In its responses to the Eurozone Crisis, the European Union has sacrificed the clear interpretation of Union law and the very primacy of the Union treaties themselves in order to address short term economic problems, some of which are the Union’s own fault.

Introduction.
This essay title is quiet broad covering a number of different issues that are all very much interrelated and are of current concern for the European Union and its’ citizens. Each aspect of the title will be defined and discussed using the case of Ireland and its’ bailout as a case study throughout the essay. Ireland is a versatile case study in this essay as it contains many examples of poor economic management and had one of the largest government deficits of Eurozone countries following the Eurozone crisis as a result of the collapse of its’ banking sector. The Eurozone Crisis is the name given to the recession that hit Eurozone countries in 2008 following the failure and collapse of the global financial and housing markets. The essay will begin by discussing a brief history of the European Union and the establishment of varies institutions and treaties that have brought the European Union to where it is today is terms of the economies of the Union as a whole and of Member States individually. The Eurozone crisis and the short-term economic problems facing the European Union will then be discussed in depth. Following an analysis of the Eurozone crisis and the economic problems it faces, the question of whether these problems are of a result of the European Union itself will be discussed. The legality of steps taken by the European Union to counteract the lax fiscal policies of the Member States of the Union and their attempts to reverse the damage done to Member States economies by examining the interpretation of the treaties and discussing relevant case law.
History of Economic and Monetary Union in the EU.
From the creation of the European Coal and Steel Community in 1951 to a meeting of Heads of Government in 1969 economic cooperation was more desirable for Member States it was not until the Heads of Government meeting that economic and monetary union became desirable and the concept of a single currency for the European Union was first proposed at the Hague in 1969, with only minor attempts being made to make the concept a realization in the subsequent years it was not until the establishment of the European Monetary System (EMS) and its exchange rate mechanism (EMR) in 1979 that it did become a realization[1]. Each Member States’ exchange rate was given a fixed central exchange rate as against every other participating currency and a notional composite unit of account the European Currency Unit (ECU) was created.[2] The central banks of each member state assumed responsibility to intervene collectively in markets to ensure that the exchange rates would not fluctuate more than +/- 2.5 percent of the central rate.[3] The next major step in establishing economic and monetary coordination came in 1988 following the success of the Single European Act the European Council began considering the possibility of achieving further of Economic and Monetary Union. A committee was established chaired by the then President of the Commission, Jacques Delors and was made up of governors of central banks of the Member States along with three monetary affairs experts.[4] The report of the Delors Committee was adopted at the Madrid European Council meeting in 1990, setting out the blueprint for the Economic and Monetary Union that is implemented in the European Union presently.[5] The report stated:
· That the use of a single currency by the European Union apart from the obvious economic affects would also have significant psychological and political affects for the citizens of the European Union creating a deeper feeling of togetherness, while also creating a currency that would have a much greater weight on the world markets than a collection of individual Member State currencies.
· It would be required that the European Union create a new monetary institution to oversee the introduction and maintain a single monetary policy as it would be impossible to impose a consistent monetary policy from independent decisions taken by individual central banks across the member states. The creation of a monetary institution would also be of benefit in the day-to-day functioning of monetary policy operations, as it would provide a central decision making facility that would be able to respond promptly to changing market conditions.[6]
The recommendations of the Delors report were to a large extent replicated in Article 119 TFEU. The Maastricht Treaty was signed by European Community Member states in 1992 adding Article 3(4) ‘establishing an economic and monetary union whose currency is the euro’ and Article 119 TFEU.[7] In 1999, eleven Member States adopted the euro as their national currency, since this a further five states have adopted it as their currency. In order for a Member State to adopt the euro a number of economic conditions known as the convergence criteria, such as the annual government deficit should not exceed three percent of GDP and the total government debt should not exceed sixty percent of GDP. [8] The euro currency went into circulation in 2002 under the regulation of the newly formed institution the European Central Bank. The history of Economic and Monetary Union is relatively recent in the context of the history of the European Union as a whole.
The Eurozone Crisis and Short Term Economic issues facing the European Union.
As the Eurozone is an accumulation of a number of different economies coming together as one it is often too easy to hide government deficits of member states among the overall GDP for Europe. Countries such as Greece, Ireland and Portugal were able to go relatively unnoticed with having large government deficits leading up to the Eurozone crisis. Ireland had been successful in reducing its’ ratio of debt to GDP from 1981 to 2006 even achieving a below sixty percent ceiling in the second half of the 1990s however, this was just masking the stockpiling of an array of macroeconomic, financial and fiscal vulnerabilities.[9] As countries adjusted to the new currency circulating in their economies, they suddenly began to experience strong credit booms as joining the Eurozone meant they now had a stronger currency than their previous national currency and were no longer burdened by the worry of exchange rates moving against them. This resulted in easier availability of credit stimulated consumption-related and property-related borrowing causing huge deficits in the private sector of the economy.[10] There was not a sudden emergence of credit growth and current account imbalances after the introduction of the euro in 2002; instead there was a discrete increase during 2003-2007. This coincided with a boom in international financial markets and the decline in financial risk indices along with the unusually low long-term interest rates during this period.[11] In the case of Ireland the government was not a net borrower during 2003-2007, it was private households that were the primary borrowers allowing the property boom fuel debt accumulation.