One of the many lessons of the euro crisis was that timing matters, both in the order of events and in the sequence of responses. The fact that Greece rather than Ireland was the first country to require a bail-out turned out to be highly significant. If the order had been reversed and Ireland had toppled over first, then it would have been clear from the outset that weak banks as much as weak states lay at the heart of the euro crisis. But because Greece was the first to fall, the crisis was misconstrued as predominantly a sovereign debt crisis, even though Greek fiscal improvidence was an extreme case by any reckoning. This led to a crucial delay in recognising both the problem and the solution that was necessary, the creation of a banking union (though even here only the rudiments were put in place). If some of the effort that was put into tackling the fiscal weaknesses of euro-zone governance in 2010 and 2011 had been directed instead towards swifter action in addressing the flaws in banking supervision, the euro crisis might not have intensified to such an alarming extent.

Among the other rescued countries, Portugal most closely resembled Greece. Although Portuguese banks were inadequately capitalised and over-reliant on wholesale funding, it was the dire state of the country's public finances that led to the euro area's third rescue. But of the five countries eventually bailed-out during the euro crisis, fragile banks lay at the heart of the problem in at least three of them. Ireland was the first instance, but banking crises also brought down Cyprus and undermined Spain. Moreover, bust banks made Slovenia a near miss on the list of bail-outs, teetering for over a year on the brink of requiring help before finally getting to grips with them at the end of 2013.

The reluctance to recognise that the euro crisis was in large measure the second leg in Europe of the financial crisis had baleful consequences. Instead of rooting out the bad loans and cleaning up bank balance sheets, the problem was left to fester even though previous experience had shown that swift surgery was vital to prevent the gangrene spreading.

Introduction

Classic international law holds that each State can choose the relationship between its domestic law and international law. Two – constitutional – theories thereby exist: monism and dualism. Monist States make international law part of their domestic legal order. International law will here directly apply as if it were domestic law. By contrast, dualist States consider international law separate from domestic law. International law is viewed as the law between States; national law is the law within a State. While international treaties are thus binding ‘on’ States, they cannot be binding ‘in’ States. International law needs to be ‘transposed’ or ‘incorporated’ into domestic law and will thus only have indirect effects through the medium of national law. The dualist theory is therefore based on a basic division of labour: international institutions apply international law, while national institutions apply national law.

Did the European Union leave the choice between monism and dualism to its Member States? For dualist States, all European law would need to be ‘incorporated’ into national law before it could have domestic effects. Here, there is no direct applicability of European law, as all European norms are mediated through national law and individuals will consequently never come into direct contact with European law. Where a Member State violates European law, this breach can only be established and remedied at the European level. The European Treaties indeed contained such an ‘international’ remedial machinery against recalcitrant Member States in the form of enforcement actions before the Court of Justice. Another Member State or the Commission – but not individuals – could here bring an action to enforce their rights.

Did this not signal that the European Treaties were international treaties that tolerated the dualist approach? Not necessarily, for the Treaties also contained strong signals against the ‘ordinary’ international law reading of the European legal order. Not only was the Union entitled to adopt legal acts that were to be ‘directly applicable in all Member States’, but from the very beginning, the Treaties also contained a judicial mechanism that envisaged the direct application of European law by the national courts. But even if a monist view had not been intended by the founding Member States, the European Court discarded any possible dualist readings of Union law in the most important case of European law: Van Gend en Loos.

Introduction

The idea of European unification is as old as the European idea of the sovereign State. Yet the spectacular rise of the latter overshadowed the idea of European union for centuries. Within the twentieth century, two ruinous world wars and the social forces of globalisation have increasingly discredited the idea of the sovereign State. The decline of the monadic State found expression in the spread of inter-state cooperation. And the rise of international cooperation caused a fundamental transformation in the substance and structure of international law. The changed reality of international relations necessitated a change in the theory of international law.

The various efforts at European cooperation after the Second World War formed part of this general transition from an international law of coexistence to an international law of cooperation. ‘Europe was beginning to get organised.’ This development began with three international organisations. First: the Organisation for European Economic Cooperation (1948), which had been created after the Second World War by 16 European States to administer the international aid offered by the United States for European reconstruction. Secondly, the Western European Union (1948, 1954) that established a security alliance to prevent another war in Europe. Thirdly, the Council of Europe (1949), which had inter alia been founded to protect human rights and fundamental freedoms in Europe. None of these grand international organisations was to lead to the European Union. The birth of the latter was to take place in a much humbler sector.

