony does not receive a precise legislative notion by any rule contained in any legal order. This is usually a conscious decision of each lawmaker that prefers to delegate to doctrine and case law the task to develop, specify and integrate the above definition. In this way, each legal system acquires more flexibility adapting itself to new concepts and requirements emerging as time elapses. The so called subjective theory, elaborated by Aubry and Rau, had a significant success in defining patrimony These scholars, in their handbook Le Cour de droit civil francais, clearly affirmed : l’idée de patrimoine se déduit directement de celle de la personnalitè… le patrimoine est, en principe, un et indivisible comme la personnalité meme…le patrimoine est l’émanation de la personalité et l’expression de la puissance juridique dont une personne se trouve investie comme telle.14

14 See Aubry and Rau supra n 9, 133. 7

In a nutshell, according to Aubry and Rau’s theory, patrimony may be defined as the set of legal relations (assets and liabilities) of economic relevance belonging to a particular person or entity. Thus, patrimony is a manifestation of the legal personality of every legal subject within the world of economic relations. In these terms, the principle of unity that inspires the subjective theory finds a full realisation, thanks, above all, to the identification of patrimony with the person of its holder. On the basis of the subsequent developments that have influenced the subjective theory other scholars15 have made important conclusions. First, a patrimony without a holder is inconceivable and, at the same time, it is not plausible that the same person could possess more than one patrimony. Second, patrimony, as a single entity, is transferable only mortis causa and not inter vivos (by contract of sale or any other negotiable instrument). This occurs essentially for two reasons: first, there is not, unlike what happens for contracts and credits, a general negotiable instrument by which it is possible to transfer patrimony from one person to another; second, the need to ensure the continuity of legal economic relations belonging to a person is usually considered with regard only to the event of the death of a person or his bankruptcy. The theory in question has succeeded in having a fundamental influence on the development of legal culture, in many civil law countries, regarding the complex discipline of patrimony. This is true, even if the subjective theory has been contradicted by some positive law provisions, in particular those relating to vacant succession16 and inheritance with benefit of inventory17 from which we get the admissibility of the existence of patrimonial assets without a specific individual holder. In other words, the separation of patrimonial assets is not absolutely prohibited in civil law systems, even if only in specific and exceptional circumstances, strictly defined by each national legislator. Consequently, individuals are not allowed to create different forms of separate patrimonies, apart from those mentioned, at the

15 See F Galgano, “Struttura logica e contenuto normativo del concetto di persona giuridica”, (1965) 5 Rivista di diritto civile 553; E J Cohen, C Simitis, “Lifting the veil in the company laws of European continent” (1963) 12 International and Comparative Law Quaterly 183; A Seriaux, “La notion juridique du patrimoine. Breves notations civilistes sur le verbe avoir » (1994) 93 Reveu Trimestrelle de Droit Civile 801; J A Doral Garcia, “El patrimonio como instrumento tecnico juridico” (1983) 36 Anuario de derecho civil 1269. 16 The vacant succession makes reference to succession where an estate has suffered failure. A vacant succession occurs not only when an estate is vacant, but also when an heir having possession of an estate refuses to administer it. Vacant successions are administered by legal representatives and they are known as administrators of vacant successions. 17 The benefit of inventory requires all executors or other administrators of the estate of a deceased to make an inventory of the estate and to pay all debts of the estate before distribution to the beneficiaries. It also gives them the opportunity of ascertaining the net value of the estate before accepting it. 8

expense of their private autonomy. However, at the present time, the more recent civil law doctrine,18 following the dynamic approach described before, considers that patrimony should not necessarily be identified with the person of its holder, nor be considered only as a unique legal entity, but rather it may articulate itself in different ways on the basis of the aim that the respective holder intends to pursue through the different ways in which his assets are held. This method is receiving particular attention in civil law systems, for example, through the introduction of the cited French contrat de fiducie19 and the Italian atto di destinazione.20 Thanks to these new legal concepts, we note a significant effect for which the unitary idea of patrimony, that is at the basis of the subjective and objective theories before analysed, in those systems, gives way, at least at their internal level, to a divisional approach in regards to the management of patrimony. On the contrary, a different situation characterises common law systems in which we note the traditional absence of a unitary approach to patrimony.21 This is due, probably, to many reasons. First of all, in the English language there is not a specific word that designates the conceptual equivalent of Italian and Spanish Patrimonio or French Patrimoine or German Vermogen. In other words, English uses the expression ‘patrimony’ above all for convenience, but actually that word does not have the same meaning as in the civil law tradition. In fact, in this last case, it makes reference to all personal and real entitlements, including movable and immovable property, belonging to a natural or a legal person – a notion that, only partially, coincides with the common law concept of a person's estate. This linguistic element is absolutely relevant, as the absence of an equivalent word

18 See L M Lo Puky, ‘The Death of Liability’ (1996) 106 Yale Law Journal 1; A M Patault, ‘La personne morale d’une nationalisation à l’autre, naissance et mort d’une théorie’ (1993) 17 Droits 79; F Santoro-Passarelli, Dottrine generali del diritto civile (Jovane, 1986) 85; S Guinchard, L’affectation des biens en droit privé français (L.G.D.I.,1976) 330. 19 The French civil code defines the fiducie as a contract according which a settlor transfers all or part of its assets, rights or securities to a fiduciary that, in maintaining them separately from its own patrimoine, acts according to a specific objective for the benefit of its beneficiaries or the settlor itself. The fiducie amounts to a temporary transfer of ownership: the assets transferred to the fiduciary are no longer part of the settlor’s assets. The latter loses any right of ownership with regard to those assets. The only remaining right is a “droit personnel de bonne exécution du contrat de fiducie” a contractual duty set out in the contract itself. The assets affected to the fiducie enter the fiduciary’s patrimoine, in which they will constitute a distinct pool of assets. 20 This legal institute is included in the Art 2645 ter of the Italian civil code and it is similar to the contract of fiducie even if the Italian legislator never uses the word fiducie or other linguistic term that can make direct reference to the experience of a trust. By the atto of destinazione, the settlor establishes the bond of destination engraved on goods, in order to achieve an interest worthy of protection, leading to segregated liability. 21 In these terms see L Smith, “Trust and patrimony” (2009) 28 Estates, Trusts and Pensions Journal 332; G. Gretton,‘Trust and Patrimony’, in H MacQueen (ed), Scots Law into the 21st Century: Essays in Honour of W A Wilson (Sweet and Maxwell, 1996) 182. 9

represents an index expressing a different thought about the legal category in question that is inevitably the result of another social and cultural vision. Traditionally, in fact, the Anglo- Saxon system is influenced by a liberal and pragmatic approach,22 including the way law is typically conceived, ie where everything that is not forbidden is possible.23 Through the establishment and wide use of trusts24 in common law systems the idea has spread that it is possible to conceive ‘in the hands’ of a person not only a general patrimony, but many and different ‘pools’ of assets, each one with its own legal autonomy and regulation.

D. The unitary vision of patrimony and conflict of laws in civil law countries

In the previous paragraphs, we have observed how, in civil law systems, the principle of unity has inspired, for a long period, the regulation of patrimonial assets. At the same time, we have underlined how at the roots of the principle of unity there is a static vision of patrimony closely dependent on guaranteeing the generality of creditors of the holder, in the event of the non-performance of an obligation, or of other breaches of legal duty. However, the principle of unity has played a different and plainer role as regards to the regulation that patrimony traditionally receives at the level of national rules characterising PIL of civil systems. In the context of the PIL of succession civil law countries have usually adopted a unitarian approach which states that the law of succession is the law of the deceased’s citizenship or habitual residence and that a single legal system governs the worldwide estate.