[12] The failure of Member States to have more secured fiscal policies was a major missed opportunity, as the private sector began taking more risks, which could have prevented the Eurozone crisis. National governments were reluctant to tighten their fiscal policies as in Ireland the credit and housing booms directly generated more tax revenues from the increase in transactions occurring and the high level of construction activity that was taking place.[13] The reliance of Ireland’s banks on international short-term funding and the shrinking of financial flows from U.S. investors in 2008 forced the Irish government to provide an extensive two-year liability guarantee or bailout to its’ banks at the end of September 2008 leading to Ireland needing a bailout itself in 2010.[14] Although the economic title of the essay describes the economic problems facing the European Union as short-term this may be an inaccuracy as the issues facing the European Union may not have been short-term economic problems as they threatened to collapse the euro as a currency ten years after its’ introduction and the markets of just a few Member States namely Ireland, Greece, Spain and Portugal jeopardized the European Union financial markets as a whole as international financial investors began to lose faith in the notion of a European Economic and Monetary Union as the governments deficits of these four Member States requiring funding to ensure the whole financial sector of the European Union did not face much more severe economic conditions. If it were not for the prompt responses to the Eurozone’s’ economic crisis the issues would not be short-term but would be much worse and may have resulted in the reversal of years of development of the European Union and its’ institutions.
Although praise can be given to the swift response to the issues facing the European Union it must be criticized for allowing these issues to development and threaten the Union to the extent that it did. The European Union has realized the dangers of allowing these events to occur again so it has set up a, what is intended to be temporary, European Financial Stability that can issue bonds on the basis of guarantees from Member States in order to provide official funding in the event of any future crisis.[15] As Member States found themselves in a unique position where the loss of their monetary policy resulted in their national fiscal policies acquiring a much greater significance at an economic level in the European Union. Member States were more likely to be lured into excessive borrowing as they could seek financial assistance from the ECB is it was required. This required a collective action problem and the elimination of any free riders from the process as excessive borrowing or mismanagement of finances by one national government would have an impact and impose costs on all other national government within the European Union. Excessive deficits are stated in the Treaties to be an annual deficit of more than three percent GDP or a government debt of in excess of sixty percent of GDP. If a national government exceeds these criteria the Member State is to be legally accountable, however, in 1997 the French government insisted that the figures of three percent and sixty percent not be treated too formulaically and it was agreed that the figure of three percent would not be applied in exceptionally severe circumstances.[16] The matter came to a head again when in 2002 and 2003, France and Germany experienced deficits greater than three percent. The Commission opened up the Excessive Deficit Procedure against them but this was held in abeyance by the Council although found to be illegal by the Court of Justice holding that if there was not the necessary majority (QMV) it could not lawfully take a decision to hold the proceedings to be in abeyance.[17] This resulted in two important amendments being made to when an excessive deficit is reported. Firstly, is when an excessive deficit will not be found to exist when a national government exceeds the thresholds as a result of severe economic downturn. Secondly, the Commission is now required to make a balanced overall assessment of when there is an excessive deficit, taking into account a number of factors including, the medium-term budgetary and economic position of the Member State.[18] The clear lack of much needed stringent control over national governments running deficits came to a head in 2009 when twenty of the Member States where found to have an excessive deficit by the Commission, making it clear the national governments were not put off running deficits by the fear of levying very large fines.[19] This however, is implausible as it is unlikely that national governments would impose large fines on Member States who are already running deficits as it will only ensure they continue to have a deficit for longer. These impractical threats on national governments highlights that some, although not all, of the European Unions economic crisis were its’ own fault and through a more strict application of Article 126 TFEU along with more realistic sanctions the European Union may have avoided some of its’ economic problems.
Interpretation of European Union Law and primacy of European Union treaties.
The case of Pringle v Ireland is the most significant case in the interpretation of the treaties by the European Court of Justice.[20] The European Stability Mechanism (ESM) is an effort by the European Union to put in place a financing mechanism that will provide support for Eurozone Member States that have severe government deficits and seek financial assistance in overcoming these deficits. Pringle challenged the legality of the interpretation of the Union treaties in the establishing and implementing of the ESM Treaty. O’Gorman believes that it was necessary for the European Court of Justice to give a strained interpretation of existing Union Treaty articles to ensure the financial stability of the Eurozone while also being consistent with existing European Union law.[21] Decision 2011/199 of the TFEU provided for the amendment of Article 136 to include a reference to the ESM, through the use of the simplified treaty revision procedure under Article 48(6) of the TEU.[22] The Pringle case also challenged the constitutionality of the Irish Government signing up to the ESM Treaty without holding a referendum and for a breech of the State’s obligations under the EU Treaties.[23] The High Court rejected the challenge however, it was appealed to the Supreme Court where it was also rejected but not before the Supreme Court referred the issues of the validity of Decision 2011/199 and other preliminary rulings under Article 267 TFEU.[24] The ‘no bailout clause’ explicitly referenced in Article 125 TFEU was conveniently brushed aside by the European Court of Justice which, stated that in contrast to Article 125 TFEU a Member State could receive financial assistance if it remained responsible for its’ debts to creditors and when then conditions bound to the financial support were specifically designed to direct the Member State to implementing durable budgetary policy.[25] It can argued that the European Court of Justice disregarded the primacy of the treaties when it blatantly stretched the interpretation of Article 125 to allow for the creation of financial funding to Member States who required assistance in the stabilizing of their economies.

