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    A good understanding of European economic integrat ion requires a

    basic insight into the nature and economic substance of EC powers. The

    present chapter provides an economic perspective on the four succes-

    sive EC treaties the EEC treaty of 1957, the Single European Act of

    1985, the Maastricht Treaty of 1991 and the Amsterdam Treaty of 1997.1

    In considering the treaty as a kind of economic constitution, the chapter

    can avoid description and concentrate on aims, instruments and principles.

    The stages of economic integration will also be referred to. The approach

    also facilitates an understanding of the evolution of the economic integration

    regime of the Community. Section 3.1 characterises an economic constitu-

    tion by six key elements and provides some general considerations for their

    application to economic integration treaties. Section 3.2 uses this framework

    to outline the economic constitution of the Rome Treaty. Sections 3.3, 3.4

    and 3.5 outline the substantive additions incorporated by the Single Act, theMaastricht Treaty and the Amsterdam Treaty respectively, using the same

    framework. The four treaties are summarised graphically in four successive

    figures (3.13.4) with the same structure.

    3.1 An economic constitution for integration

    When an economic integration treaty includes a considerable degree of

    positive integration, one may look at the treaty as a kind of economic

    constitution. In general, a constitution sets out the fundamental rights

    (and duties) of citizens and firms, besides the powers, and the limits of

    the powers, of the state. An economic constitution can be seen as a

    framework of rules and principles for public economic functions, besides

    the fundamental economic rights (and duties) of economic agents.

    Applying this notion to integration would make no sense if only negative

    integration is agreed; in that case, there would be no joint public

    economic functions. All the group members could do would be to volun-

    Topics covered

    3.1 An economic constitution

    for integration

    3.2 The economic constitution

    in the Rome Treaty

    3.3 The value-added of the

    Single Act

    3.4 The Maastricht Treaty

    3.5 The incrementalism of the

    Amsterdam Treaty

    3.6 Summary

    CHAPT ER 3 Economic Constitution of the EU

    1The Euratom treaty (1957) will not be dealt with, except in passing, as it has

    largely fallen into disuse. The ECSC treaty is touched upon in chapter 14. After its

    expiry in 2002, it will be incorporated in the Maastricht Treaty.

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    tarily accept to limit the use of their own economic

    powers (for example, no tariffs for trade within thegroup in an FTA).

    The EEC, and later the EC (and the EU),

    engaged in extensive positive integration, which

    has been deepened and widened over time.

    Looking at the treaties as economic constitutions is

    a useful way to grasp their economic essence,without going into needless and tedious detail. An

    added advantage is that the rising integrative ambi-

    tion in the successive treaties can be easily

    understood within the same framework. At a general

    level, there are six basic characteristics of an

    economic constitution in an integration context:

    1 The guiding principles;2 The identified stages of economic integration;

    3 The (economic) aims;

    4 Its public economic functions (scope);

    5 Its economic powers at union level (means);

    6 Its institutions with their various functions.

    Guiding principles should determine the nature of

    the desired economic order. The guiding principles

    are not always explicit. Especially in the early

    stages of economic integration, economic relations

    within the union are likely to be dominated by theeconomic order of the Member States. Therefore, it

    might be felt to be a difficult and impractical exer-

    cise to define an economic order for the union.With the economic relations and obligations

    between the Member States not yet being so

    important, implicit and somewhat vague notions

    about the economic order will provide much

    needed flexibility. As integration ambitions deepen

    or grow more encompassing, guiding principles

    may have to become explicit.

    The stages of economic integration need not, of

    course, comply perfectly with the textbook.However, little can be accomplished if (1) the

    GATT/WTO status is not explicit (for clearance

    under Art. 24, GATT) and (2) certain basic

    economic freedoms and common policies are not

    identified.The aims of an integration treaty can be political

    and economic (and even cultural). The economicaims should, at least in theory, be expected to be

    promoted by the means in the treaty (ceteris

    paribus). However, the political aims may well be

    as important or more important. In other words,

    one may find that means Y promotes aim Z but that

    there are more effective ways to promote Z. The

    political aim to integrate for a political purpose,for example to prevent wars in the region may

    explain why an indirect, even second-best, means

    of economic integration is used in the treaty.

    The public economic functions are conveniently

    divided into three: allocative, or those influencing

    the desired functioning of markets; redistributive

    (between regions, persons or factors of produc-

    tion); macro-economic stabilisation (pursuing lowunemployment with the lowest possible inflation,

    without choking off growth). Specifying the unions

    public economic functions determines the

    economic scope of a treaty. Because redistribution

    and macro-economic stabilisation exert direct and

    usually considerable effects upon personal incomeand wealth, they tend to be sensitive in domestic

    politics. One would not expect them to become part

    of an integration treaty without difficulty. Thus, one

    would not expect an early integration treaty to

    comprise a monetary constitution (one money, with

    the macro policy and institutions needed for this

    money to be stable), a fiscal constitution (tax

    powers for the union, as well as limits on spending

    and political accountability with democratic repre-

    sentation for those who decide) or a social

    constitution (what redistribution, social insuranceand social security system is guaranteed, between

    persons at any moment in time, as well as between

    generations, between regions and between factors,

    and how these guarantees are financed?).

    For allocative measures, matters are more

    complicated. First, general allocative rules are

    closely linked to some guiding principles (for

    example, market vs. planning; competition vs. inter-

    vention; private vs. public ownership). Since there is

    tremendous scope for interpretation, general alloca-

    tive rules may find little opposition when ending up

    in an integration treaty. Second, allocative meas-

    ures can be (and are) fine-tuned enormously in

    every economy. This will be clear from the means

    (see below) but also from the distinction between

    negative and positive integration as well as from theenormous differentiation in types of markets (forexample, agricultural goods or labour, technology

    flows or telecoms services, etc.) and the policies

    related to them. It follows that early integration

    treaties may pursue market integration with almost

    infinite degrees of ambition. In part this will be

    determined by the guiding principles and the identi-

    30 Foundation

    2In a federation this might require less demanding majorities in the parliament or congress. In an integrating group,

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    fied stage of economic integration; in part, it will be

    fine-tuned in the treaty; and, finally, it will be fine-tuned during the implementation.

    The means specified refer to the economic

    powers assigned, or assigned under conditions, to

    the union level. These powers can be exhaustively

    enumerated (as in the US constitution) or they can

    be enumerated, not exhaustively but subject to

    discretion. There are many ways in which thisdiscretion can be used over time. Examples

    include the subjection of all new assignments to

    the union level to constitutional revision procedures

    of a lighter kind2 (which implies only minimum

    discretion); the subjection to a special assignment

    test, based on criteria specified in the constitution; or

    more open-ended, evolutionary processes, whichmay become clear over a generation or more. It is

    important to understand that exhaustive enumera-

    tion of union powers is no iron-clad protection for the

    states against long-term centralisation. Equally prob-

    lematic, however, is the opposite solution of placing

    initial economic integration processes in such rigid

    frameworks that deadlock becomes the normal (but

    costly) state of the union. In actual practice, imple-

    mentation by the various union institutions should

    eventually lead to a balance of union and statepowers which approximates, in some fashion, the

    preferences of the composing Member States;

    exhaustive enumeration is not essential in order for

    that to happen.

