The EU economic-constitutional paradigm and the pandemic: between continuity and discontinuity?


TOWARDS A NEW ORDER? The Constitutional Law after the pandemic

November 12th, 2021 – University of Milano, Bicocca

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Thank you all the organizers – and specially prof. Raffiotta and prof. D’Amico – for having me. I am honored to take part in this important congress.

I would like to focus on the impact the measures adopted by the EU in response to the pandemic have on our economic constitution. I intend to share a few remarks on the shift that, according to some, such measures (and, namely, NextGenerationEU) have allegedly brought about within the EU regulatory framework, distorting the economic-constitutional paradigm under the Treaties.

Despite this widespread conviction, the point that I would like to express is that, rather than disrupting the economic-constitutional paradigm of the EU, the measures adopted to contain the pandemic on an economic and financial level represent the natural development of such a paradigm. From this perspective, the new age of public interventionism that will take place within the framework of NextGenerationEU, in line with the rules and dynamics of interaction between internal and supranational legislation shaping that instrument, far from marking a retreat from the competitive economic order to the advantage of public intervention, is instead instrumental for such order. The logic of public interventions is pursued in support of the free market, typical of ordoliberal theories and economic constitutionalism. 

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The economic measures adopted by the EU include monetary policies under the Pandemic Emergency Purchase Programme launched by the ECB, the temporary suspension of budgetary constraints, the loosening of banking supervision and competition rules and, finally, the actions envisaged by NextGenerationEU. Such measures were welcomed almost everywhere (and especially in Italy) as a liberation from the constraints on public intervention under the European economic constitution in terms of public support to businesses, debt financing of government spending and the constraint of price stability. 

The enthusiasm for this new phase of the integration process marked by NextGenerationEU can certainly be welcomed. Following the creation of the single market, the building and defence of the single currency and the implementation of European banking supervision, it was time to lay the legal and economic foundations for greater solidarity between the Member States and a genuine supranational redistributive function. 

The pandemic made it possible to overcome many political barriers and a lot of political resistance, speeding up an unavoidable process of sharing, although this is characterised by several uncertainties that require member states to enter into major commitments. The greatest uncertainty concerns the ability of this process to remain fully true to its constitutional basis, maintaining the competitive order of the market (microeconomic constitution) and preserving financial stability (macroeconomic constitution).  

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We are on the verge of a new era of public interventionism that has been widely called for since the sovereign debt crisis. Compared to the past, the novelty of this era lies in the fact that public intervention is endorsed and financially supported by the European Union. To this end, the EU froze those constraints that were seen by many as an undue compression of sovereignty and a denial of our constitutional paradigm. 

This change of strategy, the scope of which is such as to disorient even the best interpreter, could appear to be a backwards step with regard to the entire constitutional structure that hitherto formed the fabric of the integration process. This would not, however, seem to be the only possible interpretation and, in my view, it is not necessarily the most correct. 

The first element supporting my point is the trivial observation that, unlike what happened during the sovereign debt crisis, NextGenerationEU did not require any derogation from the Treaties, being instead consistent with the existing complex institutional framework. 

Secondly, the institutional architecture of the Recovery and Resilience Facility seemingly rests on the same logical and rational grounds found in the European (macro)economic constitution. Evidence of this is found in both NextGenerationEU’s governance mechanisms, which – while introducing new elements of assessment – largely follow the legal and argumentative dynamics typical of the coordination of budgetary policies of member states, and the reference to the need to introduce specific instruments to protect the financial interests of the EU ‘in accordance with the general principles enshrined in the Treaties of the Union’. Finally, the provision of a ‘conditionality regime’ to protect the budget and the NextGenerationEU framework. 

This last element, beyond lexical differences, seems to hint at the possibility of obliging the beneficiary state of the funds to use the resources granted in specific ways to support the recovery and resilience of the national economic system according to a logic of ‘conditionality’ that does not seem to differ greatly from what was previously provided by the European Stability Mechanism (ESM) Treaty. 

