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European Integration at the Crossroads EDITORS: Luboš Tichý Běla Plechanovová Ondřej Schneider Praha 2008

European Integration at the Crossroads

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Page 1: European Integration at the Crossroads

European Integration at the Crossroads

EDITORS:

Luboš TichýBěla PlechanovováOndřej Schneider

Praha 2008

Page 2: European Integration at the Crossroads

Editors: prof. JUDr. Luboš Tichý,CSc. doc. MPhil. Ondřej Schneider, Ph.D.doc. PhDr. Běla Plechanovová, CSc.

Publisher:Eva Rozkotová − IFEC, Na Ptačí skále 547, 266 01 Beroun

All rights reserved© Univerzita Karlova, Právnická fakulta, ediční středisko, 2008

ISBN: 978-80-903409-9-2

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TABLE OF CONTENTS

Introductory note 5Irena Moozová

European Regulatory Measures and Economic Growth 7Peter-Christin Müller-Graff

Labour Market Regulation and Economic Integration 20Martin Werding

Th e EU System of Legislation and its Modernisation 37Ingolf Pernice

Th e Eastern Enlargement and Decision Making in the EU 59Běla Plechanovová

One Market, How many Social Models? Policy and Performance Indicators for the EU 77Riccardo Rovelli

Communitarisation of the Th ird Pillar EU 116Jiří Zemánek

Negotiating the European Constitution: Actor Cleavages and Negotiation Outcomes 127Madeleine O. Hosli

EC-Judicial Eff ectiveness 145Hjalte Rasmussen

EU International Role and Its Impact on the Evolution of the EU Constitutional Structure: A Discourse Analytical Perspective 157Petr Drulák

Country of Origin Principle − a Myth, Fiction or Rule of the European Law 167Luboš Tichý

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INTRODUCTORY NOTE

‘With European unifi cation a dream of earlier generations has become a reality. Our history reminds us that we must protect this for good of future generations. For that reason we must always renew the political shape of Europe in keeping with the times.’

(Berlin Declaration, March 2007)

Pointedly formulated in this extract of the Berlin declaration, the European Union has achieved numerous outstanding objectives. On the 25th of March 1957, its foundations were laid: the Treaties of Rome were signed. Th ey opened the way for peace and security − the prerequisites of prosperity. Today, the European Union and its Member States are called on to rethink the direction of the Union’s development both in institutional and policy terms. Member States face major tasks to cope with present challenges, which surpass national borders.

Of the various events organised in celebration of the 50th Anniversary, the European Commission was therefore very glad to support the international conference − EUROPEAN INTEGRATION AT THE CROSSROADS. Th e conference has brought together ideas from the spheres of political science, economics and law, and has allowed for a fruitful exchange between academics and political decision makers. I would like to thank the organizers, in particular Charles University and Europaeum for creating an eff ective platform for debate on ways of working together for the future of the Union. Th e 50th anniversary of the signing of the Treaties of Rome provides an excellent opportunity to face this challenge.

Irena MoozováHead of the European Commission Representation in the Czech Republic

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PREFACEOn March 16 and 17, 2007, on the occasion of the 50th anniversary of the creation

of the European Economic Community, a remarkable conference on EU integration took place at the Černín Palace (the seat of the Ministry of Foreign Aff airs of the Czech Republic). Multi-disciplinary conferences are rare in the Czech Republic and therefore the organizers of the event resolved to organize a meeting of economists, lawyers and politologists. Th e common denominator of the conference was a phenomenon typical for the European Union that involves all three disciplines, albeit each of them uses its own specifi c method and addresses diff erent aspects, and undoubtedly considers diff erent views, components and aspects.

Th e conference attracted an unusual number of participants, the initial number of attendants exceeded 200, and at the end there were still 120 persons in the beautiful Great Hall of the Černín Palace.

Th e structure of the conference was unusual as well, as for instance it is not common to schedule a panel discussion for lawyers at the end. Th e discussion, although originally focused exclusively on science in compliance with the concept of the whole conference, turned into a political debate - not too much to our surprise as the persons who took part in the panel discussion were not the same persons who presented their speech. Politicians and former politicians gained a majority in the panel discussion, which always bears a certain risk of a tendency toward favorite topics and public education.

Th e conference was opened by the Minister of Foreign Aff airs of the Czech Republic, Mr. Karel Schwarzenberg and Alexander Vondra, Deputy Prime Minister of the Czech Government for European Aff airs. Mr. Schwarzenberg’s speech was remarkable for expressing the credo of a common Europe and for his personal charisma.

Th anks to Minister Schwarzenberg the conference took place in premises with perfect technical equipment supported with an excellent “refreshment corner”.

It is our great pleasure to thank all the sponsors that facilitated the smooth course of the conference and enabled these valuable contributions to be published, most of all Dr. Irena Moozová, the head of the European Commission representation in Prague.

Th ere are many other persons who deserve our thanks and appreciation for their extraordinary hard work, namely Mgr. Tomáš Dumbrovský from the Faculty of Law of Charles University, and for their assistance in ensuring the successful course of the conference.

Th e contributions presented at the conference are published in this issue in their reviewed wording, supplemented with a list of references. Th ey also manifestly demonstrate the approach from the formal point of view. Please note the diff erent manner of listing the references by, for instance, economists as against lawyers; they purposely left their contributions without reviews, i.e. in the form submitted.

Luboš Tichý, Běla Plechanová, Ondřej Schneider

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European Regulatory Measures and Economic GrowthPeter-Christian Müller-Graff *

Th e topic of European regulatory measures, in the sense of the regulatory framework setting of the European Community (EC) and economic growth,1 is a complex one. To clarify: the issue at hand is not the growth of the European regulatory measures in itself − a steady and frequent complaint in many EU Member States, concerning the tremendous increase in printed paper (often fi lled with legal norms of vague abstract terms and bounded compactly to compile the daily Offi cial Journal of the European Union Series L, from the Latin: legislatio). Th is Journal visibly comprises the multitude of European regulations and directives on such matters as energy network access or skin protection against the sun, public procurement procedures or carbon dioxide reduction, the advertisement of tobacco products or unfair business practices with customers and on a wide variety of many other subjects. Complaints about this swelling fertility of the European legislator usually have two aspects.

Th e fi rst concerns European contempt of the autonomy of the Nation States, in other words contempt of the principle of subsidiarity.2 Th is concern is uttered by those Member States in particular which deem a concrete Community action as being eff ectively detrimental to their economy when compared with the economy of other Member States.3 Yet, discrimination and subsidiarity are not the subject of this contribution.

Th e second aspect in the complaints over the regulatory activities of the European legislator emphasises restriction, demotivation and distortion of economic initiatives and activities, in other words a negative dynamic which hinders economic growth.4 In particular, the time consuming burdens of European regulatory measures are expressed: form requirements, applications, registrations, admissions, information, documentation and other bureaucratic demands. Th ese cost time and money and are deemed by many observers to suppress private initiative, or more precisely the level of investment and employment and hence economic and social prosperity.5 However, in this respect there are only vaguely reliable cost calculations available.

* Univ. Professor Dr. Dr. h. c., Director of Institut für deutsches und europäisches Gesellschafts- und Wirtschaftsrecht der Universität Heidelberg.

1 Th e text is based on the lecture of the author delivered at the International Conference on „European Integration at the Crossroads“ in Prague on March 16, 2007.

2 Th is principle is contained in Article 5 par. 2 of the EC Treaty.3 For example, in Spring 2007, plans of the European Commission for consumption targets of renewable

energy were considered in Germany to be particularly unfavourable for the German economy; see Frankfurter Allgemeine Zeitung v. 7. März 2007, Nr. 56, S. 11: „Klimaschutzziele der EU belasten Deutschland“.

4 See, e.g., Bundesverband Deutscher Banken, Eine bessere Regulierung für mehr Wachstum in Europa, 15. März 2005 (Schlechte Regulierung und hohe Bürokratiekosten dämpfen das Wachstum in der EU).

5 Ibid.

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Th e Dutch government estimated the bureaucratic costs for 2002 for enterprises in the European Union at the astronomic sum of 340 billion euros.6 According to the Dutch government, a decrease of 25% of the aforementioned burden would increase the overall net gross product by a rate of 1.7%.7 Although the fi gures themselves may be challenged by others, their core message is clear: deregulation or “better regulation” is considered to be a growth incentive par excellence.

Th is second aspect directly leads into the core of the present topic: namely the relationship between the European regulatory framework on the one hand and economic growth on the other. It should be noted that this does not simply mean the relation between regulation and growth but specifi cally the relation between European regulation and growth within the European Union. It will be shown why this distinction is very important. Th e following observations are subdivided into three pockets of critical analysis, namely into one preliminary aspect and two polarising (on the surface contradictory) assumptions: fi rst (this is the preliminary aspect) the content of the weasel words “regulatory framework” and “growth” (I), second the assumption that the absence of EC regulation is the best guarantee for growth (II) and third, the assumption that EC regulation generates growth (III).

I. Preliminary Aspect: Th e Content of the Words “Regulatory Framework” and “Growth”

Th e use of the words “regulatory framework” and “growth” is manifold and oscillating.

1. Growth

Th e term “growth” appears to imply a rather clear concept: namely an increase of the economy. Yet the meaning of “economy” as a general yardstick is not clear in itself. Article 2 of the EC Treaty names the task of the EC “to promote throughout the Community… a harmonious, balanced and sustainable development of economic activities” and also “a sustainable and non-infl ationary growth” (in the German text, “eine harmonische, ausgewogene und nachhaltige Entwicklung des Wirtschaftslebens” und “ein beständiges, nichtinfl ationäres Wachstum”). Th e Constitutional Treaty for Europe (CTE),8 which has the chance to be put into eff ect in this substantive respect by the newly projected Reform Treaty,9 echoes this objective as “sustainable development of Europe based on balanced economic growth and price stability” (Article I-3 par. 3

6 Bundesverband Deutscher Banken, Eine bessere Regulierung für mehr Wachstum in Europa, 15. März 2005, S. 1.

7 Ibid.8 See, e.g., Peter-Christian Müller-Graff , Strukturmerkmale des neuen Verfassungsvertrages für Europa,

integration 2004, 186 ff .9 See as a fi rst analysis of the Conclusions of the European Council of 21 and 22 June 2007 Peter-Christian

Müller-Graff , Die Zukunft des europäischen Verfassungstopos und Primärrechts nach der Deutschen Ratspräsidentschaft, integration 2007, 223 ff .

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CTE). However, this again poses a question of meaning: economic activities in the sense of the working hours of individuals in a defi ned area? Economic results in the sense of the market share of undertakings? Economic growth in the statistical sense of the “gross product” of a specifi c economic sector or territory, or in the sense of general welfare?

If one considers the idea of growth from the angle of the statistical “gross product”, then the increase of economic activity does not necessarily mean a growth of the overall gross product. Th is depends upon the productivity, in other words upon the value of the concrete economic activities. If this increase is due to a shift from more valuable activity to less valuable activity, then this increase of economic activity does not necessarily imply an increase of the “general welfare” in a region or in an economic sector. Hence at least two dimensions of “economic growth” must be kept in mind: activity and gross product. Moreover, sectoral and regional diff erentiations are necessary. Th e increase of the gross product of the European Community as a whole does not necessarily imply an increase in all Member States or in all regions or in all sectors at the same degree.10 Overall growth can overarch regional and sectoral shifts and asymmetries.11 Hence, for example, the profi table increase in Irish banking services (and thereby the gross product of the EC) can diminish the gross result of the Luxemburg insurance business. It is a triviality that a competition-driven economy is an ever changing, fl uid and dynamic system.

2. Regulatory Framework

On entering the second territory of terminology, namely the word “regulatory framework”, again diff erent dimensions show up. If any measure or law of the European Community which aff ects economic activities is labelled “regulatory”, as it is often done by economists,12 then the word is highly abstract in the sense of any economically relevant public action. At the same time, it is meaningless and useless for a substantive analysis of the two aforementioned contradictory assumptions on the relationship between regulatory measures of the EC and economic growth. Th is also applies to a recent study of the World Bank which argued that locations with better regulation grow faster 13 but seems to include any unit of a legal order 14 in the term “regulation”.15 In order to avoid this trap, one must recall the simple fact that public action can pursue very diff erent objectives, apply very diff erent techniques and generate very diff erent

10 In other words: Th e principle of comparative costs (David Ricardo) is blind for its concrete eff ects in the specifi c regional parts of the whole economic area.

11 Th is is one main reason for the Community´s empowerment to pursue a policy of economic and social cohesion (Article 158 of the EC Treaty).

12 See, e.g., Herbert Giersch, Europa 1992 − Nicht auf dem Verordnungswege, in: Frankfurter Allgemeine Zeitung v. 8. 10. 1988, S. 15.

13 Simeon Djankov/Caralee McLiesh/Rita Ramalho, Regulation and Growth, Th e World Bank, March 6, 2005.

14 For a thorough analysis of the diverse functional units of a legal order and their functional connection see Robert S. Summers, Form and Function in a Legal System, 2006.

15 See Simeon Djankov et al. above.

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eff ects on economic growth. Hence I propose fi rst to confi ne the notion of regulatory framework to binding public measures with the intent to infl uence economic activity 16 and then to distinguish between three types of such measures. Th ese three would be regulatory measures to encourage border-crossing competition (A), regulatory measures to protect free competition within the internal market (B) and regulatory measures to achieve specifi c economic results in the European Union (C).

A. Competition Encouraging Regulatory Measures

Regulatory measures of the EC, which intend to encourage border-crossing competition, concern in particular the realm of EC directives which aim to open up more or less closed national markets. For example, in public procurement,17 telecommunication services,18 energy supply,19 transportation.20 Since this form of European regulatory framework tends to jeopardise vested interests (such as public monopolies in one country), it hence sparks complaints from aff ected undertakings that the border-crossing competition will restrict their individual growth.

B. Competition Protecting Regulatory Measures

Distinguishable from the former are those EC regulatory measures which protect free competition within the internal market against restrictions and distortions, through a set of abstract playing rules. Th is is the domain of the classical ordo-liberal concept of EC Competition Law 21 with the intent to hinder or wipe out competition

16 Th ey are sometimes called “special regulations” (spezielle Regulierungen) of certain markets as diff erent from “constitutive regulations” (konstitutive Regulierungen); see Wernhard Möschel, Regulierung und Deregulierung. Versuch einer theoretischen Grundlegung, in: Wirtschafts- und Privatrecht im Spannungsfeld von Privatautonomie, Wettbewerb und Regulierung. Festschrift für Ulrich Immenga, München 2004, S. 277 ff .

17 See, e.g., Ingelore Seidel, Öff entliches Auftragswesen, in: Manfred A. Dauses (Hrsg.), Handbuch des EU-Wirtschaftsrechts, Loseblattsammlung 2007, H. IV; Jürgen Schwarze/Peter-Christian Müller-Graff (Hrsg.), Das öff entliche Auftragswesen in der EG, EuR Beiheft 1/1996; Peter-Christian Müller-Graff , Der gemeinschaftsrechtliche Rahmen der Vergabe öff entlicher Aufträge, in: Juristische Fakultät der Universität Heidelberg (Hrsg.), Der Einfl uß des privaten und öff entlichen Baurechts auf die Unternehmenstätigkeiten nach deutschem, französischem und europäischem Recht, 1987, S. 87 ff .

18 See, e.g., Christoph Engel/Sebastian Seelmann-Eggebert, Kommunikation und Medien, in: Manfred A. Dauses (Hrsg.), Handbuch des EU-Wirtschaftsrechts, Loseblattsammlung, E. V; Peter-Christian Müller-Graff , Liberalisierung und Wettbewerb in der Telekommunikation in der EG, in: Siegfried Lamnek/Marie-Th eres Tinnefeld (Hrsg.), Globalisierung und informationelle Rechtskultur in Europa, 1998, S. 156 ff .

19 See, e.g., Rudolf Lukes, Energierecht, in: Manfred A. Dauses (Hrsg.), Handbuch des EU-Wirtschaftsrechts, Loseblattsammlung, M; Peter-Christian Müller-Graff , Gemeinschaftsrechtliche Rahmenbedingungen der Liberalisierung und Privatisierung der Energiewirtschaft, in: Festschrift für Winfried Tilmann, 2003, S. 721 ff .

20 See, e.g., Astrid Epiney, Verkehrsrecht, in: Manfred A. Dauses (Hrsg.), Handbuch des EU-Wirtschaftsrechts, Loseblattsammlung, L; Peter-Christian Müller-Graff , Grundelemente des Gemeinschaftsrechtsrahmens für Verkehrsdienstleistungen, in: Festschrift für Rudolf Nirk, 1992, S. 715 ff .

21 See, e.g., Ernst Joachim Mestmäcker, Off ene Märkte im System unverfälschten Wettbewerbs in der

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restrictions caused by undertakings (e.g. Articles 81 and 82 of the EC Treaty and respective regulations and decisions) 22 or with the intent to guard against mergers which substantially infringe eff ective competition (Merger Control Regulation) 23 or with the intent to defend against competition distorting state aid (Article 87 of the EC Treaty).24 Since this type of European regulatory framework encroaches in activities, plans and benefi ts of certain market participants, Community law itself grants particular exceptions in order to give way to those restrictions or distortions of competition which are expected to generate overall economic progress or growth (e.g. Article 81 par. 3 of the EC-Treaty;25 Article 87 par. 3 of the EC-Treaty and secondary law 26 ).

C. Specific Result Intending Regulatory Measures

Again, a distinguished variety of EC regulatory measures are those which intend to achieve specifi c economic results within the European Union. In particular, this concerns the variety of measures which exert an infl uential eff ect on products, production processes and services.27 Th is area aims to make these compatible to all kinds of requirements which have been politically conceived to be mandatory, such as: specifi c standards of health protection (for instance, which require that children’s’ toys do not contain certain harmful colour additives: the Toys Directive 28 ), or specifi c standards of consumer protection (such as those which require that consumer credit contracts contain defi ned information about any incurred costs: the Consumer Credit Directive 29 ), or specifi c standards of environmental protection (which require, for example, that cars do not emit more than 120 units of carbon dioxide: the planned Carbon Dioxide Directive). Th e reverse side of this variety of regulatory measures is the prohibition of products or services which do not comply with those standards. In particular, this third type of EC regulatory framework regularly encounters the two contradictory assumptions on its eff ect on economic growth.

Europäischen Wirtschaftsgemeinschaft, in: Wirtschaftsordnung und Staatsordnung, Festschrift für Franz Böhm, 1965, S. 365 ff .; Peter-Christian Müller-Graff , in: Christoph Vedder/Wolff Heintschel von Heinegg (Hrsg.), Europäischer Verfassungsvertrag, 2007, Art. III-161 Rdz. 2.

22 See, e.g., Richard Wish, Competition Law, 5th edition, 2003, p. 79 et seq., 175 et seq.23 Regulation 139/2004, OJ 2004 L 24/1.24 See, e.g., Peter-Christian Müller-Graff , in: Christoph Vedder/Wolff Heintschel von Heinegg (Hrsg.),

Europäischer Verfassungsvertrag, 2007, Art. III-167.25 See, e.g., Richard Wish above, p. 149 et seq.; Peter-Christian Müller-Graff , Die Freistellung vom

Kartellverbot, EuR 1992, 1 ff .26 See, e.g., Peter-Christian Müller-Graff , in: Christoph Vedder/Wolff Heintschel von Heinegg (Hrsg.),

Europäischer Verfassungsvertrag, 2007, Art. III-167 Rdz. 28 ff .27 See Peter-Christian Müller-Graff , Die Verdichtung des Binnenmarktrechts zwischen Handlungsfreiheiten

und Sozialgestaltung, EuR Beiheft 1/2002, S. 7, 19.28 Directive 88/378/EEC, OJ 1988 L 187, 16 July 1988, 1. 29 Directive 87/102/EEC, OJ 1987 L 42, 12 February 1987, 48.

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II. First Assumption: Absence of EC-Regulatory Measures is the Best Guarantee of Economic Growth

Th e fi rst basic assumption encountered is that the absence of regulatory policies of the European Community is the best guarantee for economic growth, both in the sense of benefi ts for business activities and the overall gross product of the European Community.

1. Underlying General Ideas

Th is assumption is founded on the general basic idea of any liberal theory starting as early as the famous “laissez faire, laissez aller” at the turn into the 19th century.30 It is also the basis for the classical international trade doctrine of the emergence of welfare, generated by a system of comparative costs (David Ricardo) 31 or, in modern words, by the eff ects of transnationally unrestricted und undistorted competition of private economic initiatives.32 Th is doctrine expects that the optimum overall economic results (in the sense of initiative and investment, use of scarce resources and creativity, innovation and invention, adaptation and fl exibility in a defi ned territory) are generated by the multitude of free and mutually freely coordinated decisions of demand and off er.33 Th rough this, it is expected that economic growth can be spurred as well, if this is appropriate to such a self creative and self steering system.34 However, these results may not necessarily meet the ambitious target lines of overall or regional growth, which are defi ned at the political level.