Conclusion.
To summarize, the European Union through ratification of treaties and implementation of European Union law has managed to establish macroeconomic harmony among participating member states through what started off as desire but in more recent times following the global economic downturn has resulted in economic necessity. The failure of politicians and investors alike to see into the future and consider the consequences of their mismanagement and recklessness of finances along with global financial markets such as the U.S. experiencing an economic boom due to an explosion in the U.S subprime mortgage market can be attributed to the Eurozone economic crisis. The lax application of Article 126 TFEU on national governments running budget deficits can be viewed as the European Union inflicting some of its’ economic problems on itself. The intervention by the European Union in bailing out Eurozone Member State following the Eurozone crisis was of necessity to the continued success of Economic and Monetary Union in the European Union to ensure that the short-term economic problems it faced would remain short-term problems and would not develop into long-term financial difficulties for the European Union. However, the means by which the European Union enacted treaties and decisions, which, are in obvious conflict with previous European Union legislation undermines the primacy of European Union law.
[1] Damien Chalmers, Gareth Davies & Giorgio Monti, European Union Law, (2nd edition, Cambridge University Press 2010).
[2] Damien Chalmers, Gareth Davies & Giorgio Monti, European Union Law, (2nd edition, Cambridge University Press 2010).
[3] Damien Chalmers, Gareth Davis & Giorgio Monti, European Union Law, (2nd edition, Cambridge University Press 2010).
[4] Damien Chalmers, Gareth Davis & Giorgio Monti, European Union Law, (2nd edition, Cambridge University Press 2010).

[5] Damien Chalmers, Gareth Davis & Giorgio Monti, European Union Law, (2nd edition, Cambridge University Press 2010).

[6] Damien Chalmers, Gareth Davis & Giorgio Monti, European Union Law, (2nd edition, Cambridge University Press 2010).

[7] Damien Chalmers, Gareth Davis & Giorgio Monti, European Union Law, (2nd edition, Cambridge University Press 2010).