    The details of the powers concerned may range

    over the entire spectrum of possibilities: various

    kinds of prohibitive forms of economic regulation

    (that is, prohibiting either economic agents or

    Member States from acting in specified ways to

    cause certain unwanted effects); or, imperative

    forms of regulation (with respect to the objective

    only, or also the means, and possibly even all the

    detailed specifications), subsidies (direct or via

    state organs), tax breaks, taxation, and so on.

    Common budgets, or separate targeted funds may

    be established; common or special revenues may

    be had. Economic regulation may come from theunion level directly, or via national laws, or via

    special, assigned agencies. Public ownership

    might even extend to the union level, if so desired.

    The institutions of the union will be divided into

    the usual legislative, executive and judiciary ones.

    The greater the autonomy of the union level and

    the greater the ambition of economic integration,

    the more important the latter two institutions and

    the less weight will be attached to unanimity in the

    legislative.

    Another way of looking at the common institu-tions is to define a little more precisely the

    functions needed. Thus, one could identify institu-

    tions which have the (sole or shared) right to

    propose regulation and taxes/subsidies; which

    have a role in the decision making (for example, is

    there a common parliament? are there advisory

    organs which must be heard?); which implement

    (including the Member States themselves); which

    monitor implementation, gather data, make tech-

    nical observations, reports, and so on; which act as

    a guardian of the unions treaty (if applicable,

    because this may be sensitive at lower stages of

    integration; it implies a union prosecutor and first

    instance judge); and which conduct judicial review

    (again, in some specified relation with national

    legal systems). In addition, specific agencies

    could be singled out under a special legal regime

    to conduct a specific union assignment (for

    example, a common central bank for a union

    money; a common agency for anti-trust policy).

    Given this simplified concept of economic

    constitution, the successive treaties of the EEC,

    the Single Act, Maastricht and Amsterdam can be

    outlined conveniently. With some degree of specifi-

    cation for the stage of integration and the scope of

    union powers, the graphical presentation will be

    based on the four remaining features: economicaims, the means (with some detail so as to specify

    the methods and scope more precisely), the

    (guiding) principles and the institutions.

    3.2 The economic constitution in theRome Treaty

    Figure 3.1 illustrates the economic constitution of

    the EEC treaty. Art. 2, EEC contains five aims and

    two very general means. Art. 3, EEC specifies in

    total 11 instruments which together make up these

    two general means. The instruments are worked

    out in successive titles and chapters of the

    substantive part of the treaty. This economic core is

    complemented by some explicit key principles and

    limited somewhat by a few exceptions. The

    economic integration regime should function effec-

    tively with innovative and comprehensive

    institutions.

    Economic Constitution of the EU 31

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    Figure

    3.1

    EconomicstuctureoftheRomeTreaty

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    3.2.1 The economic aims

    There are four economic aims and a political one.

    The upper-left box of Figure 3.1 uses original treaty

    language for the economic aims even though the

    wording is ambiguous. Thus, the first two aims

    would seem to overlap with respect to (continuous)

    economic growth and its qualities, namely

    balanced and harmonious. Unbalanced growth

    was a popular theme in the 1950s, referring usually

    to a structural or even increasing income-per-

    capita divergence between lagging and advanced

    regions.

    The Rome Treaty implicitly relies on market

    mechanisms to achieve per capita income conver-gence over time, if that is what the first aim means.

    In any event, there are virtually no policy means to

    promote convergence except the European

    Investment Bank (to be found in Figure 3.1. in the

    box other (weak) instruments; it uses commercial

    principles, however, except where the EC Council

    provides for subsidies). The beginnings of

    a joint regional policy were not established until

    the 1970s. As is often the case with constitutional

    aims, more than one interpretation is possible.

    Thus, the first aim may also be read as socially

    harmonious. In turn, this might refer to industrial

    relations (the relations between labour and

    employers) but also to the avoidance of socially

    disruptive adjustment processes. Two features

    support this interpretation: on the one hand, the

    treatys social policy and Social Fund provisions

    (both also in box other (weak) instruments) and,

    on the other hand, the fair standard of living

    objective (relating to farmers) in the common agri-

    cultural policy and the explicit reference to

    standard of living of workers in Art. 3(i). Even if the

    social interpretation is accepted, the primacy of

    the first aim remains doubtful. The Social Fund

    was initially extremely small and its operation

    restricted. The social policy provisions are weak to

    the point of being a mere list of desires withoutEEC instruments. Therefore, neither the regional

    nor the social interpretation of the first aim are

    backed up by the necessary regulatory or policy

    instruments elsewhere in the treaty. By implication,

    relying on market integration in combination with

    national policy was assumed to realise this aim. In

    the Single Act and the Maastricht and Amsterdam

    treaties, the notion of economic and social cohe-sion would change this somewhat.

    The second aim expresses the mood of the

    times: the desire for permanent and high economic

    growth. For about 15 years the Community would

    find itself on a high real growth path, part of which

    can be attributed to economic integration (see

    chapter 6). There was little or no awareness that

    sustained growth may have increasing environ-

    mental costs, hence there is no explicit reference

    to the environment.

    The third aim probably refers to macro-

    economic stability. To this end a section on

    macro-economic coordination is included, divided

    into a brief reference to cyclical policy (Art. 103)

    and a common concern about exchange rates and

    the balance of payments (Arts 107109). The

    implicit choice was in favour of the adjustable-peg

    system in the framework of the then prevalent IMF

    gold-dollar-exchange standard. In such a system of

    rigid exchange rates it is necessary for a CM to

    utilise coordination devices so as to prevent disrup-

    tive devaluations3 or, worse still, temporary trade

    and capital restrictions by a Member State in an

    attempt to prevent a rapid dwindling of foreign

    exchange reserves. Both would undermine the

    accomplished market integration. For this neces-

    sary coordination to be sufficient, however, theconduct of national monetary and fiscal policies,

    including sensitive social expenditures, would have

    to be disciplined either by common decisions or,

    simply, by external equilibrium requirements. The

    Rome Treaty does not go so far. Coordination is

    mainly voluntary and may therefore fail. If it were

    supreme, it would amount to a major increase in

    economic and political ambition of the EEC.

    Therefore, it is part of other (weak) provisions (see

    chapter 16).

    The fourth aim is again ambiguous. Does accel-

    erated mean a higher growth path? Would the

    standard of living not automatically go up once

    aims 1 and 2 are realised? Or is the standard of

    living a richer concept as the European

    consumer movement has long maintained that is,

    besides income per capita, does it also relate to

    the quality of life? This broader perspective formed

    the basis for the movements plea to read a

    Economic Constitution of the EU 33

    3IMF rules in those days only allowed a de- (or re-)valuation when a fundamental disequilibrium had arisen. This,

    plus the frequently found political pride of sticking to an overvalued rate, had the effect of enlarging the percentage of

    a devaluation, once it became inevitable.

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    consumers doctrine into this aim. Lacking any

    reference in the treaty to an overall consumerprotection policy, their campaign fell on stony

    ground as the Council had not adopted this

    doctrine up to the Maastricht Treaty: it always

    coupled consumer policy to the internal market.