2. Idea, Consequences and Merits in the EC Treaty

Turning to the EC Treaty it is indeed this idea of an open market economy with free competition, which has made its way into the EC Treaty and is explicitly summarised as such in its Article 4.35 Th is theory is the very foundation of the internal market concept, as defi ned in Article 14, par. 2 of the EC Treaty as an area without internal frontiers, in which the free movement of goods, persons, services and capital is ensured in accordance with the EC Treaty.36 Th is idea is established by the EC Treaty as the prime method for achieving the aforementioned objectives: namely to promote economic activities and growth.37

30 See as an off spring in the early 20th century: 198 U.S. 45, 25 St. Ct. 539 (1905) with Justice Holmes dissenting.

31 David Ricardo, Principles of Political Economy and Taxation, 1829.32 For the concept see Willem Molle, Th e Economics of European Integration, 1990, p. 9.33 For the expected positive functions of a system of free and undistorted competition in general see as an

overview, e.g., Wernhard Möschel, Das Wirtschaftsrecht der Banken, 1072, S. 337 ff .34 Ibid.35 See Peter-Christian Müller-Graff , Die wettbewerbsverfaßte Marktwirtschaft als gemeineuropäisches

Verfassungsprinzip, in: EuR 1997, 433 ff ., 439.36 See Peter-Christian Müller-Graff , Binnenmarktziel und Rechtsordnung − Binnenmarktrecht, 1989.37 See also Article 2 of the EC-Treaty.

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3. The Need for Safeguards Granted by Public Authority

However, it is already well known that the realisation and functioning of this concept as a durable and lasting system needs safeguards granted by public authority: namely rules and their enforcement against the specifi c techniques of undertakings to restrict competition (in particular by forming cartels) or to abuse dominant market positions. Hence a system of free competition needs the order of abstract playing rules (the Latin word for this is ordo) as developed by the infl uential ordo-liberal doctrine 38 of Walter Eucken and Franz Böhm and their pupils, in particular Ernst-Joachim Mestmäcker.39 A European regulatory framework is necessary in this sense of protecting competition. Th is requires reliable legal rules (such as Article 81 and 82 of the EC Treaty) and legal certainty in order to give the competitive forces a chance to eff ect the expected positive results 40 of initiative and investment, optimal use of scarce resources and creativity, innovation and invention, adaptation and fl exibility and, through all of this, also to potentially generate economic growth, if this is proper to the self regulating system of market forces. Th erefore, the assumption that the total absence of any EC regulatory framework should be the best guarantee for economic growth within the internal market fails to convince. At the very least, a legal system which guarantees the system of free competition must be present.

It should be added that the previously described basic idea evidently does not imply the presently hotly disputed so-called more economic approach, favoured by parts of the European Commission in the General Directorate IV.41 Th is approach advocates applying the abstract rules of EC Competition Law − prohibitions and exceptions − to an individual case, through primarily caring for consumer welfare, in particular through achieving low prices or better distribution.42 Apart from the aspect that consumer welfare is not necessarily identical with economic growth, this approach seems to show a certain misunderstanding of the classical function of the EC regulatory framework to protect competition. Th e prime orientation towards consumer welfare fails to meet the complex profi le of the EC Treaty’s legal framework of competition. Th is aims to guarantee a system of freedom of competition 43 but not to primarily achieve short-term consumer welfare results,44 although they can regularly be expected

38 See Fritz Rittner, Wirtschaftsrecht, 1979, S. 339 See Ernst-Joachim Mestmäcker above.40 As an overview of the expected positive results see, e.g., Wernhard Möschel above.41 See, e.g., Mühlberger, in: Capital Nr.10/2006, S. 22 ff .42 See European Commission, Discussion Paper on the Application if Article 82 EC Treaty, December 2005,

in which an eff ects based approach is advocated and the objective of Article 82 of the EC Treaty defi ned as “the protection of competition on the market as a means of enhancing consumer welfare and of ensuring an effi cient allocation of resources” (at notes 4, 54).

43 See, e.g., Volker Emmerich, in: Ulrich Immenga/Ernst-Joachim Mestmäcker, EG-Wettbewerbsrecht, Kommentar, Band I, 1997, Art. 85 Abs. 1 Rdz. 3, 5 f.; Helmut Schröter, in: Hans von der Groeben/Jürgen Schwarze (Hrsg.), EUV/EGV. Kommentar, 6. Aufl ., 2003, Art. 82 Rdz. 16.

44 Notwithstanding the possibility of exemptions of agreements between undertakings which distort

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from a system of free and undistorted competition.45 Moreover, an economically discretionary approach destroys legal certainty, since undertakings, when they act (by concluding agreements between them or on the basis of a dominant market position), can only speculate as to whether future economic theorists will assess their action as having been benefi cial for consumer welfare or not. Last but not least, the economic approach might overestimate the capability of economic analysis to predict results in a complex market economy.

III. Second Assumption: EC Regulatory Measures Generate Economic Growth

Moving on to the second polarising assumption in the relationship between EC regulatory framework and economic growth immediately a contradiction appears. Th e second assumption is that EC regulatory framework can generate economic growth in principle.46

1. Underlying General Ideas

Th is assumption rests on two diff ering general ideas: fi rst, to enhance economic activities in general and in specifi c economic sectors in particular through public intentional fostering of growth; second, to generate expected growth eff ects from regulatory challenges.

A. Public Intentional Fostering of Growth

Th e feasibility of generating growth eff ects through intentional public fostering is the basic conviction in any regulatory concept of public intervention which aims to expand the economy. It is based on the idea that public authorities can form a regulatory framework which incites economic growth. As old as the mercantilist philosophy of Colbert 47 this understanding has sparked off very diff erent devices both for the economy as a whole and for diff erent sectors thereof. Th ese include holistic (or

competition from the prohibition of Article 81 par. 1 of the EC Treaty on the basis of Art. 81 par. 3 of the EC Treaty (with a broad notion of “consumer”).

45 For the expected diverse positive functions of a system of free and undistorted competition see above.46 See European Commission, Th e Commission´s Strategic Objectives 2005 - 2009, COM(2005) 12: “We

should make policy choices that ensure that our various objectives are mutually reinforcing. Actions to promote competitiveness, growth and jobs, as well as social and economic cohesion and a healthy environment reinforce each other. Th ese are all essential components of the overarching objective of sustainable development, on which we must deliver.”; European Commission, Impact Assessment Guidelines, 15th June 2005, SEC(2005) 791; see also European Council of 23 and 24 March 2000, Final Conclusions (“Lisbon-Strategy”. For the special aspect of fostering growth through infrastructure policy see Christian von Hirschhausen, Infrastrukturpolitik: Mehr Wachstum durch Wettbewerb, Regulierung und Privatbeteiligung, in: Klaus F.Zimmermann (Hrsg.), Deutschland − was nun? Reformen für Wirtschaft und Gesellschaft, 2006, S. 251 ff .

47 See, e.g., Wolfgang Weiß/Christoph Hermann, Welthandelsrecht, 2003, S. 9 f.

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global) concepts (such as centralized economy devices 48 which still prosper to a certain degree in China); the former planifi cation indicative francaise;49 and the theory of anticyclic budget policy as developed by John Maynard Keynes 50 and as transformed into a binding statute on Stability and Growth in Germany.51 However, the degree to which these devices factually contribute to sustainable economic growth is very doubtful, or at least disputed among economists.52 Th ese concepts can even block economic growth through hindering more profi table activities. On the other side it is also emphasised that an intelligent infrastructural policy, in particular in the areas of transport, telecommunication and energy infrastructures, can increase economic activities.53

Th e same applies − mutatis mutandis − to sectoral concepts, such as the public care for suffi cient supply of certain products (for example, Germany’s former telecommunication and energy handling which, however, resulted in a high level of prices 54 ) or the public care of economic activities in certain sectors (such as the Belgian care of Belgian production of brewery equipment, which failed;55 or France’s frequently reported policies for the production of French sailing ships in the 19th century or refrigerators in the 60s, which also failed). A sweeping theory calls all these interventions of public authorities a reaction to so-called market failures,56 but this terminology misunderstands the role and core of the market system as well as the broad array of reasons for regulation.57 Th e basic issue is not market failure but rather public policy. Here, there exists the tangible danger that futile incentives are given by public authorities to preserve the existing structure of economic off er against the developments of demand or vice versa. On the other side, successful competitive advantages granted by public authorities can frustrate other innovative participants.

48 See as an example for the former East European systems before 1989, e.g., the self description for East Germany Uwe-Jens Heuer (Hrsg.), Wirtschaftsrecht, 1985.

49 Hans J. Hoenisch, Planifi kation. Recht zwischen Plan und Freiheit, 1974.50 John Maynard Keynes, Th e General Th eory of Employment, Interest and Money, 1973.51 See Fritz Rittner, Wirtschaftsrecht, 1979, S. 48.52 See for the discussion, e.g., Ulrich Teichmann, Konjunktur- und Wachstumspolitik, 1972, S. 115 ff .; Walter

Hamm, Kollektive Investitionslenkung, ORDO 27 (1976), 134 ff .; Otmar Issing, Investitionslenkung in der Marktwirtschaft? 1975; Hans Besters, Neue Wirtschaftspolitik durch Angebotslenkung, 1979.

53 See, e.g., Christian von Hirschhausen above.54 See for energy supply ibid.55 See ECJ, case 234/84.56 See, e.g., R. G. Noll, Government Administrative Behaviour and Technical Innovation; California

Institute of Technology. Working Paper 1975 (“One purpose of democratically elected legislators is to detect serious market imperfections and establish administrative agencies to ameliorate them” (quoted from Jürgen Müller/Ingo Vogelsang, Staatliche Regulierung, 1979, S. 35 Fn. 11); Werner Meißner, Investitionslenkung, 1974. For a diff erent (market immanent and restricted) understanding of market failure see Jürgen Müller/Ingo Vogelsang, above, S. 31, 33.

57 See, e.g., Hans Besters, Neue Wirtschaftspolitik durch Angebotslenkung, 1979, S. 93; Peter-Christian Müller-Graff , Unternehmensinvestitionen und Investitionssteuerung im Marktrecht, 1984, S. 81 ff ., 136, 517.

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B. Expectable Growth Effects from Regulatory Challenges

Th e second underlying idea of the assumption that EC regulatory framework generates economic growth presumes expectable growth eff ects from the creative reaction of the market to regulatory challenges. Th is argument is most frequently expressed in the area of new regulatory instruments of environmental protection. If, for example, the permissible emission levels of carbon dioxide from cars is lowered,58 the usual complaints of the industry aff ected are generally countered in the public debate by politically expressed expectations of innovation, new investment and markets, generated by these challenges. Th e same pattern of arguments appears, for example, in the discussion of fi xing mandatory quotas for the so-called renewable energies (sun, wind, hydroelectric) or in prescribing new safety equipment for television sets. Whether these growth eff ects outweigh the inherent limitations and distortions of economic activities is a complex question of every single regulation. It is very often a heavily disputed issue since wrong incentives may be given and innovative competitors can become frustrated. However, as already outlined, it can generally be assumed that the accompanying obligations of undertakings to provide information, do paperwork and indulge in bureaucratic documentation have a tendency to burden, to slow down and to de-motivate the readiness for economic activity.59 Th e specifi c impact of regulatory agencies (e.g. telecommunication, energy, transportation) on economic growth is a separate topic, which still needs further exploration.60

2. Basic Ideas, Consequences and Merits in the EC Treaty

Turning to the EC Treaty and the policy of the European Community both ideas can be found in this context.

A. Public Intentional Fostering of Growth

Concerning the public fostering of economic growth, the programme to complete the internal market at the end of 1992 61 is an outstanding example. When the objective of the internal market was introduced into the Treaty in 1987 62 and substantiated by adapting around 300 regulatory measures of the Community,63 an Italian economist’s report, the Cecchini Report, supported this.64 It predicted a tremendous quantifi ed

58 See above for the plans of the European Commission.59 See above.60 Regulatory agencies are an increasing phenomenon in Europe. Th eir radius of action partially overlaps

with the topic of “regulated industries”; for the latter see Jürgen Müller/Ingo Vogelsang, Staatliche Regulierung, 1979, S. 354.

61 Commission of the European Communities, White Book on the Completion of the Internal Market, June 1985.

62 See Peter-Christian Müller-Graff , Die Rechtsangleichung zur Verwirklichung des Binnenmarktes, EuR 1989, 107 ff .

63 See the mentioned White Book of the Commission of the European Communities.64 See P. Cecchini, Europa 1992. Der Vorteil des Binnenmarktes, 1988, S. 122.

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economic growth from this project.65 Whether reliable studies exist as to if this actually came true as a result of the regulatory measures, is beyond my knowledge. In all probability, they are not at all feasible due to the epochal historical change, which occurred between 1987 and 1992 in Europe. a. However, the basic assumption of the Cecchini Report carries some persuasive

authority, at least when assessed in the light of the basic internal market concept as described above. As stated, namely that the abolition of the national regulatory framework, which hinders border-crossing economic activities, will encourage and generate a Community-wide competition with all its benefi ts.

Th e same direction is taken by all present single regulatory measures of the Community which encourage trans-border competition: namely by overcoming national impediments, for example, to banking and insurance,66 energy supply 67 and telecommunication services,68 transportation 69 and public procurement.70 Th e expectation of potential economic growth through this fi rst type of EC regulatory framework is a paradox for common sense on the surface only. It must be kept in mind that this variety of EC directives replaces 27 diff erent national regulatory frameworks on the subject at hand. Although it may appear monstrous on its own, it is rather small when compared to the combined 27 national regulatory devices of the same issue.

b. In contrast to this type of EC regulatory framework are the measures to foster economic growth on the basis of EC Treaty empowerments for regional,71 industrial,72 infrastructural network-building,73 technological development 74 or agricultural policies.75 Th eir assessment encounters the same problems outlined just above with regard to the underlying general idea. In this respect, the policies of the EC are not specifi cally diff erent to national policies. Th ey easily fail if they urge the development of particular technologies or products (such as a certain generation of telecommunication transmission cables). Undertakings are economically usually more inventive than public administrations. On the other side “the establishment and development of trans-European networks in the areas of transport, telecommunication and energy infrastructures” as projected by Article 154 EC Treaty can doubtlessly

65 Ibid.: per year approximately 5 % of the Gross Product of the EEC or 400 billions DM.66 See, e.g., Ulrich Hübner, Banken- und Versicherungsrecht, in: Manfred A. Dauses (Hrsg.), Handbuch

des EU Wirtschaftsrechts, Loseblattsammlung, E. IV.67 See, e.g., Rudolf Lukes above.68 See, e.g., Christoph Engel/Sebastian Seelmann-Eggebert above.69 See, e.g., Astrid Epiney above.70 See, e.g., Ingelore Seidel above.71 Article 158 of the EC Treaty et seq.72 Article 157 of the EC Treaty.73 Article 154 of the EC Treaty et seq.74 Article 163 of the EC Treaty et seq.75 Article 33 of the EC Treaty.

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intensify the free movement and economic activities within the internal market, if intelligently pursued.

B. Expected Growth Effects from Regulatory Challenges

No specifi c EC aspect arises concerning the second idea of growth by regulatory measures, namely growth eff ects from regulatory challenges. Th e lowering of the permissible emission of carbon dioxide by cars, the introduction of mandatory quotas for renewable energies or the ban of certain colour additives in toys may stimulate initiatives and investment, the best use of scarce resources as well as creativity, innovations and inventions. However, it may also discourage economic and innovative activity, particularly if combined with the burdening obligations of information, paperwork and bureaucratic documentation. As before, this is a complex question concerning every single piece of EC regulatory framework. It requires a specifi c assessment of whether the overall balance in the light of discouragement and encouragement for new activities is a negative or a positive growth of economic activity and the overall gross product within the European Community. Here, even the Court of Justice can contribute to a given case, albeit not on the basis of economic criterion of growth but on the basis of the legal criteria of fundamental rights 76 or the principle of proportionality.77

One positive political example in the EC is − besides Britain with its “Regulatory Impact Unit” and its results 78 − the ambition of a small Member State, the Netherlands, to reduce the bureaucratic burden of the Dutch economy within four years by 25% (this fi gure is estimated) 79 or by four billion euros. Some political forces in Germany want to follow this example.80 As far as the regulatory framework of the Community is concerned at least four Presidencies of the Council have already addressed this problem (“Joint initiative on regulatory reform”).81

IV. Conclusion: Th e Need for a Diff erentiating View Th is leads to a concluding remark. Th rough assessing and balancing the relationship

of EC regulatory framework and economic growth, it is clear that the appropriate view is one which diff erentiates on both sides. Th ese are diff erentiations according

76 See Peter-Christian Müller-Graff , Die Verdichtung des Binnenmarktrechts zwischen Handlungsfreiheit und Sozialgestaltung, in: EuR Beiheft 1/2002, S. 7, 71 f.

77 In relation to measures of the Community the ECJ see, e.g., ECR 1997, I-2405, I-2405 note 57 (assessment with the result that the measure is not evidently unproportional).

78 Bundesverband Deutscher Banken, Eine bessere Regulierung für mehr Wachstum in Europa, 15th March 2005, S. 4 f.

79 Raimar Dieckmann, Mehr Wachstum durch zeitgemäßes Regulieren, DB Research - Banken, Finanzmärkte und Regulierung, 2006.

80 Ibid.81 Bundesverband Deutscher Banken, see above, S. 3 (Die Verbesserung der Regulierung ist eine gemeinsame

Aufgabe der EU und der nationalen Regierungen).

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to the notion of economic growth on the one side and diff erentiations according to EC regulatory framework on the other side. Only such an approach off ers the chance for an intelligent use or non-use of a regulatory instrument by the European Community in the light of economic growth. It also encounters the challenges and limits of regulatory and political management of border-crossing economic activities. A wise insight is formulated by the European Commission in its White Paper on European Governance: “Proposals must be prepared on the basis of an eff ective analysis of whether it is appropriate to intervene at an EU level and whether regulatory intervention is needed.” 82 Th is is an ongoing task and challenge.

82 See European Commission, White Paper on European Governance, 2001, COM(2001) 428; see also European Commission, Impact Assessment Guidelines, 15 June 2005, SEC(2005) 791.

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Labour Market Regulation and Economic IntegrationMartin Werding *

I. IntroductionEconomic integration within the European Union is part of, or at least is being shaped

against the background of, a broader process which is often labelled “globalization” as a convenient short-hand. Visible aspects of this process of economic integration that is taking place at a global level, though at diff erent speeds within and between diff erent regions of the world, are a continuous increase in international trade, of both fi nal goods and intermediate products, an increase in capital mobility and, as far as legal barriers permit, also an increase in the mobility of labour. All this is propelled by considerable diff erences in returns to capital as well as in labour costs and labour productivity across the countries involved − features that also apply to the European Union, certainly following its recent Eastern enlargement.

Economic integration, or globalization as a whole, triggers two types of adjustments that specifi cally aff ect labour markets, at least important segments of these, in the participating countries:(1) a relocation of jobs through off -shoring and international outsourcing; and(2) a relocation of workers through international migration.1

Here, “off -shoring” is meant to designate the relocation of (mainly basic or intermediate stages of ) production from domestic plants to subsidiaries abroad within a given fi rm. Th ese subsidiaries can either be built from scratch, or they can be integrated through the acquisition of existing plants. “Outsourcing” means that, for some parts of the production chain, own activities of a fi rm are given up and are replaced by buying intermediate products from external, independent suppliers which are often located in other countries. In both these sub-cases, the consequences for the incumbent work force of the fi rm that is expanding its activities to other countries are rather similar. Th e same is even true for the case of international mobility of workers who migrate in the opposite

* Ifo Institute for Economic Research at the University of Munich, Dept. of Social Policy and Labour Markets.1 In the literature, there has been a lengthy, and essentially pointless, debate about whether these adjustments

are triggered by globalization alone, i.e., by openness to trade and factor movements, or whether technology, specifi cally a certain type of “skill-biased technical progress”, also plays an important role in explaining largely the same phenomena (as advocates of the latter see, e.g., Lawrence and Slaughter 1993; Bhagwati and Dehejia 1994; Berman et al. 1994; or Krugman 1995).

Th e debate is pointless not only because globalization and technical progress are next to indistinguishable in terms of their impact on the international division of labour (see Landmann and Pfl üger 1996). Moreover, the invention and certainly the adoption of new technologies are never fully exogenous, hence never independent determinants of observed changes, but may in themselves be strongly driven by the higher intensity of international competition (this is noted, at least as an aside, in Berman et al. 1994, while Freeman 1995, Wood 1995 and Davis 1998 strongly argue in this direction).

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direction, although type-1 and type-2 adjustments aff ect the domestic economy as a whole in slightly diff erent ways.

Around the globe, and defi nitely inside the enlarged EU, there are now few restrictions regarding international capital mobility and international trade. In fact, EU enlargement did not make much of a diff erence in these areas, as rules establishing free trade and free mobility of capital ranked high in the series of “pre-accession treaties” which were made, starting from the early 1990s, between the Western European countries of the EU-15 and the transition countries in Central and Eastern Europe that now form the EU’s new member states (NMS-10). Taking Germany as an example, it should thus not come as a surprise that trade with the neighbouring transition countries was boosted, and that the stock of capital accumulated through outward FDI in these countries has quickly reached a substantial level since then (Becker et al. 2005a). Furthermore, the empirical evidence indicates that German FDI to Central and Eastern Europe has been a lot more sensitive to existing wage diff erentials than direct investment in other, developed regions of the world (Becker et al. 2005b), which clearly fi ts to the view that, to a good extent, further economic integration in the EU parallels globalization in general.

Th ings are diff erent with respect to international migration. In most of the EU, there are strong legal checks on immigration from third-party countries, especially less developed ones. Even inside EU, free mobility of labour from the NMS-10 to the EU-15 is so far largely precluded through “transitional arrangements” included in the accession treaties that will fully expire only until 2011. Nevertheless, migration within the larger EU is potentially important as was shown in a number of studies attempting to estimate migration fl ows that had to be expected for the case of unrestricted migration from 2004 onward (Boëri et al. 2000; Sinn et al. 2001; 2003). It is of course unknown whether these estimates, which are clearly rough as they are lacking reliable data bases, are suffi ciently close to what would have happened had they not mainly been taken as a reason to restrict migration for the short to medium term. However, the experience of the UK and Ireland, the only two countries that opened their national labour markets for workers from the NMS-10 at once in 2004, suggests that there is indeed a considerable potential for labour mobility in the enlarged EU which may be partly restrained, and partly redirected to these two countries, through the current legal framework (see, e.g., Barrell et al. 2007). It should be noted in this context that, given the economic forces at work, suspending full intra-EU labour mobility until the latest possible instant, as Germany will most likely do, is probably not the optimal response. I hope that this will become clear in the following.