22 The emphasis on pragmatism has deep cultural roots. Particularly, some authors suggest this relates to the fact that Britain has never been subject to the kinds of external constraints which have resulted in a more rationalist approach to politics in other countries. For example, Britain has never had to justify its political system from ‘first principles’ like the American founding fathers or rebuild its constitutional framework following defeat in war as Germany had to do following the Second World War. See G Gutting, Pragmatic liberalism and the critique of modernity (Cambridge University Press, 1999). 23 See A V Dicey, Lectures on the Relation between Law and Public Opinion in England during the Nineteenth Century (Liberty Fund, 2008); P Birks, “Adjudication and Interpretation in the Common Law: A Century of Change”, (1994) 14 Legal Studies 156; J Beatson, “Has the Common Law a Future?” (1997) 56 The Cambridge Law Journal 291; M Hale, History of Common law in England (University Press of Chicago, 1971). 24 On the origins of trusts and its evolution see J Story, Commentaries on equity Jurisprudence (Sweet & Maxwell,1920) 393; M A Badre, Le developpement historique des uses jusq’à l’introduction du trust en droit anglis (Rousseau,1932) 13; F W Maitland, Equity. A Course of Lectures (Cambridge, 1936) 23; C Hamson and T Plucknett, The English Trial and Comparative Law (Cambridge University Press, 1952); M Lupoi, Appunti sulla real proprerty e sul trust nel diritto inglese (Giuffrè, 1971), W F Fratcher, “Trust”, in International Encyclopedia of Comparative Law, Property and Trust (Tubingen, 1973) 84. 10

This unified solution, however, does not exclude the application of other conflict of laws; this may happen, in particular, with regard to the case of real estate for which it will often be necessary to make reference to the lex situs to fulfil the publicity requirements required by the land register connected to the acquisition of immovable property that is part of the inheritance. On this specific aspect, we can note how, in particular, Italian, Spanish, German, Austrian and Dutch national systems of international private law have resorted to the principle of unity by which questions relating to intestacy or wills are governed by one single law, namely the personal law of the deceased, even before the recent adoption of the EU Succession Regulation (650/2012) which affirmed the unity principle. In common law systems, succession matters are submitted to the principle of scission. As a consequence, the destination of movables on the death of the owner is governed by the law of his domicile, whilst the destination of immovables is governed by the law of the situs. Consequently, the immovable estate of the deceased is divided up according to where the immovable is situated and distributed according to the various leges situum. From what we have said so far, it results that, within civil law systems, there is a discrepancy between substantive and internal PIL rules about the regulation of patrimony. In PIL patrimony, with the exception of succession and insolvency that adhere to the principle of unity, falls under the principle of divisibility. In PIL, patrimony continues to be considered according to its singular elements: movable, immovable, torts and contracts; each one subject to its own specific PIL rules.

E. Trusts: A possible contact point between unitary and divisional approaches in the management of patrimony?

Briefly, it is important to remember that a trust has many important features. This is true, in particular, in cases where the property holder is a fiduciary who must have full title to the property under administration as opposed to some lesser right, such as possession, detention or factual control. The fiduciary has full title or the ability to take full title of trust property only when that property is free from the claims of the trustee’s personal creditors. The last point depends on the fact that, on the basis of an in rem characterisation of his rights or of his entitlement to reinstate the trust, the beneficiary is able to trace the trust property into the hands of a false trustee or into the hands of a third party. From these brief evaluations, we can understand how in common law systems, a trust has

11 the intrinsic capacity ‘to break the right of property’, in the so-called dual ownership (the ownership of the trustee and the ownership of the beneficiary), while in civil law, owing to the numerus clausus of rights in rem25 property is traditionally considered as a unique legal entity. Thanks to this, in common law countries, a trust allows the creation of different patrimonial assets held by the same person, each one devoted to the realisation of a specific aim. This is an effect of the dynamic vision of patrimony, examined previously, that is at the basis of trust and its different uses in Anglo-Saxon systems. But, while the dynamic idea of patrimony inspired common law systems from the institution of trust in the Middle Ages, the opening of civil law to this vision is recent and is due to various reasons. First, due to the phenomenon of economic and trade globalization we can see tough competition amongst States in attracting foreign direct investments. In fact, only a legal system capable of admitting different forms of segregation of assets can be attractive for investors, usually worried about losing their money from the attack of creditors of the holders of the patrimony in question. Second, thanks to the adoption in 1985 of the Hague Trusts Convention26 this concept cam eto the attention of those countries where the trust concept was unfamiliar. Third, in 1989 the EU adopted Directive 667 on single-member private limited-liability companies.27 By this act, the EU, for the first time, stated it was important “to provide a legal instrument allowing the limitation of liability of the individual entrepreneur throughout the Community, without prejudice to the laws of the Member States which, in exceptional circumstances, require that entrepreneur to be liable for the obligations of his undertaking.” In other words, it becomes admissible for a company to “have a sole member when it is formed and also when all its shares come to be held by a single person (single-member company).”28 So, from that moment the individual entrepreneur has the capacity to separate the fate of their personal assets from that relating to their individual business. From that time, we note the adoption within EU legal systems of rules created to admit different forms of patrimony, usually devoted to the realisation of a specific aim and

25 It is a principle present in most part of civil law countries which implies that one may only create rights in rem which fall within one of the types already prescribed by the law.

26 See supra n 7. 27 Directive 89/667/EEC [1989] OJ L395/40. 28 See Art 2 of the Directive. 12

characterised by the creation of a segregation of patrimonial assets belonging to the same subject: this is the case of the quoted French contrat de fiducie, the Italian atto di destinazione or the Spanish acto costitutivo del patrimonio protegido par las personas con discapacidad. In truth, all these legal concepts represent, at the internal level, sui generis forms of trust.29 In other terms, these are legal instruments that have been designed by civil law countries to make their legal systems more competitive and attractive for foreign investors within the so- called market of legal rules30 where usually the Anglo-Saxon system stands out for its versatility making London, despite Brexit, the financial capital of Europe. So, thanks to the recourse to the trust, we gather instead the opportunity to submit patrimony, at PIL level, to a unitary discipline by virtue of the Hague Convention of 1985. In fact, this international instrument allows settlors to put forward all their patrimonial assets under only one law, including the case where the settlor holds the function of trustee and also the role of beneficiary. In these terms, in order to identify the applicable law, we have to consider particularly Article 6 of the Convention, according to which: “A trust shall be governed by the law chosen by the settlor. The choice must be express or be implied in the terms of the instrument creating or the writing evidencing the trust, interpreted, if necessary, in the light of the circumstances of the case.” However, the recourse to trusts in civil law systems for submitting patrimony to a unitary governance at the PIL level presents some limits and obstacles. The Hague Trusts Convention is in force for only 14 States,31 with the effect that the idea of giving form to a figure of international trust is likely to remain a ‘dead letter’ in many civil law States. Secondly, according to its Article 4, the Hague Convention does not apply to preliminary issues relating to the validity of wills or of other acts by virtue of which assets are transferred by the settlor to the trustee. In this way, the profiles concerning the validity of the acts by which the trust is established and the transfer of assets to the trust is made, shall be submitted to the law of the State of the competent court. This inevitably involves a coordination between the law applicable to the act by which it achieves the transfer of assets to the proper law of the trust identified on the basis of the rules established by the Convention.

29 Because, as the trust, they create a separate patrimony both with reference to that of the settlor, both administrator and beneficiary. 30 See supra note n 5. 31 Australia, Canada, China (Hong Kong only), Cyprus, Italy, Luxembourg, Liechtenstein, Malta, Monaco, the Netherlands, Panama, San Marino, Switzerland and United Kingdom. 13

So, it is not possible to operate an absorption of preliminary issues32 within the law applicable to the trust, with the effect that the institution of trust and the possible reconstruction of patrimony in unified terms can be frustrated.

F. Conclusion

In civil law systems the meaning of patrimony as a legal concept is contested. The doctrine was traditionally influenced by the followers of the unitary and static approach and more recently by a divisional and dynamic approach in the regulation of patrimonial assets. These different approaches to the concept of patrimony have had significant effects on its regulation in internal law and in PIL: substantive law largely unitary and PIL largely divisional. However, recent regulatory changes to substantive rules in some continental countries favoured the rise at internal level of a divisional method due to a dynamic conception of patrimony with the effect that any person (natural or legal entity) may be a holder of various patrimonial assets and not just a single patrimony. But, this phenomenon does not preclude the possibility of bringing patrimony to a unitary regulation both at the level of internal substantive rules and PIL, thanks to the use of trusts in accordance with the Hague Convention. It could be useful to classify PIL rules on patrimony according to a single criterion in order to overcome the different positions previously described with reference to the management of patrimony. The recourse to the criterion of the domicile of the holder of patrimony could be the optimal olution.33 Domicile is the place where a person has his/her principal residence to which he/she returns or intends to return in order to manage his/her patrimonial assets and serves to reveal a close and stable connection with a legal order. Obviously, the aim to identify at PIL level a uniform regulation of patrimony according to the criterion of domicile is difficult to realise. Essentially, it is due to the absence of a uniform