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It is therefore, in my view, more correct to believe that this new season of public interventionism does not conflict with the competitive economic order. The public intervention supporting recovery will have to be compatible with the free market and, therefore, be instrumental in achieving a progressive realignment of the domestic framework and the relevant socio-economic entities to the supranational economic and constitutional order. 

Should this be the case, the public intervention envisaged by NextGenerationEU would have to refrain from ‘market apparatus interventions capable of creating disruptions’ (i.e. generating free-riding phenomena or fuelling fiscal illusion) and pursue the sole aim of re-establishing the conditions for the proper operation of the competitive order of the market, rather than subverting it.

Compliant public intervention refers to the idea of a public intervention that is limited in time, inspired by the logic of subsidiarity and aimed not at occupying the spaces belonging to civil society but at supporting its initiative in an inclusive and not extractive logic, as a result of which the allocation of the benefits of public intervention may lead to redistribution rather than political rent. 

Once the issue has been defined in such terms, the discretionary power of governments on decisions concerning the use of the Recovery Fund means cannot be grounded in mere political logics. As a condition of the legitimacy of the relevant decision, they must instead come to terms with the reality of a complex system that, in order to be faithful to the principle of popular sovereignty, significantly restricts the margins of public intervention within the protective framework of fundamental rights (and therefore, of both the rights to freedom and the fundamental social rights) and, as to the procedures selected for the actual implementation of the paradigm of constitutional guarantees, with economic rationality. 

While missing the opportunity to promote consistent administrative reforms, failure to grasp this basic tenet forming the backdrop for the new age of public intervention would therefore mean running a very high risk of reciting, within national borders, a very different script from the one that the Commission and the ECB are preparing to play out. A risk which (in relation to Italy) could fatally jeopardise the opportunity offered by NextGenerationEU to rebuild our economic and productive system while promoting environmental sustainability and digitalisation. As part of this rebuilding, such conditions would be put in place that, once the emergency is over, dependency on the public sector (and, therefore, on public spending) may be reduced.

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All these remarks lead me to believe that the economic measures that have been adopted in response to the pandemic, rather than signalling discontinuity with the economic and constitutional paradigm that characterised the response to the sovereign debt crisis under the banner of austerity policies, are simply a different response to the economic shock marked by the health emergency, within the same economic and constitutional paradigm. This testifies to its flexibility and ability to adapt to the relevant economic framework and, at the same time, to the need for a pragmatic approach to crisis management that the European Central Bank and, on this occasion, also the European Commission, have developed. 

         While there is continuity, however, the adopted economic measures would seem to bring this economic and constitutional paradigm to maturity and, at the same time, breathe new life into the democratic process and guide the financial system towards a sustainable and digital transition. The economic and financial phenomenon now seems bound to overcome the purely technical connotation that characterised the early stages of European integration, turning into a tool for the pursuit of European policies, i.e. a function of the political and social objectives that form the basis of NextGenerationEU. 

Public intervention in line with the market and the enhancement of the instrumentality of the financial system with respect to the pursuit of the political and social objectives defined within a shared process involving all stakeholders of the EU institutional framework produces a strengthening of the EU on a political and institutional level, offering a chance to significantly counter the ‘deconsolidation’ phenomena affecting European democracies in recent years.

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The measures adopted by the EU in response to the pandemic and the public interventions functional to economic recovery, in addition to their value on a purely economic level, represent an opportunity to advance European integration in terms of the construction of a real European ‘Ordnungspolitik’, realigning the democratic systems of the Member States with respect to the European legal and economic framework. This in turn promotes the effective participation of citizens and economic and social stakeholders, real political competition, as well as the fight against information asymmetries and fiscal illusion. 

All this is aimed at guiding the behaviour of the various stakeholders in the European financial system (Member States and financial intermediaries) towards adopting cooperative strategies. Convergence between individual interests and general interests is encouraged and, through compliance with the rules protecting financial stability, it becomes possible to draw common benefits from the voluntary cooperation of all those involved in political, economic and social dynamics. The wellbeing of European populations can thus be promoted, as set out in Article 3 of the Treaty of the European Union. 

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Thank you for your attention. 

Prof. Fabio G. Angelini, Uninettuno University of Rome

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