Before I go any further, I should stress more generally that the adjustments discussed here, viz. the relocation of jobs and/or workers, are basically meaningful adaptations to the tensions that arise in any process of economic integration. Most importantly, they may contribute to the emergence of a new, effi cient international division of labour. Yet, they may work “too fast”, at least for some of the countries involved and some of the individuals aff ected. What is more, in the presence of labour market regulation, the

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adjustments that are still feasible and the new equilibrium they will bring about may well be signifi cantly distorted. Th ese potential frictions and distortions are precisely the topic of the present contribution.

II. Labour market regulationLabour market regulation is a vast fi eld, encompassing all legal rules and collective

agreements between employers and employees that govern industrial relationships and the functioning of the labour market, sometimes only in specifi c sectors or labour market segments, throughout a given country. In this contribution, I will concentrate on the following four main sub-issues that are relevant, more or less, in most developed countries, including the high-income countries in the old EU-15 as well as the transition countries in the NMS-10.− Statutory minimum wages and/or collective wage agreements;− employment protection legislation;− welfare benefi ts for the unemployed;− and active labour market policies and employment services.

In fact, I will not even deal with regulation in these fi elds in separation and in all existing detail. Instead I will lump things together as much as possible to work out a consistent, through probably rough, general message.

Regulation in any of the above areas has a multitude of eff ects. However, there is a common, or even joint, impact on wages and the wage distribution in economies where relevant rules apply. As this is what they are all about, it is certainly most obvious that binding minimum wages which are legally defi ned or collectively agreed with substantial coverage among existing work contracts have a direct impact on actual wages. To the extent that there is compliance with these rules, they usually drive up wages at the lower end of the pay scale and, via a chain reaction on productivity-related wage diff erentials throughout this scale, often compress the entire wage distribution from below (OECD 1998, ch. 2; Brown 1999; Kahn 2000). Th ese eff ects can be reinforced through strict employment protection, as the latter strengthens the bargaining power of workers, especially if they are collectively organized (Neumark and Wascher 2003; Garibaldi and Violante 2005). Th e same is true for welfare benefi ts for the unemployed, irrespective of whether these are contributory insurance benefi ts that usually expire after a certain entitlement period or whether there are also some kind of means-tested, subsistence-level benefi ts that are paid to all individuals, including the long-term unemployed, for an indefi nite period of time. Whatever the precise design of such measures, they improve the “outside option” of workers, i.e., loosing one’s job because of excessive wage demands becomes less of a threat, and the bargaining power of workers increases.2

2 Infl uential studies that have a particular focus on the interaction of labour market regulation in diff erent sub-fi elds and largely confi rm the eff ects sketched above are those of Belot and van Ours (2004) and Nickell et al. (2005).

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Also, as welfare benefi ts are often off ered as an unconditional wage replacement, the may defi ne a sort of implicit minimum wage because no benefi ciary will be inclined to accept a job that does not pay more than the welfare state and, in addition, compensates him or her for the eff ort involved in actually working. Again, this implicit minimum wage may contribute to a compression of the wage distribution in general (Sinn et al. 2006). Th e way active labour market policies are being handled, encompassing training programmes, wage subsidies, workfare measures, etc., and the way employment services are being provided, as a pure administration of the unemployment register or as a combination of active counselling and strict monitoring of search activities of the unemployed, make a huge diff erence with respect to how these types of public policies interact with labour market regulation in other fi elds (see, again, Neumark and Wascher 2003). If they are mainly used to remove programme participants from unemployment records and place them in activities that off er a remuneration exceeding attainable wages in regular employment and sometimes even lead to a renewal of benefi t entitlements vis-à-vis unemployment insurance, they largely reinforce the upward pressure on wages exerted by regulation in the other areas covered here and contribute to the compression of the wage distribution that results.

Despite these eff ects, and abstracting from design fl aws that may, for instance, give rise to abuse of welfare benefi ts and outright fraud, there may be good reasons for the introduction of labour market regulation from an effi ciency point of view in a closed economy: Up to a point, it may reduce monopsony power of employers and create incentives for human capital investment, both in terms of general skills and fi rm-specifi c human capital, and it may lead to better matches, i.e., a better allocation and utilization of labour. Also, like many other institutions, it may reduce transactions costs of various kinds. Mainly, however, labour market regulation is about redistribution, as in many of its branches it deliberately shifts power from employers − who cannot evade in a closed economy − onto employees − whose number is somehow limited through demographic fundamentals and typical choices regarding labour force participation. Th e important point to note with respect to the theme of economic integration is that opening up the economy changes the role of labour market regulation for effi ciency. More importantly, it once more changes the balance of power on the labour market and it defi nitely weakens the redistributive impact of labour market regulation. In fact, it renders them unsuitable as redistributive devices. Of course, the precise consequences of economic integration depend on whether and how labour market regulation is adjusted in the face of stronger international competition. It appears that developed countries which have adapted national labour market regulation, though not altogether abandoned it, fare better in terms of labour market outcomes and economic performance than others that did not respond to the change in the international economic environment (see Blanchard and Wolfers 2000 and, again, Belot and van Ours 2004 or Nickell et al. 2005).

Even though labour mobility is to a good extent precluded as an adjustment mechanism to the forces of globalization and economic integration within the EU, I will use it as an illustrative example for the potential gains from integration as well as

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for the unfavourable eff ects of national labour market regulation in open economies. It has already been said that the consequences of capital mobility and international trade are not fundamentally diff erent with respect to the situation of workers living in the country faced with potential outsourcing, off -shoring or immigration. However, one needs a true multi-country framework to highlight the consequences if jobs would move abroad, while one can use the most basic framework for analyzing the labour market in a single country if, instead, foreign workers are assumed to be fully mobile.

III. Flexible labour markets and effi cient migrationTo illustrate the eff ects of “openness” of an economy for the labour market, I can

therefore eff ectively rely on the most basic version of a textbook model of the consequences of free mobility of labour for wages and employment in the target country of potential migrants (Borjas 1994; 1995). Figure 1, fi rst of all, gives a stylized representation of “the” national labour market in country i where wages are fully fl exible, i.e., where labour market regulation is absent, for the situation just before immigration sets in. For simplicity, it is assumed here that all domestic workers are homogenous, that is, that there is no distinction between skilled and unskilled workers, between diff erent sectors and professions, etc. Also, it is assumed that domestic labour supply ( LSi ) is fi xed at iL , representing a given number of individuals who are seeking work, each supplying a given amount of working hours, irrespective of how high a wage (w) they will be able to earn.3

Figure 14

Labour-market equilibrium in a closed economy

Labour demand ( LDi ) is the result of hiring decisions of employers. It is declining in wages that have to be paid as the marginal productivity of additional workers, which equals the employers’ willingness to pay under the conditions of perfect competition, is assumed to go down if employment (L) increases. As a result, there is a unique and stable equilibrium of supply and demand on the labour market that leads to full employment at iL and defi nes a market-clearing level of wages wi . Also, as the area below the LD-curve represents aggregate output, this solution implies a specifi c distribution of income between workers, who earn an aggregate wage income of; and capital owners, who earn a residual income, or profi t.

Figure 2 shows what happens if workers from another country j are admitted to migrate to i without any restrictions and if wages can adjust freely as they should in the absence of labour market regulation. Th e main economic incentive to migrate

3 Note that, in the light of empirical estimates regarding the wage elasticity of labour supply, this is probably not too much of a simplifi cation (Pencavel 1986; Killingsworth and Heckman 1986; Blundell and MaCurdy 1999). Also, keeping in mind that I abstract from all kinds of labour market regulation here, one must assume that, apart from private savings and bequests, there are no alternative sources of income for these individuals to earn a living.

4 Figures are to be found in the appendix.

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derives from the expectation to earn a higher wage in country i than when staying at home. Th us, if wages in i were the same as those paid in j (wj ), additional labour supply through immigrants would be zero. In general, there is an upward-sloping curve of additional labour supply through potential migrants (LSm ) that becomes eff ective in country i’s labour market 5 and, together with the LDi-curve, defi nes a new labour market equilibrium.

Figure 2Labour-market equilibrium with immigration if wages are flexible

In the new equilibrium, employment in country i increases beyond iL by some amount of immigration, while wages are reduced to w* in line with the decreasing marginal productivity of labour. Th is implies that profi ts increase by the total area with (grey and black) up-ward hatching. Partly, this is the result of redistribution from incumbent workers whose wage income declines to capital owners who retain higher profi ts (rectangle with grey hatching); partly, it refl ects a genuine increase in national income through the employment of migrants (triangle with black hatching). Among country i’s original residents, there are thus winners and losers, but at an aggregate level immigration leads to a welfare gain for this population. In fact, the total welfare gain from migration − or the “migration surplus” (Borjas 1995) − is even higher than this. As the immigrants earn a higher wage in i than they would in j and as this gain also exceeds the loss in country j’s domestic product through the shift in economic activity between the two countries (plus the amount of potential migration costs), there is another genuine increase in total output aggregated across countries (triangle with black downward hatching) which is appropriated by the migrants themselves. Since this solution which comes about with free mobility of labour and a fully fl exible labour market in country i maximizes output and income, hence welfare, at an international level, the amount of migration involved can be called “effi cient”.

IV. Rigid wages, unemployment and excess migrationTh ings are diff erent with respect to employment, output and welfare if labour

markets are not fully fl exible, in particular, if wages are subject to downward rigidity as a consequence of strict labour market regulation (see section 2). Th e following analysis draws specifi cally on Sinn (2005), but is meant to capture the theoretical and empirical results of Brecher (1974), Nickell (1997), Saint-Paul (1997), Davis (1998), Blanchard and Wolfers (2000) or Seidel (2005) regarding the consequences of globalization in countries with highly regulated labour markets in general. Also, regarding the employment eff ects of minimum wages, whether these are legally defi ned, collectively

5 In this stylized picture, the migrants’ labour supply is thus the elastic part of total labour supply in country i. Th e positive wage elasticity mirrors the negative wage elasticity of labour demand in j and can also be infl uenced by migration costs that may vary across country j’s workers.

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negotiated or implicit in benefi t entitlements for the unemployed, the argumentation is in line with the conclusions drawn by Neumark and Wascher (2006).6

Figure 3 illustrates the consequences of labour mobility, or economic openness in general, for the case where the labour market in country i is lacking wage fl exibility. In this scenario, I eff ectively boil together the eff ects of various kinds of labour market regulation, assuming that their joint eff ect on wages can be represented through the introduction of a wage fl oor, i.e., a clearly defi ned minimum wage ( iw ). I further assume that this minimum wage is not binding as long as the country is autarchic.7 Eff ective labour supply of domestic workers is therefore kinked as it is shown in the fi gure, but as long as migration is absent employment and wages are the same as in the case of a fl exible labour market (see fi gure 1).

Figure 3Labour-market equilibrium with immigration if wages are inflexible

With the arrival of immigrants, wages decrease as they did in the case of a fl exible labour market until the minimum wage becomes binding. Hence, with a wage fi xed above the competitive equilibrium ( *wwi > ), more immigrants are attracted to country i than is economically optimal, but in terms of the increase in the number of employed individuals, only some of the immigrants may actually fi nd employment. In fact, the result is even a bit more complicated, as is shown in fi gure 4: since migrants are more easily prepared to accept lower wages than incumbent workers, they may eventually all become employed at the minimum wage, displacing a corresponding amount of members of the domestic labour force who end up being unemployed. National law in country i may in fact deny foreign workers the right to stay in the country for more than a short period of job search, and may in any case not give them access to welfare benefi ts if they have not worked in the country for at least some period of time. Similar rules do not apply to nationals, so that they are replaced by immigrants with stronger work incentives and lower reservation wages, while domestic workers start drawing benefi ts.8

6 While the impact of minimum wages on actual wages and their distribution are largely undisputed (see section 2), their eff ects for employment are subject to debate. In a basic neoclassical framework as the one applied here, binding minimum wages must be expected to reduce employment. Using alternative models or after assessing things empirically, a number of authors have argued in recent years that negative employment eff ects of minimum wages are negligible (see, e.g., Card and Krueger 1995 or Machin and Manning 1997). Neumark and Wascher (2006) survey virtually all the existing evidence and stress that the overwhelming majority of studies points to negative employment eff ects.

7 With a wage fl oor that even exceeds wi , the equilibrium wage in the closed economy, results were not altogether diff erent. Only, employment would be lower than domestic labour supply from the very beginning, while country i would still attract migration as soon as borders were opened up.

8 Note that it may be precisely their benefi t entitlements that defi ne in an implicit fashion the minimum wage which is assumed to be eff ective here.

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Figure 4Displacement of domestic workers through immigrants if wages are inflexible

Technically speaking, the additional labour supply through immigrants does not simply expand total labour supply beyond iL . Instead, all immigrants who are attracted to country i at the minimum wage iw move inward to become “intramarginal” workers that will be actually employed, and total labour supply that is eff ective in i is represented by a curve which has two kinks now (see Sinn 2005). As a fi nal result, country i forgoes part of the potential benefi ts from migration, i.e., from economic integration, and reduces aggregate output and welfare at an international level. Also, it has to carry the costs of benefi ts for the unemployed through internal redistribution.

In a theoretical context, alternative adjustments to international wage diff erentials in a setting with economic integration, viz. those through off -shoring and outsourcing, must be expected to take longer time. Th e reason is that, while labour is instantaneously mobile, physical capital is immobile and can only be transferred internationally at the rate of depreciation with zero re-investment in existing domestic plants.9 In the long run, however, these alternative strategies have basically the same eff ects for incumbent workers in a country such as i as the solution with migration. If labour markets in i are fl exible, there can thus be a smooth and effi cient transition path for everyone, initially involving substantial amounts of migration of “fast” labour and continuous return migration later on, while country j catches up through higher investment in “slow” capital, including foreign direct investment from i (Sinn 2000). On the other hand, if labour markets are infl exible, outward FDI from country i will be higher because the wage diff erential remains larger, and domestic workers whose productivity is below the minimum wage will again be laid off .10

V. Real-world consequencesTh e picture I have given here of the eff ects of globalization in general and of economic

integration within an enlarged EU in particular is highly stylized and, therefore, certainly rough. Nevertheless, it highlights a number of problems for developed countries with highly regulated labour markets that result from on-going changes in the global economic environment. Th ese problems materialize if downward fl exibility of wages is lacking in countries that were “richer” at the outset of economic integration. Th ey are most relevant for workers with low skills who are paid wages at the lower end of the national pay scale, while skilled workers endowed with higher human capital may be among the winners of globalization, just like owners of fi nancial and, ultimately, physical capital in my simple model where labour was assumed to be homogenous.

9 Writing off the existing capital stock at once by closing down a plant and purchasing intermediate products elsewhere is a potential short-cut which, however, often involves substantial losses.

10 Note that a reduction (or, mutatis mutandis, slower growth) in the capital stock in country i would imply a downward shift of the LDi-curve in this alternative scenario.

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Visible consequences of these problems are that (a) potential immigration under a free-mobility regime would be considered “too high”; (b) there is a substantial amount of job-relocation to other, less developed countries; and (c) unemployment, especially among the low skilled, is created or increased through international competition. While some amount of international migration and job-relocation can also be part of meaningful adaptations in a setting with increasing economic integration, it is especially the growth in unemployment that must be seen as an alarming indicator that something is going wrong in this process with respect to the countries where it shows up.

Up to a point, these problems may be relevant for all advanced economies in North America, Western Europe and East Asia that are faced with the forces of globalization Yet, there are good reasons to assume that they are particularly pressing in some of the larger economies in Continental Western Europe and, in particular, in Germany. For one thing, labour market regulation tends to be stricter there than elsewhere (Nickell 2006). For another, this region may be particularly exposed to the “shock” of the removal of the iron curtain for purely geographical reasons. In the case of Germany, this unexpected change and the subsequent period in which the neighbouring transition countries in Central and Eastern Europe entered the world market and sought their role in a new intra-European and international division of labour literally brought globalization and the opportunities involved for businesses and individuals to the doorsteps of the country. Last but not least, Germany now has the highest rate of unemployment among low-skilled workers, and the largest spread between unemployment rates of workers in diff erent skill categories, throughout the entire OECD world (OECD 2005).

It therefore comes as no surprise that starting from the mid-1990s, i.e., once the short-lived boom from German unifi cation had lost momentum, heated policy debates arose in Germany in many areas, many of which are closely related to the issues raised here. For instance, in the negotiations before EU enlargement, there were certainly fears in Germany regarding potentially excessive migration from the accession countries in the case of free mobility of labour, which had been an important principle of European integration until then. Trade unions as well as politicians from all camps called for counter-measures and, in what could be considered a false consensus, fi nally succeeded in implementing transitional rules at an EU-level by which free labour mobility to Germany can eff ectively be postponed until 2011.

Th is is the result of a false consensus not only because keeping foreign workers out of one’s boundaries may only speed up the relocation of jobs to where these workers are at home.11 Also, one of the main rationales why the transitional rules for labour mobility may have been defendable is that they could have brought German politicians

11 Remember that outward FDI from Germany to what are now the NMS-10 has been high and rapid in the 1990s and that there is evidence according to which this is mainly driven by “vertical” FDI that is highly sensitive to international wage diff erentials, not so much by “horizontal” FDI that simply expands activities to new markets and makes these accessible (Becker et al. 2005a; 2005b).

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some time to increase the fl exibility of their labour market as a pre-requisite for making migration benefi cial at a national and international level (Sinn et al. 2001, ch. 6; 2003, ch. 5). Since these rules were agreed upon, however, there have been only small moves in this direction, each made following painful political and public discussions. Specifi cally, in a series of labour market reforms that were devised and enacted starting from 2002, employment services and the system of active labour market policies have been re-organized to make them more eff ective. As the last step taken so far, welfare benefi ts for the long-term unemployed have been reformed, with a new, yet relatively weak, focus on activation of these individuals that has so far no visible eff ect on the level of “structural” unemployment, in particular, among the low skilled.12 Meanwhile, the system of unemployment insurance benefi ts has been tightened only marginally, and there has been no genuine re-defi nition of labour standards in other areas, for instance, employment protection legislation and the legal rules for collective wage bargaining.

It should be acknowledged, though, that the system of collective wage bargaining as it is has responded, to some extent, to the increased pressure from international competition, if only to avoid an erosion of the system through more and more employers leaving the sphere of collective negotiations. Th ere has been a notable degree of wage moderation between 1995 and 2006 in annual wage agreements, which has improved competitiveness of German-based businesses, and new types of opt-out clauses have been included in some sectoral agreements for businesses that run an immediate risk of going bankrupt when complying with the bargaining outcome. More recently, however, trade unions call for the implementation of statutory minimum wages, an instrument that has so far been virtually absent from German labour market regulation as it appeared to be redundant in the presence of collective wage agreements with almost universal coverage. Th e discussion about this issue, in which relatively high fi gures for minimum hourly wages are being brought forth, without much diff erentiation between West and East Germany, in spite of enormous discrepancies between wages and labour market performance in these two sub-regions, is at present unsettled. Against the background of my earlier reasoning (see sections 2 and 4), the introduction of a binding, statutory minimum wage should certainly be considered a step in the wrong direction with respect to the country’s prospective ability to cope with the consequences of economic integration for the German labour market.

VI. ConclusionsNow, what are the lessons to be drawn from this brief and, in many respects, rough

discussion of the interplay between labour market institutions and economic integration? First of all, it is important to note that none of the problems discussed here regarding the prospects for employment and output growth in highly developed countries with strict labour market regulation is the fault of those countries that have recently entered the

12 See Sinn et al. (2006) on progress and shortcomings in German labour market reform since 2002.

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world market, or have joined the EU, thus pushing forward globalization and creating stronger tensions in the process of European economic integration. To put it bluntly, it is neither the immigrants nor the foreign workers in relocated plants who are to blame for increasing unemployment among domestic workers in countries that are hit by fi ercer international competition. In fact, the accession of Central and Eastern Europe to the EU’s internal market even creates opportunities for businesses from Western Europe to reorganize their production chains in such a way that they can better stand competition with other regions of the world and that some of the jobs they are still off ering at home become more secure. What is needed are reforms, labour market reforms in particular, inside many of the high-income countries in Continental Western Europe.

Where they are important players, backed through legal rules defi ning the scope for, and the ways of, collective wage bargaining, trade unions must acknowledge the changes in the international environment of the economies and businesses they are active in which have come about since the 1970s. Some of what they have pushed through in terms of labour market regulation in earlier times may now eff ectively be an obstacle for job security and income growth of their members. Capital-owners and workers in rich countries should have a common interest in keeping a competitive edge, maybe not in terms of labour costs, but all the more in terms of productivity and continuous innovations, over their competitors elsewhere. Systems of remuneration that allow for more fl exibility are also more important than the conventional strive of unions for higher wage increases, against the forces of factor-price equalization that are set loose by globalization and are working over the very long run.