32 As we know, determining and solving the preliminary question is often necessary to resolve the principal question. In an international context, one can apply the lex fori's or the lex causae's PIL to determine the law applicable to the preliminary question. Traditional advantages of the lex causae approach lose their cogency in the EU context, the deterrence of forum shopping, the presumption of the closer connection and the international harmony. On the other hand, many traditional and new reasons support the lex fori approach: national harmony, foreseeability, practicability and further integration. See S Goessl, “Preliminary Questions in EU Private International Law” (2012) 8 Journal of Private International Law 63. 33 Domicile is what is termed in PIL as a connecting factor which connects an individual with a system of law for the purposes of determining a range of matters, principally related to his status or property. 14

concept of domicile in a number of legal systems (to civil lawyers in Europe who do not apply common law, it means essentially habitual residence, while at common law it is a fairly complicated legal concept linked largely to where a person intends to live indefinitely) and the traditional resistence of States to give up control of the economic sphere of their citizens and firms. Nonetheless, an extension of the use of the domicile criterion could have a

significant benefit in terms of legal certainty and predictability of the legal results. So, while waiting for the standardising of as much as possible of the various systems of PIL according to the domicile criterion, the technique through which a shared regulatory system in the governance of patrimony could be achieved, might be represented by the so- called method of harmonisation.34 This means the use of connecting factors characterising a particular legal matter in their intrinsic reasonableness. In other words, according to this scheme, every legal issue in private law should be governed by the law of the place or country with which the issue is most closely connected. That, in this context, suggests taking into account the traditional function of patrimony: to guarantee the holder’s creditors according to the principle of non-discrimination35 on the basis of their nationality. This option is probably the best solution, in the absence of a global legal system inspired by domicile. Considering that harmonisation, although it is not at all synonymous with unification,36 is a method capable of coordinating the different private law systems in the

34 The cited method has its roots in the theory of Savigny (1779-1861). In his most famous book, System des heutigen römischenRechts (System of Modern Roman Law), published in 1849, he asserted that a legal issue in private law should be governed by the law of the place or country with which the issue is most closely connected. He called such place its principal place (Sitz) or home country. According to him, each community has its own private legal system based on its own value system, which is independent from the interests of the sovereign state. Therefore, we can apply an appropriate foreign private law to the problem at issue. In order for an issue to be dealt with appropriately, we should apply the law that has the closest connection with the issue, which is the law of the home country. If the same law is chosen to apply to issues in accordance with choice-of- law rules in every country, the differences in the content of the laws of countries do not matter at all. In this way, Savigny’s method can achieve the objective of private international law that is to bring order to a cross-border legal situation. 35 The principle of non-discrimination is part of private international law that deals with choice of law. However the general principle of equality before the law may be tolerant towards multilateral conflict rules, but the position will be different where specific rules of non-discrimination are at stake or where the rules of PIL concerned have a substantive content. On this point, see K Lipstein, Harmonization of Private International Law by the E.E.C. (Institute of Advanced Legal Studies,1978); P Kinsch, “Choice of Law Rules and the Prohibition of Discrimination Under the European Convention on Human Rights, Nederlands International Privaatrecht“ (2011) 1 University of Luxembourg Law Working. 36 There are conflicting opinions on the differences in meaning of the terms: harmonisation and unification. In any event, as we observed above, these expressions are not synonymous. Particularly, Goldstein clarified that the word harmonisation “... suggests a functional unification which, however, is less than textual unity” (see S Goldstein, On Comparing and Unifying Civil Procedural Systems, Butterworth Lectures 1994, (Butterworths, 1995) 28. With reference to the evolution of the term harmonisation in Private International Law, see P Borba Casella, “Economic Integration and Legal Harmonisation with Special Reference to Brasil” (1998) Uniform Law Review 287; A Rosett, “Unification, Harmonisation, Restatement, Codification and Reform in International Commercial Law” (1992) 40 15 interests of justice and certainty for those involved in transnational activities or relationships, even if the satisfaction of said goals can be frustrated by divergences existing within the rules adopted in the different countries.

American Journal of Comparative Law 683; P M Laing, “Harmonisation of Private Law Rules Between Civil and Common Law Jurisdictions” (1990) Rapports Généraux XIII Congrès International (Montréal) 79. 16

The Financial and Economic Crisis: A Missed Op- portunity to Rethink the Institutional Architecture of the European Union

Giulio Peroni*

The Euro crisis has raised two critical issues. Firstly, the emergence of the financial systemic risk which consists in the possibility that the danger of PIGS state’s default will spread to other EU members and secondly, the reshaping of the EU institutional architecture thanks to the introduction of new legal and economic instruments functional to avoid the single currency’s collapse. The solutions adopted, partially assumed with the recourse to the intergovernmental method, have favoured a significant reinforcement of the EU Commission and especially of the European Central Bank, with a marginalization of the EU Parliament with the further effect of favouring the prevalence of the technocratic method on democratic one. The paper aims to analyse the mentioned aspects, trying to underline the critical aspects of the transformation process that is characterizing the current history of the European Union.

1. The Euro Crisis and the Weakness of the European Monetary Union

The economic and financial Crisis1 that has massively characterized the recent history of the European Union (EU) is the result of a very complex

* Associate Professor in International Law at the School of Law of the University of Milan. Email: [email protected]. This is an Open access version thanks to the fundamental contribution of Jean Monnet Eacea Module European Monetary and Economic Law (EMEL). Please visit https://gperoniemel.ariel.ctu.unimi.it. This study has been published in the Jour- nal of Private International Law, 2018, pp. 368-382. 1 The economic and financial turmoil has usually been compared to the Crisis of 1929. Both phenomena would result from a lack of liquidity by an excessive liberalism, from a monetary policy too lax by the US Federal Reserve, by a heavy fall in the value of commodities and industrial production levels. However, the current Crisis, unlike that of 1929

1 mixture of causes, especially economic and legal causes. From the first perspective, we observe the existence of several factors on a global level, of which the most important in contributing to the financial and economic turmoil were essentially: a strong increase in commodity prices since 2008, especially for oil, the cost of which reached a record level of $147 per barrel in June of that year2; the emergence of a marked food crisis caused by the sharp rise in wheat prices, favoured by the adoption of decoupling policies3; the unresolved financial crisis generated by the speculative bubble of the ‘Inter- net values’ that began in 20014; the excessive availability of credit to individuals, resorting to the use of sub-prime mortgages for real estate purchases in the United States5, which was followed by the failure of several insurance

concentrated mainly in the USA and Europe, has affected, though in different ways, all of the economic globe air. Moreover, it should be noted such as right on the basis of the mistakes made during the Crisis of 1929, in order to ensure liquidity to the market, it has seen in recent years a strong intervention by central monetary authority (in particular, Federal Reserve, Eu- ropean Central Bank and Bank of England) to support the banking and credit system to boost the real economy, to allow greater circulation of money and facilitate access to credit by companies and individuals in general. For a compared analysis of the two crisis, see M. Almunia, From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons, Cam- bridge MA, 2009; P. Krugman, The Return of Depression Economics and the Crisis of 2008 London-New York, 2009; G. Sapelli, La crisi economica mondiale: dieci considerazioni, To- rino, 2008. 2 Consider that in April 2017, oil prices are around $ 53. See the constantly updated data of oil prices on the site https://www.markets.com/forex. 3 The state aids to farmers are granted independently from the level of production. It represents the breaking of the link between aid and production receiving support, so that farmers are free to produce or not to produce, receiving, however, economic assistance in the form of a single payment. See F. Albissini, Regole e istituzioni nella nuova Pac, in Diritto e Giuri- sprudenza agraria, alimentare e dell’ambiente, 2006, pp. 699-708. 4 Speculative bubble implies a situation of the market where there is a considerable and unjustified increase in the prices of certain goods and services, due to a sudden increase in demand and limited in time. Cf. J. Stiglitz, I ruggenti anni Novanta. Lo scandalo della finanza e il futuro dell’economia, Torino, 2004; N. Roubini, International Financial Crisis and the New International Financial Architecture, Cheltenham-Northampton, 2005, pp. 56-130. 5 See J. Shor, J. Teschendorf, Mortgage Credit Expansion in J. Luque (ed), Urban Land Economics, Bern, 2015, pp. 145-149; M Atif, A Sufi, The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis, in Quarterly Journal of Econom- ics, 2009, pp.1449-1496; Y Zhu, The Causes and Corresponding Strategy of Sub-Prime mortgage crisis, in Research Journal of Applied Sciences, Engineering and Technology, 2013, pp. 8592-8597; S. Bardwell, Regulatory and Economic Factors Determining The Sub-Prime Mort- gage Outcome, International Journal of Economic Research, 2013, pp. 7-18.