    Nowadays quality of life also refers to the environ-

    ment. Progress in this area was never based on

    the fourth aim either.

    Altogether, the economic aims of the treaty are

    not very clear. The hard core would seem to be

    economic growth under conditionality (for example,

    regional convergence, no socially disruptive adjust-

    ment, balance of payments constraint, perhaps the

    quality of life).

    3.2.2 Means and instruments

    The two general means are the common market

    and the approximation of economic policies. Both

    remain undefined. Initially this went unnoticed as a

    common market appeared to have been well-

    defined since the Spaak report (Spaak et. al.,

    1956). Indeed, the treaty explicitly mentions in Art.

    3(c) and Title I the four economic freedoms: the

    free movement of goods, persons, services and

    capital. A fifth freedom, often compared to the

    thumb of a hand, is added in Art. 106 the freedomto pay for intra-EC transactions. Also the definition

    of approximation of economic policies did not seem

    to give rise to any problems, as the four boxes

    attached to this means in Figure 3.1 are all numer-

    ated in Art. 3.

    This interpretation concealed two phenomenal

    problems which were to plague economic integra-

    tion until the Single Act. The first one is sequencing.

    Building a common market requires more than the

    establishment of the four freedoms. Where regula-

    tion is economically justified, liberalisation in the

    form of imposing the four freedoms will require a

    degree of common economic regulation. Economic

    justification to regulate can be found in market fail-

    ures (chapters 4 and 7). Hence, where the common

    market may fail when functioning freely, appro-

    priate common regulation is economically justified.

    In a fantasy world of pure functionalism, with the

    Council and Commission pursuing the ideal

    Community interest, the nature and degree of

    approximation of national economic regulation

    could perhaps be appropriately established in duetime. The sequence of harmonisation and liberalisa-

    tion would matter little as simultaneous moves

    might characterise the transition. In a political envi-

    ronment, however, where existing national

    economic or fiscal regulation had generated vested

    if not protected interests, sequencing does matter

    politically. Usually, there are possibilities and strong

    incentives for those being regulated to capture the

    regulators and deeply influence the rules them-

    selves. Capture can be a result of the power of a

    sector or their hold on technical or other information

    the regulators need. Such interests will insist on

    harmonisation before liberalisation but, of course,

    harmonisation on their terms. Usually it means that

    they fear competition from competitors in other

    Member States. With unanimity this is likely to

    produce vetoes or other stalemates. The upshot

    would be that the common market would never be

    completed. The sequencing issue blocked the

    emergence of the common transport policy until

    1985, with the result that no internal market for

    transport services could emerge. In varying

    degrees, the problem played a role in numerous

    product markets with health and safety regulations,

    as well as in other regulated services markets.

    One could have included several partial reme-

    dies in the Rome Treaty, such as a shift to qualifiedmajority voting and a common regulatory strategy

    in the treaty. The former was either absent or politi-

    cally neutralised; on the latter the treaty is silent.

    The optimum would have been to include in the

    treaty an unambiguous definition of the common

    market serving as a mother principle overriding

    any attempts to misuse sequencing.

    The second problem was conditionality. The two

    general means were not independent, as Figure

    3.1 shows. Instruments of the common market

    could only be fully used if certain conditions would

    be satisfied for instruments under the rubric of

    approximating economic policies.4 The treaty is rife

    with conditionality for all four free movements, as

    will be noticed in later chapters. Suffice it to say

    here that the free movement of goods may suffer

    from comprehensive derogations for national regu-

    lations under Art. 36, now Art. 30, EC (for health,

    safety, environment and consumer protection)

    which can be approximated under unanimity

    34 Foundation

    4This prompted some leading legal experts to differ on what the common market in the treaty comprised, especially

    whether (what) common policies belong to the CM. See the example in Pelkmans (1984, p.186, fn 7).

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    under Art. 100 (now Art. 94, EC) but without clear

    guidelines and deadlines. The free movement ofservices (for example, financial, transport, tele-

    coms; professional) was conditional in various

    ways on accomplishments in positive integration on

    which the treaty was unclear, less than firm or

    unhelpful. The free movement of capital was condi-

    tional on adequate macro-economic coordination.

    Finally, the free movement of workers was not

    interpreted as the realisation of a common labour

    market. An elusive call to harmonise social policies,

    and some aspects of labour market regulation, is

    all one may find in the treaty. As a consequence

    the free movement of workers acquired a very

    restrictive meaning (see chapter 9).

    Legally, a common market in the narrow sense

    of four freedoms was, strictly speaking, possible.

    This would require, once again, a purely functional

    approach backed up by extreme integration loyalty

    over-riding domestic vested interests or fear of

    adjustment. In actual practice, this could not be

    expected to work, especially as the conditionalities

    were often open-ended. Of course, sequencing

    and conditionality interacted and this made matters

    worse.

    The economic ambition of the original EEC

    treaty is therefore not fully reflected in the means

    and instruments. It is most unlikely that a fully

    fledged CM can be achieved on the basis of theRome Treaty. Also the de-cision rules and

    consensus habits raised high hurdles against actu-

    ally achieving a true CM. After 25 years (that is,

    around 1983) what the Community had achieved

    covered the following:

    the sections where the treaty was relatively

    unambiguous (that is, the least regulated parts

    for the goods markets as well as the common

    competition policy and common tariffs);

    the areas where sequencing and conditionality

    were bought off almost irrespective of the costs,

    that is, the common agricultural policy (CAP).

    All other instruments remained weakly developed

    (for example, social, macro-economic, social fund),

    incomplete (for example, trade policy), deadlocked

    (for example, harmonisation of health, safety, etc.

    regulation) or largely absent (for example, trans-

    port policy). The free movements of services,capital and persons were so throttled that they

    assumed little economic meaning. Fiscal harmoni-

    sation had booked one amazing success the shift

    to the VAT system in all Member States and

    some progress on the VAT base, but there was

    pure deadlock on any form of approximating the

    rates or otherwise getting rid of fiscal frontiers.

    The common market therefore amounted to a

    kind of customs union in the goods market supple-

    mented by the CAP and competition policy for

    goods. Historically, and in comparison with many

    other attempts of economic regionalism, this was a

    major accomplishment. The problem, however, is

    that the treaty aspires to do so much more. This

    CU-plus did not even yield free movement of

    goods, truncated as it was by the problems speci-

    fied above.

    It was this highly unsatisfactory situation, which

    was referred to as non-Europe in the Albert and

    Ball (1983) report. The awareness of non-Europe

    cleared the ground for what was later to become

    EC-1992 and the Single Act.

    3.2.3 Key principles

    In the upper central box in Figure 3.1, three keyprin-ciples are listed which the treaty explicitly

    provided for. Besides these explicit principles,

    there is one implicit guiding principle which is crit-

    ical for the understanding of the economic

    integration regime of the EEC.

    The first principle in the box is Community

    loyalty of the Member States (Art. 5, EEC, now Art.

    10, EC). The motive underlying this principle is the

    far-reaching degree of decentralisation of the EEC.

