: The structure of the EMU and the rationale for sanctions

As is well known, the legal architecture of the EMU is based on a fundamental divide between monetary policy and economic policy.^[1] Although it may be somewhat inaccurate in terms of economic theory - as monetary policy is part of general economic policy - this distinction forms the basis for the allocation of competence between the EU and the Member States. Monetary policy is an exclusive EU competence for euro area Member States and it relies on a heavily centralised institutional setup, with the European Central Bank (ECB) at its core. By contrast, competence on economic policy rests primarily with the Member States, with EU intervention mostly being limited to coordinating and supporting the Member States’ policies.

One reason for the limited scope of EU economic policy competence was the reluctance of Member States to relinquish their autonomy in this key policy area and to endow the Union with a substantial budget comparable to that of federal states. Another reason was the belief in the stabilising effects of the financial markets, reflecting the influence monetarism, as a school of thought, had on the drafting of the Maastricht Treaty. According to the monetarist view, fully integrated financial markets are sufficient to absorb asymmetric shocks, thereby safeguarding the stability of the common currency.

A corollary of this approach, which emphasises the role of markets in ensuring stability and the importance of structural reforms for the sustainability of a monetary union, is a set of legal rules restraining discretionary fiscal policy.^[2] Despite retaining competence on matters of economic policy, the Member States are thus not free from EU law constraints in its exercise. In fact, the Member States do not enjoy absolute freedom in any policy area, as the principle of primacy implies that national law and practices must be compatible with EU law, irrespective of the allocation of competence. However, the EMU is a special case in this regard. Member States are not merely under a general obligation to comply with EU law when they exercise their own competences, but they have assumed a specific set of commitments that directly impinge on their economic and fiscal policies. Indeed, in a normative and institutional setting based on the primacy of price and financial stability and lacking a common macroeconomic policy, a federal fiscal capacity and a strong EU budget, the Member States’ commitment to budgetary discipline appeared necessary to guarantee the viability of the monetary union. In order to prevent uncoordinated, discretionary fiscal policies at national level that could undermine the EMU, the drafters of the Maastricht Treaty devised two institutional mechanisms. On the one hand, the Treaty introduced a multilateral surveillance procedure aimed at coordinating the economic policies of the Member States (now Article 121 TFEU). On the other hand, it established the excessive deficit procedure (EDP) to tackle Member States’ failures to contain deficit and debt below agreed targets (now Article 126 TFEU). Both procedures were supplemented a few years later by the SGP, consisting of two Council regulations and a European Council resolution. The preventive arm of the SGP strengthened the supervision over national budgets by requiring euro area Member States to submit a stability programme and entrusting the Council with monitoring its implementation.^[3] Its corrective arm was intended to govern the EDP and to enhance its effectiveness.

According to the logic underlying the Treaty provisions on economic policy and the SGP, sanctions and the threat thereof are an important instrument of compliance. Their main function is deterrence: the mere possibility of sanctions is intended to entrench the Member States’ commitment to sound financial management and to the sustainability of public debt, which are, in turn, viewed as major factors contributing to the stability of the common currency. However, the enforcement of constraints on Member States’ economic policy departs significantly from the ordinary enforcement machinery generally available under EU law. The most important difference is the institutional setting that characterises each enforcement mechanism and, more specifically, who has the last say when it comes to deciding if the State concerned violated EU law. As is well known, in infringement proceedings the power to ascertain a breach of EU law by a Member State lays with the Court of Justice, which may also impose penalties in certain cases. By contrast, the enforcement of fiscal constraints under the EDP and the SGP is entrusted to political institutions pursuant to special procedures. Indeed, the EDP and the infringement procedure are mutually exclusive, in so far as the Treaty precludes the possibility of bringing infringement actions pursuant to Articles 258 and 259 TFEU within the framework of an EDP.

In the aftermath of the crisis that struck the Eurozone in 2009-2010, the SGP, including its sanctioning component, was considerably strengthened. In order to prevent euro area Member States’ public finances from spiralling out of control again, the Six-Pack, a set of measures adopted in 2011, sharpened sanctions and expanded their scope. In the next paragraph, we provide an ovendew of the existing sanctioning mechanisms in the economic pillar of the EMU.