2 companies and banks, of which the most striking case was represented by the default of the well-known American investment bank Lehmann Brothers6. When the economic and financial turmoil passed beyond America’s borders and struck Europe, the Crisis also began strongly affecting sovereign bonds, especially those of the so-called PIGS countries7, owing to the declin- ing trust financial operators had in a rapid economic recovery for the Old Con- tinent. The situation in the PIGS countries revealed the real possibility that some EU members would no longer be able to meet the strict European budget constraints and basic assumptions of the Economic and Monetary Union (EMU), and so would be compelled to leave the EU or even be expelled8, thus undermining not only the existence of the EMU9, but, above all, the supposed irreversible nature of the Euro10.

6 On September 15, 2008, Lehman Broters, the fourth-largest U.S. investment bank at the time of Crisis, filed for bankruptcy petition. With $639 billion in assets and $619 billion in debt, Lehman's bankruptcy was the largest in history. Lehman's default was a break event that intensified the effects of the Crisis. See L. Mc Donald, P. Robinson, A Colossal Failure of Common Sense: The Incredible Inside Story of the Collapse of Lehmann Brothers, New York, 2009; L. Zingales, Causes and Effects of the Lehman Brothers Bankruptcy October 2008, available at http://www.empiwifo.uni-freiburg.de/lehre-teaching-1/winter-term-14-15/mate- rials_risk/lehman.pdf. 7 The acronym PIGS (namely: Portugal, Italy, Ireland, Greece and Spain) means a group of Euro States member who are unable to respect the fiscal constraints established both the Maas- tricht Treaty and the Stability Growth Pact (SGP), in particular the ceilings of 3% of Gross Do- mestic Production (GDP) on budget deficits and of 60% of GDP on government debt: the key elements of the European Monetary Union framework. 8 On the trends of Euro currency in 2007-2011 the most critical period of the Crisis, see the web page http://www.ricerca24.ilsole24ore.com/piucercati/PAGES/storico+cambio+euro +dollaro.html. 9 Cf. P. De Grauwe, Crisis in the Eurozone and How to Deal with it, in CEPS Policy Brief, No. 204, 2010; R. Canale, O. Napolitano, The Recessive Attitude of EMU policies: Reflections on the Italian Experience, 1999-2008, MPRA Paper No. 20207, 2009. 10 Cf. C Proctor, The Future of Euro. What Happens if a Member State Leaves? in Euro- pean Business Law Review, 2006, pp. 909-937; P. Athanassiou, Withdrawal and Expulsion from The EU and EMU: Some Reflections, in ECB Legal Working Paper Series 2009, pp. 1- 43. On the irreversible nature of the Euro it is useful to remember Mario Draghi’s speech in July 2012 at the end of the ECB council meeting «Let me repeat what I said last month: we act strictly within our mandate to mantain price stability […] we act indipendently in determining monetary policy, and Euro is irreversible».

In the opinion of those who admit it11, such a character would essentially derive from article 140 of the TFEU12, which replaced articles 120 (para. 1), 122 (para. 2) and 123 (para. 4) of the TEC, which set the macroeconomic convergence criteria, with respect to which a state, once it has met them, would be obliged to assign its respective monetary sovereignty to the EU and, consequently, to adopt the Euro without any ‘way out’, according to the well-known ‘all or nothing approach’, with the only exception being those countries provided with a specific opt-out clause13. On this point, it is worth remembering, as other studies14 have tried to demonstrate, how this irreversible nature does not in truth exist so much in terms of primary EU law, as under the international law of treaties, which is the source for the former. It is possible to leave the single currency wilfully, with the termination mechanism, or to be eventually expelled if no longer able to meet the conditions for its adoption, although this is an option of strong and currently unpredictable economic, political and legal consequences. In fact, it should be remembered how the Euro is not just the end result of a long historical and political process that started at the beginning of the communitarian phenomenon15, manifesting itself only with its actual

11 Cf. Athanassiou, cit.; Maria Lorca Susino, The Euro in The 21 Century: Economic Cri- sis and Financial Uproar, London, 2010; P. Bagus, The Eurosystem: Costs and Tragedie, in D. Howden (ed.), Institutions in Crisis: European Perspectives on the Recession London, 2011, pp. 117-141. 12 See, in particular, par. 3 «If it is decided…to abrogate a derogation, the Council shall, acting with the unanimity of the Member States whose currency is the Euro and the Member State concerned […] irrevocably fix the rate at which the Euro shall be substituted for the currency of the Member State concerned ». See also the Protocol n. 24 “On the transition to the third stage of economic and monetary union”: «The High Contracting Parties declare the irreversible character of the community’s movement to the third stage of economic and monetary union by signing the new treaty provisions on economic and monetary union». 13 Under this exception, the United Kingdom asked not to participate in the third stage of the EMU and similar treatment was granted to Denmark. 14 Cf. H. Hofmeister, Goodbye Euro: Legal Aspects of Withdrawal from the Eurozone, in Columbia Journal of European Law, 2011, pp. 111-134; J. Dammann, The Right To Leave the Eurozone, in Texas International Law Journal, 2013, pp. 125-155; G. Peroni, Il recesso dall’euro: una via percorribile, ma non auspicabile, in Studi sull’integrazione europea, 2015, pp. 85-108. 15 When the European Economic Community (EEC) was established in 1957, the monetary cooperation among the Member states was absent from the respective political agenda, because the attention of those countries was aimed at the creation of a commercial district of free trade, which is then manifested in the most evolved form of a customs union. However, it was already clear at the European level, the need to define a set of rules that would be able to ensure some form of monetary cooperation in order to more effectively regulate the

4 adoption on January 1, 2002, but, above all, it represents the first form of European federalism, with which some EU member states have decided to forgo one of their own specific and typical sovereign powers: the power to issue currency16. To give up the Euro means, in other words, that in the future it may no longer be an option to build a United States of Europe, of which the Economic and Monetary Union is, in a federalist perspective, the most significant element hitherto reached, despite its significant limitations. The issue of PIGS’ sovereign debt has not only shown the fragilities of the EMU’s structure against speculative attacks, but also the lack of appropriate mechanisms to prevent this kind of crisis, as well as the lack of an efficient surveillance mechanism over the economic and fiscal policies adopted by each Member state, together with an effective sanctioning mechanism clearly able to restrain national economic practices, in contrast to the primary provisions at the base of the EMU. We can also observe how the economic model the EU has used to date to solve the Crisis primarily consisted of favouring fiscal consolidation (with the aim of restoring investor confidence and taking control of the debtor-deficit member states), internal devaluation (considered the key point for recovering competitiveness), adoption of structural reforms, essentially according to the so-called Washington

payments system in the view of reaching itself a full realization of trade between the EEC member countries. On the long path that led to the adoption of the Euro, see M. G. Tenaglia Ambrosini, La moneta e l’Europa: da Bretton Wodds a Maastricht e oltre, Torino, 1996; G. Baer, T. Padoa Schioppa, The Werner Report revisited, in the Report on Economic and Mon- etary Union in the European Community, Bruxelles, 1989; P. De Grauwe, Problems of transition and initialization of the EMU, in Swedish Economic Policy Review, 1997, pp. 121-125; L. Einaudi, From the Franc to the "Europe": Great Britain, Germany and the attempted transformation of the Latin Monetary Union into a European Monetary Union (1865-1873)’, in The Economic History Review, 2004, pp. 284–308. 16Monetary sovereignty consists in the possibility of emitting metal and paper currency, decide the cut, the size, the nomen, the legal tender, its possible substitution to another, determining the conversion rate, as well as the circulating amounts thus influencing both the internal value as the external one and the resulting inflation rate, up to get power to impose the restriction on relative movement to affect the free movement of capital as much of the payments. For a detailed reconstruction of monetary sovereignty contents, see T. Treves, Il controllo dei cambi nel diritto internazionale private, Padova, 1967, pp. 14-20; D. Carreau, Sou- veraineté et Coopération Monétaire Internationale, Paris, 1971, 52-54; M. Schuster, The Pub- lic International Law of Money, Oxford, 1973 pp. 9-12; G. Burdeau, L’Exercice des Compe- tences Monetaires par les Etats, in Recueil des cours de l’Académie de droit international de La Haye, 1988, pp. 236-237; C. Proctor, Mann on the Legal Aspects of Money, Oxford, 2005, pp. 500-503; M.R. Lastra, Legal Foundations of International Monetary Stability, Oxford, 2006, pp. 16-17.