Closer to their immediate responsibilities, politicians should consider whether one could not do without much employment protection in the traditional sense, obstructing lay-off s and feeding back on incentives to make new hirings as well. If jobs become insecure, security to fi nd work elsewhere may be a meaningful compensation within a new type of “fl exicurity” regime of labour market regulation. Even more importantly, the systems of welfare benefi ts for the unemployed that are operative in many of the richer countries in Western Europe must be overhauled where this has not already been done. Reducing entitlements that purely replace wages for those who become unemployed and strengthening the role of in-work benefi ts that are conditional on being active, either in regular jobs with low pay or, as a lender of last resort, in publicly provided “workfare” measures is a very important element of reforms of this kind. By contrast, introducing minimum wages where wages have only recently become more fl exible as other, less direct ties have been weakened or removed, or unwisely increasing existing minimum wages is not part of an up-to-date political agenda for Western European countries. After all, low-wage competition from other countries, the new EU member states as well as countries like China or India, is not “wage dumping”, as the public debate in Western Europe sometimes puts it, i.e., an instant where competitors sell their goods and services at prices below cost. Defending higher wages without compromising

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employment opportunities is almost exclusively a matter of maintaining, or constantly regaining, a productivity diff erential for the domestic labour force.

Besides this agenda for labour market reforms in countries of Continental Western Europe, little, if anything, remains to be done at an EU-wide level of decision making. Some kinds of amendments of the current EU-level legal framework that could be conceived of are potentially dangerous, others are of secondary importance vis-à-vis desirable reforms at the national level. Harmonizing labour standards and social protection systems across the EU is not only politically infeasible but could also be harmful. Given their citizens’ preferences and grounded in their economic strength, Western European countries may be able to aff ord better standards as long as these do not undermine economic performance through the way they are specifi cally designed. Harmonization of standards at a level that is compatible with the new member states’ economic situation may thus destabilize the countries of the old EU-15 politically. Th e alternative of harmonization at a level that Western European citizens could accept would overburden the economies of the NMS-10. Economic development in East Germany since unifi cation may be a telling example of what this could mean, abstracting from the fact that huge inter-regional transfers that were made inside Germany to accommodate the break-down in economic activity in the East are clearly no model to follow for the enlarged EU.

Th ere are a few issues of EU-level concern that are indeed important for the mechanisms of economic integration. For instance, there are serious doubts as to whether the close link between labour mobility and inclusion of intra-EU migrants in the receiving countries’ social protection systems laid down in the EU’s co-ordinating social law creates incentives for an effi cient amount of, and an ideal structure of, migration (Sinn et al. 2001, ch. 6; 2003, ch. 5). Similarly, one may ask whether the avenue that the EU has entered more recently towards free mobility not only of workers but of all citizens, again with an impact on benefi t entitlements in other EU member states, is really promising (see, e.g., Ménil 2004 or Sinn 2006). Compared to the incentives and disincentives arising from national labour market regulation and any reforms in this area, however, these issues are actually less signifi cant.

I have started my considerations with the statement that economic integration within the EU is part of a broader process called globalization. Th is leads to the fi nal remark that the borders of the enlarged EU are not the borders of the sphere of global economic integration. One must therefore keep in mind that the forces of globalization and economic integration are always stronger than any national, or EU-wide, regulation. Th e same reasons why single EU member states should carefully study these forces, and never try to make policies in whatever area, including labour market regulation, against these, imply that the EU should also not attempt to impose too strict a set of common rules that create distortionary incentives for potential migrants within the EU or for location decisions of businesses throughout the world.

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LITERATUREBarrell, Ray, John FitzGerald and Rebecca Riley (2007), “EU Enlargement and Migration: Assessing the Macroeconomic Impact”, NIESR Working Paper No. 292.Becker, Sascha O., Marc-Andreas Mündler and Robert Jäckle (2005a), “Kehren deutsche Firmen ihrer Heimat den Rücken? Ausländische Direktinvestitionen deutscher Unternehmen”, ifo Schnelldienst 58(3/2005): 23−33.Becker, Sascha O., Karolina Ekholm, Marc-Andreas Mündler and Robert Jäckle (2005b), “Location Choice and Employment Decisions: A Comparison of German and Swedish Multinationals”, Review of World Economics 141(4): 219−243.Belot, Michèle V.K. and Jan C. van Ours (2004), “Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labour market reforms?”, Oxford Economic Papers 56(4): 621−642.Berman, Eli, John Bound and Zvi Griliches (1994), “Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufacturers”, Quarterly Journal of Economics 109(2): 367−397.Bhagwati, Jagdish N. and Vivek H. Dehejia (1994), “Free Trade and Wages of the Unskilled: Is Marx Striking Again?”, in: Jagdish N. Bhagwati and Marvin H. Kosters (eds.), Trade and Wages: Leveling Wages Down?, Washington D.C.: American Enterprise Institute, pp. 36−75.Blanchard, Olivier and Justin Wolfers (2000), “Th e Role of Shocks and Institutions in the Rise of European Unemployment: Th e Aggregate Evidence”, Th e Economic Journal 110(462): C1−C33.Blundell, Richard and Th omas MaCurdy (1999), “Labor Supply: a Review of Alternative Approaches”, in: Orley C. Ashenfelter and David Card (eds.), Handbook of Labor Economics, Vol. 3A, Amsterdam: Elsevier/North-Holland, pp. 1559–1695.Boëri, Tito, Herbert Brücker et al. (2000), Th e Impact of Eastern Enlargement on Employment and Labour Markets in the EU Member States, European Integration Consortium, mimeo.Borjas, George J. (1994), “Th e Economics of Immigration”, Journal of Economic Literature 32(4): 1667−1717.Borjas, George J. (1995), “Th e Economic Benefi ts from Immigration”, Journal of Economic Perspectives 9(2): 3−22.Brecher, Richard A. (1974), “Minimum Wage Rates and the Pure Th eory of International Trade”, Th e Quarterly Journal of Economics 88(1): 98−116.Brown, Charles (1999), “Minimum wages, employment, and the distribution of income”, in: Orley C. Ashenfelter and David Card (eds.), Handbook of Labor Economics, Vol. 3B, Amsterdam: Elsevier/North-Holland, pp. 2101−2163.

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Card, David and Alan B. Krueger (1995), Myth and Measurement: Th e New Economics of Minimum Wage, Princeton, NJ: Princeton University Press.Davis, Donald (1998), “Does European Unemployment Prop up American Wages? National Labor Markets and Global Trade”, American Economic Review 88(3): 478−494.Freeman, Richard B. (1995), “Are Your Wages Set in Beijing?”, Journal of Economic Perspectives 9(3): 15−32.Garibaldi, Pietro and Giovanni L. Violante (2005), “Th e unemployment eff ects of severance payments with wage rigidities”, Th e Economic Journal 115(506): 799−832.Holden, Steinar and Fredrik Wulfsberg (2007), “Are Real Wages Rigid Downwards?”, CESifo Working Paper No. 1983.Kahn, Lawrence M. (2000), “Wage inequality, collective bargaining and relative employment form 1985 to 1994: Evidence from fi fteen OECD countries”, Review of Economics and Statistics 82(4): 564−579.Killingsworth, Mark R. and James Heckman (1986), “Female Labour Supply: A Survey”, in: Orley C. Ashenfelter and Richard Layard (eds.), Handbook of Labor Economics, Vol. 1, Amsterdam: Elsevier/North-Holland, pp. 103−204.Krugman, Paul (1995), “Technology, Trade, and Factor Prices”, NBER Working Paper No. 5355.Landmann, Oliver and Michael Pfl üger (1996), “Arbeitsmärkte im Spannungsfeld von Globalisierung und technologischem Wandel”, in: Bernhard Külp (ed.), Arbeitsmarkt und Arbeitslosigkeit, Freiburg i.Br.: Haufe, pp. 173−230.Lawrence, Robert Z. and Matthew J. Slaughter (1993), “International Trade and American Wages in the 1980s: Giant Sucking Sound or Small Hiccup?”, Brookings Papers on Economic Activity. Microeconomics No. 2/1993: 161−226.Machin, Stephen and Alan Manning (1997), “Minimum Wages and Economic Outcomes in Europe”, European Economic Review 41(3−5): 733−742.Ménil, Georges de (2004), “Enlargement: Th e Challenge of Migration from the New Member States”, CESifo Forum 5(3): 36−41.Neumark, David and William Wascher (2003), “Minimum Wages, Labour Market Institutions and Youth Unemployment: A Cross-national Analysis”, Federal Reserve Board, Finance and Economics Discussion Series No. 2003−23.Neumark, David and William Wascher (2006), “Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research”, NBER Working Paper No. 12663.Nickell, Stephen J. (1997), “Unemployment and Labor Market Rigidities: Europe versus North America”, Journal of Economic Perspectives 11(3): 55−74.

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Nickell, Stephen J. (2006), “A Picture of European Unemployment: Success and Failure”, in: Martin Werding (ed.), Structural Unemployment in Western Europe: Reasons and Remedies, Cambridge, MA: MIT-Press, pp. 9−51.Nickell, Stephen J., Luca Nunziata and Wolfgang Ochel (2005), “Unemployment in the OECD since the 1960s: What do we know?”, Th e Economic Journal 115(500): 1−27.OECD (1998), Employment Outlook 1998, Paris: Organization for Economic Co-operation and Development.OECD (2005), Education at a Glance 2005, Paris: Organization for Economic Co-operation and Development.Pencavel, John (1986), “Labour Supply of Men: A Survey”, in: Orley C. Ashenfelter and Richard Layard (eds.), Handbook of Labor Economics, Vol. 1, Amsterdam: Elsevier/North-Holland, pp. 3−102.Saint-Paul, Gilles (1997), “Is labour rigidity harming Europe’s competitiveness? Th e eff ect of job protection on the pattern of trade and welfare”, European Economic Review 41(3−5): 499−506.Seidel, Tobias (2005), “Welfare Eff ects of Capital Mobility with Rigid Wages”, Applied Economics Quarterly 51(Supplement): 61−82.Sinn, Hans-Werner (2000), “EU Enlargement, Migration, and Lessons from German Unifi cation“, German Economic Review 1(3): 299−314.Sinn, Hans-Werner (2005), “Migration and Social Replacement Incomes: How to Protect Low-Income Workers in the Industrialized Countries Against the Forces of Globalization and Market Integration”, International Tax and Public Finance 12(4): 375−393.Sinn, Hans-Werner (2006), “May Day Madness”, Commentary, distributed by the Project Syndicate: An Association of Newspapers Around the World, accessible via http://www.project-syndicate.org/commentary/sinn9.Sinn, Hans-Werner, Gebhard Flaig, Martin Werding et al. (2001), EU-Erweiterung und Arbeitskräftemigration, ifo Beiträge zur Wirtschaftsforschung, Vol. 2, Ifo Institute: Munich.Sinn, Hans-Werner, Gebhard Flaig, Martin Werding et al. (2003), EU Enlargement and Labour Mobility, CESifo Research Reports, Vol. 2, Munich: CESifo.Sinn, Hans-Werner, Christian Holzner, Wolfgang Meister and Martin Werding (2006), Redesigning the Welfare State: Germany’s Current Agenda for an Activating Social Assistance, Cheltenham and Northampton, MA: Edward Elgar.Wood, Adrian (1998), “How Trade Hurt Unskilled Workers”, Journal of Economic Perspectives 9(3): 57−80.

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APPENDIX:

Figure 1: Labour-market equilibrium in a closed economy

Figure 2: Labour-market equilibrium with immigration if wages are flexible

L

wLS i

LD i

w i

Profits

Wages

L i

Migrants’ share

L

wLS i

LD i

w i

w j

w*

Efficient migration

Wages

(Higher)profits

Migrationsurplus:

Domestic share

LS m

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Figure 3: Labour-market equilibrium with immigration if wages are inflexible

Figure 4: Displacement of domestic workers through immigrants if wages are inflexible

L

wLS i

LD i

w i

w j

w*

Excessive migration

Unemploy-ment

LS m

w i

L

wLS i

LD i

w i

w j

w*

Excessive migration

Unemploy-ment

LS i+m

w i

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The EU System of Legislation and its ModernisationIngolf Pernice, Berlin*

I. Introduction In no respect and from no perspective whatsoever can the EU be considered

a Leviathan, and consequently it is not deemed nor expected nor able, to take over the vital functions of a nation state. It rather complements the nation-state insofar as nation states are unable or insuffi cient to meet all the challenges and to achieve the results citizens expect public authority to achieve. People’s sovereignty is divided between two levels of action, one part of it being pooled at the European level for such specifi c purposes which are beyond the reach of national policy-making and are to be implemented through common policies in conformity with the principle of subsidiarity. From the perspective of “multilevel constitutionalism” 1 the EU and its Member States can be conceptualised as one consistent system, composed of two complementary levels of government, each one established by, and with the sole aim to serve the interest of those who are at the source of each level’s respective legitimacy: Th e individual citizens, with their double identity − national and European. Th is structure has little to do, I submit, with the idea of a Leviathan; quite to the contrary, it results in a new kind of separation of powers, more precisely, in a vertical arrangement of checks and balances between national and European authorities stabilising the composed constitutional system to the benefi t of the freedoms and interests of the citizens.2 While globalisation exerts certain (external) pressure on the Member States, the supranational system of decision-making and, in particular, legislation may provide them altogether with enough strength to meet the new global challenges.

I am grateful for the opportunity to illustrate this by talking about “the EU system of legislation and its modernisation”. In order to do so, let me fi rst describe the existing legislative system of the EU, taking into account the extent to which it is based upon

* Professor Dr. Dr. h. c., Chair for Public, International and European Law at Humboldt-University of Berlin, managing director of the Walter Hallstein Institute for European Constitutional Law (WHI), Humboldt-University, Berlin (www.whi-berlin.de).

1 Th e concept was fi rst developed in I. Pernice, Constitutional Law Implications for a State participating in a Process of Regional Integration. German Constitution and „Multilevel Constitutionalism“, in: Riedel (ed.), German Report on Public Law Baden-Baden 1998, p. 40; see also I. Pernice, Multilevel Constitutionalism and the Treaty of Amsterdam: European Constitution-Making Revisited, Common Market Law Review 1999, p. 703.

2 See I. Pernice, Bestandssicherung der Verfassungen: Verfassungsrechtliche Mechanismen zur Wahrung der Verfassungsordnung, in: Bieber/Widmer (eds.), Th e European constitutional area, Zürich 1995, p. 225 (261 et seq.), and idem, Multilevel Constitutionalism in the European Union, European Law Review (2002), p. 511; along the same lines A. von Bogdandy, Supranationaler Föderalismus als Wirklichkeit und Idee einer neuen Herrschaftsform. Zur Gestalt der Europäischen Union nach Amsterdam, Baden-Baden 1999, pp. 14-16.

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the proper functioning of the national parliamentary systems (see II. below). Th at way, it can be seen how the modernisation of this system − as put forward in the Constitutional Treaty − indeed underlines the composed and co-operative nature of the EU, contrary to the hierarchical approach of state-like federal systems (see III. below). Th e analysis will conclude by asserting how, instead of chasing behind misleading visions of a European super-state reminding someway of the Leviathan, the EU and the architects of its future Constitution have, with a view to meeting the challenges of globalisation, rightly chosen the more sophisticated approach of supranational self-regulation based on the principles of multilevel constitutionalism (see IV. below).

II. Th e EU System of LegislationUnderstanding the EU system of legislation requires, as a fi rst step, an overview on

the various forms of legal instruments provided for in the Treaty (see 1. below). A closer look at the decision-making process shows the diff erent national actors involved acting next to, or sometimes through, the EU institutions; it also demonstrates the extent to which the varying degree of their respective participation has a substantial infl uence on the legitimacy of EU legislation (see 2. below). Th e same applies to the mechanisms through which such legislation is implemented: Th e legislative transposition and, as a matter of principle, also the administrative implementation of European legislation is left to the national authorities, their function being an important element of checks and balances in the European legislative system (see 3. below).

1. EU Legislative Instruments

Th e European institutions dispose of a broad range of legal instruments for the realisation of EC and EU objectives. Most of them might be considered “legislative” in a certain sense. Speaking about the EU’s “legislative system”, however, supposes some refl ection on what exactly is meant by “legislation”, and on the acts that can be classifi ed as part of the “legislative” system. In order to conduct a comprehensive analysis of this system comprising all relevant acts of the EU, it will fi rst be necessary to establish a defi nition of “legislation” (A.). With a view to establishing what would be the “European legislative system”, then some classifi cation of the relevant instruments will be needed (B.). Special attention shall be given, fi nally, to the “constitutional” acts as well as to measures provided for under the second and third pillars of the EU-Treaty (C.).

A. Terminology: What is meant with ‘EU Legislation’?

What is covered by the term EU “legislative” instruments? Th e EC-Treaty does not use the term “legislation”, with the only exception of Article 207, para. 3 EC relating to cases in which the public shall be granted greater access to documents of the Council, and shall be informed about results of votes including explanations as well as statements from the minutes. However, without referring to “legislation” explicitly, other provisions do refer to instruments whose potentially legislative nature deserves consideration.

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a. Th e instruments of Article 249 ECTh e key provision concerning legal instruments put at the disposal of the diverse

institutions in the exercise of their tasks under the Treaty is Article 249, para. 1 EC. It does not relate to “legislation” as such, but it does contain a non-exhaustive list of instruments enabling the institutions to take action according to their competences: Th ey may adopt regulations, issue directives, take decisions, make recommendations or deliver opinions. While such acts may be adopted not only for genuinely legislative purposes, but also as implementing measures (Article 202, third indent EC), no formal distinction between these two categories can be found in the EC Treaty. In substance, however, there is an essential diff erence between these types of action, considering, among other aspects, that implementing measures must be in conformity with, and shall not derogate from the legislative act under which they are taken. Th is follows from the (implicit) logic of the underlying EC-hierarchy of norms.3

Article 249 EC, however, mentions not only legislative acts, given that a condition for accepting that an act is a legislative act is that it has legally binding eff ects. Th erefore, since recommendations and opinions, by defi nition, do not have this eff ect, they will not be treated as legislative acts.

b. Primary or constitutional lawRegarding the hierarchy of norms, the “constitutional” level − or primary law −

also comes to mind and requires mentioning.4 It has precedence over and is binding for all kinds of secondary law.5 One may argue that primary law is set and changed only by the Member States and therefore not part of EU legislation. Th ough this is true for formal amendments of the Treaties under Article 48 EU, some “passerelle” clauses and provisions on specifi c issues like citizenship, own resources or the harmonisation of the national electoral systems (in spite of the assent of national parliaments required in some cases), in fact enable the European institutions to amend primary law. Th ese

3 Talking about a „general hierarchy of Community rules” which, „unlike the hierarchical relationship of norms under the constitutional systems of most Member States, is not organised on formal lines but substantively determined by the content of the rule“, see K. Lenaerts/P. Van Nuff el, Constitutional Law of the European Union, 2nd edition, London 2005, paras. 14-002 to 14-004; concerning the hierarchy of norms specifi cally, see ibid., 17-051 et seq.; R. Bieber/I. Salomé, Hierarchy of Norms in European Law, CMLRev 1996, p. 907; A. von Arnauld, Normenhierarchien innerhalb des primären Gemeinschaftsrechts − Gedanken im Prozeß der Konstitutionalisierung Europas, Europarecht 2003, p. 191; M. Nettesheim, Normenhierarchien im EU-Recht, Europarecht 2006, p. 737 (746) and U. Wölker, Die Normenhierarchien im Unionsrecht in der Praxis, Europarecht 2007, p. 32.

4 About EC primary law as „constitutional law in a functional sense“ see: A. Peters, Elemente einer Th eorie der Verfassung Europas, Berlin 2001, p. 76; see also I. Pernice in: Dreier (ed.), Grundgesetz Kommentar, 2nd edition, Tübingen 2006, Art. 23, para. 21; for the underlying „postnational“ concept of constitution and its application to „multilevel constitutionalism“ see: I. Pernice, Europäisches und Nationales Verfassungsrecht, 60. VVDStRL (2000), p. 148 (155 et seq., 163-176).

5 M. Ruff ert, in: Callies/Ruff ert (eds.), EUV-EGV Kommentar, 3rd edition, München 2007, Art. 249, para. 14.

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acts indeed do have a constitutional character. Th ey can, nevertheless, be considered “legislative” in a broad sense, because they constitute the laying-down of new legal provisions of a general and binding nature.

In contrast, normal amendments of the Treaties adopted according to Article 48 EU, and accession treaties concluded by the EU and its Member States with candidate countries according to Article 49 EU, do not belong into the “legislative system”. Th ey are acts taken mainly by the Member States and cannot be attributed to the European institutions as their authors. I therefore suggest excluding these acts from even a broad defi nition of “EU legislation”.

c. Instruments of EU pillars two and threeStrictly speaking, real legislative powers are only given to the EC, not to the

EU. Pillars two and three of the EU were instead designed to exclusively represent a platform for specifi c forms of Member States’ intergovernmental cooperation.6

An argument for denying the legislative character of its acting could be that there is no express recognition of legal personality for the EU, whereas Article 281 EC states this clearly as regards the EC. Yet, this lack of an express provision does not necessarily imply that no act referred to in the EU Treaty may be covered by our defi nition of “EU legislation”. Nowadays, scholarship and practice alike contend very strongly that the EU actially does have legal personality.7 Its acts are adopted by the European Council or by the Council in the area of the Common Foreign and Security Policy (CFSP) according to Articles 12 to 15, or in the fi eld of Police and Judicial Cooperation in Criminal Matters (PJCC), under Article 34 EU. Th ey are binding upon Member States, though they may not create rights or obligations for individuals. Hence, they are not legislative acts strictu sensu. On the other hand, at least framework decisions taken in accordance with Article 34, para. 2, lit. b) EU in the area of PJCC, such as for instance, the Framework Decision 2002/584/JHA of the Council on the European Arrest Warrant, have eff ects very similar to directives taken under the EC-Treaty.8 To incorporate these acts assigned to the EU in the defi nition of “legislative acts” would

6 See K. Lenaerts/P Van Nuff el (note 3), paras. 2-009 and 15-001, 2nd edition, London 2005, as well as W. Schroeder, Verfassungsrechtliche Beziehungen zwischen Europäischer Union und Europäischen Gemeinschaften, in: von Bogdandy (ed.), Europäisches Verfassungsrecht, Heidelberg 2003, p. 373 (378).