    This is evident both in legislation and implementa-

    tion of Community law. Although the Commission

    has the sole right to propose legislation, it is the

    Member States in the Council which dispose, often

    under unanimity de jure or de facto (before the

    Single Act). Community loyalty expressly commits

    the Member States to legislate in the pursuit of

    treaty aims. This part of the loyalty principle is little

    Economic Constitution of the EU 35

    5Note however that the EEC has no legal right of secession and its treaty does not expire (unlike the ECSC treaty).

    Together this should strengthen credibility which, in turn, should facilitate mutual concessions. Note that lack of loyalty

    has been addressed in Amsterdam (see 3.5).6In some cases (e.g. competition policy, trade) the Commission can issue regulations too; in one case the

    Commission can even issue directives (Art. 90, EEC, now Art. 86, EC).

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    more than a political declaration because in a

    voluntary peaceful Community there is little onecan do if a Member State exhibits outright political

    unwillingness.5 If the unwillingness in Council is

    collective, however, Art. 175 (now Art. 232, EC)

    provides a legal basis for the EP or the

    Commission to sue the Council before the EC

    Court for a failure to act. This remarkable and very

    delicate option has been used successfully by the

    EP in 19845 with respect to the failure of getting a

    common transport policy off the ground.

    Community loyalty has more teeth when refer-

    ring to implementation of Community law by the

    Member States. This is of critical importance to

    economic agents in the internal market. The two

    main vehicles of Community law are the EEC

    Regulation and the EEC Directive. The former is

    normally adopted by Council6 and is like federal

    law: it is directly applicable to all economic agents

    in the EEC. The Directive, on the other hand,

    reflects a more decentralised approach as it

    provides objectives, broad prohibitions or other

    prin-ciples and criteria, but the exact details of how

    this is implemented are left to the Member States.

    The bulk of Community law is formulated in

    Directives. This decentralised approach may be

    seen as an early attempt to satisfy the subsidiarity

    principle. But of course it needs a machinery to

    guarantee that implementation actually yields thefree movements or the approximation of economic

    laws that was intended. If not, the EEC would lose

    credibility and market integration would suffer. This

    book is not the place to discuss implementation in

    any detail. Suffice it to note that three elements in

    the upper central and right-hand boxes form the

    core of the compliance machinery in the treaty:

    Community loyalty binding the Member States, the

    Commissions role as the guardian of the treaty

    (that is, a watchdog function minimising infringe-

    ments) and the Courts supreme judicial review.

    With the rising ambitions of the Community, even

    this unique machinery turned out to be insufficient.

    The second key principle is non-discrimination

    as to nationality. This pervasive principle has tied

    the hands of the Member States. The ultimate

    effect of recurrent Commission or other Member

    States objections to specific examples of national

    regulation or administrative implementation hasbeen a thorough cleansing of national laws, from

    numerous instances of subtle or overt

    discrimination. The greatest impact, no doubt, has

    been achieved in the free movements of goods and

    services and the right of establishment. For

    example, in limiting the derogations of the free

    movement of goods strictly to non-discriminatory

    ones, it has been possible significantly to reduce

    the potential for hidden protectionism.7 Now-adays,

    almost all legislation in Member States which has

    any relation to freedom of movement, actual or

    potential, is permeated by this principle.

    The third key principle is about widening (the

    scope of EEC economic powers) without treaty

    revision and ratification. Article 235 (now Art. 308,

    EC) provides a legal basis for widening, under

    unanimity, but only if such a new competence falls

    within the operation of the common market. Since

    the common market is not defined in the treaty and

    since the former is inter-dependent with elements

    of positive integration in the treaty as Figure 3.1

    shows the interpretation of Art. 235 has

    been the subject of legal and political debate. In

    actual practice the Council has shown a consider-

    able degree of political pragmatism in using this

    option in conjunction with Art. 100 (now Art. 94,

    EC) (see the box on approximation of economicregulation). In so doing it added a body of environ-

    mental, consumer and regional policy laws to the

    acquis communautaire. The old Art. 235 could

    have been used as a substitute for revising the

    treaty. However, this did not happen.

    Finally, a guiding principle which cannot be read

    from the treaty text but is crucial for a comprehen-

    sion of the Communitys economic regime is rules,

    not money. The EEC is a regulatory machinery, not

    a spending spree. Typical spending ministries have

    remained national such as defence, social trans-

    fers, housing, health, education and infrastructure.

    Where the EEC treaty encourages common poli-

    cies there is little indication that this would require

    major budgetary outlays (for example, transport,

    competition, trade). As noted, the Social Fund

    remained very small and the Regional

    36 Foundation

    7See chapters 4 and 5 for details about how the Court has imposed other (additional) criteria with respect to Art. 36

    and Art. 30 (now, respectively Arts. 30 and 28, EC) and, in doing so, has managed to reduce the scope for subtle

    protectionism to a trickle. See chapter 7 for similar case-law in services.8The R & TD budget of the late 1970s/early 1980s was still dominated by substantial spending on nuclear research

    under the Euratom treaty. The text refers to spending on other items.

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    Development Fund only set up in 1975 was

    kept equally insignificant until the 1980s. New poli-cies under widening such as research and

    technological development (R & TD), environment

    and consumer policies were little different. Initial

    expenditures on R & TD were at best symbolic8 and

    spending only began to increase in the 1980s when

    framework programmes were introduced and

    European business began to co-finance and co-

    manage projects (see chapter 14). Environment

    and consumer policies were entirely regulatory.

    The rules, not money principle has one big

    exception: agriculture. Price support, structural

    subsidies and other expenditures are the main

    instruments for the CAP, not regulatory measures

    as such. Over time CAP expenditure rose rapidly

    for reasons which will be explained in chapter 11.

    The effect of spending on the CAP but hardly

    spending on other policies was bound to result in a

    totally disproportionate share of CAP expenditure

    on the Community budget: for many years this

    hovered around 6570 per cent before declining to

    around 45 per cent currently.

    The nature of the EEC budget is therefore not

    comparable to that of a country (see also 15.6).

    Drawing conclusions from that budget about what

    the EEC does, whether in absolute or relative (for

    the CAP) terms, is completely misconceived. In

    understanding the EEC, one should fully appre-ciate its regulatory function. The rules, not money

    principle has governed economic integration in the

    Community, with only few exceptions, and

    continues to retain its relevance.

    3.3 The value-added of the Single Act

    The Single European Act is a collection of treaty

    amendments and additions. Its patchy character

    makes it difficult to grasp the significance for the

    European integration process. However, within the

    analytical framework of Figure 3.1, the importance

    and limitations of the Single Act can be understoodmore easily. The Single Act introduces widening

    and/or deepening in three broad areas: the institu-

    tional framework, specific instruments making up the

    two general means (that is, largely economic) and

    foreign policy. Many of the provisions reflect thelaying down of an explicit legal basis for what hadalready been in place on the basis of Art. 235 (now

    Art. 308, EC) (see 3.2.3). The Single Act also codi-

    fied existing cooperation among the Member States,

    having been intergovernmental up to 1985, hence

    formally outside the realm of Community law. The

    two main instances of the latter are the European

    Monetary System (EMS) and the European Political

    Cooperation (EPC), the voluntary coordination of

    national foreign policies. In the following the incorpo-

    ration of EPC will be ignored.