5 consensus (WC):17 an economic model based on a strong process of liberalization, privatization and deregulation18.

2. The Constitutional and Institutional Transformation of the European Union: How to Give up the European Social Market Economy

The objective of ensuring financial stability19, now a public policy driver for enhanced legal integration and harmonization in financial regulation in the European Union, has been pursued through an articulated set of legal instruments (see infra) that have mainly favoured the adoption of economic measures inspired by a strict budget austerity approach. These measures were, in most cases, functional only for the containment of social spending, traditionally considered to be unproductive. This was a choice that, however, did no more than exacerbate tensions within different European countries. In fact, we have to consider that during these years, the demand for social services and income support has inevitably been increased by a growing number of people, who found themselves deprived of sources of income because the Crisis passed from a purely financial crisis to a real economic one, with the result of tens of thousands of active people expelled from the jobs market.

17 The expression Washington Consensus (coined in 1989 by the English economist John Williamson) means a set of 10 economic policy prescriptions that constitute the standard reform package promoted by the World Bank, International Monetary Fund (IMF), and the US Treasury Department, all based in Washington D.C., for solving the economic crisis of developing countries. 18 Historically, WC has deeply influenced the European monetary and economic provisions since the signature of the Maastricht Treaty (1992), from which started the long process that led to the Euro. In these terms, see W. Buiter, Ten Commandments for a Fiscal Rule in the EMU, in Oxford Review of Economic Policy, 2003, pp. 84-99; M. Buti, S. Eijffinger, D. Franco Revisiting Emu’s Stability Pact: A Pragmatic Way Forward, in Oxford Review of Eco- nomic Policy , 2003, pp. 100-111. 19 Financial stability has been always recognized as one of the objectives in financial regulation. Some authors (see, particularly, R. Cranston, Principles of Banking Law, Oxford, 2003, p. 66) identify the maintenance of systemic stability as a public good that financial regulation can provide. Systemic stability is referred to as public good as individual firms are generally not able or motivated to take actions that may collectively protect the financial system as a whole, therefore generating a market failure. In the context of EU financial stability (see M. Adenas, I. Chiu, Financial Stability and legal integration in financial regulation, in European Law Review, 2013, pp. 335-359) is a highly relative concept and this means that where local needs differ in parts of EU, the need of financial stability would be different.

There was, in other respects, a perverse, if not paradoxical, effect. Just when solidarity and social protection systems were most needed both at the Community level and for each Member state, under strong pressure from the European institutions (mainly, the EU Commission and the European Central Bank, or ECB) and the International Monetary Fund20, national governments intervened to reduce social spending: on the one hand, to meet the budget criteria imposed by the strict budgetary constraint requirements that the EMU is based on, and on the other hand, to reassure international markets worried about a possible default by any of the European countries most vul- nerable to the Crisis: the PIGS countries. Thus, an ever-increasing number of European citizens are pointing at the European Union as responsible for the significant deterioration of their living conditions, rather than their political leaders, no longer seeing the EU integration process as an opportunity for economic, cultural, political and social growth, but rather as a brake on, if not an obstacle to, legitimate expectations of helping to build a better society. As briefly described, this seems clearly at odds with the so-called social market economy21 on which the European Union claims to be founded (see art. 3 of the TEU). This is an economic model based, like the WC, on principles of free market and free competition and a capitalist economic vision. However, unlike the Washington consensus, the social market economy imputes to the economic actors a social responsibility towards civil society as a whole. In other words, there is the awareness that economic players’ actions may have direct and indi- rect impacts on the lives of individual people in general. For the founding fathers of the social market economy22, it is necessary to coordinate free individual initiative, the freedom of the market and private

20 On the IMF's role in the solution of the financial Crisis with specific reference to the European case, see G. Adinolfi, Il sostegno congiunto UE-FMI: è necessario un ripensamento della politica di condizionalità? in G. Adinolfi, M. Vellano (eds), La crisi del debito sovrano degli stati dell’aerea euro. Profili giuridici, Torino, 2013, in particular pp. 3-27. 21 Cf. P. De Pasquale, L'economia sociale di mercato nell'Unione europea, in Studi sull'integrazione europea, 2014, pp. 265 – 278; D. Velo, Social Market Economy and the Future of Euro- pean Unification, in The Euro Atlantic Union Review, 2014, pp. 23-52; G. Peroni, Il difficile equilibrio tra austerità e solidarietà nell’Unione economica monetaria, in M. Mascia, F. Velo (eds) L’Unione economica europea: Aspetti economici, sociali e istituzionali, Bari, 2016, pp. 73-82. 22 On the origins and the historical development of the social market economy, see Paul Commun, Introdution. Le liberalisme allemande in P. Nemo, J. Petitot (eds) Histoire du liberalisme en Europe, Paris, 1992, pp. 82-90; F. Felice, K. Markus, Understanding Social Market Economy Francesco Forte and His Interpretation, in International Advances in Economic

7 property with social justice in an attempt to distribute the economic riches produced by economic and financial operators. If the market fails in satisfying these aims, an intervention by the public authorities is considered necessary for ensuring social justice and guaranteeing an effective redistribution of economic resources. The social market economy, as briefly described, has found its full recognition in the above-mentioned article 3 of the TEU. Thanks to this provision, we understand that the economic model in question must be prepared to achieve full employment and social progress while ensuring a high level of social protection and a constant improvement in the quality of the environment, according to the model of sustainable development,23 to combat social exclusion and discrimination and to promote social justice, equality between women and men and, finally, solidarity between generations. To pursue these objectives, with respect to the value of solidarity (a principle mentioned in different primary provisions of the EU treaties)24, should be to ensure that free competition is arranged to satisfy social aims. But, at the moment, European institutions and state governments seem to have preferred to implement the macroeconomic criteria established in article 140 of the TFEU: purely quantitative econometric parameters used to preserve financial stability. On the contrary, it would have been a significant opportunity for the EU to show itself suitable for the current needs of its citizens by implementing the fundamental provision that inspired its economic constitution: the realization of an effective social market economy that can combat increasing unemployment, especially among young people.

3. The Prevalence of the Intergovernmental Method over the Commu- nity One

In order to ensure the economic and financial stability of the EMU, the EU and its Member states adopted a set of different legal tools, of which the

Research, 2017, pp. 21-23; J. Drexl, The European Economic Constitution-Today’s Relevance of the Ordoliberal Model, in Revue International de Droit Economique, 2011, pp. 419-445. 23 The most frequently quoted definition of Sustainable development is from Our Common Future, also known as the Brundtland Report (1987- UN Documents serie A/42/427): «Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.». 24 See Articles 2; 3, par. 3-5 TEU; 21, 24 par. 2-3; 31 par. 1; 32 par. 1; 67 par. 2; 80; 122 par. 1; 194, par. 1; 222 TFEU.

