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The Sinews of European Peace Reconstituting the Democratic Legitimacy of the Socio-Economic Constitution of the European Union Raúl Letelier and Agustín José Menéndez (eds) ARENA Report No 7/09 RECON Report No 10 The Sinews of European Peace Reconstituting the Democratic Legitimacy of the Socio-Economic Constitution of the European Union Raúl Letelier and Agustín José Menéndez (eds) Copyright ARENA and authors ARENA Report Series (print) | ISSN 0807-3139 ARENA Report Series (online) | ISSN 1504-8152 RECON Report Series (print) | ISSN 1504-7253 RECON Report Series (online) | ISSN 1504-7261 Printed at ARENA Centre for European Studies University of Oslo P.O. Box 1143, Blindern N-0318 Oslo, Norway Tel: + 47 22 85 87 00 Fax: + 47 22 85 87 10 E-mail: [email protected] http://www.arena.uio.no http://www.reconproject.eu Oslo, December 2009 Cover picture: ‘The Nightmare of the Bourgoise’ (1932) by Nicanor Piñole, Museo Nicanor Piñole. Preface Reconstituting Democracy in Europe (RECON) is an Integrated Project supported by the European Commission’s Sixth Framework Programme for Research, Priority 7 ‘Citizens and Governance in a Knowledge-based Society’. The five-year project has 21 partners in 13 European countries and New Zealand, and is coordinated by ARENA – Centre for European Studies at the University of Oslo. RECON takes heed of the challenges to democracy in Europe. It seeks to clarify whether democracy is possible under conditions of pluralism, diversity and complex multilevel governance. See more on the project at www.reconproject.eu. The present report is on ‘The Political Economy of the European Union’ – work package 7 of the RECON project. It contains the proceedings from the workshop ‘The sinews of peace – democratising the political economy of the European Union', held in Leon in September 2008. The aim of WP 7 is to analyse the relationship between public finance and democracy in the EU’s multilevel political system. It analyzes the putative connection between the institutional design of a democratic polity and the design of its tax system. WP 7 spells out institutional designs and policy options with regard to the system of financing and the allocation of taxing powers to the European Union. Erik O. Eriksen RECON Scientific Coordinator Acknowledgements This report contains the edited proceedings of a workshop held in León 19-20 September 2008 under RECON’s work package 7, ‘The Political Economy of the European Union’. The workshop was rendered possible by the financial support granted by the European Commission to the RECON project; and indeed by the superb administrative support coming from the coordinating institution, ARENA. The Archivo Histórico Provincial de León, and especially the director, Eva Merino, kindly allowed us to stage the event at its magnificent historical building, a former prison turned into a repository of collective memory (a magnificent metaphor of European history). This also allowed us to bring our discussions from the ivory tower of the campus to the core of the city centre. Participation of the León team in RECON has been very much supported by the Law School, especially by its former dean, Miguel Diaz, and by the former director of the Basic Public Law Department, Juan Antonio García. Finally, it must be said that by sheer chance (or was it?), the workshop took place in the very same week in which Lehmann Brothers fell, and Western financial capitalism seemed to be melting. The powerful message of Piñole’s painting now reproduced in the cover of this report, (his splendid representation of the ghost that haunted Europe in 1931) became even more self- imposing as Keynes and Minsky were (again and finally) vindicated. That coincidence was the ultimate causal factor behind the decision to include as an appendix to this report the perhaps forgotten, but more relevant than ever, reflections of one of the founding mothers of the idea of European Union, Barbara Wootton, on the interrelationship between the political and the economic systems. The wave of bank nationalisations that started as we met in León was certainly not the breed of socialism she advocated, but clearly marks the end of the age of triumphant capitalism. What implications this has for the socio-economic constitution of the European Union is what this report tries to figure out. Raúl Letelier and Agustín José Menéndez Table of contents Section One: General Framework Chapter 1 Reconing the political economy of the European Constitution Agustín José Menéndez……………….................................................. 1 Section Two: The Socio-Economic Constitution of the European Union; Between Law-Making and Judicial Activism Chapter 2 When the market is political The socio-economic constitution of the European Union between market-making and polity-making Agustín José Menéndez.......................................................................... 