Chapter 2 gives scholars and students across disciplines, but also policymakers, trade unionists, and social movement activists, a clear account of the arcane new economic governance (NEG) regime that European Union leaders adopted after 2008. The chapter avoids jargonistic academic language as well as the Euro-speak of the EU’s economic governance documents when describing the setup and operation of the NEG regime. This is important if one wants to understand its internal contradictions and change the operation and policy direction of the EU’s NEG regime.

State aid law controls public spending by Member States by prohibiting aid which damages the internal market and encouraging spending on projects of interest to the EU economy. The Court of Justice plays a central role in delimiting the scope of application of State aid law. The Commission has extensive powers to investigate State aid and may order recovery of funds that are granted illegally. This remedy harms the beneficiary but does little to deter the Member State granting aid. The Commission has been successful in reducing the grant of State aid and encouraging States to fund certain types of State aid which contribute to the EU’s emerging industrial policy. Moments of economic chaos like the financial crisis in 2008 and the Covid-19 pandemic led to a significant relaxation of State aid discipline but the Commission used these two crises to press for further economic integration in the form of the Banking Union and the Recovery and Resilience Facility respectively.

Services are the largest part of modern economies, but often highly regulated, making cross-border service activity hard to achieve. Sometimes, as in the case of abortion, healthcare, education or gambling, they have an important social, redistributive or moral aspect which makes liberalisation of cross-border services politically sensitive. Yet the Court of Justice’s case law is very far reaching, treating any measures which hinder or make less attractive the provision of cross-border services as prohibited unless they can be justified. This applies not just to the State, but to any body restricting market access, including trade unions concerned to exclude low-cost competition from posted workers. Much of this case law has been codified in the Services Directive, which also addresses freedom of establishment, but the Directive has so many exclusions that Article 56 of the Treaty on the Functioning of the European Union and the case law remain important, as does sector-specific legislation such as that on free movement of patients.

The Court of Justice comprises two courts, the Court of Justice and the General Court. The most high-profile task of the latter relates to individuals coming before it seeking judicial review of EU Institutions. This chapter focuses on one procedure, the preliminary reference procedure, whereby national courts refer questions of EU law to the Court of Justice where these are necessary to decide disputes before the former. The Court of Justice has recrafted this procedure to establish a judicial order in which it is the apex court, with all courts having an unfettered and immediate right of reference to it. This judicial order does four things: develops EU law, secures the judicial review of EU Institutions, protects the uniformity of EU law and upholds the independence of the judiciary within EU States. Within this order, national courts against whose decisions there is no remedy must refer, as must all courts who assess that an EU measure is invalid. Other courts have a discretion to refer, with this discretion extending to all courts where a materially identically dispute has decided the point of law in question or the act is so clear it does not require interpretation.

This chapter considers Economic and Monetary Union (EMU). Nineteen States currently have the euro as their currency. EMU is built around three pillars. There is, first, an independent European Central Bank with the exclusive right to authorise the issue of the euro. It has also developed extensive powers to purchase large amounts of securities to stimulate weak economic performance in part of the euro area, and of prudential supervision over credit institutions within the euro area. States not participating in the euro are not bound by its decisions. Secondly, States commit not to incur excessive deficits, to run balanced budgets over the medium term and to correct macroeconomic imbalances. Euro area States can be subject to heavy sanctions for not meeting their obligations. Thirdly, there is coordination of domestic economic policy. The central arena for oversight of much of this is the European Semester for Economic Policy Coordination. There, the EU Institutions assess domestic economic and fiscal performance as well as performance in the fields of social policy and climate change, with recommendations to be implemented by States in their budgets in the subsequent year.

EU competition law applies to conduct by undertakings which affects trade between Member States. There are very few undertakings to which antitrust law does not apply. The Court of Justice has found that collective bargaining agreements between employees and employers are excluded as well as some forms of industry self-regulation when these rules promote a public interest. Article 101 of the Treaty on the Functioning of the European Union (TFEU) applies to catch cartels although it is not clear if all forms of algorithmic collusion can be punished. Cartels restrict competition by object, but many other agreements may enhance economic welfare and may only be punished if anti-competitive effects are shown. This requires an economic analysis of the impact of the agreement, having regard to legal and economic factors. Some restrictive agreements may be exempted when the anti-competitive effects are compensated by other economic benefits. Article 102 TFEU prohibits the abuse of a dominant position. Over the past fifteen years the Commission and the Court of Justice have shifted the interpretation of this prohibition to focus on conduct whose effects are likely to exclude efficient rivals, reflecting the more economic approach to antitrust.

This chapter first considers the central types of binding law: Regulations, Directives, decisions and international agreements. Different procedures govern the adoption of these laws, with the legislative procedure determined by the aim and content of law being adopted. There are three central legislative procedures. The ordinary legislative procedure grants the Parliament the power of veto, and the Council the power of assent over any Commission proposal. In the consultation procedure, Parliament is merely consulted on a Commission proposal with the Council having the final decision. The consent procedure requires the Parliament to actively approve a proposal. National parliaments are consulted on legislative proposals and can indicate that a measure violates the subsidiarity principle. Many EU laws provide for further implementation by Commission measures. These are adopted under procedures known as comitology, where representatives of national governments are either consulted or can veto the proposed measure. The chapter concludes by considering the democratic qualities of EU lawmaking, noting that conclusions depend very heavily on the prism through which these are analysed.