[8] Damien Chalmers, Gareth Davis & Giorgio Monti, European Union Law, (2nd edition, Cambridge University Press 2010).

[9] Philip Lane, ‘The European Sovereign Debt Crisis’ (2012) 26(3) Journal of Economic Perspectives http://www.ingentaconnect.com/content/aea/jep/2012/00000026/00000003/art00003 accessed 19 March 2014.
[10] Philip Lane, ‘The European Sovereign Debt Crisis’ (2012) 26(3) Journal of Economic Perspectives http://www.ingentaconnect.com/content/aea/jep/2012/00000026/00000003/art00003 accessed 19 March 2014.
[11] Philip Lane, ‘The European Sovereign Debt Crisis’ (2012) 26(3) Journal of Economic Perspectives http://www.ingentaconnect.com/content/aea/jep/2012/00000026/00000003/art00003 accessed 19 March 2014.
[12] Philip Lane, ‘The European Sovereign Debt Crisis’ (2012) 26(3) Journal of Economic Perspectives http://www.ingentaconnect.com/content/aea/jep/2012/00000026/00000003/art00003 accessed 19 March 2014.
[13] Philip Lane, ‘The European Sovereign Debt Crisis’ (2012) 26(3) Journal of Economic Perspectives http://www.ingentaconnect.com/content/aea/jep/2012/00000026/00000003/art00003 accessed 19 March 2014.
[14] Philip Lane, ‘The European Sovereign Debt Crisis’ (2012) 26(3) Journal of Economic Perspectives http://www.ingentaconnect.com/content/aea/jep/2012/00000026/00000003/art00003 accessed 19 March 2014.

[15] Philip Lane, ‘The European Sovereign Debt Crisis’ (2012) 26(3) Journal of Economic Perspectives http://www.ingentaconnect.com/content/aea/jep/2012/00000026/00000003/art00003 accessed 19 March 2014.

[16] Damien Chalmers, Gareth Davis & Giorgio Monti, European Union Law, (2nd edition, Cambridge University Press 2010).

[17]
[18] Damien Chalmers, Gareth Davis & Giorgio Monti, European Union Law, (2nd edition, Cambridge University Press 2010).

[19] Damien Chalmers, Gareth Davis & Giorgio Monti, European Union Law, (2nd edition, Cambridge University Press 2010).

[20] Case C-370/12 Thomas Pringle v Government of Ireland, Ireland and the Attorney General [2012] ECJ.
[21] Roderic O’Gorman, ‘Thomas Pringle v Government of Ireland, Ireland and the Attorney General’ (2013) 50 Irish Jurist < http://moodle.dcu.ie/pluginfile.php/295870/mod_resource/content/0/OGorman%20-%20Irish%20Jurist%20Pringle%20-%20Final.pdf&gt; accessed 19 March 2014.

[22] Roderic O’Gorman, ‘Thomas Pringle v Government of Ireland, Ireland and the Attorney General’ (2013) 50 Irish Jurist < http://moodle.dcu.ie/pluginfile.php/295870/mod_resource/content/0/OGorman%20-%20Irish%20Jurist%20Pringle%20-%20Final.pdf&gt; accessed 19 March 2014.
[23] Roderic O’Gorman, ‘Thomas Pringle v Government of Ireland, Ireland and the Attorney General’ (2013) 50 Irish Jurist< http://moodle.dcu.ie/pluginfile.php/295870/mod_resource/content/0/OGorman%20-%20Irish%20Jurist%20Pringle%20-%20Final.pdf&gt; accessed 19 March 2014.
[24] Roderic O’Gorman, ‘Thomas Pringle v Government of Ireland, Ireland and the Attorney General’ (2013) 50 Irish Jurist < http://moodle.dcu.ie/pluginfile.php/295870/mod_resource/content/0/OGorman%20-%20Irish%20Jurist%20Pringle%20-%20Final.pdf&gt; accessed 19 March 2014.

[25] Roderic O’Gorman, ‘Thomas Pringle v Government of Ireland, Ireland and the Attorney General’ (2013) 50 Irish Jurist < http://moodle.dcu.ie/pluginfile.php/295870/mod_resource/content/0/OGorman%20-%20Irish%20Jurist%20Pringle%20-%20Final.pdf&gt; accessed 19 March 2014.

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