8 most important are: the Euro Plus Pact, the Six-Pack, the European Stability Mechanism (ESM) and the Fiscal Compact Agreement (see infra). These legal instruments have had some important effects at the European institutional level, partially changing the EU’s architecture and balance of powers, with particular reference to economic and monetary governance, but without solving the structural weakness that characterizes the Eurozone and its single currency, as well described by Robert Mundell, the father of the theory of ‘optimum economic areas’25. In fact, according to him, to create an effective monetary area, there must be the full free movement of goods and capital, a system of fixed exchange rates and, above all, an economic and fiscal policy not separated by monetary policy. Indeed, not one of these elements seems, at the moment, to be fully implemented within the European Union26. Two institutional phenomena seem clearly to stand out from all the responses that the Union has sought to make in recent years to the financial Crisis and the Crisis of sovereign public debt. The first is connected to the increasingly widespread use of the ‘intergovernmental method’ to the detriment of the ‘community’, as established by the Lisbon Treaty27. The second relates to the constant trend of using instruments that are partly internal and partly external to the European legal order, essentially connected to the dimension of public international law. With reference to the first profile, there are many examples of the tendency to resort to the intergovernmental mechanism, thus minimising the use of the community method. This was particularly the case with: the decisions taken in

25 See R. Mundell, A Theory of Optimum Currency Areas, in American Economic Review, 1961, pp. 657-665. 26 See J. Gronden, The Internal Market, The State and Public Private Arrangements in The Light of European Law, in Legal Issues of Economic Integration, 2006, pp. 105-137; G. Davies, Nationality Discrimination in The European Internal Market, The Hague, 2003. 27 As a general rule, according to the Lisbon treaty (see Article 294 TFEU), EU decisions are taken by means of the 'Community' method involving the use of the ordinary legislative procedure. The Community method is founded on the sole right of the European Commission to initiate legislation; the co-decision power between the Council and the European Parlia- ment, and the use of qualified majority voting in Council. It contrasts with the intergovernmental method of operation used in decision-making, mainly on Common Foreign and Secu- rity Policy and aspects of police and judicial cooperation, where the Commission's right of initiative is shared with the EU countries or confined to specific areas of activity. The Euro- pean Council, explicitly mentioned in the Lisbon Treaty, often plays a key role; while, the Council generally acts unanimously; and the European Parliament has a purely consultative role.

May 2010 to grant loans to Greece for a total of 80 billion euros28; the establishment, also in May 2010, of the European Financial Stabilization Fund and the European Financial Stabilization Mechanism29 as well as the various decisions by which, especially between July 2011 and July 2012, the EU has gradually proceeded to create the so-called ‘stability union’30. The set of legal instruments mentioned above are the result of long and difficult negotiations during meetings of the European Council, the Ecofin (the Economic and Financial Affairs Council responsible for EU policy in the areas of economic policy, taxation issues and regulation of financial services) and also in the summits held by the Heads of state or the governments of the European Members. Particularly, the latter represented the ‘forum’ where all major european decisions were taken, establishing an institutional context that is completely original because it is not considered in any provision of the Lisbon Treaty. The Euro summits have seen the attendance of the President of the European Council and the President of the Commission, while the Heads of states or governments of the no-Euro countries were excluded. In other words, in identifying the responses to the Crisis, it has chosen a different forum from that usually provided by the European treaties, one of a purely intergovernmental character. Thus, the EU's political institutions were ignored, with the sole exception of the President of the Commis- sion. However, the recourse to the community method was not excluded when executing the reform of European economic governance, which was accomplished through the ordinary European regulatory process, started in October 2010 with the proposals from the Commission and leading to the adoption of the so-called Six-pack31, which reformed the Stability and

28 See the Statement of the Heads of State and Governments of the Euro area, 7 May, 2010, available at the web page ec.europa.eu/commission2010-2014/president/news/ speeches-statements/pdf/114295.pdf. 29See Main results of the European Council – Ecofin, avaliable at web page http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/114324.pdf. 30 The main decisions were taken with the statement of the heads of state or government of the European DDI, 21 July 2011, available at http://www.consilium.europa.eu/uedocs/ cms_data/docs/pressadata/en/ec/123978.pdf, see also the following documents: http://www. consilium.europa.eu/uedocs/cms_data/docs/pressadata/en/ec/126658.pdf;http://www.consilium.europa.eu/uedocs/cms_data/docs/pressadata/en/ec/127633.pdf. 31 The Six-Pack is a set of economic and fiscal measures made of five regulations and one directive. It reinforced the Stability and Growth Pact (SGP) and represented the most comprehensive reinforcement of economic governance in the EU and the Euro area since the launch of the Economic Monetary Union, with the aim to ensure fiscal discipline, helping to stabilise the EU economy and preventing a new crisis in the EU. See D. Seikel, Flexible Aus- terity and Supranational Autonomy. The Reformed Excessive Deficit Procedure and the

Growth Pact32, and then completed with the adoption of the so-called Two- pack33. Nevertheless, the recourse to the ordinary community procedure occurred infrequently and, in any case, was strongly influenced by the parallel negotiations undertaken at the intergovernmental level.34 The factors that led to the use of the intergovernmental method for the management of the Euro crisis are different: 1) the political weakness of the Commission and its difficulties in identifying politically acceptable technical solutions; 2) the potential of the intergovernmental method recognized by the Treaty of Lisbon, within the Euro- pean institutional framework35; 3) the reluctance of Member states to proceed in transferring new sovereign powers to the EU; and 4) the necessity of using national public resources for adopting fiscal measures to solve the Crisis and consequently the necessity of involving local parliaments according to the famous formula ‘no taxation without representation’36.

Asymmetry between Liberalization and social Regulation in the EU, in Journal of Common Market Studies, 2016, pp. 1398-1416; B. Laffan, P. Schlosser, Public Finances in Europe: Fortifying EU Economic Governance in the Shadow of the Crisis, in Journal of European Integration, 2016, pp. 237-249. 32 It is the set of rules designed to ensure that EU countries pursue sound public finance and coordinate their fiscal policies. The legal bases of the SGP are articles 121 and 126 of the TFEU. Protocol 12 of the Treaty gives further details on the excessive deficit procedure, including the reference values on deficit and debt. Article 136 of TFEU provides for specific provisions to be adopted for the Euro area. It is the basis for a sanction regulation for Euro member states (included in the mentioned Six- and Two-pack regulation) which includes enhanced monitoring and surveillance in the Euro area. 33 The Two-Pack comprises two Regulations designed to further enhance economic integration and convergence amongst Euro area Member states. The Regulations builds on and complement the Six-pack reforms to the Stability and Growth Pact (SGP), the European framework for fiscal surveillance, and the European Semester for economic policy coordination. The first Regulation applies to all Member States in the Euro area, with special rules made for those in the corrective arm of the SGP, the Excessive Deficit Procedure (EDP). The second Regulation sets out clear and simplified rules for enhanced surveillance for Member States facing severe difficulties with regard to their financial stability, those receiving financial assistance, and those exiting a financial assistance programme. The Two-Pack creates a common framework based on a graduated approach in the Euro area. It introduces surveillance requirements for all kinds of budgetary situations, to ensure a seamless continuity of policy monitoring. 34 Indeed, we are witnessing to a pervasive recourse to the legal instruments of public international law, rather than EU Law. 35 In these terms, see Articles 20, 21-46, 48 and 49 TEU; Articles 2(4), 31, 81, 153, 192, 215, 218, 220, 221, 312, 329 and 333 TFEU. 36 An expression used by James Otis around 1761 that reflected the resentment of Amer- ican colonialists at being taxed by a British parliament to which they elected no

The effects of the wide recourse to the intergovernmental method have been remarkable. In particular, it has minimised the relevance of the general interest of the Union, in favour of the singular interest of Member states, thus altering the institutional balance defined by ‘Lisbon’, within which intergovernmental institutions must coexist with the European Commission and Parliament. Besides, owing to the strong marginalisation of the European Parliament (in practical terms, it must be only informed and consulted about the anti-crisis measures adopted by other European institutions) the issue of the so-called ‘democratic deficit’ arose37.

4. The Recourse to Public International Law Solutions

As observed in the previous paragraph, alongside internal solutions to the EU legal order like the reform of the Stability Growth Pact that occurred with the Six-pack and Two-pack and the establishment of new European Super- visory Authorities38, there are significant examples of international legal instruments used to solve the Euro crisis. The ‘Euro Plus Pact’, concluded at the height of the Crisis on 25 March 2011 with all seventeen Eurozone members as signatories, was one of the measures to stabilise the Euro area and it was conceived as an intergovernmental solution to increase fiscal and economic discipline in the Member states. We also must consider the complex system of bilateral loan agreements made with Greece, the Treaty on Stability, Coordination and Eco- nomic Governance (SCEG) and the Treaty establishing the European Stabil- ity Mechanism (ESM) that, along with the Six-pack and Two-pack (based on

representatives, becoming an anti-British slogan during the America Revolution. See D. McCullough, John Adams, New York, 2001, p. 61. 37 ‘Democratic deficit’ is an expression used to underline how EU Institutions and their decision-making procedures suffer from a lack of democracy and seem inaccessible to the ordinary citizen due to their complexity. In other terms, EU voters do not feel that they have an effective way to influence the action of EU institutions and so to reject a ‘government’, they do not like, and to change, in some ways, the course of politics and policy. The issue of democratic legitimacy has been sensitive at each stage of the process of European integration. 38 With the Report by the High–Level group on Financial Supervision in the EU, 25 February 2009, available on the web page http://ec.europa.eu/internal_market /finances/docs/de_larosiere_report_en.pdf, started the process of European financial supervisory reform focused on strengthening cooperation and coordination between national supervisory authorities, including the creation of new European Supervisory Authorities.