7 See, inter alia, M. Nettesheim, Die Europäische Union: Ein einheitlicher Verband mit eigener Rechtsordnung, Europarecht 1996, p. 3; see also, more recently, an overview by D. Th ym, Die völkerrechtlichen Verträge der Europäischen Union, ZaöRV 66 (2006), p. 863, on about 60 international agreements concluded by the EU with third states that give further proof of this.

8 Council Framework Decision (2002/584/JHA) of 13 June 2002 on the European Arrest Warrant and the surrender procedures between Member States, OJ 2002 L 190, p. 1. For an appraisal, also regarding the judgement of the German Constitutional Court (case BVerfG 2 BvR 2236/04 of 18 July 2005 − Darkanzali) on the German implementation law, see: I. Pernice, Die horizontale Dimension des Europäischen Verfassungsverbundes. Europäische Justizpolitik im Lichte von Pupino und Darkanzali, in: Hans-Jörg Derra (ed.), Freiheit, Sicherheit und Recht. Festschrift für Jürgen Meyer zum 70. Geburtstag, Baden-Baden 2006, p. 282 (359).

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mainly serve practical reasons, because − especially in view of the new regime under the Constitutional Treaty − it permits analysing acts of general binding nature of both, the EU and the EC, as elements of a diff erentiated, yet coherent legislative system.

d. International agreementsFurthermore, international agreements concluded by the EC are also covered by

the term “legislation”. Th ey are not only binding upon the Community institutions and the Member States (Article 300, para. 7 EC), but, as the ECJ affi rms, they even become an integral part of the EC internal legal order.9 Th ey have precedence over other EC secondary law 10 as well as over national law.11 As a consequence, they are a special form of European legislative acts ranking somewhere below primary, but above secondary law.

A diff erent kind of international agreements is provided for in Articles 24 and 38 EU in the areas of CFSP and PJCC. Th ey are negotiated by the Presidency of the Council, with the support of the Commission, and concluded by the Council, which in certain cases may even decide by qualifi ed majority. According to Article 24, para. 6 EU, international agreements are binding for the EU institutions and, as Article 24, para. 5 EU specifi es, also for the Member States − except for those countries specifying that certain internal constitutional conditions have to be respected. Th e ECJ has no jurisdiction over these agreements. Nevertheless, as far as they contain provisions of general application they may have eff ects similar to framework decisions of the Council and therefore they may be considered as legislative acts in a broad sense.

e. Conventions among the Member StatesAnswering the question, whether conventions negotiated between the Member

States in the framework of Article 293 EC or agreements established by the Council under Article 34 § 2 lit. d) EU and recommended to the Member States for ratifi cation should be considered as a form of ‘legislation’, is even more diffi cult. In the case of the former it is argued that Member States are acting like an agency, exercising competencies of and on behalf of the EC.12 As these conventions are not, however, acts of the EC institutions, the European Court of Justice has no jurisdiction over them, except where expressly provided for in a specifi c protocol on the competence of the Court to give preliminary rulings on their interpretation.13 It is diffi cult, therefore, to assimilate them to legislative acts of the EC.

9 ECJ, Case 181/73 − Haegeman, para. 5, and Case 104/81 − Kupferberg, para. 13.10 Th is is one reading of ECJ, Case 21-24/72 − International Fruit Company, para 6. 11 See K. Lenaerts/P. Van Nuff el, (note 3), para. 17-092, and ECJ, Case 104/81 − Kupferberg, para 14, Case

38/75 − Nederlandse Spoorwegen, para. 16, as well as C. Tomuschat, in : v.d. Groeben/Schwarze (eds.), EUV-EGV Kommentar, 6th edition, Baden-Baden 2004, Art. 300, para. 87.

12 For details, see: J. Wuermeling, Kooperatives Gemeinschaftsrecht. Die Rechtsakte der Gesamtheit der EG-Mitgliedstaaten, Kehl 1988, pp. 67 et seq.

13 Ibid., pp. 133 et seq., 141 et seq.

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Conventions concluded between the Member States in the framework of PJCC according to Article 34, para. 2, lit. d) EU, in contrast, are prepared in the Council on the initiative of a Member State or the Commission. Th ey are subject to a limited jurisdiction of the ECJ under Article 35 EU and treated as if they were framework decisions of the Council. While, under Article 293 EC, no European institutions are involved at all, institutions, thus, are quite strongly involved in the adoption of EU-conventions. As far as they contain provisions of general application, good reasons exist, therefore, to consider them part of the European legislative system.

f. „Legislation” and judge-made/case lawAs a result, even a broad construction of the term “legislation” in the EU system

would only cover measures of a legally binding and ‘normative’ nature, taken by − or accountable to − European institutions, though Member States and their respective parliaments may be involved, more or less directly, in the entire legislative process. What needs to be kept outside the scope of this defi nition, nevertheless, are the judgements of the ECJ − even if they recognise general principles of law as well as the fundamental rights of the individual in the terms of Article 6, para. 2 EU, and thus establish “unwritten” or “judicial” European primary law.14 Yet, such judge-made law is made “case by case” and − at least in principle − only binding for the parties involved. It is subject to review in every new case, even though its eff ects may become stronger the more it evolves into an established jurisprudence of the ECJ recognised by the general public. Nevertheless, the term “legislation” shall be reserved to the acts of political institutions as opposed to the judiciary, the rules and principles recognised by which may always be taken over and confi rmed by the legislative in terms of positive law.

B. Classifying European legislative acts

With the defi nition of “legislative acts” so developed, the question remains: what constitutes the EU “legislative system”? Is a group of acts that may be understood as “legislative” suffi cient to talk about a legislative “system”? To form a system, there should be a particular structure of this group of acts, or a clearly defi ned relationship between them, a logic of their diff erentiation, or some other reason allowing to ascertain that the instruments of European legislative action altogether constitute a “legislative system”.

I propose to distinguish, at a fi rst level, between legislative acts which, under the EC-Treaty, are taken by the European institutions under the “Community-method”, those acts which could be said to have a “constitutional” character and such legislative acts that are, at least at fi rst sight, intergovernmental. In each of these three groups there are some kinds of criteria for classifi cation to be found that may assist in, at

14 Compare, in this regard, G. Nicolaysen, Historische Entwicklungslinien des Grundrechtsschutzes in der EU, in: Heselhaus/Nowak (eds.), Handbuch der Europäischen Grundrechte, München 2006, paras. 55 et seq., or I. Pernice/F. Mayer, in: Grabitz/Hilf (eds.), Das Recht der Europäischen Union. Kommentar, München, Nach Art. 6 EU, paras. 1-5.

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a second level, establishing to what extent it is possible to be talking about a “European legislative system”.

a. Legislative acts taken under the „Community method“As stated above, Community action generally takes one of the forms listed in

Article 249 EC. Following their respective defi nitions in that Article, the fi rst apparent criterion of classifi cation is their potential to create a binding eff ect: Regulations, directives and decisions are legally binding, while recommendations and opinions are not. As it was developed before, recommendations and opinions will not be classifi ed among the legislative acts.

Another relevant criterion could be the quality of the legal eff ect. Regulations and decisions have immediate, direct eff ect, while directives get full legal eff ect only once they are transposed into national law. Th ey are specifi c instruments entailing a co-operative, two-step legislative procedure.

Jürgen Bast proposes further criteria to be used for a classifi cation of secondary law instruments in the EC’s legal order. He distinguishes them on the grounds of their formal addressee (general or specifi c) and their obligatory force. Th ey may either create direct rights and obligations, like regulations or decisions addressed to Member States or individuals; or they could, if they are binding at all, only aff ect the EC institutions as “addressee-less” decisions.15 One may hesitate to consider such decisions among the legislative instruments because they do not intend to create rights or obligations. Th e “obligatory” force, therefore, may hardly be a criterion for the classifi cation of legislative acts. It rather excludes such acts from being “legislative” at all.

Classifi cation of the EC legal instruments may further be established according to the principle of proportionality under Article 5, para. 3 EC that reads as follows: “Any action by the Community shall not go beyond what is necessary to achieve the objectives of this Treaty”. Th e Protocol on the Application of the Principles of Subsidiarity and Proportionality, attached to the Treaty of Amsterdam (1997), gives further explanation of what that means. Measures shall be enacted in the least prescriptive manner possible in order to leave the greatest autonomy and discretion to the Member States. Th e form of a directive shall therefore be given preference over that of a regulation, a framework directive shall be regarded preferable to a directive etc.16 In this context, it should be kept in mind that even where the EC is attributed the competence to pass a legislative act, the choice of the appropriate instrument is always subsequently guided by this principle,17 demanding that national autonomy is not limited more than absolutely

15 J. Bast, On the Grammar of EU Law: Legal Instruments, in: von Bogdandy/Weiler (eds.), European Integration − Th e New German Scholarship, Jean Monnet Working Paper 9/03, pp. 63 et seq. (www.jeanmonnetprogram.org), an English summary of his more extensive study along the same lines at: idem, Grundbegriff e der Handlungsformen der Europäischen Union, Heidelberg 2006, pp. 445 (447).

16 Protocol (30) on the application of the principles of subsidiarity and proportionality (1997), paras. 6 and 7.17 Contrary to Article 5, para. 2, EC which applies only in non-exclusive Community competences.

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necessary for the achievement of the act’s objective. Th e rationale behind this criterion, hence, is the respect for national autonomy.

As a result the remaining criteria for a classifi cation of Community legislative acts are their direct/indirect eff ect, their addressee and the degree to which they interfere with national autonomy.

b. Acts of „constitutional“ characterTh e “constitutional” acts that form part of the EC legislative system not only

require unanimity in the Council, but generally require the additional consent of all Member States, according to their respective constitutional provisions. Constitutional Acts of this kind are the following: • Measures in application of the “passerelle”-clause contained in Article 42 EU,

allowing to pass matters from the third pillar to Title IV of the EC Treaty, thereby subjecting them to the Community method;

• Provisions extending the rights of the citizens of the Union according to Article 22, para. 2, EC;

• Provisions regulating elections by direct universal suff rage and establishing a uniform procedure in all Member States or in accordance with principles common to all Member States, under Article 190, para. 4 EC;

• Provisions to be taken under Article 269, para. 2 EC with regard to the system of the Community's own fi nancial resources.On the other hand, the Council may take decisions under Article 67, para. 2 EC

with a view to subjecting areas covered by Title IV of the EC-Treaty on Visa, Asylum and Immigration to the “Community method” under which an additional consent of Member States in the form of a formal ratifi cation is not required. Such decisions are adopted simply by unanimous decision of the Council. Nevertheless, they do have a “constitutional” character, since their eff ect is a modifi cation of the rules of the Treaty applicable to the EC decision-making procedures.

It is therefore suggested to classify legislative acts of “constitutional” nature according to the criterion whether or not the formal consent of the Member States is necessary in addition to the (unanimous) decision of Member State representatives in the Council.

c. Acts in the Area of the Second and Th ird EU PillarsCertain measures provided for in the second and third pillar of the EU have been

considered as legislative while decisions taken according to Articles 13-15 EU are not: whether taken by the European Council − defi nition of “general guidelines” and common strategies − or, in implementing the common strategies, by the Council: Joint actions and common positions are only binding on the Member States and do not contain rules of general application. Th e same applies to common positions and decisions of the Council taken under Article 34, para. 2 EU. In contrast,

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framework decisions adopted under Article 34, para. 2, lit. c) EU have a struc-ture similar to that of directives, except for the explicit exclusion of direct ef-fect,

conventions prepared by the Council under Article 34, para. 2, lit. d) that are recommended to the Member States for ratifi cation, and

international agreements concluded by the Council under Article 24 EU which are binding upon Member States and the institutions of the EU

have been considered as legislative acts so far, although neither of them may have direct eff ect for the individual. Also, there is no infringement procedure to foster their enforcement like it exists for EC law under Article 226 EC, and the jurisdiction of the ECJ only extends to disputes among Member States as regards the interpretation or the application of acts taken under Article 34, para. 2 EU in cases referred to the Court by one Member of the Council. Th e Commission can be the applicant only in disputes on the interpretation or application of a convention.

d. ConclusionAs a result from the foregoing, a classifi cation of acts adopted following the “Community

method”, those of a “constitutional” character and the legislative instruments provided for in pillars two and three of the EU Treaty can be undertaken according to:• their direct eff ect − for individuals, Member States and EU institutions − and the

degree to which national autonomy is reserved, • the direct or indirect involvement of the Member States and, depending on their

respective constitutions, of their parliaments in the decision-making process, and• the full or limited jurisdiction of the ECJ, or even its exclusion, regarding the

interpretation, validity and enforcement of the measure in question.It should, nevertheless, be born in mind that the form of the legal acts and their

classifi cation alone do not suffi ce to describe the “legislative system” of the EU. Th e legal acts examined do not tell us enough about what could be the central characteristics of such a system. More could be learned from examining the actors and procedures for the adoption of the diverse measures.

2. National Actors and European Decision-Making

Th e question is whether it is possible to classify the above-mentioned legislative instruments according to the way and degree to which national actors, in particular governments, parliaments and, as the case may be, the peoples of the Member States are involved in their enactment. It is clear that all European acts draw their legitimacy from the citizens, either directly through the elections for the European Parliament, or − if not directly by national ratifi cation − at least indirectly via the national parliament which exercise parliamentary control over the national ministers in the Council.18 Would a classifi cation of legislative acts therefore be more meaningful if distinctions

18 See, for example, A. Peters (note 4), pp. 556 et seq.

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were drawn according to the “national involvement” (A.)? And if so, is that criterion relevant for assessing the legitimacy of the acts in question (B.)?

A. The criterion of “national involvement”

Following the criterion of “national involvement”, the legislative acts mentioned above may be classifi ed not only with regard to their form, but rather in view of the procedure followed for their adoption. As far as unanimity is required for the Council’s decision, Member States and the national parliaments controlling their ministers express the will of the respective citizens. For acts adopted by qualifi ed majority, however, democratic control of the ministers at the national level is more limited, in particular, as long as meetings of the Council are private.19 However, the right of co-decision of the European Parliament in the procedure of Article 251 EC not only allows for transparency and a public debate, but also compensates for the reduced “national” legitimacy by an enhanced “European” legitimacy that is based on the direct election of the European Parliament.

Hence, depending on the degree to which direct or indirect “national” legitimacy is involved or substituted by direct or indirect “European” legitimacy, the legal acts in the EU could be classifi ed as follows, starting with those having greatest direct “national legitimacy”:• Decisions of the Council implementing European policies in the area of CFSP;• Framework decisions and conventions in the area of the third pillar adopted on the

initiative of a Member State or the Commission under Article 34, para. 2, lit. c) and d) EU;

• Provisions of “constitutional” character taken by the Council on the initiative of a Member State or the Commission, subject − or not − to national ratifi cation;

• Directives and regulations adopted − according to their respective legal basis − by unanimous decision of the Council, on the proposal of the Commission;

• Directives and regulations adopted by the Council deciding with qualifi ed majority under the co-decision procedure of Article 251 EC;

• Implementing directives and regulations adopted by the Commission as authorised according to Articles 202, 211 EC under the conditions set out by the “Comitology-Decision” of the Council (Decision 1999/468 as amended by Decision 2006/512/EC);

• Directives and Decisions taken by the Commission on its own initiative, namely regarding public undertakings and national monopolies, according to Article 86, para. 3 EC;

19 See, however, the new provisions on publicity of the Council meetings in the Council Conclusions of December 21, 2005, on Improving openness and transparency in the Council, see http://ue.eu.int/ueDocs/cms_Data/docs/pressData/en/misc/87778.pdf.

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• Decisions taken by the Commission in exercising its specifi c responsibilities for the implementation and application of the EC Treaty, namely in the area of competition and state aid law.At fi rst, the insights to be gained from this classifi cation seem to be limited. Th e

infl uence attributed to national governments as part of the European legislative diff ers from act to act. Th e classifi cation becomes more meaningful, however, with a view to the responsibilities of the national parliaments in eff ectively supervising and guiding their respective governments. With this control-function they are given opportunities to pro-actively using the European machinery for implementing policies that at national level could not be realised.20 Inversely the democratic control exercised by the European Parliament has to be considered.

B. Relevance of the legitimacy question

It appears obvious that the diff erent methods and the intensity by which national parliaments take part in the European decision-making process have some implication on the degree of democratic legitimacy of the act in question. Legitimacy of European legislation has a double basis: On the one hand, the directly elected European Parliament and on the other hand, the national parliaments exercising control upon their respective governments. With regard to the diff erentiated national involvement in European legislation two observations seem to be important for the understanding of this system:• First, no European legislative act can establish its validity in any other manner

but by deriving it from the will of the citizens of the Union, either way, directly through the European Parliament or indirectly through the national parliaments. Th us, the system is entirely self-referential in the sense that those who are subject to its legislative acts are also the subjects of their legitimacy.

• Second, the diff erent legislative procedures only refl ect the path through which citizens exercise their power, they refl ect a diff erentiated balance between direct (European) and indirect (national) legitimation; it varies depending on the type of act and the procedural setting for the adoption of each type of action.Th e second aspect deserves further consideration with regard to the system of

European decision-making in its entirety: As variations in decision-making procedures concern the mix of national and European logic or aggregation in which the will of the citizens is formed, the main question is to what extent the will formed by the citizens as national citizens is pre-empting the volonté générale formed by them altogether as citizens of the Union.

Looking at the extreme ends of the respective spectrum, we can see, on the one side, the constitutional acts adopted by the Council by unanimity and subject to ratifi cation by the Member States. National parliaments express the aggregated will of

20 For a comprehensive overview concerning the diverse functions of participation, control and infl uence exercised by national parliaments in general, see A. Maurer, Parlamentarische Demokratie in der Europäischen Union, Baden-Baden 2002, pp. 212 et seq. (214).

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the people of each Member State separately, they represent the citizens in their capacity as national citizens. On the other side, there are decisions and directives adopted by the European Commission under Article 86, para. 3 EC, for instance on the liberalisation of the telecommunications markets. Apart from the legal basis of such measures their legitimacy basically rests on the fact that the President and the other Members of the Commission are chosen or appointed by the Council (Article 214, para. 2 EC). Th is is the “national” pillar of their legitimacy.21 In addition, some “European” legitimacy is derived from the European elections as the European Parliament has certain powers in approving the Commission’s appointment (Article 214, para. 2 EC) and in exercising a growing political control over the accomplishment of its tasks (Articles 197, para. 3, 200 and 201 EC).

Th e classifi cation of acts under the criterion of “national involvement”, thus, does not necessarily correspond to more or less democratic legitimacy. Instead, as the relative infl uence of one citizen in democratic systems varies depending on the size of the community − or the number of citizens participating in the election, decisions taken at a level closer to the citizen off er more opportunities for individuals to take part in the debate and to infl uence the outcome.22 Th is is why the principle of subsidiarity plays such an important role in a multilevel system of governance and why, in particular, implementation measures are, as a principle, a matter for the public authorities at the level that is the closest to the citizens.

3. Giving Effect to European Legislation

Considering the way in which the application of EU legislation is carried out, therefore, even if it does not provide other criteria for the classifi cation of legislative acts, may add to the understanding of what the European legislative system is about. National involvement regarding implementation responds to the requirements of subsidiarity, but it also establishes a division of powers; it off ers opportunities for checks and balances and is, therefore, an important element of that legislative system. Two principles seem to be fundamental for the specifi c positive role in which national authorities fi t into this system: • One is that the implementation of European legislation is conducted mainly by

the national authorities, • Th e other is the absence of any hierarchy between the European and national level.

Th e former principle binds the European and national levels of governance together in the sense of a functional division of work and powers allowing reciprocal control. It is an expression of the principle of subsidiarity and gives the authorities of the Member States a specifi c European role (see A. below).

21 On legitimation through appointment by national governments, check also M. Ruff ert, in: Calliess/Ruff ert (eds.), EUV EGV. Kommentar, 3rd edition, Baden-Baden 2007, Art. 214, para. 1.

22 An extensive discussion of the subsidiarity principle and its reasoning can be found in: C. Calliess, Solidaritäts- und Subsidiaritätsprinzip in der EU, Baden-Baden 1996, pp. 26 et seq.

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Th e latter principle refl ects the fact that, at the European level, there are no capacities for a physical enforcement of European law against the will of the Member States or individuals. Th e system is, thus, entirely co-operative and not hierarchical (see B. below).

Checks and balances between the actors at both levels ensure that the common basic principles are eff ectively respected for the benefi t of the citizens (see C. below).

A. European role of national authorities

Except for special areas like competition or, in part, agricultural policy the administrative execution of Community law is indeed not a task of the European Commission. Th e involvement of national authorities in the implementation of European law gives them a special European responsibility. Th e implementation of European measures at the national level may require either the adoption of a legislative act or simply administrative action. Directives and framework decisions have to be transposed by national legislative bodies, to which discretion is left regarding the form and means of achieving the result laid down in the directive (Article 249, para. 3 EC, Article 34, para. 2, lit. b EU). Provisions of the EC Treaty, as well as regulations and decisions of the Council, or implementing measures enacted by the Commission, may fi nally need legislative measures at national level or implementation and surveillance by administrative bodies.

