Chapter 1 outlines why we wrote the book, namely, to provide a clear-cut account of the EU’s ‘silent revolution’ leading to a much more vertical new economic governance (NEG) regime after the crisis of 2008 and its effects on European employment relations, public services, welfare states, and democracy; to develop a new analytical paradigm capable of capturing the interplay between the supranational formulation of the EU’s NEG prescriptions, their country-specific deployment, and their effects on labour politics and democracy; to empirically assess the policy orientation of EU interventions in two policy areas (employment relations and public services), three public service sectors (transport, water, and healthcare), and four countries (Germany, Italy, Ireland, Romania), during the pre-NEG (1957–2008), the NEG (2009–2020), and the post-Covid-19 (2020–2022) period; to analyse the responses of unions and social movements to these NEG interventions since 2009, and their feedback effects on the EU’s post-Covid NEG regime; to show that labour politics matters, as unions and social movements are essential in framing the struggles about the policy direction of EU economic governance along a commodification–decommodification axis rather than a national–EU politics axis – a direction that may lead to the EU’s disintegration.

This chapter provides the volumes general conceptual framework. It begins by addressing why new approaches to accountability are needed, arguing that accountability literature has reached a stalemate as a result of an impasse between deductive and inductive approaches to accountability in the EU. It then argues that overcoming the stalemate requires developing a generalised framework of what accountability is for, deriving four accountability goods to be used in subsequent chapters. The chapter argues that each of the goods can be delivered in procedural or substantive ways, focusing either on the process by which decisions are made or the substantive worth of decisions themselves. The chapter concludes by discussing the strengths and weaknesses of both varieties of accountability before mapping out how the concepts will be applied across policy fields and institutions in subsequent chapters.

The late 2000s Eurozone crisis has constituted the cause for an extensive overhaul of the EU’s, and primarily the Eurozone’s, modus operandi. The modifications introduced include reinforced budgetary discipline and enhanced fiscal surveillance framework, but also substantial delegation of decision-making authority from the national to the supranational level. The changes are so extensive that this could be described as a fourth stage of economic and monetary union, or a Eurozone 2.0. The aim of the adopted measures has been argued to be a more economically sustainable development. This chapter analyses whether this has been the case. Have these measures created a more sustainable economic environment? Of particular interest is the criticism that the Eurozone suffers from severe socio-economic and cultural imbalances that render the entire project unsustainable. It is found that the changes introduced into the EU framework during the crisis have attempted to create a more cohesive and integrated Eurozone/EU, both economically and politically, but that it is highly doubtful whether such changes promote an efficient and sustainable model of economic governance.

The Introduction familiarizes the reader with the main subject of the book, the economic governance of the Eurozone and the metamorphosis it underwent over the past decade of crises, and the author’s motives for exploring this topic. The Introduction then clarifies the analytical framework on which the book rests, by substantiating the understanding of the rule of law it favors and identifying the operational criteria on the basis of which the analysis will be conducted.

In order to extract economic criteria for European fiscal federalism, Chapter 3 examines public accounts statistics and the economic literature on EMU from 1992 through the European sovereign debt crisis. It follows a chain of macroeconomic indicators running from nominal interest-rate convergence to the sovereign debt crisis. It examines nominal interest-rate convergence; structural determinants of sovereign bond yields; real interest rates; private-sector domestic credit; cross-border credit flows; consolidated banking claims; current-account imbalances; real effective exchange-rates; public and private-sector debt; the sovereign-bank feedback loop; and fiscal policy. The analysis finds that the Euro Crisis was a private debt crisis, not a public one. The causa sine qua non of the crisis is a severe mispricing of private and public debt caused by a failure of Articles 121-126 TFEU to induce markets to differentiate between sovereign borrowers under a (now realised) bailout expectation – not sovereign debt.

Chapter 8 seeks to extract principles of fiscal federalism for EMU and determine what models of fiscal federalism will ‘work’ in the context of the constitutional boundaries of the European legal order. Chapter 8 first extracts a number of institutional determinants of fiscal discipline in a decentralized federal system: market discipline; hard budget constraints; fiscal symmetry; expenditure and revenue autonomy; and specific characteristics for credibly-designed fiscal rules. It then tests those determinates in operation through a comparative analysis of five federations selected using a ‘most similar cases’ and a ‘prototypical cases’ methodology: Germany, Switzerland, the USA, Canada, and EMU. Chapter 8 finds that from the perspective of fiscal federalism theory, the incumbent prescriptions for centralised EU ‘fiscal union’ are - quite simply and profoundly - wrong. Centralised fiscal governance never works in a decentralised federation without market discipline, and contemporary economists already find the new governance framework no more credible than its predecessor.

Chapter 2 moves from the constitutional foundations of the European legal order to the architecture of fiscal federalism constructed atop them. It investigates where the constitutional principles identified in Chapter 1 inhere in the legal architecture of EMU, and explains the basic principles of economics inscribed for their attainment. The principles of fiscal sovereignty, price stability, and fiscal discipline are shown to penetrate three levels of investigation: The travaux préparatoires and the mandate for EMU (Article 119 TFEU); the allocation of competences in economic policy (Articles 2(3) and 5(1) TFEU); and the technical architecture governing public finance itself (Articles 121-126 TFEU). By those provisions, EU fiscal federalism rests on two principles: (1) Fiscal sovereignty – member state economic/fiscal competences remain outside the EU legal order altogether; and (2) market discipline –member states are exposed to ‘hard budget constraints’ and ‘market discipline’ to ensure fiscal discipline.