EU law), contributed massively to the financial stability of the European Un- ion. In particular, the European Stability Mechanism (EMS) is an permanent bail- out fund for the Euro countries, established through an international treaty, to safeguard and provide instant access to financial assistance programmes for Eu- rozone Member states in financial difficulty. The ESM is the successor to the European Financial Stability Facility (EFSF)39, and goes hand in hand with the so called ‘Fiscal compact’ designed to ensure budgetary discipline among Euro- zone members. In other words, if a state manages its money prudently, a sum of money will be on hand to provide liquidity in case of need. One thing the ESM clearly does not do is move the Eurozone towards debt mutualisation. The Treaty in question makes it clear that Member states are liable for their own capital contribution to the ESM and nothing more. Unanimity, on the part of the ESM's board of governors, will be needed to dole out money (except in the case of emergencies, when a qualified majority will apply and an enormous political row will doubtless result if any creditor country opposes a rescue); while the processes by which the ESM will disburse funds to distressed countries are essentially founded on the mechanism of conditionality40. A latere of the described legal instruments, there is the mentioned ‘Fiscal compact’ that obliges Member states to transpose the treaty’s provisions into their respective national legal orders. In particular, each national budget has to be in balance or surplus under the treaty's definition. Said international agreement defines a balanced budget as a general budget deficit not exceeding 3.0% of the gross domestic product (GDP), and a structural deficit not exceeding a country-specific medium term budgetary objective (MTO) which at most can be set to 0.5% of GDP for states with a debt-to-GDP ratio exceeding 60% — or at most 1.0% of GDP for states with debt levels within the 60% limit. An automatic correction mechanism corrects potential significant deviations,

42 The European Financial Stability Facility (EFSF) was created as a temporary crisis resolution mechanism in June 2010. It has provided financial assistance to Ireland, Portugal and Greece that was financed by the EFSF through the issuance of EFSF bonds and other debt instruments on capital markets. 40 On the mechanism of conditionality see infra note 51. With particular reference to EMS’s conditionality see M. Ioannidis, Debt restructuring in the light of Pringle and Gauweiler - flexibility and conditionality, in ECB Publications, 2017, pp. 78-93; ID., Financial Assistance Conditionality as Instrument of European Governance, in Administrative Law Journal, 2014, pp. 146-162.

13 while a national independent monitoring institution should be mandated to provide fiscal surveillance41. The main effect of the use of the cited external solutions to European Union law was de facto to make the Economic and Monetary Union independent and autonomous from the EU, and consequently to make the Euro countries even more different from the no-Euro ones. This occurred both in terms of the legal sources used (in particular, due to the recourse to international agreements) and at the level of the Institutions involved in the process of economic and political reform (European Council and Euro summits). In other words, the EMU increasingly seems to be an organization independent from the rest of the Union. This trend, however, could be dangerous in the future, not only as regards the democratic deficit issue, but especially because it is able to threaten the constitutional principle of legal and institutional unity on which the EU was established42.

5. The Strengthening of the European Central Bank: The Predominance of Technocracy over Democracy

Another crucial aspect that must be considered in evaluating the EU’s transformation process is the undoubted strengthening of the European Central Bank (ECB) in the framework of European economic governance, within which the European and national parliament(s) are increasingly marginalised. For many observers43, the direct consequence of this phenomenon has been the

41 The country-specific MTOs are recalculated every third year and might be set at stricter levels compared to what the treaty allows at most. The treaty also contains a direct copy of the “debt brake” criteria outlined in the Stability and Growth Pact, which defines the rate at which debt levels above the limit of 60% of GDP shall decrease. 42 The unification’s gradual process of European legal order has been highlighted by A. von Bogdandy, Founding Principles of EU Law: A Theoretical and Doctrinal Sketch, in Eu- ropean Law Journal, 2010, pp. 95-108. 43 See D. Wilsher, Law and the Financial Crisis: Searching for Europe’s New Gold Stand- ard, in European Law Journal, 2014, pp. 241-283; D. Lombardi, M. Moschella, The Govern- ment Bond Buying Programs of the European Central Bank: An Analysis of their Policy Set- tings, in Journal of European Public Policy, 2016, pp. 851-870; D. Giannone, Suspending Democracy? The Governance of the EU’s Political and Economic Crisis as a Process of Ne- oliberal Restructuring, in D. Kyriakos (ed.) The European Union in Crisis: Explorations in Representation and Democratic Legitimacy, London, pp.105-119, in particular, pp. 114-115; C. Fontan, The European Central Bank and the Crisis: Who Decides What? , in Revue d’Etudes Constitutionelles et Politiques, 2014, pp. 91-100; F. Torres, The EMU's Legitimacy

14 predominance of the so-called technocratic method over the democratic one, with the further effect of bringing up the issue of the democratic deficit. In these terms, two recent events are used by critics of ECB’s action to demonstrate the prevalence of technocratic method on democracy one. The first, occurred at the end of June 2015, when the ECB decided not to offer the Greek banking system any emergency liquidity assistance (ELA) until the celebration of referendum, wanted by Tspiras’ government, to decide whether Greece was to accept the bail out conditions proposed by the ‘Troika’. In this case, it has been claimed that the ECB’s determination represented a clearly political decision that has nothing to do with its core function: to ensure price stability. It was considered a form of pressure to Greek people to influence the outcome of the popular referendum. Secondly, other events could seem to confirm ECB’s political intervention in the internal affairs of EU State Members. It is the case of the confidential letters sent to Italian and Spanish Governments on August 2011, considered as the Manifesto of the monetary and economic policy of ECB, demanding budget cuts and far reaching reforms in return for the purchase of Italian and Spanish bonds. So, the ECB has played a decisive role in trying to solve the Euro crisis; it has had to react strongly to unprecedented threats to monetary stability in the Eurozone, especially with reference to the sovereign debt crisis. Within this very sensitive scenario, the Eurotower, in full consistency with its mandate, firstly, reduced its key policy interest rate rapidly between October 2008 and May 2009, from 4.25% to 1%. Secondly, it took additional non- standard measures to ensure that its interest rate decisions were transmitted effectively to the ‘real economy’ despite the volatilities of the financial markets.44 Thirdly, the ECB adopted other resolutions in order to address the severe tensions in the financial market. The most important measure was probably the controversial decision to purchase the PIGS bonds in the secondary market45 «to ensure…liquidity in those markets segments which are dysfunctional»46 thanks, particularly, to the mechanism of ‘Quantitative

and the ECB as a Strategic Political Player in the Crisis Context, in Journal of European Integration, 2013, pp. 287-300. 44 For a brief description of the monetary measures adopted by ECB in the course of the crisis see G. Peroni, The Crisis of Euro and The New Role of The European Central Bank, in B. de Witte et al. (eds.) Crisis and The state of European Democracy, Florence, European University Institute, 2013, pp. 183-192. 45 The secondary market is the market place for the bonds that are already issued in the primary market and where the re-selling of government bonds is possible. 46 See ECB Press Release, 10 May 2010.