    Figure 3.2 illustrates the additions of the Single

    Act to the Rome Treaty using the framework of

    Figure 3.1. Before discussing them it is important to

    observe that the economic structure of the EEC

    treaty is only marginally altered. Thus, the

    economic aims, the common market, the four

    common policies attached to approximating

    economic policies, the key principles and the basic

    institutional framework are not touched.

    Nevertheless, the economic constitution is strength-

    ened considerably.

    After the discussion in section 3.2, it is easy to

    trace the provisions which strengthened the

    economic constitution. The main reason for

    rewriting parts of the Rome Treaty was, after all, to

    have a more solid basis for completing the internalmarket.9 All five crit ical ad-ditions to the treaty

    have a bearing on this effort to complete the

    internal market. All other additions were either codi-

    fications of existing practices or provisions of

    marginal importance. Those five additions were:

    far more qualified majority voting (QMV) on

    internal market matters;

    an explicit, unambiguous definition of the

    internal market;

    mutual recognition as a regulatory principle;

    approximation of health and safety in the work-

    place; economic and social cohesion.

    As shown in section 3.2, the first two additions

    were indispensable. QMV was introduced for the

    basic approximation article (in a new version, Art.

    100A, now Art. 95, EC) and throughout the treaty

    Economic Constitution of the EU 37

    9This is the title of the famous White Paper comprising the initial EC-1992 programme. See COM (85) 314 of 14

    June 1985.10For a survey of the accomplishments and significance of EC-1992, see Pelkmans, 1994a. For its main elements,

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    Figure

    3.2

    AddingtheSing

    leActtotheRomeTreaty

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    for services, free movement of capital and, for

    example, the extension of the common transportpolicy (including the free movement of transport

    services) to air and maritime. Only some aspects of

    social regulation and all tax matters remained

    under unanimity. As a result, behaviour in the

    Council changed radically. A results-oriented EC-

    1992 programme for a period as long as 7.5 years

    suddenly became a realistic aim.10

    This was greatly helped by the clear definition of

    the internal market as an area without internal

    frontiers in which the free movement of goods,

    persons, services and capital is ensured. In other

    words, a mother principle as a benchmark for the

    completed internal market is introduced. In doing

    so, it greatly reduced the problems of sequencing

    and conditionality, since the overriding importance

    of free movement and of the removal of internal

    frontiers be they border controls, fiscal or regula-

    tory could no longer be disputed. And, of course,

    QMV added the needed political pressure.

    Also the methods of approximation or common

    economic regulation were altered. In the old

    approach, approximation of national economic

    regulation usually boiled down to extremely

    detailed lawmaking at the Community level. Partly,

    this was caused by unanimity a recalcitrant

    Member State could insist on any detail. Partly, it

    reflected a lack of trust among the Member States.The degree of decentralisation under the Rome

    Treaty was still so great that approximation only of

    the objectives (so as to prevent market failure)

    would have required an enormous compliance

    machinery to verify implementation by the Member

    States. Thus, once the EC did regulate, it regulated

    all the details, too, given insufficient monitoring and

    a very slow and limited compliance machinery. The

    new approach changed all that. In fact, with the

    Single Act, a new regulatory strategy was initiated,

    which will be explained in chapter 4. A key element

    of it was mutual recognition. This addition to the

    approximating economic policies block, which is

    also closely connected to the common market

    block in Figure 3.2, expresses the new strategy.

    The specific case of health and safety in the

    workplace was simply the outcome of a widely held

    consensus in the Community. A textual improve-

    ment in the Rome Treaty and QMV turned out to bevery successful for approximation in this field.

    Finally, the insertion of economic and social

    cohesion has a double significance. No doubt, it

    formed a political condition for what came to be

    called the four cohesion countries (Greece,

    Ireland and the new members Spain and Portugal)

    to agree to the ambitious EC-1992 programme.

    Yet, it also echoes the debate about the interpreta-

    tion of the first aim of the treaty (see 3.2.1). In order

    to ensure that the cohesion concern would not

    remain empty words, the existing Funds (Social,

    Agricultural Structure, Regional) were reformed

    into the Structural Funds and streamlined. In

    February 1988 their five-year budgets were

    doubled. The Single Act also calls for explicit

    consideration of cohesion in other common poli-

    cies.

    Besides these five additions, the Single Act

    codified a number of existing policies, including the

    European Monetary System (EMS), R & TD policy

    and environment. It also codified the European

    Council of heads of state and governments, a top

    organ operating de facto since the mid-1970s.

    Some genuine additions were also provided, such

    as the social dialogue between employers and

    labour unions at EC level (which was little used

    later on) and a somewhat greater role for the EP,especially for internal market legislation and R &

    TD. For those concerned and for the specialists,

    these codifications and additions might be signifi-

    cant, but for the substance of the economic

    constitution of the Community they were not.

    3.4 The Maastricht Treaty

    The (first) treaty on European Union, commonly

    called the Maastricht Treaty, was negotiated only

    three years after the Single Act had legally come

    into force. It was signed in December 1991 in

    Maastricht (the Netherlands). After a tortuous ratifi-

    cation process with three national referenda (one

    Economic Constitution of the EU 39

    11For at least two reasons. First, the democratic deficit (see Appendix 1.1, chapter 1) was only marginally narrowed

    by Maastricht. Second, the problems of decision making were expected to be exacerbated by enlargement with several

    EFTA countries. Member States were not prepared to complicate the Maastricht negotiations by enlargement issues.

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    Figure

    3.3

    Economicstruc

    tureoftheMaastrichtTreaty

    Translation Error.

    bs:Tracy Jobs:Pearson Education HE:7976 Pelkman:79

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    of which the Danish had to be repeated after a

    reinterpretation of the implied obligation); constitu-tional court cases in the UK and Germany, and two

    exchange rate crises in the EMS, closely related to

    the treatys monetary provisions the Maastricht

    Treaty went into force on 1 November 1993. An

    intergovernmental conference about treaty revision

    was foreseen for 1996; it was expected to aim at

    improving the institutional framework.11 Its talks led

    to the Amsterdam Treaty.

    As noted in section 2.4, the Maastricht Treaty

    comprises more widening and deepening than the

    Single Act. Whereas the Single Act pushes the

    common market closer to its logical conclusion, the

    Maastricht Treaty signifies a greater departure from

    the original EEC treaty. This is true for some polit-ical and institutional aspects but it also applies to

    the economic structure. Thus, the economic aims

    are reformulated and extended, a third general

    means (Economic and Monetary Union, i.e. EMU)

    is added, a legal basis for a host of new instru-

    ments is provided for, and a number of guiding

    principles is introduced. Though a more systematic

    re-vision of the treaty than the Single Act, it

    remains possible to utilize the framework of Figure

    3.1 to assist in grasping the nature and economic

    meaning of the amendments and additions.

    Economic Constitution of the EU 41

    It is crucial to see that instruments of a very diver-

    gent nature are enumerated, some of them virtually

    without any consequence. Perhaps one can divide

    the thirteen added instruments into two strong ones,

    four with some potential, and seven weak ones. The

    strong ones are cohesion and environmental policy.

