This is the second article I write in response to Gerald Knaus, head and founder of the influential think tank „European Stability Initiative” (ESI). In the first piece, I reacted to what I think is a very bad idea proposed by ESI: To impose a whopping 5+ billion EUR fine on Poland, 1% of its GDP. Read it here.
What really caught my eye was Knaus’ reasoning: He pointed out it can be done, because Article 260 (2) of the European Treaty, relevant to such fines, does not set an upper limit. The upper limit is whatever the EU commission, which proposes such fines, and the European Court of Justice (ECJ), which then decides on the proposal, deem to be „appropriate”. Somewhat drastically, I argued that this can in effect be used to „break a member state”.
Knaus reacted to my piece on Twitter, arguing that I was wrong: The EU cannot misuse that rule to break a member state. Read his arguments here.
Fines in the magnitude of full percentage points of GDP (and why not two percent, or three?) will, if indeed they are paid, have an impact on such things as employment, will limit the government’s ability to implement policies beneficial to society (say, a raise in pensions, improving health care, offer subsidies to families with children). In a word, at the very least it would limit the government’s ability to implement popular policies and, in a worst-case scenario, could force it to implement unpopular expenditure cuts.
Fines in that magnitude would end up punishing the population, and in doing so would, or at least could damage the government’s popularity with voters (and the EU’s popularity as well).
Knaus argues that be this as it may, such a huge fine is in order because it is „appropriate” relative to the magnitude of the problem: Judicial reforms in Poland, he says, damage the independence of the Judiciary to the point where a common European legal space (the German term „Rechtsraum” expresses this better) ceases to exist.
I’m not a legal expert but would argue that there is an ongoing debate about the EU using the Rule of Law debate to restrict the national legal space of member states, in an expansive and inappropriate way. This debate is not limited to Poland. The German Constitutional Court has ruled that the ECJ transgressed its powers and ruled in an „objectively arbitrary” and „methodically not acceptable” way when it decided that the bond-buying program of the European Central Bank did not contravene EU law. The German court thinks the ECBs policy is unconstitutional. The EU has reacted by initiating infringement procedures against Germany.
The German Constitutional Court, because it ignored the general rule that European law has precedence over national law? Or the European Court of Justice, because it failed to understand or accept the legal limits to ECB actions? Who is to decide? And would any decision here be objectively correct, or an expression of political attitude? Will the EU commission and the ECJ fine Germany 1% of its GDP as punishment if the ECJ ends up ruling that Germany is infringing on EU law in this matter? How much is 1% of 3,37 trillion EUR? (That is, I believe the current German GDP).
Knaus argues that EU rules and values cannot be optional for member states, there must be a price to pay for infringement. Sure. But that price should be transparent and calculable, and it should be agreed on by all member states. As Knaus points out, the EU commission has worked out a formula to calculate fines and has used this instrument with political caution. But he thinks it is a formula that will not deter member states from infringing on EU rules – the fines are relatively modest, and are used only after many years of legal disputes.
But that formula, Knaus correctly points out, is not legally binding. It can be changed, with no upper limit.
Obviously, the EU is not Turkey. It would never, we hope, take advantage of legal imprecisions in the treaties to exert undue pressure on member states. But can we be sure of that? Do we know what the EU will look and behave like in 2050? 2070?
There is no telling how EU legal practice and power structures will evolve. It can all go horribly wrong, although we all hope to keep an enlightened, unintrusive EU respectful of member states, not trying to rule them.
The ESI proposal actually does that: It proposes to „limit” fines to „up to 1% of GDP” of a member state. That is an upper limit. But it is a radical increase from what has been the legal practice up to now. It pours oil on the fires of the EU's East-West conflict.
I have a simpler proposal. Take the formula the Commission has been using anyway to calculate fines and integrate it into Art. 260. That way, legal precedent becomes actual formal law. Simple, transparent, no surprises.