This chapter considers the circumstances when EU law provisions can be invoked in national courts. The doctrine of direct effect enables an EU law provision to be invoked in a national court when it grants entitlements to individual parties in a sufficiently precise way. Directly effective provisions of the EU Treaties and Regulations can be invoked against both the State and private actors. By contrast, directly effective provisions of Directives can only be invoked against the State. The doctrine of indirect effects requires any national law or procedure to be interpreted so far as possible to comply with all EU law. However, this cannot be done if the interpretation would contradict the wording of the national law or aggravate criminal liability. The doctrine of State liability allows individuals to sue the State for damages for breach of an EU law which grants them individual rights in a number of circumstances: if the State has failed to transpose a Directive, it has not complied with an order of the Court of Justice, it has failed to follow settled case law of that court or it breaches a clear provision of EU law.

EU fundamental rights are autonomous EU rights but are founded on two sources: the European Union Charter of Fundamental Rights (EUCFR) and general principles of law. The EUCFR has the same legal status as the Treaties, and comprises a wide array of civil, economic, ecological, political and social rights. General principles of law comprise all the rights in the European Convention on Human Rights as well as a number of further principles: notably, equal treatment, legitimate expectations, the proportionality and precautionary principles, and general rights of defence. EU fundamental rights can be invoked to strike down EU measures but, more frequently, they guide interpretation of these measures. They can only be invoked against Member States when these implement EU law. This will be so when a national measure implements or has the same objectives as an EU law, is authorised by an EU law, or is invoked as an exception to an EU law. A number of general principles of EU law can also be invoked against private parties, notably the prohibition on discrimination, the right to effective judicial protection and the right to annual leave.

Article 34 of the Treaty on the Functioning of the European Union (TFEU) provides that measures equivalent to a quantitative restriction shall be prohibited. The case law of the European Court of Justice interpreting this has addressed product standards, selling arrangements and all other kinds of national measures that might tend to hinder trade or affect consumer behaviour and thereby restrict imports. Relying on judge-made ideas such as mutual recognition and mandatory requirements, the Court has put the informed consumer at the heart of the market, at the expense of the paternalistic state. On the other hand, it recognises the need to restrict free movement where legitimate public interests are at stake, with the proportionality of such restrictive measures being the main question in most cases.

The chapter considers the powers of the central administrative and legislative institutions. The Commission comprises a college of twenty-seven Commissioners appointed for five years. It has four central types of power. It can adopt quasi-legislation. It proposes laws, policies and the budget. It administers EU policies. Finally, it has powers to police the observance of EU law. The Council of Ministers, comprised of national ministers, has the final power of decision over almost all fields of EU law. It votes either by unanimity or by Qualified Majority, where fifteen States representing 65 per cent of the Union population must vote for a measure. The European Council comprises the Heads of Government. Its central role is to provide political direction for the other EU Institutions. The European Parliament comprises 705 directly elected representatives. Depending upon the field, it has the power of veto over legislation, has to assent to it or must be consulted over it. The Parliament also has significant powers to hold the other EU Institutions to account. This chapter concludes by examining the circumstances when individuals can seek disclosure of documents from the EU Institutions.

This chapter considers relations between the European Union and other European States. The European Economic Area establishes something close to a single market, with non-EU States transposing swathes of EU law into their national law. A customs union with Turkey in non-agricultural goods requires Turkey to align its laws with EU laws relating to external trade and free movement of goods. A hybrid regime exists with the United Kingdom. Northern Ireland aligns its external trade and free movement of goods law with EU law. A free trade agreement exists for the rest of the United Kingdom which abolishes tariffs on movement of goods but allows regulatory barriers. A free trade agreement also operates with Ukraine under which it aligns its laws with EU law in free movement of goods, most of free movement for services, environmental, labour and competition law. A limited free trade agreement exists with Switzerland, alongside a number of agreements in which Switzerland aligns its laws with EU law in return for access to the EU market or territory. The chapter also considers the ‘Brussels effect’ under which non-EU States and industries voluntarily adopt EU law to access the EU market.

The Member States of the European Union have created an internal market where movement of goods, services, persons and capital should be as easy across borders as it is within a single Member State. This is achieved by Treaty Articles which prohibit restrictions on free movement and discrimination, and by harmonisation. The process of harmonisation is complex and contested because it goes to the heart of how much power the EU has, and how much uniformity between Member States is required. The creation of common standards, although done by legislation, is a technocratic process in which it is sometimes claimed that non-scientific interests such as culture and identity are not adequately represented. As well as this, a well-functioning internal market has side-effects, such as regulatory competition, which put pressure on national standards and may undermine national preferences.

The Treaty on the Functioning of the European Union (TFEU) provides for free movement of the factors of production, but also for derogations from free movement where necessary to protect important interests such as public policy, public security and public health. These have been broadened out by the Court of Justice to include other public interest objectives, including the environment and consumer protection, which can also be relied on under certain conditions. All these derogations and protections are to be applied subject to certain conditions – they must be restrictively interpreted, non-discriminatory, procedurally fair and applied in a proportionate and consistent way. Alongside these, there are specific exceptions applying to occupations, excluding public service and official authority from the scope of Articles 45, 49 and 56 TFEU.