The 1951 Treaty of Paris set up the European Coal and Steel Community (ECSC). Its original members were six European States: Belgium, France, Germany, Italy, Luxembourg and the Netherlands. The Community had been created to integrate one industrial sector; and the very concept of integration indicated the wish of the contracting States ‘to break with the ordinary forms of international treaties and organisations’.

The Treaty of Paris led to the 1957 Treaties of Rome. The latter created two additional Communities: the European Atomic Energy Community and the European (Economic) Community. The ‘three Communities’ were partly ‘merged’ in 1967, but continued to exist in relative independence. A major organisational leap was taken in 1993, when the Maastricht Treaty integrated the three Communities into the European Union. But for a decade, the Treaty on European Union was under constant constitutional construction.

Introduction

Since European law is directly applicable in the Member States, it must be recognised alongside national law by national authorities. And since European law can have direct effect, it might come into conflict with national law in a specific situation. And where two legislative wills come into conflict, each legal order must determine when conflicts arise and how these conflicts are to be resolved.

For the Union legal order, these two dimensions have indeed been developed for the relationship between European and national law. In Europe's constitutionalism they have been described as, respectively, the principle of pre-emption and the principle of supremacy: ‘The problem of preemption consists in determining whether there exists a conflict between a national measure and a rule of [European] law. The problem of [supremacy] concerns the manner in which such a conflict, if it is found to exist, will be resolved.’ Pre-emption and supremacy thus represent ‘two sides of the same coin’. They are like Siamese twins: different though inseparable. There is no supremacy without pre-emption.

This chapter begins with an analysis of the supremacy doctrine. How supreme is European law? Will European law prevail over all national law? And what is the effect of the supremacy principle on national law? We shall see that there are two perspectives on the supremacy question. According to the European perspective, all Union law prevails over all national law. This ‘absolute’ view is not shared by the Member States. Indeed, according to the national perspective, the supremacy of European law is relative: some national law is considered to be beyond the supremacy of European law.

A third section then moves to the doctrine of pre-emption. This tells us to what extent European law ‘displaces’ national law; or, to put it the other way around: how much legislative space a European law still leaves to the Member States. The Union legislator is generally free to choose to what extent it wishes to pre-empt national law. However, there are two potential constitutional limits to this freedom. First, the type of instrument used – regulation, directive or international agreement – might limit the pre-emptive effect of Union law. And, secondly: the type of competence on which the Union act is based might determine the capacity of the Union legislator to pre-empt the Member States.

Introduction

The rise of the modern State system after the seventeenth century was a celebration of political pluralism. Each State was entitled to its own ‘autonomous’ existence.

The rise of the absolute idea of State sovereignty led to an absolute denial of all supranational authority above the State. This way of thinking introduced a distinction that still structures our understanding of the legal world: the distinction between national and international law. The former was the sphere of subordination and compulsory law; while the latter constituted the sphere of coordination and voluntary contract. International law was thus not ‘real’ law – as it could not be enforced. From the perspective of classic international law, a ‘public law’ between sovereigns was thus a contradiction in terms since it required an authority above the States; but if sovereignty was the defining characteristic of the modern State, there could be no such higher authority. All relations between States must be voluntary and, as such, ‘beyond’ any public legal force.

From the very beginning, this traditional idea of State sovereignty blocked a proper understanding of the nature of the European Union. The latter was said to have been ‘established on the most advanced frontiers of the [international] law of peaceful cooperation’; and its principles of solidarity and integration had even taken it ‘to the boundaries of federalism’. But was the Union inside those federal boundaries or outside them? For while the European Union was not a Federal State, had it not assumed ‘statist’ features and combined – like a chemical compound – international and national elements? But how should one conceptualise this ‘middle ground’ between international and national law? In the absence of a federal theory beyond the State, European thought invented a new word – supranationalism – and proudly announced the European Union to be sui generis. The Union was declared to be ‘incomparable’; and the belief that Europe was incomparable ushered in the dark ages of European constitutional theory. Indeed, the sui generis idea is not a theory. It is an anti-theory, for it refuses to search for commonalities; yet, theory must search for what is common among different entities.

How, then, should we view and analyse the nature and structure of the European Union? This chapter presents two answers to this question by looking at two different constitutional traditions.