39 Chapter 3 Free Movement of persons What community and what solidarity? Flavia Carbonell Bellolio......................................................................... 63 Chapter 4 Free movement of capital as the deep economic constitution of the Union Fernando Losada Fraga........................................................................... 119 Chapter 5 The unencumbered European taxpayer as the product of the transformation of personal taxes by the judicial empowerment of ‘market forces’ Agustín José Menéndez………….......................................................... 157 Chapter 6 Democracy and non-contractual liability of states for breaches of EU law Raúl Letelier………………………….................................................... 269 Chapter 7a Taxation, free movement of capital, and regulation Pedro Gustavo Teixeira........................................................................... 303 Chapter 7b The theoretical basis of member state liability for infringement of Community law Luis Medina Alcoz…...…………........................................................... 319 Section Three: Fiscal Policy, Labour and Wage Policies Chapter 8 Theoretical models of fiscal policies in the Euroland The Lisbon Strategy, macroeconomic stability and the dilemma of governance with governments Stefan Collignon………...……….......................................................... 329 Chapter 9 The labour constitution of the European Union Florian Rödl…........................................................................................ 367 Chapter 10 The failure of the macroeconomic dialogue on wages (and how to fix it) Stefan Collignon………...……….......................................................... 427 Chapter 11 The painful Europeanisation of taxes: democratic implications Marco Greggi…………………….......................................................... 469 Chapter 12a Can economic integration be democratic? The case of taxes David G. Mayes...................................................................................... 509 Chapter 12b Is the labour constitution normatively prior to the democratic constitution? Agustín José Menéndez……….............................................................. 519 Section Four: A Republican and Social Europe? Chapter 13 The European Republic: Utopia or Logical Necessity? Stefan Collignon…………………......................................................... 531 Appendix............................................................................................... 579 Chapter 1 Reconing the political economy of the European constitution Agustín José Menéndez University of León On RECON in general RECON (‘Reconstituting Democracy in Europe’) is a research project aiming at elucidating the ways and means through which democratic government1 could be ‘reconstituted’ in Europe. This requires the 1 In this chapter, the term ‘democratic government’ is intentionally used in lieu of ‘democratic governance’. A full explanation of this choice is not appropriate here for reasons of space, but suffice to say that I assume that there cannot be proper democratic legitimacy without democratic government, and that, consequently, ‘governance’ mechanisms, the legitimacy of which stems from a different source than the identity between the authors of and the subjects to common actions norms, are ‘parasitic’ on an encompassing institutional and decision-making framework which can redeem its claim to democratic legitimacy. Governance mechanisms can be very necessary to exploit in democratic terms specialised knowledge and to render efficient the democratic division of social labour, but they are not and cannot be self-sufficient in democratic terms. When they are transformed into the ‘new grammar of law’, a new form of authoritarianism emerges. It must also be said that the term ‘democratic government’ is understood in encompassing terms, comprising not only the legally formalised institutions and decision-making processes, but also the role played by general publics in democratic will-formation. However, the term is not conflated with the idea of democratic social order, which refers to democracy as a form of life. On this, see N. Bobbio, Il Futuro della Democrazia, Torino, Einaudi, 1984; P. Allot ‘European Governance and the Re-branding of Democracy’, (2002) European Law Review, 27(1), pp. 60-71 ; C. Möllers, ‘European Governance: Meaning and Value of a Term’, (2006) Common Market Law Review, 43(2), pp. 313-36; A. J. Menéndez, ‘The European Union between Constitution-Making and Governance’, in P. Birkinshaw 2 Menéndez combination of the description, reconstruction and

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