    They represent the acquis from the Single Act, but

    are now also listed in the instruments, with someadded strength.12

    The four instruments with potential are R & TD

    policies (also in the Single Act, but then not in

    Art. 3), infrastructure, consumer protection, and the

    social protocol. Consumer protection is new but

    whether this will alter actual EC practice remains to

    be seen. The social protocol formally remained

    outside the treaty as Figure 2.1 also shows. In

    Amsterdam the social protocol was moved into the

    treaty and chapter 15 asks whether this insertion

    reflects a major shift of social regulation towards the

    Union. A historically remarkable addition is the intro-

    duction of (modest) EC powers for Europeaninfrastructure. Thus far, this area had been jealously

    guarded by the Member States. From an economic

    point of view this jealousy is clearly suboptimal. An

    internal market can only be exploited to the full if

    European-wide infrastructure is of high quality and if

    networks interoperate and interconnect well. It is a

    classic case of a power that should be, in part, coordi-

    nated, possibly centralised. The treaty introduces

    some EC competence for trans-European networks

    (TENs) in transport, telecoms and energy (see

    chapter 14).

    The seven weak additions look like a shopping list

    of seven items.13 Development cooperation was

    long overdue as the EC had been practising this for a

    long time. A particular form of industrial policy was intro-

    duced, but its nature is pro-market, pro-competitive and

    anti-protectionist. The sharp debates about this clause,

    and unanimity, will prevent it from being used in a light-

    hearted fashion (see chapter 14). Another interesting

    feature is a clause on culture. The Union level may

    develop a cultural policy but only if it contribute(s) to the

    flowering of the cultures of the Member States (Art.

    128, now Art. 151, EC). Viewing Europes diversity as a

    treasure can hardly be expressed more emphatically.

    All in all, the new instruments do not imply a

    great widening of EC powers.

    ADDITIONAL READING

    12For example, both are also in the aims; a new Cohesion fund was established (see chapter 15); QMV is

    introduced for some environmental measures.13There is little or no substance to instruments like tourism, civil protection, energy and health. On energy, a

    declaration, attached to the treaty, promises a separate energy title in the revised post-1996 treaty (but the

    Amsterdam Treaty did not honour this promise). On education/vocational training and youth some modest (e.g.

    exchanges) policies might be built.

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    3.4.1 Economic aims

    The economic aims box has been largely rewritten

    (see Figure 3.3). In the fifth objective the word

    accelerated, which appeared in the old fourth

    objective, has been deleted. The revisions reflect

    some of the issues discussed in 3.2.1 as well as

    the emergence of new socio-economic objectives

    in European society. That balanced growth has

    become explicit is mere codification. The second

    aim (a rewrite) as well as the third (new) are

    related to EMU. The second objective also

    expresses the European Unions commitments to

    sustainable development within the EU as well as

    worldwide. The fourth aim explicitly elevates thesocial dimension of European integration to the

    level of the EUs fundamental aims. The long

    debate about quality of life is given full recognition

    in the fifth aim. Finally, economic and social cohe-

    sion is also elevated to the aims (the sixth one). It

    is combined with solidarity among Member States,

    which might be interpreted by some as explicitly

    introducing a permanent redistributive character

    which the treaty lacked thus far.

    The modernisation and more explicit formulation

    of the economic aims of the treaty can only be

    applauded. But this does not mean that the

    (economic) interpretation has become more

    straightforward. The reason is that the greater

    clarity of formulation has been blended with new

    specifications. The latter introduce a series of

    trade-offs which require political decisions in

    Council. Sustainable development is a laudable

    objective but the optimal trade-off may be

    assessed in radically different ways, dependent on

    societys preferences, ones access to resources,

    technology, and so on. Also, a high level of social

    protection could well be inconsistent with pursuing

    a high level of employment. Furthermore, as the

    text suggests, the standard of living is an objective

    distinct from the quality of life; again, promoting the

    two will not always be consistent.And last but not least, i f cohesion is interpreted

    in an efficiency sense (see chapter 15) that is,

    equalising the opportunities to exploit the internal

    market the added equity objective of solidarity

    may reduce the efficacy of the former.

    Given the constitutional character of the treaty,general formulations are understandable: a too

    great precision of the economic aims would

    perhaps make the treaty obsolescent before

    too long. At the same time it is hard to escape

    the conclusion that the aimsmeansinstruments

    relations in the Maastricht Treaty are a rather

    imperfect guide to appreciating fully the economic

    integration regime.

    3.4.2 Means and instruments

    The crux of the Maastricht Treaty is found in the

    general means. A third means (EMU) is added and

    the label approximating economic policies is

    replaced by common policies or activities,

    comprising a number of new competences in addi-

    tion to the relevant acquis in Figures 3.1 and 3.2.

    The common market, as the first general means,

    is hardly changed as this had been dealt with so

    successfully in the Single Act. Consistent with EMU,

    restrictions on capital flows in the common market

    are henceforth prohibited. The common policies or

    activities block counts no less than 13 additions. The

    reader is warned that confining oneself merely to a

    literal reading of this listing in Art. 3 of the EC treaty, is

    grossly misleading. As one may surmise from theword activities, the (economic) meaning of the legal

    basis for some of these additions is protracted,

    leading to texts or solutions full of compromises (see

    box new or reformulated instruments).

    The third, new general means is Economic and

    Monetary Union. Whereas the treaty defines

    Monetary Union in detail, Economic Union remains

    unspecified. In chapter 17, three conceptual

    options for Economic Union are considered. In

    Figure 3.3 these options are not included.

    Monetary Union is both qualitatively and quanti-

    tively the greatest addition since the Single Act. A

    true monetary constitution is introduced. Extensive

    procedures on economic (especially budgetary)

    policy coordination based on explicitly defined and

    verifiable criteria are followed by detailed provi-

    sions on monetary policy and by institutional

    provisions. Great care is taken to ensure that EMU

    42 Foundation

    14There is also a protocol on the European Monetary Institute for Stage II, which started in 1994. Various other

    protocols also refer to EMU.15As noted in chapter 2, the European Union treaty lays down a few common provisions, followed by the EC treaty.

    The latter is the new name for the amended EEC treaty (which includes the Single Act).

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    would have a sound macro- economic footing from

    the start by strict entry con-ditions and prescrip-tions for the transitional period. A fully fledged

    statute of the European Central Bank (ECB) is

    provided in a protocol.14 This solid treaty base is no

    longer comparable with a single-article chapter

    in the Single Act about cooperation in economic

    and monetary policy. The quality jump is so big that

    it lends support to the criticism of the Balassa

    stages in chapter 1. Among modern, open

    economies, with governments being concerned

    about allocation, redistribution and macro-

    economic stabilisation, a fully fledged common

    market as a separate stage is either unlikely or

    unstable. The Rome Treaty and its implementation

    are consistent with this view, as the common

    market could not nearly be achieved and, in fact,

    was not. The Single Act and its implementation is

    also consistent with this proposition as the

    completed internal market it sets out to realise in

    less than eight years should be expected to (and,

    in fact, did) lead to a further shift to the higher

    stage of EMU. Had Maastricht failed, the internal

    market would have been combined with inade-

    quate coordination guarantees in an EMS not

    incorporating all Member States. Lacking credible

    macro-economic convergence, this would have led

    either to misaligned exchange rates (and large

    subsequent realignments) or outright restrictions inthe internal market. In both cases there would be

    retrogression.