Regarding national administrative action, the basic principles have been established by the jurisprudence of the ECJ, starting with the Milchkontor-Case, as early as in 1982. Member States are bound, under Article 10 EC, to ensure the implementation of Community law. To this end, certain requirements need to be fulfi lled: In the absence of European rules on the administrative procedure national authorities shall apply their national law with due regard, however, to the principles of non-discrimination and eff et utile.23 Community law shall, thus, be given full practical eff ect and the application shall be as strict, complete and loyal as any comparable rule of national law.24 In case of confl ict with a provision of national law, it is the established jurisprudence of the ECJ since the 1964 judgement in Costa/ENEL that Community law shall be given precedence, while the validity of the national provision may not be questioned by the ECJ.25 Th is national involvement and “European” loyalty in the implementation of European legislation is one pre-condition for the functioning of the European Union being a multilevel system of governance.

Th us, national parliaments, when transposing directives and framework decisions, act as European agents, agents of the European Union and, when implementing European legislative, national administrative authorities are in the same role.26 Th eir loyal

23 ECJ, Case 205-215/82 − Deutsche Milchkontor, paras. 17-19.24 Ibid., paras. 22 and 23.25 ECJ, Case 6/64 − Costa/ENEL, paras. 8-13.26 See already I. Pernice, (note 4), pp. 176 et seq.

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cooperation required by Article 10 EC, is essential for the functioning of the European legislative system.27 Th ey are, indeed, part of it.

B. Co-operative nature of the European legislative systemTh e specifi c character of the European legislative system is consequently illustrated

by the requirements of cooperation and loyalty of the national authorities involved being legal obligations only, without any hierarchy and without European instruments for physical enforcement of such obligations.28 Th e monopoly of physical force which, following Max Weber, essentially defi nes the state, remains in the hands of the Member States. No European authority, but only the law itself, can enforce proper implementation of European law against national authorities. While according to Article 228, para. 2 EC, a Member State which is in infringement of Community law may be imposed, on request of the Commission, a lump sum or a penalty by the European Court of Justice, there are no means at the disposal of the Community institutions to enforce this payment.29 Th e EU neither has an army nor does it have police forces. Even when the European Commission imposes fi nes or penalties on a private company for having violated competition rules, the enforcement of these fi nes is left to the national authorities (Article 256, para. 2 EC).30

Th e European Union indeed is a “Community of Law” (Walter Hallstein) 31 only; its authority is based entirely on the voluntary respect of the law − as opposed to (physical) enforcement. Th is principle is illustrated best by the relationship between the ECJ and the national courts: Th e ECJ has no power to judge upon the validity of national law, nor may a national Court declare null and void a provision of Community law. While national Courts are legally bound to follow the judgements of the ECJ, the latter has no means to set aside any judgement of a national court. Th e ECJ is not considered a higher instance to them, but a co-operative partner, giving advice on the interpretation of Community law and, in case of doubts, on the validity of

27 See, for example, W. Kahl, in: Calliess/Ruff ert (eds.), EUV EGV. Kommentar, 3rd edition, München 2007, Art. 10, para. 8.

28 For more details on the consequences regarding the relationship between the European Courts and the Supreme Courts of the Member States see: I. Pernice, Das Verhältnis europäischer zu nationalen Gerichten im europäischen Verfassungsverbund, Berlin 2006, pp. 53 et seq.

29 Some scholars argue that judgements of the ECJ, including those against a Member State under Article 228, para. 2, EC, may be enforced by the national authorities, considering that the ECJ is not mentioned in Art. 256, para. 1, EC; see B. Wegener, in: Calliess/Ruff ert (eds.), EUV EGV. Kommentar, 3rd edition, München 2007, Art. 244 para. 1.

30 For more details on the procedure of enforcement by national authorities, see G. Schmidt, in: v.d. Groeben/Schwarze (eds.), Vertrag über die Gründung der Europäischen Gemeinschaften. Kommentar, 6th edition, Baden-Baden 2004, Art. 256, para. 12.

31 See W. Hallstein, Discourse on “Die EWG-Eine Rechtsgemeinschaft”, held in Padua in 1962, in: Oppermann (ed), Walter Hallstein, Europäische Reden, München 1979, pp. 109 and 343. Stressing the same aspect, see also ECJ, Case 294/83 − Les Verts, para. 23.

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a provision thereof − all this in the framework of the judicial dialogue provided for under Articles 234 EC and 35 EU.

Th e absence of hierarchy or enforcement capacities in fact appears to be a common trait of the European Union’s legal system.32 Th is specifi c relationship between the two levels of government clearly diff ers from the one we know in federal states (e.g. Articles 31 and 37 of the German Grundgesetz): In the German federal system, federal law “breaks” state law, and, in the case of failure to comply or disobedience, the federation may even use force against component states.33 To see this diff erence between the EU federal system and a federal state is essential for understanding the European legislative system. Th is system is based on co-operative action and self-regulation of the citizens and states, instead of them being subjected to a higher authority ordering a specifi c behaviour. Th is specifi c nature of the EU legislative system as a composed, a multilevel system founded on voluntary cooperation, is all the more confi rmed by the various modes explained above, of how national actors representing the “national” citizen have a stake in the making of European law.

C. Checks and balances: Safeguard for the common principles

Th e division of work and separation of powers between the European legislative and national executive not only corresponds to the principle of subsidiarity, but it also excludes such centralisation and concentration of power at the European level as may be a threat to national autonomy and individual freedoms. Th e mere absence of hierarchy between supranational and national authority, in addition, gives the national authorities a specifi c responsibility which, so far, has not been articulated in suffi ciently clear terms: Th ey play the role of a “watchdog” regarding the compliance of European legislation with the general principles of law, common values and fundamental rights referred to in Article 6, paras. 1 and 2 EU. Th ey are, themselves, bound to these principles in implementing European legislation, and, in complying with this obligation, they are bound to verify for each single case whether or not the act to be implemented is in compliance with the common principles. Administrative and parliamentary bodies can refer questions of doubt to their governments or to the European Commission, like national courts have to refer preliminary questions under Article 234 EC to the ECJ.

As the European institutions have no device of direct enforcement against national authorities, they will, in order to avoid risks for the proper functioning of the Union’s legal order, feel compelled to consider any of such question or argument seriously and in the spirit of cooperation.

32 See, in particular: I. Pernice, (note 28), p. 24.33 H. Dreier, in: idem (ed.), Grundgesetz. Kommentar, Tübingen 2006, Art. 31 para. 18, and H. Bauer, in:

ibid, Art. 37 paras. 4 et seq.

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4. Conclusion

Th e existing legislative system of the EU cannot be understood by analysing the institutional and procedural provisions of the EU and the EC Treaties only. Only when the involvement of the national authorities and their specifi c European role is taken into account the picture becomes complete. With their respective European functions, national parliaments, governments and administrations form part of the European legislative system.

Th e very complex structures and forms of co-operation and involvement refl ect the varying balance, depending upon the subject matter concerned, between what can be called the European and the national logic under which participation of the citizens (as European or national citizens) in the decision-making is organised.

III. EU Legislation and the Constitutional (Lisbon) TreatyTh e Treaty establishing a Constitution for Europe (CT) and, taking over its substance,

the Treaty of Lisbon not change these basic features of the multilevel character of the European construction nor, in principle, of the European legislative system. Neither did it intend to do so. But the bring about a number of considerable improvements regarding simplifi cation, eff ectiveness and democratic legitimacy of the EU and its legislative system. Each of these factors will now be considered in turn, dealing with them separately though they are strongly interdependent and interrelated.

1. Simplification

With regard to the perception of the Constitutional Treaty by the general public, what seems to be most important is the progress in simplifying the structure and in clarifying the language of the Treaties. Leaving aside the European Atomic Community, all diff erent sources of relevant primary law are now merged into one single Treaty. Th e three-pillar structure has been abandoned. Th is has important eff ects also for the legislative system. In particular, the system of “legal acts of the Union” established in Part I Title V on the “exercise of the Union competence” (Part 6 Title I Chapter 2 TFEU o n “legal acts of the Union, adoption procedures and other provisions”) comprises systematically all acts previously spread over the three pillars. Th e institutions are supposed not to adopt any other acts but those provided for in each relevant area (Article I-33, para. 2 CT, Article 296, para. 3 TFEU). As will be explained further below, clear and correct language, a systematic approach in defi ning the forms of legal acts and the distinction between legislative and implementing acts are important steps in order to facilitate the comprehension of the Constitution for Europe. Th e Treaty of Lisbon only steps back regarding the language.

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A. Correct language

Primary law, in the Constitutional Treaty, was referred to as the Constitution. Th e new treaty, thus, would fi nally have used the correct word for what in substance would have been the proper expression from the early years of the EEC on, and what was even recognised by the jurisprudence both of the ECJ 34 and the German Constitutional Court: 35 Regulations were to be called “laws”, directives “framework laws”, and Article I-33 CT provided these terms with defi nitions and a substantive content. Th is is now the subject of Article 288 TFEU, while the Treaty of Lisbon has abandoned the new nomenclature: Constitution, law and framework law. Most important in the present context, however, is the following: Th e Constitution and also the Lisbon Treaty draw a systematic distinction between legislative and non-legislative implementation acts by referring to either the European Laws/European Framework Laws (Article I-34 CT − Articles 288, 289, para. 3 TFEU) or to European Regulations/European Decisions (Article I-35 CT − Articles 290 and 291 TFEU. Th e decision, however, is being qualifi ed under Article 289, paras. 1 and 3 TFEU as a legislative act, while under the Constitutional Treaty, the European Decisions were mentioned among the non-legislative acts − Article I-33, para.1, subpara. 4 and Article I-35 CT). As we recall, this has not been the case so far (see above, II.1.A).

B. A new system of legislative acts

But the Constitutional Treaty went even beyond a pure simplifi cation of terminology and words. It managed to streamline the use of all those legal instruments with regard to their procedure, decision-making actors and eff ects. Whereas their aggregation and classifi cation as parts of a common “legislative system” has proven to be diffi cult in the past (see above, II), they can now be considered as elements of one truly systematic scheme thus constituting a coherent “legislative system”. Except for the names “law” and “framework law” this remains valid also under the Treaty of Lisbon.

One of the key aspects of using rational terminology lies in the fact that the new language allows the future EU system of legislation to be understood more easily by the general public. European laws and framework laws (regulations and directives as legislative acts) can be understood as the solemn acts of the legislative by every citizen, while in issuing European regulations and decisions (non-legislative acts) the Council or the Commission can be expected to adopt delegated or implementing measures of legislative acts or (Article I-33, para. 1, subparas. 4 and 5 CT − Article 290 TFEU). In defi ning the conditions under which a European law or framework law (regulation or directive) may enable the Commission to adopt “delegated European regulations” (“non legislative acts of general application”), to supplement or even to amend certain

34 ECJ, Opinion 1/76 − Draft Agreement establishing a European Laying-up Fund for Inland Waterway Vessels, Case 294/83 − Les Verts, and Opinion 1/91 − European Economic Area I.

35 BVerfGE 22, 293 (296).

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elements thereof, Article I-36, para. 1 CT (Article 290, para. 1 TFEU) draws a clear distinction between “real” legislation and subordinated quasi-legislative acts: “Th e essential elements of an area shall be reserved for the European law or framework law (legislative act)”, delegated regulations (acts) are for “non-essential” elements only.

Another element for streamlining the EU “legislative system” is introduced by Article I-34 CT (Article 289 TFEU). Th is article states the co-decision procedure to be the “ordinary legislative procedure”. Th ere are three essentials to it: European laws and framework laws require a proposal from the Commission, they are adopted “jointly by the European Parliament and the Council” and the procedure is that of Article III-396 CT (Article 294 TFEU). Th ereby, it is made clear that, in principle, no act can be passed as long as there is no common agreement between both these institutions, Council and Parliament.

Th e importance of these defi nitions of ‘laws’, ‘framework laws’, ‘regulations’ and ‘decisions’ (regulations, directives as well as implementing or delegated regulations and decisions) is further increased by their consistent application throughout the Constitution/Treaties. As a consequence, there will be no more framework decisions; instead, all measures regarding the area of freedom, security and justice will be adopted following the same method as all other legal acts − the previously so-called ‘Community Method’.

Admittedly, there do remain a few singular exceptions to this ordinary legislative procedure. In the fi eld of PJCC, for example, Articles I-42 and III-264 CT (Article 76 TFEU) allow for an initiative of “a quarter of the Member States” instead of the Commission’s initiative for a legislative act, and with regard to the CFSP Article I-40, para. 6 CT (Article 24, para. 1, subpara. 2 TEU) expressly excludes European laws and framework laws. In certain special areas like monetary policy or institutional matters, the Constitution still does provide for special legislative procedures by giving the ECB (Articles III-187, 190, para. 3, and 191 CT − Articles 129, 132, and 133, para. 3 TFEU) or the European Parliament (Article III-330, para. 1 CT − Article 223, para. 1 TFEU) a say in the procedure, or even the right to adopt European (regulations) (Article III-190, para. 1 CT − Article 132, para. 1 TFEU for the ECB) or a European law (regulation) (Article III-330, para. 2 CT − Article 223, para. 2 TFEU for the European Parliament regarding the duties of its Members). Nonetheless, the new provisions on legislation in the Treaty of Lisbon, though less than in the Constitution, simplify and clarify the EU legislative system considerably.

C. Implementing measures

In addition to the general loyalty duties of the Member States set out in Article I-5, para. 2 CT (Article 4, para. 3 TEU), a specifi c provision of the Constitution now emphasises that “Member States shall adopt all measures of national law necessary to implement legally binding Union acts” (Article I-37, para. 1 CT − Article 281, para. 1 TFEU). Th is highly important principle corresponds to the principle of subsidiarity and is also stressed in Article III-285 CT (Article 197, para. 1 TFEU) stating that

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“eff ective implementation of Union law by the Member States … is essential for the proper functioning of the Union”. Th e provision highlights national implementation of EU legislative acts as a “matter of common interest”. Th e Union must provide Member States with support and cooperation for the sake of its legislative system’s eff ectiveness. Th e provision maintains, fi nally, that such support “shall be without prejudice to the obligation (!) of the Member States to implement Union law”. Th ese terms clearly take over the above-mentioned ECJ-jurisprudence.36

As far as uniform conditions for the implementation of legally binding Union acts are needed, Article I-37, para. 2 CT (Article 291, para. 2 TFEU) establishes that the basic legislative act shall confer implementing powers on the Commission and, exceptionally, upon the Council, while, according to para. 3, a European law should lay down the general principles concerning the mechanism for the Member States’ control over the Commission’s exercise of the implementing powers. Th is reminds of the previous Comitology system as established in Decision 1999/468, but its application would be more limited.

Concluding the analysis of how EU legislative acts are given eff ect, the underlying principle of the Member States’ responsibility is stressed in the Constitutional Treaty in the same way as it has been established by the ECJ case-law in the existing legislative system.

2. Efficiency

In simplifying the EU legislative system, its language, procedures and related mechanisms, the Constitutional Treaty also makes the system more effi cient. Th e most important measures taken to that eff ect are the following:a. Th e Treaty provides for only one ordinary legislative procedure applicable to most

of the legislative acts; where specifi c legislative procedures still exist, they can be modifi ed at a later date by using the passerelle of Article IV-444, para. 2 CT (Article 48, para. 7, subpara. 2 TEU) that allows to subject these competencies to the ordinary procedure.

b. Majority voting in the Council has been extended to become the general rule (Article I-23, para. 3 CT − Article 16, para. 3 TEU ). Where unanimity is still required, the passerelle of Article IV-444, para. 1 CT (Article 48, para. 7, subpara. 1 TEU) allows to introduce majority voting at a later stage.

c. New provisions regarding the principles of subsidiarity and proportionality and, in particular, the “early warning system” referred to in Article I-11, para. 3 CT allow for a more effi cient control by the national parliaments of the respect for these principles.

Th is mechanism leads directly to the third aspect of what altogether marks the overall modernisation of the European legislative system by the Constitutional Treaty:

36 See note 23, above.

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3. Democratic legitimacy and control

Th ere are several improvements that specifi cally concern democratic legitimacy and control, thus underlining the interaction of the European and national levels of governance: Th e fi rst follows from opening the meetings of the Council to the public. Th e second concerns the now explicit role of national parliaments in the EU legislative process. And the third consists in the emphasis given to the role of the Union citizens and their rights of active participation in the political process at the EU-level.

A. Public Council meetings

Th ough provisions already facilitate publicity of Council sessions in certain cases,37 Articles I-24, para. 6, and 50, para. 2 CT (Article 16, para. 8 TEU and Article 15, para. 2 TFEU) now expressly lay down as a general rule that the Council shall meet in public “when considering and voting on a draft legislative act”. Media, but in particular the national parliaments and parties of the political opposition will then be given the opportunity to see − and thereby control − directly the behaviour of the ministers as legislators. Such genuine “transparency” seems to be the very condition for the exercise of the national parliaments’ “European responsibility” as a source of democratic legitimacy for European legislation through the parliamentary control of their respective governments.

B. The role of national parliaments

Th e Early Warning System referred to in Article I-11, para. 3 CT (Article 5, para. 3 TEU) and in a special Protocol on the Application of the Principles of Subsidiarity and Proportionality, not only provides national parliaments with an explicit − though rather negative − role in the decision-making process of the EU legislative system. What is more important is that the national parliaments will offi cially be informed on all legislative activities of the Union. Th e new right they are given to intervene in cases of presumed excess of competence or violation of the principles mentioned attaches more relevance to the consideration of such information, on the national as the European level. Th e reference to the national parliaments under the heading of Part I, Title VI: “Th e democratic life of the Union” (Title II: “Provisions on democratic principles TEU), implies that they indeed play a role as an element of the European democratic process. Article 46, para. 2 CT (Article 10, para. 2 TEU) stresses that within the national legal systems, they are the bodies to which the national governments represented by the Member States’ delegates in the European Council or the Council, are “democratically accountable”.

C. Citizens’ participation in the EU legislative system

In accordance with a reference to the citizens will in the preamble Article I-1, para. 1 CT articulated the intention of the Convention to draft a Constitution on

37 See note 19, above.

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behalf and in the interest of the Union’s citizens. As a consequence, the citizens were, for the fi rst time in the EU primary law, mentioned as the Union’s ultimate subject and source of legitimacy. Th is has been abandoned in the Treaty Lisbon. However, the new Articles on the European Parliament state that the parliament shall be composed of “representatives of the of the Union’s citizens” instead of simply referring, as the EC-Treaty still does, to the ‘peoples’ of the Member States. Th is new language does not change the existing law in substance. But it does, nevertheless, strengthen the concept of European citizenship, contribute to raising people’s awareness for the Union and its policies, and lay down the basis for them to take ownership of the Union.

Th e emphasis on the citizens being the origin of the Union’s legitimacy is underlined by Article I-47, para. 4 CT (Article 11, para. 4 TEU), on the citizens’ initiative. While admittedly it may be true that citizens could already take such initiatives under the existing law, if one considers the monopoly of the Commission to propose legislation, then this provision does represent a step forward for the citizens. It confers onto the Union citizens the same explicit rights towards the Commission, as the Council and the European Parliament already have today (Articles 192, subpara. 2, 208 EC). Also such modest changes may have an important impact in terms of democratic awareness and on the citizens’ perception of “their” Union.

IV. A System of Supranational Self-Regulation Th e European Union can be considered as a system composed of two or more levels

of government, established by and for the citizens of the Member States considering and defi ning themselves, insofar, as European citizens. In the light of multilevel constitutionalism, national constitutions and the European primary law, which, − having a constitutional charakter a “postnational” concept of “constitution” can already be considered as constitution today, together form one material legal entity: Its national and European components are complementary, closely interwoven and interdependent, and so are the actors of the EU legislative system.38 Th us, the functioning of this system is based upon and depends decisively on the proper functioning of the Member States’ political systems, as regards both legitimacy and eff ectiveness, in full respect of the rule of law. It requires democratic parliamentary procedures and control in the Member States, and strong European loyalty and solidarity of the national authorities − governmental, legislative and administrative. Th is is why Article 6, para. 1, and Article 7 EU and in future, more explicitly, Article I-2 CT (Article 2 TEU) − read together with Articles I-58 (Article 49 TEU) and I-59 CT (Article 7 TEU) − make clear that the common principles and values are a precondition for membership to and the functioning of the European Union. Th is is also the reason also in turn, national authorities when implementing European legislation not only have to respect these principles and values but also take an active part in, and responsibility for ensuring that European acts are in compliance with

38 See more in detail: I. Pernice, (note 1), p. 724.

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them, in the common European interest of the citizens. While European legislation pre-empt national provisions in cases of confl ict because, ideally, it is representing the common will of the European citizens, and equal application throughout the Union is constitutive for a rule to be considered law at the European level − Article I-6 CT (the Declaration concerning primacy) rightly confi rms this very fundamental principle − European and national authorities have a shared and common responsibility for the surveillance of its constitutionality. Th is corresponds to the voluntary, non-hierarchical and co-operative character of the European multilevel structure in which supranational legislation − except for the number of people represented and concerned − is not less “self-ruling” of the citizens than national legislation in each Member State.

Th e new provisions of the Treaty establishing a Constitution / the Treaty of Lisbon for Europe would not only simplify this composed legislative system of the Union, but also make it more transparent, more eff ective, more democratic and more stable. Th e new Treaty would indeed strengthen the Union as a system of voluntary supranational self-regulation of its citizens.

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The Eastern Enlargement and Decision Making in the EUBěla Plechanovová*

I.Political system of the European Union is recently confronted with major changes

brought about by the process of enlargement by unprecedented number of new member states. Ten new members entering in May 2004 − and two more in January 2007 − meant important adjustments of the institutional framework of the EU which came at the same time when the EU had changed also the decision-making model for the Council and reduced the number of commissioners. Considering the complex character of the decision-making rules and procedures these changes had been for a long time subject of concern both in political and the academic sphere.