15 easing’ (QE)47 that, along with the ‘Outright Monetary Transaction programme’ (OMT),48 has undergone the legal scrutiny of the EU Court of Jus- tice, receiving its fundamental approval49. Indeed, the strong activism of ECB’s action is a consequence of the lack of an effective common European economic and fiscal policy. Faced with this vacuum, the ECB has developed a crucial and essential role by providing the monetary and political answers that the financial markets and their actors were expecting: to restore the proper functioning of monetary policy and the market’s confidence in the financial stability of the Eurozone. But, as many critics have observed, the ECB would essentially become the controller of national governments and their respective political economies thanks to the use of the conditionality method50. As a consequence, the ECB would change its function, to become the Institution to rule all others, particularly due to the recent transfer to the ECB of the supervision of all Eurozone banks51. These aspects raise different issues. Firstly, we note how the accumulation of influence and power at the ECB level has not been matched by significant

47 It is an unconventional monetary policy in which a Central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. 48 The ECB’s outright monetary transactions is a bond buying programme launched by Eurotower in September 2012. Under this programme, the Eurotower would offer to purchase Eurozone countries’ short-term bonds in the secondary market, to bring down the market interest rates faced by countries subject to speculation that they might leave the Euro. 49 See P. Craig, M. Markakis, Gauweiler and the Legality of Outright Monetary Transactions, in European Law Review, 2016, pp. 4-24. 50 Conditionality makes reference to the commitments contained within loan or grant contract that countries in financial difficulty must adhere to if they receive all or part of the financial aid requested. In the case of Greek crisis, we assist to two different types of macroeconomic conditions: quantitative conditions and structural conditions. The first involved a set of economic targets influencing the level of fiscal deficit or public debt that a government is allowed to go into. Structural conditions that implied institutional and legislative reforms including deregulation, privatization and liberalization. See K. Featherstone, External Condi- tionality and the Debt Crisis: the ‘Troika’ and Public Administration Reform in Greece, in Journal of European Public Policy, 2015, pp. 295-314. 51 Banking supervision is one of the two pillars of the EU banking union, along with the Single Resolution Mechanism, and it comprises the ECB and the national supervisory authorities of the participating countries. Its main aims are: to ensure the safety and soundness of the European banking system; to increase financial integration and stability and to ensure consistent supervision.

16 improvements in its transparency and accountability52. The Eurotower seems to lack the good practices implemented by its central banking peers around the World, namely, the publication of meeting minutes and voting records, the external independent membership of boards and strong parliamentary oversight. On this point, it is useful to note how central banks, to function effectively, usually need to be credible and strengthen the confidence of market actors and the general public. For this reason, it is generally believed that credibility is best achieved through independence from political influence and transparency of operations. Central bank transparency covers a wide range of issues, including transparency about its econometric models, the effectiveness of its monetary instru- ments53 and above all the way its decisions are taken. In particular, with reference to this last profile, transparency should concern rules and strategies and an account of deliberations and how policy decisions are reached, through the release of minutes and voting records. However, the EU Treaty establishes in article 15 of the TFEU54 that the ECB is subject to transparency, but only in the exercise of its administrative duties. This restriction, in truth, seems to confer on the ECB a certain degree of discretion as to which documents to release, especially where the publication of a document would threaten the financial stability of a Member state or of the Eurozone. Another provision that confirms the inadequacy of ECB’s policy transparency is article 10, para. 4, of Protocol no. 4 on the Statute of ESCB and ECB, according to which «The proceedings of the meetings shall be confidential. The Governing Council may decide to make the outcome of its deliberations public». Indeed, policy transparency at ECB’s level should provide for the prompt announcement of policy decisions and indications of likely future policy actions.

52 See K. Kaltehthaler, C. Anderson, W. Miller Accountability and Independent Central Banks: Europeans and Distrust of the European Central Bank, in Journal of Common Market Studies, 2010, pp. 1261-1281; G. Ter Kuile, L.Wissink, W.Bovenschen, Tailor Made Accountability within the Single Supervisory Mechanism, in Common Market Law Review, 2015, pp. 155-189. 53 See M. Dai, Static and Dynamic Effect of Central Bank Transparency, in Bulletin of Economic Research, 2016, pp. 55-78. 54 Article 15 (ex Article 255 TEC) «1. In order to promote good governance and ensure the participation of civil society, the Union institutions, bodies, offices and agencies shall conduct their work as openly as possible… 3. Any citizen of the Union... shall have a right of access to documents of the Union institutions, bodies, offices and agencies... Each institution, body, office or agency shall ensure that its proceedings are transparent [...] The Court of Jus- tice of the European Union, the European Central Bank and the European Investment Bank shall be subject to this paragraph only when exercising their administrative tasks».

Another important profile concerns accountability55, usually considered the counterpart of independence, from political pressure in monetary decision- making. In this view, Central banks usually should be considered no different from any other public authority. So, it is essential to protect Central bank officials from summary dismissal or other forms of pressure simply for taking decisions that are politically unpleasant; at the same time, there is a large variety of measures that can be put in place to guarantee robust parliamentary oversight and the accountability of Central bank officials. In this regard, there should be consideration of adopting adequate measures to prevent misconduct within an effective system of checks and balances. At the moment, the ECB is accountable to the European Parliament (EP) through regular ‘monetary policy dialogues’ with members of the EP Eco- nomic and Monetary Policy Committee56. In particular, the ECB responds to written questions from members of the EP, and the Parliament has the right to request hearings with members of the ECB executive board57. The Eurotower also presents its annual report to Parliament. But stronger oversight powers should be granted to the European Parliament, providing, for example, that membership should be subject to confirmation by ‘Strasbourg’. Besides, ECB boards should have external membership, as is usually the case with corporations and private banks. The same solutions should also be adopted with respect to another phenomenon that involves the EU, that is, the current proliferation of European agencies even though «the Treaties do not contain any provision to the effect that powers may be conferred on a Union body, office or agency»58. Some of these agencies were given decision-making powers, specifically in the economic and financial sectors, when the EU legislator decided to strengthen the supervision of the European financial system by creating the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EI- OPA) and the European Securities and Markets Authority (ESMA). Some

55 See L. Bini Smaghi, D. Gros, Is the ECB Accountable and Transparent?, in Enepri Working Paper, 2011. 56 See F. Amtenbrink, K. Van Duin The European Central Bank before the European Parliament: Theory and Practice after 10 Years of Monetary Dialogue, in European Law Review, 2009, pp. 561-583. 57 See Article 284 of the TFEU and Article 15 of Protocol no. 4. 58 About the constitutional implications due to the creation of European Supervisory Authorities see K. Lenaerts, EMU and the EU Constitutional Framework, in European Law Review, 2014, pp. 753-769.

18 authors59 have argued that the powers the new European financial agency en- joys are so broad that those powers could indeed encroach upon those of the Commission under articles 290 and 291 of the TFEU60.

6. Conclusions

The issues discussed in this paper suggest that the European Union’s attempts to manage the financial crisis and its negative effects, in particular on the balance of payments and public debt of Member states, are relevant to more than the real implementation of the European economic constitution. The ‘answers’, given so far by the EU for safeguarding the Economic and Monetary Union and the irreversibility of the Euro, have had the effect of redefining certain fundamental features of the Union’s overall institutional structure. A first process concerned the procedures and the institutional settings used to implement the actions considered necessary to deal with the Crisis. This process involved the tendency to use the method of action provided by the EU Treaties, essentially an intergovernmental method. The second process consisted of the tendency to tackle European economic governance issues with legal instruments that are partly internal and partly external to the European legal order. This approach gave rise to a gradual institutional and functional differentiation of the Economic and Monetary Union compared to the rest of the EU, endangering the constitutional principle of legal unity on which the EU has been based since its origins. As described before confirms that the current period is a crucial moment for the future of the European Union. What is taking place is probably a constitutional redefinition concerning not only the basic rules at the foundation of the

59 See M. Chamon, EU Agencies between Meroni and Romano or the Devil and the Deep Blue Sea, in Common Market Law Review, 2011, pp. 1055-1062; N. Moloney, EU Financial Market Regulation after the Global Financial Crisis:‘More Europe’ or ‘More Risks?’ in Com- mon Market Law Review, 2010, pp. 1317 -1325. 60 See, in particular, art. 290, par. 1 TFEU: «A legislative act may delegate to the Com- mission the power to adopt non-legislative acts of general application to supplement or amend certain non-essential elements of the legislative act. The objectives, content, scope and duration of the delegation of power shall be explicitly defined in the legislative acts. The essential elements of an area shall be reserved for the legislative act and accordingly shall not be the subject of a delegation of power». Art. 291, par. 2 TFEU: «Where uniform conditions for implementing legally binding Union acts are needed, those acts shall confer implementing powers on the Commission, or, in duly justified specific cases and in the cases provided for in Articles 24 and 26 of the Treaty on European Union, on the Council».

European Union but also some of its key institutional characteristics that were crystallised after a long historical evolution in the Lisbon Treaty. But, the constitutional transformation considered here is not linear, as the mentioned developments, on one hand, seem to push the European Union in the direction of the dimension of the international organizations; on the other hand, they seem to favour a fragmentation of the European Union into a plurality of sub-organizations, each one distinct from the others in its functions and institutional structure. Probably, the following years will help us to understand whether the current changes are a manifestation of the European Union’s traditional flexibility and a possible starting point to really rethink in the next years the institutional architecture of the EU or , on the contrary, dangerous disintegration factors.