    The monetary union will be discussed in chapter

    17. Figure 3.3 illustrates five pivotal elements. In

    stage 3 exchange rates will be irrevocably fixed

    and, as meanwhile has been decided, one money

    (the Euro) will replace national currencies. The

    ECB will issue the single money and set the

    volume and growth of the money stock. The ECBs

    policy will pursue price stability as an overriding

    goal. National governments are required not to run

    excessive deficits as it could undermine price

    stability in EMU. Figure 3.3 also notes the strict

    entry conditions for EMUs third stage. The

    European Council had to meet in 1996 and find (by

    QMV) a minimum of seven Member countries

    which met these entry conditions. In that event the

    monetary union would have started in 1997 (in fact,

    this proved to be too early). If the group were

    smaller than seven, any two or more EU Members

    (fulfilling the conditions in 1998) should start EMU

    in 1999 in any case. Finally, the Council could set

    guidelines for the ECBs management of the

    external value of the single money.

    The two key decisions for credibility of EMU areprice stability and the binding commitment to start

    EMU in any event before 2000.

    3.4.3 Key principles

    The Maastricht Treaty adds two groups of guiding

    principles to those of the Rome Treaty.

    The newly inserted Art. 3A(3) (now Art. 4) of the

    EC treaty15 explicitly mentions the following guiding

    principles: stable prices, sound public finances and

    monetary conditions and a sustainable balance of

    payments. Art. 3A(1) specifies that the activities of

    the Member States and the Community shall ... [be]

    conducted in accordance with the principle of an

    open market economy with free competition. This is

    repeated in Art. 3A(2). Both are typically constitu-

    tional in nature. Nowhere in the Rome Treaty can

    these guiding principles be found. They guide both

    the national and the EC policy makers. The open

    economy/free-competition principle would seem to

    represent a definitive shift away from the last

    remnants of the highly interventionist economic poli-

    cies of the 1950s (for example a high degree of

    state ownership of companies, far-reaching sectoral

    policies, a tendency to subsidise loss-making firms

    for purposes of employment, high protection viatrade policy or public procurement). The long-term

    significance of this principle could therefore be

    considerable.

    The two other guiding principles specified in

    Figure 3.3 are also found in Figure 2.1. The most

    important one is subsidiarity. First mentioned in the

    common provisions of the EU treaty (Art. B, now

    Art. 2, EU), it is defined in Art. 3B, EC, now Art. 5,

    EC (see section 2.5). The subsidiarity principle is

    bound to become and remain a critical principle in

    the development of European integration. From an

    economic point of view the explicit reference in the

    Maastricht Treaty is rather limited as it applies only

    to cases of shared powers (that is, powers both for

    Member States and the EU). The more funda-

    mental economic issue is what assignments to the

    EU level of government are justified by the

    economic theory of multi-layer government. Put

    another way, one may assess the Maastricht

    Treaty with respect to the efficiency of the assign-

    ment of (economic) competences to the respective

    layers of government. An analytical framework to

    answer such questions is provided in chapter 4.

    Economic Constitution of the EU 43

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    Figure

    3.4

    Economicstruc

    tureoftheAmsterdamTreaty

    Translation Error.

    bs:Tracy Jobs:Pearson Education HE:7976 Pelkman:797

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    The other guiding principle is the maintenance

    in full of the acquis communautaire, a term that isnot translated in the English text (Art. B, common

    provision; see also Art. C, now Art. 3, EU). In other

    words, the Maastricht provisions are to be used as

    additional features, not as a basis for retrogression.

    3.5 The incrementalism of theAmsterdam Treaty

    The Amsterdam Treaty is of very limited economic

    significance, as noted in section 2.5. It is nonethe-

    less useful to employ the same graphical technique

    for illustrating the incremental change in main

    economic areas. A textual exegesis of the lengthy,

    indeed often declaratory, wording of a range of

    amendments would be tedious without adding

    much to understanding the economic meaning. As

    Figure 3.4 shows, the main edifice of the

    Communitys economic constitution has not been

    altered: no additional means, new critical instru-

    ments and/or radical institutional innovation are

    there. The economic aims have been merely

    recodified and rearranged.

    3.5.1 Economic aims

    A glance at Figure 3.4 suggests that major change

    has taken place in the Economic aims block. This

    is, however, largely appearance, with a few excep-

    tions. Though going from six economic aims in

    Maastricht to eight aims in Amsterdam, a careful

    comparison shows that the increase from six to

    seven is due to the textual rearrangement of the

    aims, whereas only one aim is really new: the third

    aim, being the equality of men and women. Of

    course, this ethical standard has always been

    incorporated in the treaty (in Art. 141, formerly

    Art. 119, EC), but only for equal pay for equal

    work. In elevating it to the economic aims without

    restrictive application, it has become one

    consensus element in a still diversified notion of

    the European social model. One result is that Art.

    141 is extended to matters of employment andoccupation and full equality in practice between

    men and women in working life.

    The rearranging is mainly the consequence of

    functional logic and is unlikely to have substantive

    implications. Thus sustainable is now an adjective

    before development of economic activities (no. 1)

    while reappearing in the growth aim (no. 4), but

    without the superfluous phrase respecting the

    environment. Thus, the employment and social

    protection aim moved up from no. 4 to no. 2,

    without amendment. Thus, the (real) convergence

    aims (no. 5) now include competitiveness. This

    insertion of competitiveness can be explained in

    analogy with the entry condition for monetary

    union, where inflation rates have to converge, but

    at a low level. In the case of economic perform-

    ance, the (real) convergence should be pursued

    while always striving for competitiveness, in other

    words, emulating the performance benchmarks of

    good performers. This greater precision could well

    be meant to condition the (new) employment

    strategy of Arts 125130, EC (see also common

    policies or activities, in Figure 3.4). Thus, a sepa-

    rate aim (no. 6) now formulates the environmental

    objectives of the EC, whereas in Maastricht this

    was attached to the growth aim (no. 2 in Figure 3.3,

    now no. 4). Here, the drafters do not seem to havemaintained discipline. In order to pursue aims by

    using overall means and more specific instruments,

    aims ought to be clearly formulated, with distinct

    wording. Otherwise, the effectiveness of policy can

    no longer be ascertained. With respect to environ-

    ment, this clarity and separation between distinct

    aims is lost: sustainable appears in two aims,

    even though there is also a separate environmental

    aim (no. 6) and a reference to the quality of life (in

    no. 7)

    3.5.2 Instruments, principles

    and flexibility

    The three means have not changed and their many

    instruments have been altered only marginally.