The book ends with two conclusions: First, Member State fiscal sovereignty is a permanent constitutional constraint upon the application of fiscal federalism theory in the European Union. Second, hard budget constraints and market discipline are indispensable for the guiding principles of price stability and fiscal discipline in a decentralised federation bound by the fiscal sovereignty of its Member States. In sum, the model chosen for European fiscal federalism must preserve the fiscal sovereignty of its constitutional democracies, and it must have market discipline under hard budget constraints. As for the selection of an appropriate model for EU fiscal federalism, this book proposes that three constitutional tests for fiscal sovereignty identified in Chapter 1, and the five determinates of fiscal discipline identified in Chapter 8, provide an intersecting set of criteria for determining which models of fiscal federalism are compatible and implementable within the boundaries of the European legal order.

Chapter 4 concludes for Part I of the book by setting-out out two criteria for EU fiscal federalism which emerge from Chapters 1-3. First, any model of EU fiscal federalism must preserve the fiscal sovereignty the 28 (now 27) constituent constitutional democracies at the base of its legal order. Second, hard budget constraints and market discipline are indispensable requirements for price stability, sound public finances, and a sustainable balance of payments in an EMU bound by the fiscal sovereignty of its member states. Those criteria are tested and applied as the thesis of the book throughout Part II.

Chapter 5 opens for Part II of the book with the task of taxonomy, classifying the emergent post-crisis EU fiscal architecture from the perspective of fiscal federalism theory in order to determine what it demands from the EU legal order to ‘work’. Chapter 5 finds that, from the perspective of fiscal federalism theory, the EU has sunk the cornerstones of a highly centralized model of ‘proto-fiscal union’ that is far more apt to unitary states than any of the other federations touched upon in this book. At its core, the new model supplants a legal pillar of fiscal sovereignty and market discipline (an entrenched ‘no-bailout’ law) with a legal feature of unitary states: centralized financial assistance and legal governance of fiscal policy. Chapter 5 evaluates the demands this places on the European legal order, and provides directions for the remainder of the analysis of Part II.

Chapter 7 examines whether the fiscal governance architecture enacted since the crisis is reconcilable with the constitutional boundaries of member state fiscal sovereignty underlying the EU legal order as a whole. It conducts a piece-by-piece deconstruction of the European governance framework to identify instruments which trespass on ultra vires and constitutional identity rulings of national constitutional courts. It finds that the new architecture is dependent, for its stable functioning, on instruments which are beyond the boundaries of the EU legal order and profess to bind national legislators in economic/fiscal policy, contrary to member state constitutional identity jurisprudence. By restricting fiscal autonomy and providing bailouts, the EU has sunk the foundation stones of a unitary model that is manifestly incompatible with the constitutional jurisprudence of its twenty-eight member states catalogued in this book. This is not only legally unsound, but economically ineffective and injurious to good principles of fiscal federalism.

Chapter 6 examines whether the instruments of conditional financial assistance enacted since the crisis are genuinely reconcilable with the boundaries of EMU inscribed in the Treaties as a matter of EU law. This is necessary because the text of the Treaty is but the litmus paper for determining whether a legal instrument coheres with much deeper constitutional boundaries underlying the EU legal order. It concludes, unavoidably, that conditional financial assistance under Article 136(3) TFEU and the ESM is simply not reconcilable with the legal architecture in the treaties under the analytical framework developed by the ECJ. This emerges from an analysis of the allocation of competences (within which it does not together sit) and the substantive provisions of Articles 121-126 TFEU (to which it does not adhere). This provides the first testable indication that the emerging new model is incompatible with much deeper the boundaries underlying the EU legal order.

Chapter 1 evaluates competing EU and member state claims over the constitutional boundaries of ‘constitutional identity’ and Kompetenz-Kompetenz in the European legal order, and identifies two constitutional boundaries of the EU legal order which will impinge on the selection of fiscal federalism models for the EU. The first is fiscal sovereignty. Member state fiscal sovereignty is a permanent constitutional constraint on the application of fiscal federalism theory in the EU. The Union can have no powers other than what the member states have given it, and nemo plus iuris, what the member states have given it is limited by their own ‘constitutional identities’ – of which fiscal sovereignty lies at the core. The second is comprised of the fundamental guiding principles of price stability and ‘fiscal discipline’ (sound public finances, and sustainable balance of payments) binding on the mandate for EMU itself under Article 119(3) TFEU.

This Chapter provides a general definition of sovereign debt, and illustrates the trend, dating back to the 1970s, of rising global public indebtedness, including in advanced economies, to reflect on the actual role of debt in the current global economic system. It then analyses the main elements of the post-crisis reform of the legal framework for economic and fiscal policy making in the European Economic and Monetary Union (a reform linked, inter alia, to the intensified need to subject the fiscal conduct of increasingly indebted states to stricter controls), and discusses how these seem to evidence the increased neoliberalisation of EU economic governance.