EU Solidarity in times of crisis

In today’s New York Times, Ireland’s dire economic situation leads the journalist to question whether the country is about to become a new “Iceland,” that is, whether the Irish State may default on its debt.

This blog is obviously not the place to discuss whom to blame for the economic mess Ireland finds itself in, and the abject corruption the ongoing recession has revealed. From a legal point of view, Ireland’s financial situation raises at least one interesting question: Are the countries belonging to the “eurozone” – 16 EU Member States currently share the euro as their currency – legally obliged to help one another. To put it concisely, the answer is no.

According to Article 103 of the EC Treaty that some have recently labeled the “no bailout clause”:

“(1) The Community 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.

(2) If necessary, the Council, acting in accordance with the procedure referred to in Article 252, may specify definitions for the application of the prohibition referred to in Article 101 and in this Article.”

In the same Chapter of the EC Treaty dedicated to Economic Policy, another provision is worth noting as it moderates the impact of the no bailout rule by allowing financial assistance in exceptional circumstances.

Article 100(2) EC provides that “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, acting by a qualified majority on a proposal from the Commission, may grant, under certain conditions, Community financial assistance to the Member State concerned...” The question, of course, is whether Ireland’s current financial difficulties can be said to be caused by “exceptional occurrences beyond its control…” This obviously calls for a political judgment rather than a legal one.

As a matter of principle, the lack of common liability for national state finances is not necessarily a bad thing as individual countries could be otherwise tempted to pursue irresponsible expansive policies knowing that the “others” will eventually have to bail them out. It is also important to point out that this situation directly reflects the wish of most national governments keen on preserving their fiscal sovereignty. This is why it is particularly laughable to blame “the EU” for a lack of a coordinated or effective response to the current crisis when its own constitutional framework precludes any genuine EU initiative.

With respect to Ireland, it is particularly ironic that its economic survival is more than likely to depend on the good will of its EU’s partners, and in particular Germany. Regardless of the "no bailout clause," it seems that the German government – lucky Irish – has now come to its senses. Angela Merkel’s government now appears prepared to come to the rescue but the Irish government will certainly have to pay a price for its narrow-minded and at times arrogant pursuit of what it perceived to be the national interest in the past few years (see for instance the debate on the harmonization of corporate tax rates in the EU).

Less than a year ago, a majority of Irish citizens voted no to the Lisbon Treaty and more than a minority had ludicrous concerns about abdicating their “national sovereignty.” What these voters failed to understand is that Irish sovereignty is, in practice, a meaningless slogan. As I argued elsewhere, while it is true that Irish membership of the EU membership has had an impact on its de jure sovereignty, it has dramatically increased its de facto sovereignty. Outside the EU, Ireland’s power to shape the norms governing its trade or to promote its culture and values would have certainly been almost nonexistent. To undermine the EU when you are from a small Member State is really like shooting oneself in the foot. It is no surprise that Iceland is now desperately trying to secure EU membership and that some EU Member States who do not belong to the eurozone are seriously debating whether to adopt the euro to “shelter” themselves from future crises.

Laurent Pech