During its first decade, the single currency was a work in progress in more ways than one. Though the early years were difficult for Germany, France and Italy, which suffered particularly in the global slowdown from 2001 until mid 2003, the euro area as a whole made a promising start as the smaller economies in particular flourished, growing together at double the rate of the three big ones between 1999 and 2003. The ECB established both its authority and the effectiveness of a single monetary policy, passing several tricky tests such as the early slowdown and commodity price shocks. The new central bank could point to a respectable record in its first decade as growth in living standards in the euro area broadly matched that of the US, while inflation remained under control. More remarkably, when the financial crisis rocked western capitalism in 2008, the single-currency club appeared to protect its member states, whereas those outside looked vulnerable. Late that year, Buiter said that there was ‘a non-trivial risk of the UK becoming the next Iceland’ and that the pound's status as a ‘minor-league currency’ was now a ‘costly handicap’ for London's position as a global financial centre. Trichet's description of the euro as a shield in January 2009 (a term he had used before, for example in 2004) was not so obviously then the hostage to fortune that it became. In particular, although the euro itself fell against the dollar during the financial crisis it fared much better than the pound, which collapsed against both the dollar and the euro (at its nadir almost going through parity against the euro) due to fears about Britain's precarious banks.

But it was during the first decade of the single currency that the seeds of the euro crisis were sown, starting with the first and most important of them all, the admission of countries in southern Europe whose economies were ill-suited to the venture. The record for the euro area as a whole might have seemed broadly acceptable, but that overall picture disguised the emergence of economic imbalances both within and between members of the bloc. As a credit boom on the southern and western periphery gained momentum in the middle of the 2000s, these imbalances opened up on a scale matched only by the rapidity with which they emerged.

The idea of European monetary union was a distant dream when the Eagles released their album, ‘Hotel California’, in 1976. But the west-coast band's spaced-out lyrics turned out to be prescient for the euro thirty-five years later as the currency union stumbled into a crisis that threatened to tear it apart. Was the euro area, like the hotel, a place where you could check in but never leave? If that was the nightmare for a country like Greece as its citizens weighed the immediate pain of a ‘Grexit’ against an uncertain future gain as an economy unshackled from the euro, the existential nightmare for the euro area was that a country might indeed leave, and in the process destroy the single currency itself.

That prospect looked most threatening in 2012. Yet three years later, Greece went even further to the edge. The potential economic harm to the rest of the euro area in 2015 appeared to be much more contained than in 2012, although no one could be entirely sure about this in practice. By contrast, the political damage of the clash among euro-zone leaders at their weekend summit in July as Greece desperately sought to remain a member while Germany openly pressed for an enforced exit was profound. The disharmony caused soul-searching about a project that was dividing the peoples of Europe rather than bringing them together.

The history of currency unions cast a sobering shadow. If the European version were to survive, it would be the exception to the rule. Shortly before the financial crisis erupted, Andrew Rose, an economist at the University of California, Berkeley, estimated that sixty-nine countries (or other territorial entities) had left currency unions since the Second World War. In fact, this was an underestimate because Rose's figures did not include the break-ups following the collapse of the Soviet Union and of Yugoslavia. The exits generally occurred as the former imperial powers shed their colonies and newly independent countries adopted a new currency. The departures peaked in the 1960s and 1970s; by the end of the latter decade, sixty-two out of the sixty-nine noted by Rose had taken place.

Introduction

The protection of human rights is a central task of many modern judiciaries. Judicial review may thereby be limited to the review of the executive; yet in its expansive form, it includes the judicial review of legislative acts. The European Union follows this second tradition. Fundamental rights thus set substantive – judicial – limits to all governmental powers and processes within the Union. They indeed constitute one of the most popular grounds of review in actions challenging the validity of European Union law.

What are the sources of human rights in the Union legal order? Despite the absence of a ‘bill of rights’ in the original Treaties, three sources for EU fundamental rights were subsequently developed. The European Court first began distilling fundamental rights from the constitutional traditions of the Member States. This unwritten bill of rights was inspired and informed by a second bill of rights: the European Convention on Human Rights. This external bill of rights was, decades later, matched by a written bill of rights specifically drafted for the European Union: the Charter of Fundamental Rights.

These three sources of EU fundamental rights are now expressly referred to – in reverse order – in Article 6 of the Treaty on European Union. The provision reads:

This chapter investigates each of the Union's three bills of rights and the constitutional principles that govern them. Section 1 starts with the discovery of an ‘unwritten’ bill of rights in the form of general principles of European law. Section 2 analyses the Union's own ‘written’ bill of rights: the EU Charter of Fundamental Rights.