The Euro vs. Compliance: Treaty Violations as a Monetary Policy Substitute

• In Event: Domestic Politics and Trade

Abstract

Despite the European Union’s (EU) powerful and highly legalized tools to ensure member states fulfill their obligations under the treaties, large variation in compliance with rules on behind-the-border barriers to intra-European trade can be observed both between EU member states and within individual member states over time. This paper analyzes how the interplay between economic crises and institutional changes related to Economic and Monetary Union have created incentives for reelection-minded Eurozone governments to violate EU law and to resist pressure by the European Commission and the Court of Justice of the EU to comply.
With the help of original data on official infringement cases initiated between 1979 to 2019, I show that Eurozone governments are significantly more likely to engage in violations of state aid regulation and treaty provisions on the free movement of goods and services in times of economic crisis than their non-Eurozone counterparts. When their hands are bound by the firm institutional framework of the EU, governments substitute previously legal monetary policy interventions with infringements on EU law. They (ab)use the EU’s enforcement mechanism as a flexibility provision that grants them temporary relive from the twin pressures of economic crisis and an ever closer-woven corset of European laws and institutions. These findings have broader implications for the design, depth, and flexibility of international and regional agreements (cf. Rosendorff and Milner 2001, Baccini et al. 2015) as well as the literature on economic policy substitution.

Author

• Tobias Hofmann, Free University of Berlin