Th ese questions have recently been discussed quite often in connection particularly with the process of institutional reform, constitution building in the EU, i.e. on decision-making in the institutions of the EU. Our focus will be on the eff ects of enlargement by 10 new members, mainly of Central and Eastern Europe, on these processes. Questions emerging in connection with this topic are numerous, we cannot touch them all on this limited space, but we will try to concentrate on certain aspects, which were recently subject of analysis (e.g. Hayes-Renshaw et al. 2006; Zimmern et al. 2005; Heisenberg 2005, Mattila 2004), namely on the modes of decision-making in the Council as analyzed on the basis of empirical research. Th e aim is to assess whether the conclusions of these earlier studies hold even for the situation after the 2004 enlargement or are there any discernible changes in the behaviour of the member states. Th e results of this fact-fi nding phase should allow to articulate testable hypotheses in the next stage of this research project.

II.Th e main question which leads the direction of this research project is: has anything

really signifi cant changed what would confi rm the claim that enlargement would cause a blockage of the EU, that the EU is not able to function with 25 or more members by the same rules which basically were introduced at the very beginning of the EEC for the founding six member states. Before starting to investigate this question we have to realize that decision-making of members states on policy issues in the EU does exist basically on two levels: the area where the decisions are being made about the general directions of the policies of the EU, e.g. what should happen to the costly common agricultural policy or will the EU build up a new segment of structural policy or are the EU members ready to make a signifi cant step towards climate-friendly energy policy within the next two decades − to point something more timely. Th ese decisions are made up to now

* Doc. PhDr., Chair of International Relations, Institute of Political Studies, Faculty of Social Studies, Charles University, Prague

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at the highest political level of the European Council − they are prepared for months, possibly years, negotiated between the Commission and member states, discussed in the EP. Consensus − or more precisely − unanimity in the European Council is the rule.

In the second, lower ladder are the decisions which give concrete shape to those major strategic steps − they say what will be the rules for the fi rms, the public sector, or individuals in those areas. Here the Commission is the agenda setter and the Council, together with the EP in most cases, decide. Both levels are important and they are certainly interconnected and cases may occur when they intermingle, but when we discuss the question of decision-making in the EU and its eventual reform we have to keep in mind that these levels do exist, even it has to be said that not every single piece of EU legislation proposed by the Commission has a clear basis in the particular policy program adopted by the European Council.1

Th e separate existence of the main two levels infl uences strongly the mode of decision-making on the lower level. If the decision on the higher level of the European Council needs unanimity, it is highly improbable − and was even with twelve or fi fteen member states − that each and every one of them is happy with the solution adopted. Th e consequence is that the member state gives its approval to the launching of particular new policy − or reforming the existing one − only owing to the assumption that during the next step it will have a chance to be compensated for the support already given: either by an initiative in other policy area or by consideration of its specifi c problems or interests after the concrete rule is articulated by the Commission. We assume that this is one of the reasons why the decision-making in the Council is still strongly consensual, bargaining mode prevails and open voting occurs rarely. On the other hand, when talking about the reform of decision-making rules − a debate which is around for years already in connection with the process of enlargement − we have to keep in mind that this reform concerns only the lower ladder.

Countering the argument that without institutional reform the EU will end-up in the policy gridlock, we have to add that reforming the institutional setting of the lower ladder, i.e. the Council, will not suffi ce as the representatives of the member states in the European Council will hardly ever agree to signifi cant policy changes without the guarantee that at the level of the Council their colleagues from the national governments would be able to negotiate concessions or compensations or ultimately to block the decision. At the very beginning then we have to assert that the relationship between the level/area of the European Council’s bargaining and deals and the area of decision-making within the hierarchy of the Council’s bodies remains to be under-researched (Tallberg 2007) and unfortunately, hardly the situation will change in near future due to the lack of information about the mechanisms of transfer of the national position on the general level of the

1 To be even more precise we should say that after the general framework for the policy is approved in the European Council, a more concrete program document is in most cases approved by the Council. Only then the Commission starts to prepare individual pieces of particular legislation.

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policy adopted by the European Council and its particular form shaped on the level of the Council. We have to start then with the assumption that the Council takes the decisions as an autonomous institution, within the basic framework given by the Treaties. Even this supposition does not refl ect fully the context in which the decisions are taken, the empirical research of the decision-making in the Council is the fi rst step which has to be taken, since we need to know how the decision-making in the Council is functioning before we start to speculate and investigate what kind of relationship does exist between the two levels of decision-making.

Having in mind the limitations mentioned above we are going to assess several basic hypotheses/fi ndings of the earlier empirical studies which dealt with the decision-making in the EU Council before the eastern enlargement, namely; (1) “the larger the country’s vote share, the less likely it is to fi nd itself in a situation in which it would have to vote against the majority in the Council” (Mattila 2004: 33); (2) “the propensity to vote against a proposal, or to abstain, is correlated to size rather than wealth“ (Heisenberg 2005: 66); (3) „… in some fi elds, such as agriculture, fi sheries and the internal market, explicit voting at ministerial level is clearly more usual and more routinized, while in others it is hardly observable... “ (Hayes-Renshaw et al. 2006b: 184); (4) „data provide very slender evidence of active and organized coalition behaviour on contested votes. Neither the statistics nor the cluster analysis generate strongly signifi cant patterns, although the dendrograms hint at some of the dimensions of contestation. (Hayes-Renshaw et al. 2006a: 185). As these fi ndings are derived from the empirical studies of the Council as it functioned with 15 member states before 2004 enlargement − and the (1) and (2) are on certain level of divergence, our fi rst aim is to test whether or which of them still hold for the situation after 10 new members joined the EU.

III.Th e paper presents the fi rst and still preliminary results of the research plan which

has the ambition to analyze various aspects of eff ects of the fi rst eastern enlargement on the decision making processes in the EU. Th e focus of this particular project is on the Council of Ministers as the main and still ultimate decision-making body of the EU. It was also the Council that underwent through the most dramatic changes after the eastern enlargement as the number of its members grew up by two thirds. Good reasons why to start with this institution when we aim to address the question of eff ects of enlargement on decision-making of the EU.

Th e time-frame for the whole project is thus well-defi ned, as this period of time has come to an end on 1st January 2007 when Bulgaria and Romania entered the EU and enlarged its membership to 27 member states. Th e number of actors has changed then and we have to separate the observations of their behaviour before and after the last enlargement.

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Th e analysis is based on a thorough data survey for the period between 1st May 2004 when ten new member states acceded to the European Union and the end of June 2006. Th is date may be understood as a sign of preliminary character of the results of the whole research project, as the data on the results of decisions in the Council are occasionally released with signifi cant delay and we do not have a complete data set for the whole period under scrutiny at the moment. Th at means that the results are just preliminary, but hopefully they still may be of interest.

1. Description of the data set

Starting with the realistic assumption that the explicit voting in the Council is still quite rare and that the time span of the survey is quite short (32 months altogether, of which we at the moment cover 26), we have included into the data set all proposals which were presented to the Council of Ministers within the given period of time for decision and the decision was really taken irrespective of its result, i.e. included are decisions which were not the fi nal say of the Council to the particular issue or have not binding legal status − common positions, political agreements, opinions, recommendations, resolutions etc. Included are also proposals which had not been approved by the Council but were openly subjected to the test of the decision-making rule − either qualifi ed majority or unanimity − and the negative result is stated in the minutes.2 Th is is also in correspondence with the aim of the project − to contribute to the understanding of the decision-making processes in the EU, meaning we should not eliminate the data we have for the sake of clear-cut categories of adopted acts, simply because the scale of the subset of contested proposals in relation to the total number of instances of decision-making is in any case too small to allow any categorical conclusions. Th at is another limitation we have to admit at the very beginning.

Altogether, 161 sessions of the Council were covered by this part of the research (2580th to 2740th Council). During the period the EU was presided by Ireland and Netherlands in 2004, by Luxembourg and United Kingdom in 2005 and by Austria in fi rst half of 2006. Th e data were collected from the provisional agendas of the Council meetings, lists of A points, Council minutes, monthly summaries of the Council acts and Council press releases, occasionally the data were added also from the PreLex database. About 900 source documents were examined to collect the data for this part of the project.

In total, 2811 proposals were covered by the survey, of which for app. 2,5 percent we have no relevant or complete data − key documents are not available and/or up to

2 Some of the earlier studies mention that the Council does not put these cases into the records or more precisely that such cases do not happen due to the procedure of multi-stage decision-making in the Council working bodies (working groups and COREPER) that does not allow the points that have not chance of adopting to enter the ministerial session of the Council. It is true that negative results are rarely found in the Council minutes, still rarer are the cases when the individual negative votes were recorded, in this part of the project these were just four. Another 18 cases of negative result are recorded but without the positions of the dissenting member states.

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now were not provided by the Council secretariat or the documents indicate that voting took place but the positions of the dissenters were not put into the records (0,8 percent). Consequently, the basic data set consists of 2740 proposals. Of these 480 were legislative acts in various phases of their journey through institutions of the European Union.

2. Comparability of the data

When comparing the fi ndings of − up to now few − empirical studies on the EU Council decision-making special attention has to be paid also to the methodology of the data survey on which the analyses are based. Even the authors of these studies recall to basically identical sources, the fact is that when we get into the databases or their parts (made available by the authors either directly in the journal articles or through databases posted on the internet) we fi nd out that the quantitative analyses are based on the data sets which are to a large extent diff erent (Heisenburg 2005, Mattila 2004, Hayes-Renshaw et al. 2006a, b). As none of these studies specifi es precisely in detail how the data were in fact collected and especially what the criteria for including the data into the analysis were, it is not possible to say where exactly this diff erences come from, why this happens and what the probable consequences for the data set are, possibly also for the inference derived from it. Nevertheless, it has to be stated here, as the fi ndings of these earlier studies are the basic reference for the hypotheses of the present project.

We do not have systematic information on the amendments made during the deliberations of the ministers of the member states. It is thus still not possible to reconstruct in every detail what positions a government took and whether it lived up to a possible negotiation mandate from its domestic constituents.

3. Structure of the data − descriptive statistics

Th e data set consists of 2811 proposals presented to the Council for decision during the period under scrutiny, of these 179 were contested proposals − 6,5 percent. For 158 contested proposals we have found voting records, i.e. 5,8 percent, and these represent the subset, which is a subject of further analysis. All member states have cast altogether 477 dissenting votes (against + abstention), which were put into the records. Each contested proposal was contested by three member states on average. Approximately one third of the proposals (54) were contested by single dissenters − 34 percent.

Of the 158 contested proposals 24 were decided under the pre-Nice rule (up to 2613th session, before end of October 2004), 134 under the Nice rule applicable as from 1st November 2004; the analysis does not take the diff erence of the decision-making rule into consideration. Th e reasons for that are (a) practical: the data set which is already small would be split into two asymmetrical parts and it would be diffi cult or methodologically impossible to analyze them separately, as the number of contested proposals in the fi rst period is statistically insignifi cant; (b) methodological: actually none of the contested proposals from the earlier period would have had diff erent result

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under the alternative rule and even if it had, we still may assume that the behaviour of the actors was not infl uenced by the decision-making rule signifi cantly.

Data contain also the proposals which were not approved by the Council, but such cases are really rare − only 4 proposals were rejected on the basis of voting that was consequently entered into the minutes. Altogether 91 proposals were contested from the total of 480 legislative acts on which the Council took decision, i.e. 19 percent.

In the agenda decided upon in the Council General Aff airs and External Relations − GAER, Economy and Finance − Ecofi n, and Common Foreign and Security Policy − CFSP clearly prevail numerically; they represent 20, 17 and 15 percent respectively (Figure 1),3 but they are not the most often contested, in fact opposite is true. Th ese agendas or policies are the least contested (Figure 2). Of the 158 contested proposals the majority were common agricultural policy (46; 28 percent), internal market/commercial policy (35; 22 percent) or environmental policy (23; 15 percent). Consequently, only these policies off ered enough data to allow further analysis of the voting behaviour of the member states on particular issue area.

And what are the fi ndings in comparison with earlier studies; has anything changed after enlargement? Here we may off er some observations.

First, the number of contested proposals and negative votes has grown compared with the previous period, even if we take into consideration the diff erences which exist in the data of earlier studies as mentioned above. Th e growth is discernible also within the period under scrutiny. Th is may be explained by the fact that new member states after accession needed some time for accommodation before they started to behave in a similar way as the “old” members. Additional reason may be found in the parliamentary cycle of the EU, the beginning of which actually coincided with the accession of ten new members. It takes some time before the new Commission − after cleaning the table after the preceding collegium − presents its own proposals which bring new controversies. Anyway, Hayes-Renshaw et al. presented in their study total of 767 negative votes cast for the period of 1994 to 2004, i.e. 4,65 per state per year (or 421 for period 1998-2004; 4,46), after enlargement during the period under scrutiny we have 477 negative votes, i.e. 8,9 per state per year.

Second, even the level of contestation in the Council has very probably grown after enlargement, the legislative output remained on a level comparable with the corresponding phase of the previous parliamentarian cycle, i.e. there was no risk of legislative gridlock in the Council. (Table 1) Nevertheless, it has to be pointed that the mode of the legislative process has changed, as growing majority of legislation is adopted in the fi rst reading both in the EP and the Council and very few legislative proposals reach the third reading.

3 Figures are to be found in the appendix.

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Th ird, the behaviour of the member states in the Council seems to be changing in last years, a more detailed analysis follows in next section.

Table 1

Legislative acts adopted (Council regulations and Council and EP directives) 2000-2006 2000 2001 2002 2003 2004 2005 2006

regulations 189 152 164 191 208 127 199directives 43 58 52 64 52 36 64decisions 216 217 217 257 313 250 253total 448 427 433 512 573 413 516

Source: Prelex database, http://ec.europa.eu/prelex

4. Analysis of voting patterns of member states

Taking into consideration the limited number of cases we have for the analysis and the limitations mentioned above, we still may speculate on the basis of the data collected about certain trends in the development of the voting patterns of the member states in the EU Council. First, we see a marked drop of contested proposals which were contested just by single member state − singleton. From about half of the cases of contested proposals referred to by Hayes-Renshaw et al. (2006: 175) we fi nd the level after enlargement on approximately one third (34 percent). In general, more populous member states are more prone to vote against just on their own, but the same behaviour we fi nd with some smaller countries, namely Netherlands and Sweden. It has to be reminded that the purpose of casting single negative vote may diff er depending on the decision-making rule; under the qualifi ed majority rule the negative vote − either vote against or abstention is simply demonstration of opposition to the proposal, in majority of cases without any practical consequences for the result of the proposal. Under unanimity there is clear diff erence in consequences: casting vote against means blocking the decision whereas abstention is the demonstration of opposition but at the same time it shows the good will to let the proposal through. In this part of the project there was just one case when Italy blocked the political agreement on a proposal of a directive on management of bathing water quality in June 2004.

On the other hand, the number of dissenting states on each contested proposal has not grown signifi cantly, notwithstanding the considerable rise of number of members of the Council (av. 3). Consequently that indicates that prevailing majority of recorded contested proposals are cases when the dissenting member states were nowhere near to reach the blocking minority under the qualifi ed majority rule.4

4 Still within the collected data we have found a single record where the dissenting member states clearly constitute the blocking minority by any possible rule but the record in the monthly summary is not indicating that the result should be negative.

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Second, the overall structure of the data indicates that the pattern of behaviour of individual member states has slightly changed after enlargement. Not that much as concerns the issue areas where the proposals are contested, but in terms of propensity to oppose the policy which translates to the fact that the average number of contesters has grown and the issue areas of contested proposals has shifted partly from agriculture to environmental policy and also the internal market issues (Figure 2).

After the descriptive part of the analysis of the data we have collected, we applied cluster analysis as a “fi rst trial” method which should help us to assess whether any similarities do exist in the behaviour of member states in cases when they have decided to contest the proposal. Th e method used is similar to the one used by Hayes-Renshaw et al. (2006a, b), but the basic assumptions behind it are slightly diff erent. Th ese authors use the method as an indicative tool for looking for coalition behaviour, but we prefer to understand the aim more broadly − in terms of general dis/similarity of voting behaviour. Th is enables us to include also the voting records of single dissenters which the aforementioned study discards. It is because when analysing the coalition behaviour the data we have oblige us to pay main attention to the blocking minority as the aim of the actors. But as already mentioned above, the number of cases when the blocking minority under the qualifi ed majority rule was reached is negligible (i.e., statistically insignifi cant). Th e interpretation of the results appears to be diffi cult then. Th e broader approach seems to be more appropriate, allowing more free interpretation of the results of the cluster analysis.

IV.Having in mind the preliminary character of the results, the interpretation is

diffi cult, but a hypothesis may be formulated that the three large countries − Germany, Italy and Great Britain − have some leadership potential vis à vis the three groups of member states (Figure 7), even their position within the group is with the exception of Britain that of the most distant member. France does not seem to have this potential simply because she does not contest the proposals very often, together with Slovakia, Ireland, Cyprus and Malta belongs to the group of member states which cast dissenting vote very rarely. Various explanations are being off ered for this (political culture, well established channels through administrative structure of the EU institutions, etc.)

Th e dendrogram indicates also that Sweden and Denmark stand outside these three groups. Two points may off er an explanation: (a) these countries belong to the three members who contest the proposals in the Council most often; (b) they do not seem to have the same partners in their dissent across the whole spectrum of the Council agenda, except for each other. Th e measure of coincidental voting in their case seems to be really signifi cant, as these countries cast their dissenting votes together in 24 cases, i.e. in 75 percent of all Danish and in 53 percent of Swedish negative votes.

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Further analysis of the dissenting votes aimed at identifying the measure of dis/similarity of voting behaviour on the basis of the policies where the amount of data allowed it. It was possible only in three issue areas: agriculture, commercial policy and environmental policy. In other areas the number of dissenting votes was too small (see Figure 2). Common agricultural policy remains after eastern enlargement of the EU the most contested policy (46 contested proposals) but its prominence in this respect is evidently on a decline, as other issue areas have become more controversial and therefore more often contested by individual member states. Agricultural agenda (Figure 8) seems to divide the member states very roughly into three groups: central group (as on the dendrogram AGRI) are seventeen countries with apparent core − Spain, Lithuania, Ireland, Hungary, Austria, Cyprus, Poland, Latvia, Slovakia, Estonia and Malta, for certain all countries with strong agricultural interests, but the low level of dissimilarity is given partly by low number of dissenting votes cast by majority of these countries. Strong relationship between Sweden and Denmark has emerged even in this policy, though it is clear that their positions bring them closer to Germany, Belgium and Luxemburg. Th ird group is formed by Italy, Greece and Portugal. Similarity of their position seems to be logical as southern countries with strong agricultural interests.

Internal market and commercial policy is the second most contested area (35 contested proposals). Th e dendrogram (Figure 9) off ers in this case four groups of states; fi rst group with lowest level of dissimilarity is diffi cult to interpret as this level is given by low incidence of negative votes. Second group bringing together Britain, Poland, Czech Republic, Lithuania and Slovakia is based on several cases of concurrent voting on anti-dumping measures. Th e same basis has the fourth group (Netherlands, Sweden, Denmark, Finland), only the individual cases were diff erent. Th e third group is diffi cult to interpret as the number of concurrent votes is too low; the single cases of negative votes in this group again pertain to anti-dumping measures. All in all, for this issue area the cluster analysis has not proved to be revealing much about the pattern of voting of EU members.

Results for environmental policy seem to be even less illuminating; the stair-case-like shape of dendrogram (Figure 10) shows that we cannot discern particular clusters or groups of states in this issue area. Even the number of dissenting votes has risen after enlargement the patterns of voting are nowhere near to convergence, the limited number of votes being also part of the explanation.

V.To conclude: Th e fi ndings of earlier empirical studies seem to be under dispute as

the enlargement has brought some changes in the behaviour of the member states in the EU Council. Th e issue area where an open voting takes place has spread to other policies, namely environmental policy, transport etc. Th e incidence of negative votes cast by member states does not seem to have any simple explanation depending on

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a single variable; it is clear that Germany is not any longer one of the leading dissenters, of the large countries this position was taken over by Italy, second only to Sweden as the main dissenter. But, even the patterns of voting behaviour of member states has changed after enlargement, it seems that these changes have not consequences that would endanger the whole system. Coalitions of dissenting states reach the blocking minority only rarely. Th e new members do not form any coalition or group, neither across the overall agenda, neither in specifi c policy agendas, nor do they join particular partners from the “old” countries on a regular basis. Nevertheless, it has to be pointed out that the research in this area is only in the beginning and a number of questions stay unanswered yet.

