State Transformation and the European Integration Project Lessons from the financial crisis and the Greek paradigm Evangelos Venizelos No. 130/February 2016 Abstract The financial crisis that erupted in the eurozone not only affected the EU’s financial governance mechanisms, but also the very nature of state sovereignty and balances in the relations of member states; thus, the actual inequalities between the member states hidden behind their institutional equality have deteriorated. This transformation is recorded in the case law of the Court of Justice of the European Union and the member states’ constitutional courts, particularly in those at the heart of the crisis, with Greece as the most prominent example. It is the issue of public debt (sovereign debt) of the EU member states that particularly reflects the influence of the crisis on state sovereignty as well as the intensely transnational (intergovernmental) character of European integration, which under these circumstances takes the form of a continuous, tough negotiation. The historical connection between public debt (sovereign debt) and state sovereignty has re-emerged because of the financial crisis. This development has affected not only the European institutions, but also, at the member state level, the actual institutional content of the rule of law (especially judicial review) and the welfare state in its essence, as the great social and political acquis of 20th century Europe. From this perspective, the way that the Greek courts have dealt with the gradual waves of fiscal austerity measures and structural reforms from 2010 to 2015 is characteristic. The effect of the financial crisis on the sovereignty of the member states and on the pace of European integration also has an impact on European foreign and security policy, and the correlations between the political forces at both the national and European level, thus producing even more intense pressures on European social democracy. In light of the experience of the financial crisis, the final question is whether the nation state (given the large real inequalities among the EU member states) currently functions as a brake or as an engine for future European integration. ISBN978-94-6138-503-1 The author would like to express his thanks to Panagiotis Doudonis for his contribution to the English version of this text and Adam Kyriakoulis for his technical support. He would also like to thank Christina Akrivopoulou, Charalampos Anthopoulos, Kyriakos Pierrakakis, Georgios Zanias and Dimitris Kourkoulas for their remarks. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying, recording or otherwise – without the prior permission of CEPS. Available for free downloading from the CEPS website (www.ceps.eu) © Centre for European Policy Studies 2016 Centre for European Policy Studies ▪ Place du Congrès 1 ▪ B-1000 Brussels ▪ Tel: (32.2) 229.39.11 ▪ www.ceps.eu CONTENTS 1. Introduction: Institutional equality and the real inequalities among EU member states ...1 2. The financial crisis and the institutional impact of the eurozone’s construction .................6 3. The increase of mutual self-restraint between the national constitutional courts and the CJEU amid the financial crisis ...........................................................................................7 4. New state divisions within European integration................................................................ 10 5. The EU as a continuous transnational negotiation ............................................................... 12 6. Public debt and changes in the very concept of sovereignty............................................... 13 7. Institutional mutations: The EU’s cooperation with the IMF and the example of the Troika ................................................................................................................................ 18 8. Locking in the inequalities among member states ............................................................... 19 9. The crisis of the European welfare state................................................................................ 21 10. The judicial review of the bailout measures and the constitutional law of a disorderly default...................................................................................................................................... 22 11. The ideological and political consequences of the crisis ...................................................... 29 12. The financial crisis and new challenges to European foreign and security policy ............ 30 13. The evidentiary importance of the 12 July 2015 agreement on the entry of Greece into a third programme ................................................................................................................. 35 14. Concluding question: Is the state a brake or an engine in the future of Europe? .............. 40 State Transformation and the European Integration Project Lessons from the financial crisis and the Greek paradigm Evangelos Venizelos1 No. 130/February 2016 1. Introduction: Institutional equality and the real inequalities among EU member states The international financial crisis that erupted in 2007–08 has also been, beyond any other considerations, a further test of the relationship between the nation state and the European integration project. The picture is apparently simple. The historical, political and institutional foundations of European integration lie in the voluntary decision of the member states to accept the necessary – gradually increasing – limitations to their national sovereignty, and subsequently to carry out an increasing transfer of the competences of their own state institutions to those of the EU. The EU’s competences, therefore, always were and still are conferred and not inherent, regardless of the issue area they fall under, in accordance with the competence framework of the EU at this stage of European integration.2 This scheme for the relations between the member states and the EU is reflected in the combination of paras. 2 and 3 of Art. 28 of the Greek constitution, which serves as the constitutional basis for Greece’s participation in European integration, according to an explicit interpretative declaration that was added in the 2001 revision to the original constitutional text of 1975.3 Similar provisions are now included in the constitutions of almost all EU member states. The way that the constitutional courts or, where they do not exist, the supreme courts of the EU member states interpret their national constitutions in favour of European integration and, respectively, the manner in which the Court of Justice of the European Union (CJEU) interprets legislation of the EU and handles the principles of supremacy and direct effect is a very interesting and delicate process. The process of mutual respect between the national 1 Evangelos Venizelos is former Deputy Prime Minister of Greece (2011–12, 2013–15), Minister of Foreign Affairs (2013–15), Minister of Finance (2011–12), Minister of Defence (2009–11) and former Leader of PASOK (2012–15). He currently serves as a member of the Greek parliament and is Professor of Constitutional Law at the Aristotle University of Thessaloniki. 2 See Arts. 4-5 of the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU), and see 2.6. See also E. Sachpekidou, European Law (in Greek), 2nd Edition, Athens: Ant. N. Sakkoulas, 2013, p. 210 et seq., R.-E. Papadopoulou, “Article 5” in V. Christianos (ed.), TEU and TFEU, Treaty interpretation, Athens: Nomiki Vivliothiki, 2012, p. 25 et seq. 3 See Ev. Venizelos, The “acquis” of the Constitutional Revision: The constitutional phenomenon in the 21st century and the contribution of the Hellenic Constitution revision of 2001, Athens: Ant. N. Sakkoulas, 2001, p. 232 et seq. and p. 234 et seq. | 1 2 | EVANGELOS VENIZELOS constitution and EU law gradually establishes a common European constitutional space.4 It is a common space formed by the ultimately pro-European/integrative interpretation and application of the national constitutions of the member states and the interpretation (non- provocative with respect to the national constitutions of the member states) and application of EU law. This common ground is shaped by the continuous interaction between national courts and the CJEU. Both parties take precautions to avoid conflicts between the national and the EU legal order, through cultivating an interpretive and eventually regulatory and historical understanding, which constitutes the common European legal, institutional and political culture. This dialectic procedure signifies, in fact, a double reading or rather a narrative of the institutional basis of European integration. On the one hand, the EU version is self-referential. It silences the transnational/intergovernmental foundations of European integration, reflected legally through the primary law of the EU, i.e. the founding treaties and the occasional amendments that require the agreement of the member states under the terms of the national constitution of each of them. It prefers to forget that the founding treaties, their occasional amendments and the legal effects of intergovernmental processes are multilateral international agreements governed by public international law and by the national constitutional law of the member states. Therefore, it treats them