• [1] See, amongst others, F. Snyder, ‘EMU Revisited: Are We Making a Constitution? What Constitution Are We Making?’ EUI Working Paper LAW No. 98/6; S. Cafaro, Untone monetaria e coordinamento delle politiche economiche. Il difficile equilibria tra modelli antagonisti di integra-zione europea (Giuffre, 2001); R.M. Lastra, J.-V. Louis, 'European Economic and Monetary Union: History, Trends, and Prospects’ (2013) 32 Yearbook of European Law 57, 60-62. 2 ’See A. Verdun, 'An Asymmetrical Economic and Monetary Union in the EU: Perceptions of Monetary Authorities and Social Partners’ (1996) 20 Journal of European Integration 59; B. Laurens, E.G. de la Piedra, ‘Coordination of Monetary and Fiscal Policies’, IMF Working Papers No. WP/25/98, March 1998. 3 Article 3(l)(c) TFEU. 4 Whereas “[t]he Union shall establish an economic and monetary union” (Article 3(4) TEU), it is for “Member States” to “coordinate their economic policies with a view to contributing to the achievement of the objectives of the Union” (Article 120 TFEU). Emphasis added. 5 The central Treaty provisions in this regard are Article 5 TFEU (“The Member States shall coordinate their economic policies within the Union. To this end, the Council shall adopt measures, in particular broad guidelines for these policies”) and Article 2(3) TFEU (“The Member States shall coordinate their economic and employment policies within arrangements as determined by this Treaty, which the Union shall have competence to provide”). The extent to which this sui generis allocation of competences grants the EU power to intervene in economic affairs is debated: see R. Bieber, ‘The Allocation of Economic Policy Competences in the European Union’, in L. Azoulai (ed.), The Question of Competence in the European Union (Oxford University Press, 2014), 86-87. In addition, there are legal bases authorising the EU to intervene in specific fields, such as the Treaty provisions on economic, social and territorial cohesion - an area of shared competence according to Article 4(2)(c) TFEU - or Article 136 TFEU concerning the adoption of measures applicable to euro area Member States. 6 Snyder, supra note 2, 6; J. Snell, 'The Trilemma of European Economic and Monetary Integration, and Its Consequences’ (2016) 22 European Law Journal 157, 160. 7 See P. De Grauwe, 'What Have we Learnt about Monetary Integration since the Maastricht Treaty?’ (2006) 44 Journal of Common Market Studies 714, 726; J.-P. Fitoussi, F. Saraceno, 'Euro-
• [2] See C. Kaupa, The Pluralist Character of the European Economic Constitution (Hart, 2016), 285. 2 See L. Azoulai, ‘The “Retained Powers” Formula in the Case Law of the Court of Justice: EU Law as Total Law?’ (2011) 4 European Journal of Legal Studies 192. 3 M. Herdegen, ‘Price Stability and Budgetary Restraints in the Economic and Monetary Union: The Law as Guardian of Economic Wisdom’ (1998) 35 Common Market Law Review 9, 15-18. 4 J-P. Keppenne, 'Economic Policy Co-Ordination: Foundations, Structures, and Objectives’, in F. Amtenbrink, C. Herrmann (eds), EU Law of Economic and Monetary Policy (OUP 2020), 787. 5 1JJ-P. Keppenne, ‘EU Fiscal Governance on the Member States: The Stability and Growth Pact and Beyond’, in Amtenbrink and Herrmann (eds), supra note 12, 813.
• [3] Regulation 1466/97. 2 Regulation 1467/97. 3 F. Amtenbrink, R. Repasi, ‘Compliance and Enforcement in Economic Policy Coordination in EMU’ in A. Jakab, D. Kochenov (eds), The Enforcement of EU Law and Values. Ensuring Member States’ Compliance (OUP 2017), 145. 4 ''See J.-V. Louis, 'The Economic and Monetary Union: Law and Institutions’ (2004) 41 Common Market Law Review 575, 577-578. 5 lsHerdegen, supra note 11, 18. 6 On sanctioning in the context of infringement proceedings, see the chapter by L. Prete in this book. 7 See Article 126(10) TFEU. 8 Regulation (EU) no. 1173/2011 of the European Parliament and of the Council on the effective enforcement of budgetary surveillance in the euro area OJ L306, 23.11.2011, 1-7; Regulation (EU) no. 1174/2011 of the European Parliament and of the Council on enforcement measures to correct excessive macroeconomic imbalances in the euro area OJ L 306,23.11.2011, 8-11; Regulation (EU) no. 1175/2011 of the European Parliament and of the Council amending Council Regulation (EC) no. 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies OJ L 306, 23.11.2011, 12-24; Regulation (EU)