    Economic Constitution of the EU 45

    16These Articles (Arts 6169, EC) are the consequence of the area of freedom, security and justice (see Art. 2,

    EU). Note that the UK and Ireland, and in a more limited way Denmark, enjoy derogations, with opting-in

    provisions.17Art. 11 is under QMV. But a Member State, if opposed to QMV for important and stated reasons of national

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    Under common market, a problematic feature has

    always been the free movement of persons. Article

    3, EC always specified the four freedoms as

    including the free movement of persons, not

    workers or labour (see Figure 3.1). But the EC,

    as such, could never really ensure this freedom of

    movement because persons controls at bordersare not carried out for economic reasons alone but

    also for social and security reasons. With respect

    to the social aspect, the EC has never had a

    common immigration policy. With respect to the

    security (and police) aspects, such powers fall

    outside the EC treaty and, until Maastricht, even

    outside the purview of what is now called the

    European Union. In Maastricht, the three-pillar

    structure (see Figure 2.1) amounted to a hesitant

    recognition that it is inconsistent to pursue a

    completed internal market without solving the

    problem of persons controls. The period between

    Maastricht and Amsterdam has induced a learning

    process, the main conclusion being that the inter-

    governmental, pillar 3 approaches has proved

    unworkable. Both governments and public opinionare slowly shifting towards the acceptance of a

    common immigration and asylum policy. The key

    issue here is legitimacy. The upshot is a compli-

    cated set of articles in the EC treaty, adapted from

    pillar 3 and linked to a Protocol, a Declaration (by

    the Member States) and an Annex on integrating

    the Schengen acquis into the EU.16 The crucial Art.

    61 has a five-year transition period for a

    programme of measures in the area of asylum,

    46 Foundation

    An economic constitution is a framework of rules and

    principles for public economic functions, besides the

    fundamental economic rights (and duties) of economic

    agents. Applying this notion to integration makes sense

    once there is a considerable degree of positive integra-

    tion, that is, joint public economic functions.

    In an integration context the six basic characteristics

    of an economic constitution are: guiding principles, the

    identified stages of economic integration, economic

    aims, public economic functions (that is, scope at Union

    level), economic powers (means at Union level), institu-

    tions with their various functions.

    Applying this analytical framework to the Rome Treaty

    shows that, in terms of aims, the EEC pursued economic

    growth under conditionality. The two general means are

    the common market and approximation of economic-poli-

    cies. Because of problems of sequencing and

    conditionalities of instruments, the economic ambition of

    the EEC treaty is not fully reflected in means and instru-

    ments. The common market, even after 25 years,

    amounted to a kind of customs union plus, without

    genuine free movement. Besides three explicit guiding

    principles (loyalty, non-discrimination as to nationality,

    widening of scope under strict limitations), a crucial

    implicit principle is rules, not money.

    The Single European Act added five importantelements: more QMV on internal market matters, a clear

    definition of the internal market, mutual recognition as a

    regulatory principle, approximation of health and safety

    in the workplace, and economic and social cohesion.

    Note that the economic structure of the treaty remains

    intact.

    The Maastricht Treaty is characterised by a revision of

    the economic aims, the addition of a third means (EMU),

    new principles, and a host of new activities, few of

    which actually have major new consequences. EMU is

    firmly grounded in a strict monetary constitution, based

    on price stability and centralisation of monetary policy.

    The Maastricht Treaty is explicit about the economic

    order: principles include an open market economy with

    free competition and guidance for sound macro-

    economic stabilisation policies (for both levels of

    government). Furthermore, the subsidiarity principle is

    defined for concurrent powers and the acquis commu-

    nautaire is to be maintained.

    The Amsterdam Treaty is, at best, incremental in

    terms of economic aims, means and instruments or,

    for that matter, the institutional framework. The

    economic constitution was hardly altered. The economic

    aims were reshuffled and one (on equality of men and

    women) was added. The Social Protocol was incorpo-

    rated, an employment strategy was included (with little

    noticeable value-added), and a complex transition

    towards a common immigration policy is made possible

    by bringing Schengen (on persons controls) into themain EC treaty. A strict budgetary regime in a Stability

    and Growth Pact is meant to strengthen fiscal credibility

    in euroland.

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    immigration, safeguards for third country nationals

    in the EU, and so on, and is subject to QMV.Typically when it comes to areas concerning legiti-

    macy, the decision to go for QMV is itself subject to

    unanimity. The EU is therefore on the way towards

    a common immigration policy, but neither the

    starting date nor the substance of this policy are

    clear yet.

    Under common policies or activities the Social

    Protocol (see Figure 2.1) has found its way into the

    treaty as Arts 136145, EC. A new Title on

    Employment has been inserted (Arts 125130), as

    a result of an addition to Art. 3 on a coordinated

    strategy for employment. The guidelines produced

    under this strategy should be part of the broadguidelines which will be formulated annually in the

    framework of EMU. Practically all the formal powers

    remain at the Member States level. The main

    underlying issue is, of course, what an effective

    employment policy should comprise and how inter-

    ventionist it should or should not be. It would seem

    that the strategy will not alter much in what the EU

    and its Member States could do before Amsterdam

    (see chapter 15).

    Under EMU, the actual start of euroland

    prompted two provisions. For the countries not

    having entered monetary union by 1 January 1999

    (the UK, Sweden, Denmark and Greece), an

    exchange rate mechanism (ERM-2) has beendevised which, essentially, extends the previous

    provision (see chapter 16), though here with refer-

    ence to the euro. It is voluntary, and should serve

    as a gateway to euroland. For the 11 Member

    States (now also including a twelfth Greece) who

    have joined euroland, the Stability and Growth Pact

    was agreed, but merely by a Resolution of the

    European Council. The idea is to respect the

    medium-term budgetary objective of sticking close

    to balance or being in surplus, as a member of

    euroland, by strict commitment to declared self-discipline and unwavering adherence to common

    sanctions to curb excessive deficits. As chapter 17

    will show, many EU Member States were highly

    disciplined when the prize to be won was member-

    ship of euroland. Once inside euroland, many

    observers feared that this discipline would wane,

    and there would be little the EU could do about it.

    The Stability and Growth Pact is meant to support

    tough finance ministers when domestic politics

    create spending pressures, and in doing so, uphold

    the hardness of the euro.

    The key principles did not change. A special

    protocol on subsidiarity and proportionality merely

    restates what had become official policy sinceMaastricht (see chapter 4). Finally, under institu-

    tional framework, provisions for closer

    cooperation or flexibility have been introduced.

    This applies mainly to pillars 2 (foreign and security

    policy) and 3 (now, mainly police cooperation).

    Behind this complex new provision lays frustration

    caused by the fact that a single Member State canblock the wishes of all others, or a core group, to

    deepen or widen integration. For the EC treaty

    itself the conditionality (in Art. 11, EC) is so strict

    that it is most unlikely it will ever to be used.17 In

    the Nice treaty a range of new provisions has facili-

    tated the use and widened the potential scope of

    enhanced cooperation. Besides general principles(in Title VII of the EU treaty), which largely repro-

    duce the tough conditionality of Amsterdam and

    specify that it be a last resort, there are provisions

    for its use under the EC treaty, for foreign and

    security policy, and for the area of freedom, secu-

    rity and justice. However, its use for policies under

    the EC treaty is likely to remain exceptional.

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