Non-compliance in the European Union as a Monetary Policy Substitute

• In Event: International Law: Precision, Delegation and Compliance

Abstract

While the Lisbon Treaty provides the European Union (EU) institutions with powerful and highly legalized tools to make sure that all member states fulfill their obligations under the treaties, we observe large variation in compliance rates both between member states and within individual member states over time. What explains this variation? What are the scope conditions for the success of the EU's infringement proceedings? What are the causes of enforcement failures?

This paper analyzes how the interplay between economic crisis and changes in European institutions creates incentives for the governments of EU member states to violate EU law and to resist pressure by the European Commission and the Court of Justice of the EU (CJEU) to (re)establish compliance. I show that institutional changes that go back to the introduction of the Euro affect European governments' ability to assist domestic industries in times of crisis. While the advent of Economic and Monetary Union robbed Eurozone governments of exchange rate manipulation as a policy instrument, the Euro has not reduced member states' exposure to the downside whims of the global market, the demand for government support and protection during economic downturns, or the responsiveness of reelection-minded governments to the demands of special interest groups that provide political support in exchange for government interventions on their behalf.

Using original data on official infringement cases in which the European Commission issued so-called Reasoned Opinions to member states and that were referred to the CJEU, 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 no longer available legal economic policy instruments 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.

Author

• Tobias Hofmann, Free University of Berlin