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König, Th omas and Mirja Pöter (2001) Examining the EU Legislative Process: Th e Relative Importance of Agenda and Veto Power, European Union Politics 2(3): 329-351.König, Th omas, Finke Daniel and Daimer Stephanie (2005) Ignoring the Non-ignorables? Missingness and Missing Positions. European Union Politics 6(3): 269-290.Lane, Jan-Erik, Berg, Sven (1999) Relevance of voting power, Journal of Th eoretical Politics, 11: 309-320.Lane, Jan-Erik, Maeland Reinert (2002) Enlargement and the Council of Ministers. In: Steunenberg Bernard (ed.) (2002).Laruelle, Annick, Valenciano, Federico (2002) Inequality among EU citizens in the EU’s Council decision procedure, European Journal of Political Economy, 18: 475-498.Laruelle, Annick, Widgrén, Mika (1998) Is the allocation of voting power among EU states fair? Public Choice, 94: 317-339.Leech, Dennis (2002) Designing the voting system for the Council of the European Union, Public Choice, 113: 437-464.Mattila, Mikko (2004) Contested decisions: Empirical analysis of voting in the European Union Council of Ministers. European Journal of Political Research 43: 29-50.Mattila, M. & Lane, J. (2001). Voting in the EU Council of Ministers: Will enlargement change the unanimity pattern? European Union Politics 2(1): 31-52.Moberg, Axel (2002) ‘Th e Nice Treaty and the Voting Rules in the Council’, Journal of Common Market Studies, 40(2).Pahre Robert (2005) Formal Th eory and Case-Study Methods in EU Studies. European Union Politics, 6 (1): 113-146.Pahre, Robert (2004) ‘Th e Political Economy of the European Union in a Spatial Model’, in Erik Jones and Amy Verdun (eds) Th e Political Economy of European Integration, pp. 179-90. London: Routledge.Rasmussen, Anders (2000) Institutional Games Rational Actors Play − Th e empowering of the European Parliament, European Integration on-line Papers, 4(1), http://eiop.or.at/eiop/texte/2000-001a.htm.Raunio, Tapio, Wiberg, Matti, Winners and Loosers in the Council: Voting Power Consequences of EU Enlargements, Journal of Common Market Studies, Vol. 36, No. 4, s. 549-562.Scully, Roger M. (1997) ‘Th e European Parliament and the Co-Decision Procedure: A re-assessment’, Journal of Legislative Studies 3: 58-73.Shackleton, Michael, Th e Politics of Codecision, Journal of Common Market Studies, 2000, Vol. 38, No. 2.Shapley, Lloyd S., Martin Shubik (1954) A Method for Evaluating the Distribution of Power in a Committee System, American Political Science Review 48: 787-792.

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Appendix

Figure 1:

Legend: AGRI = agricultural policy and fi sheries; CFSP = common foreign and security policy; COMER = internal market and common commercial policy; COMP = competition policy; ECOFIN = economy and fi nance; ENVI = environmental policy; GAER = general aff airs and external relations; JHA = justice and home aff airs; SOC = social policy, employment, culture; TRTEEN = transport, telecommunications, energy

Figure 2:

  

Contested proposals by agenda

AGRI; 46; 28%

COMER; 35; 22%

COMP; 14; 9%

SOC; 11; 7%

ECOFIN; 5; 3%

TRTEEN; 12; 8%

ENVI; 23; 15%

GAER; 2; 1%

JHA; 9; 6%

CFSP; 1; 1%

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Figure 3:

Figure 4:

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Figure 5:

Figure 6:

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Figure 7:

Figure 8:

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Figure 9:

Figure 10:

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One market, how many social models?

Policy and performance indicators for the EU-27Riccardo Rovelli *

I. IntroductionIn a recent Eurobarometer Survey on “European social reality” (2007), a majority

(51%) of European Union citizens declared their satisfaction with the quality of the social welfare system in their own country.1 Th e report also notes that “over two- fi fths of European Union citizens feel that their welfare system could serve as a model for other countries (42%). Th is belief is most widely held in Finland (79%) and Denmark (78%) and least widely so in Portugal (5%), Latvia (6%) and Greece (8%). In Romania and Bulgaria this view is shared by respectively 7% and 2% of respondents. People’s propensity to feel that their country’s social welfare system could serve as a model for other countries is strongly related to whether they feel it provides enough coverage.” (id., p. 77).

Clearly, social policies matter to the EU citizens. A relevant question is then how should this be taken into account in the defi nition of the EU’s goals, competences and policies. An offi cial document presented at the Working Group on Social Europe at the European Convention thus posed this question: “Th e EU cannot be a credible force for good in the wider world if it is indiff erent to questions of social justice in European society or how its citizens are treated at work. Th erefore it is important that the values and objectives we all share as Europeans are set out with clarity in the Constitution. Th e Constitution needs to set out with equal clarity the respective competences of the Union and Member States in the fulfi llment of these shared values and common objectives. Shared values and common objectives do not necessarily imply EU competences or EU legislative action… We all accept that there are social values that are distinctively European. We often describe these as the “European social model”. However there is huge diversity between how these values are implemented in the social systems of Member States”.2

Th ese observations provide one motivation and starting point for the present paper. My thesis can be summarized as follows. Social policies characterize in essential ways the welfare of European citizens. In all cases where these policies originate from values that are commonly shared among the EU members, these values should be clearly stated and embodied in the fundamental treaties. However, diversity in the implementation of these values is a value in itself, and to subscribe to these values does

* Università di Bologna, Darrt and Iza. I thank Julia Darby, Simon Hix, Hartmut Lehmann, Michal Mejstřík for comments and suggestions. All errors are my responsibility. Marta Regalia provided excellent research assistance.

1 Th e specifi c question asked to the EU-25 citizens was whether their welfare system “provides wide enough coverage” (Eurobarometer Survey, 2007, p. 76).

2 European Convention (2003). Emphasis added.

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not imply that their implementation should be harmonized across member states. In fact, in most cases subsidiarity implies that they should not. As the above quote from the Eurobarometer implies, many citizens are indeed happy with the diversity of social policies in Europe − what make some of them unhappy are the shortcomings of their national welfare systems. Before I address the diversity of social policies (or more precisely, of labor market policies) directly, let me discuss however how they fi t within the agenda for EU integration. Th e EU originated around, and to date is still largely based upon, the notion of the common market, which later evolved into the single and now the internal market.3 How does then the theme of a social Europe fi t in the objectives and policies, and possibly also in the institutions of the European Union? Should a social Europe imply a reduced emphasis on the internal market? Or has the internal market become obsolete, as a founding concept for European integration?

Th ese questions deal with complex and controversial issues. Th ey are hard to address satisfactorily, for at least four motives: (i) the facts they refer to are hard to know and to measure properly; (ii) they belong to the domain of not one, but of all the social sciences; (iii) the interpretation of such facts often falls prey, within each of the social sciences, to ideology and prejudice; and fi nally (iv) the EU itself is an object of uncertain defi nition.

Th is last motive should not be interpreted as a sure sign of faulty design.4 But clearly it is diffi cult to assess how appropriate is the design of an object we have never experienced before. In any case, I cannot propose to deal with any completeness with all these questions. But, in order to be straightforward and open, I will at least anticipate what my prejudices concerning these issues are, as Gunnar Myrdal once recommended that we should do.

In order to study the diversity of policies and outcomes across the EU, I have put together for the purpose of this paper a rather large set of indicators. Below I shall provide a fi rst descriptive account of such indicators, but I am confi dent that some interesting facts may already emerge, and that they will stimulate further research.

Th e paper is organized as follows. First, I shall express some general views (some might call them “positive prejudices”) with respect to the internal market (IM) project (Section II.). Th en I will examine some aspects of the complexity of the agendas that evolve around the IM (Section III.). In Section IV. I will introduce the analysis of some diversities within the IM. As much as possible, I will take into consideration all the

3 Four Treaties and Communities mark the fi rst decade of European integration: the European Coal and Steel Community (ECSC, 1951); the European Defence Community (EDC, 1952 but rejected 1954); European Economic Community (EEC, 1957); and European Atomic Energy Community (Euratom, 1957). Of these, only the EEC has survived to our times, evolving into the EU as it is today. March 2007 marks the 50th anniversary of that Treaty, also known as the Treaty of Rome.

4 For example, at one time the PC might have looked as something in between a TV set, a typewriter, a telephone and a scientifi c calculator: diffi cult to defi ne ex ante, but this was certainly not the sign of a doomed design!

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27 members of the EU. Th e purpose of this analysis is two-fold: fi rst, to identify which stylized facts can usefully characterize the evolution of, and interrelations between, labor market policies and economic performances within the EU member states; second, to identify promising areas for further research. Finally, in Section V. I will draw some (tentative) implications for the governance of the EU.

II. Th e internal market as the coreWhat part does or should the internal market play in the process of European

integration? I believe there are two opposite mistakes, which should be avoided when appraising this role. First, we should not look at the IM as some sort of picklock, which would lead us into opening the doors to a political union (whether federalist or otherwise).

Nor should we take the opposite direction, that the EU should be nothing else, or perhaps little more than an area of free trade, where a larger market allows us to reap the benefi ts of more competition while at the same time also benefi ting from economies of scale. Frankly, there is more to it.

Instead my suggestion is that we should appraise the internal market as the point of departure and the fulcrum for a set of institutions and policies, upon which also the notion of the EU as a political actor (both in the internal and external dimensions) must be based. Th is vision I believe to be in complete agreement and coherence with the Treaty of Rome.

To this end, I would fi rst like to argue that this idea is well grounded in the classical, founding principles of our civilization. As historians remind us, the European heritage originates around the Mediterranean Sea. Th ere are at least two principles which I would like to recall from the initial stages of that civilization. Th e fi rst statement of both principles I am aware of is from the Odyssey: For the Cyclopes have at hand no ships with vermilion cheeks, nor are there ship-

wrights in their land who might build them well-benched ships, which should perform all their wants, passing to the cities of other folk, as men often cross the sea in ships to visit one another − craftsmen, who would have made of this isle also a fair settlement. For the isle is nowise poor, but would bear all things in season.5 Men build and navigate their ships in order to trade (this goes without saying);

but this also induces them to “perform all their wants” and “visit one another”. Th at is, the outcome of trade is not only the exchange of goods (although that is perhaps the prime motive): it is to see other cities and other men, and thus get to know them. On the opposite side those, such as the Cyclops, who do not do travel and trade, throw away the opportunity to benefi t from the fertility of their land and lead themselves to poverty both in their material and social life.5 Homer. Odyssey, Bk. IX. Trans. A. T. Murray (1919). http://www.perseus.tufts.edu/cgi-bin/ptext?lookup=Hom.+Od.+9.116

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So Homer’s words bear out these two principles:(1) trade is a necessary condition for material prosperity, and (2) trade is a necessary condition among peoples for mutual knowledge and enrichment.

Th e second statement I would like to recall is from a pagan philosopher, whom I guess would have found himself quite sympathetic − if he had had an opportunity to − to the Scottish Enlightenment thinkers: God did not bestow all products upon all parts of the earth, but distributed His gifts

over diff erent regions, to the end that men might cultivate a social relationship because one would have need of the help of another. And so He called commerce into being, that all men might be able to have common enjoyment of the fruits of the earth, no matter where produced.6

Here again are the two principles: that trade enables men to enjoy more of the fruits of the earth; and that, through trade, men “might cultivate a social relationship” between each other.

Allow me to jump forward. I do not think that here we are much distant (except in time) from the ideas that were perhaps storming Jean Monnet’s mind when he wrote in a 1943 memorandum to Schumann: Th e countries of Europe are too small to give their peoples the prosperity that is now

attainable and therefore necessary. Th ey need wider markets… To enjoy the prosperity and social progress that are essential the States of Europe must form a federation or a ’European entity’ which will make them a single economic unity.7

Th ese ideas (from Homer to Monnet, I would like to think) are naturally embodied in the Treaty of Rome: Article 2. Th e Community shall have as its task, by establishing a common market and an

economic and monetary union and by implementing common policies or activities referred to in Articles 3 and 4, to promote throughout the Community a harmonious, balanced and sustainable development of economic activities, a high level of employment and of social protection, equality between men and women, sustainable and non-infl ationary growth, a high degree of competitiveness and convergence of economic performance, a high level of protection and improvement of the quality of the environment, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States.8

6 Libanius, Orationes, III. Libanius was born in Anthiochia in 314. He was educated in Athens, but then returned to Costantinopole and thereafter in Anatolia. He was a friend, correspondent and later apologist of the Emperor Julian, who tried to restore some form of religious eclecticism (today we might say tolerance) in the early Roman empire. Th e quotation is from Griswold (2001).

7 Jean Monnet (1976, Engl. transl 1978, p. 222).8 Treaty establishing the European community (1957). Consolidated version. http://eur-lex.europa.eu/en/treaties/dat/12002E/pdf/12002E_EN.pdf

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Note that it is in this Article that the objectives of the Community are defi ned for the fi rst time. But then also notice that, strange as it may appear, even before knowing which is the task to be realized, we are told how it should be realized: “by establishing a common market” and a common money and a set of related policies. So the common (or internal) market is clearly instrumental to the objectives to be chosen: but, in this rather awkward construction, the instruments precede the listing of policy objectives, in order − we might guess − to underline how essential and inescapable that instrument is to the pursuance of the objectives.

Th us, essential as it may be, the internal market is an instrument towards higher levels of welfare, and not an end by itself. As it is the case, growth within the IM may generate costs, by displacing the initial allocation of resources through the process of creative destruction and induced (re-)specialization. Th ese costs may also persist for considerable time, and might even give rise to poverty traps.

For some countries within the internal market (or which are newly joining it), these costs may be especially burdensome, and may also become socially or politically unbearable, and ultimately result in policy reversals. Th is may be true in particular for poor countries, where mechanisms and opportunities for redistributive policies are scarce and which are characterized initially by lower labor skills and human capital and lower total factor productivities, and for small countries, where economies of scale might be more diffi cult to reap. Although poor and small countries are those who stand to gain more, in the long run, from participation to the IM, they are also likely to face the larger share of transitional costs. Of course, this applies in a specifi c way to transition countries strictu sensu.

For these reasons, it is not enough to get the bureaucrats out and the markets in, as Jeff rey Sachs once put it. It is also necessary to provide institutional arrangements and policies, to enhance the adaptability of the labor force, within each country, to relocate and re-specialize.

III. Th e internal market: no hidden agenda, but a transparent one. And which relations with other agendas?

As I anticipated above, I do no believe that the IM carries with itself a hidden agenda − and especially not a federalist one. However, there are several other agendas − quite transparent ones − that come out from or go together with the IM own agenda.

But fi rst let us be clear about federalism. Since there is no way of building a federal state without a federal budget,9 it follows quite clearly that the federalist option has been discarded the very moment it was decided to limit the own resources of the EU below the ceiling of 1.24% of the EU GNI.10 Th us, how could possibly a federalist

9 Cfr. William E. Oates (1999). One central notion of fi scal federalism is that at least the redistributive function of public fi nances should be centralized. Clearly the EU budget is structured in the opposite way.

10 Th e ceiling for own resources was set on 24 June 1988 as 1.14% of EU GNP, and 1.27% from 1999 onwards.

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evolution take place out of such a programmatic prohibition of fi scal federalism? No way.11

Instead, the EU has by now reached its own, stable albeit still imperfect, equilibrium, as some political scientists have observed. Let me quote à propos Andrew Moravcsik: Th e multi-level governance system of the EU is the only distinctively new form of

state organization to emerge and prosper since the rise of the democratic social welfare state at the turn of the twentieth century. Recent events suggest that it may now have reached, through a characteristically incremental process, a stable political equilibrium. Th is ’constitutional compromise’ is unlikely to be upset by major functional challenges, autonomous institutional evolution, or demands for democratic accountability. Th ere is, moreover, an undeniable normative attraction to a system that preserves national democratic politics for those issues most salient in the minds of citizens, but delegates to more indirect democratic forms those issues that are of less concern, or on which there is an administrative or legal consensus. Contrary to what Haas and Monnet believed, the EU does not (or no longer needs to) move forward to consolidate its current benefi ts. Th is is good news for those who admire the European project. When a constitutional system no longer needs to expand and deepen in order to assure its own continued existence, it is truly stable. It is a mark of constitutional maturity. (p. 376).12 Th e functional evolution has almost come to a standstill; policy competences have

been attributed and this allocation is precisely described (without introducing any substantial innovation) in Articles I-12 to I-17 of the proposed Constitutional Treaty.13 So if a federalist agenda is out of question, is then Europe only to be identifi ed with the IM?

As I anticipated, I do believe that the IM lies at the core of the European civilization, and thus must also be at the core of the EU. But then this does not mean that the EU is nothing more than a free trade area. In particular, let me suggest three important incremental diff erences:

It was later redefi ned to 1.24% of EU GNI. See http://europa.eu/scadplus/leg/en/lvb/l34011.htm . Th is decision limits the EU budget to the size of that of Denmark, or about 1/10 of that of Germany.

11 Th e decision on own resources could be revised but, even under the rules proposed under the now obsolete Constitutional Treaty, any revision would require unanimity of the member states.

12 Andrew Moravcsik (2005). Moravcsik writes in reference to the Constitutional Treaty signed by all the EU Heads of States and which, despite the high number of ratifi cations achieved (15), will surely not enter into force. However, on the specifi c issue of defi ning the EU vs. member states policy competences, the Treaty was merely a ratifi cation of the already existing status quo. Hence the constitutional compromise to which Moravcsik refers himself characterizes the current situation, independently of the fate of the Constitutional Treaty.

13 Treaty establishing a Constitution for Europe. Offi cial Journal C 310, 16 December 2004. http://eur-lex.europa.eu/en/treaties/dat/12004V/htm/12004V.html. One innovation which the Constitutional Treaty would have introduced is some reduction of the veto powers of Member states in the Council of Ministers.

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1) Th e IM is also a socializing device. Social inclusion lies also at its core. Competition is the key to effi ciency and successful innovation; it is not a mechanism for social exclusion or punishment. Hence (for the same reasons which I have outlined in Section 2) policies for social inclusion should naturally come together with pro-market policies. Whether they should be allocated to Brussels or to member states is another question, which I will discuss later on; but that they should be conceived and enacted at the same time as policies to complete the IM, this I believe to be out of question. Th is is probably what some call the concept of a social market economy. I understand that there are diff erent interpretations of this concept. Th e one I would subscribe to is that of an economy of properly functioning markets, where outsiders (which include both unemployed people and new entrant fi rms) have the opportunity to get inside, even as this threatens the interest of insiders and incumbents.

2) Prominent among the areas where there are Europe-wide policy externalities, and where uncoordinated actions may lead to unpleasant prisoners’ dilemma equilibria, are now energy and the environment. Any solution, which might be adopted in a group of countries for one of these areas, would have radical implications or spillovers also for the other area and for the IM as a whole. Hence without doubt in these cases we need an increasing number of solutions conceived and enacted at the EU level, and no longer only at the level of individual members.

3) In addition, the increasing size and external openness of the IM have implications that extend to the fi eld of international relations between the EU members and other states. Using the blunt words of Th omas Friedman:

Th e Dell Th eory stipulates: No two countries that are both part of a major global supply chain, like Dell’s, will ever fi ght a war against each other as long as they are both part of the same global supply chain.14

And probably there is more than just this. As Robert Cooper has observed, for post-modern states “foreign policy is the continuation of domestic concerns beyond national boundaries and not vice-versa”.15 In the case of the EU, this has some specifi c implications. Quoting again from Moravcsik: Europe is a “quiet super-power”, wielding infl uence over peace and war as great,

perhaps greater, than that of the United States. (…) Over the past decade, Europe has deployed these instruments to help democratise and pacify up to 25 countries on its Eastern periphery − a record US military power cannot match.(…) Europe, the United States, the West, and the world as a whole would be better off if each side of the Atlantic did what it does best. Complementarity and comparative advantage, not confl ict and competition, should be the watchwords.16

14 Th omas L. Friedman (2006, p. 522). Hopefully this theory will last longer than its predecessor, the so-called “theory of democratic peace”. See Kiron K. Skinner and Th omas Schwartz (1999).

15 Robert Cooper (2003, p. 53).16 Andrew Moravcsik (2003).

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So it seems likely that there is an agenda for international relations on top, or at the side, of the agenda for the IM. However, this clearly would not be my cup of tea, so for what follows I’ll stick with the fi rst agenda.

IV. One market, many social models. Up to what point? In this section I propose to examine some diversities of economic performance

that emerge, within the IM, among the diff erent member states. In particular, I will tentatively correlate such diversities with the diff erent models of social policies that have been adopted within each EU country. Also, I shall document to some extent how both policy inputs and economic performances have evolved in recent years. On the other hand, I have chosen not to deal with the diff erent characteristics and current shortcomings of the IM across the EU.

In addition, I have chosen to extend the comparison, as far as feasible, to the whole set of the current EU 27 members. In order to do this in a meaningful way, I will focus only on the short period from 2000 to 2005. Th is choice is motivated by two reasons. First, by the year 2000 the ten transition countries which have now entered into the EU had by most standards completed the period of transitional “confusion”. Everywhere post-transition output had completed its U-shaped path; each country had been fully democratic for quite some time; and each was about to qualify as a full market economy. Second, Eurostat has now assembled a rich data set of indicators, where all EU-27 members are adequately represented at least since 2000.17

Moving on to the analysis of these data, the questions I want to address are:a. Is it correct to group EU members within 4 social models, as it had been suggested

by, among others, by Boeri (2002) and Sapir (2004)? b. Do the groupings within each model stay constant across time? c. Do all the 27 members fi t within these models, and precisely where?d. What defi nes countries to be member of one or another social model? Is it the

adoption of certain policies (“policy inputs”), or the realization of certain achievements (“outcomes”), or both?

e. What can we say about the economic performance of countries within each model?18

17 Although the Eurostat data play the greater part in my dataset, in many cases I have complemented them with data from other sources. See the Data Appendix.

18 In addition to these, there are other questions that I would like to address, but have postponed for the time being: Why do countries (choose to) belong to one social model or the other? Are switches between models feasible? Or instead, is it more likely to observe convergence? What causes the decision to switch, or to converge? Do we also see model (or policy) reversals? And what does cause them? In particular, is a decision about policy change related to the bad performance of the policy itself, or to its unfavorable economic performance? How are economic performances refl ected in the policy choices of each member state, and in particular how are they mediated through the changing preferences of the electorate? Th ese questions, however, will hopefully be addressed in some follow-up papers.

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Th is section is divided in several parts. Section 1 describes the “four models” at the basis of the analysis. In section 2, these are re-appraised in reference to the member states of EU-27. Outcomes of social policies are examined in some more detail in section 3, and in section 4 they are related to diff erent policy inputs. Selected indicators of economic performance are presented in section 5. Section 6 sums up the evidence gathered in the previous parts (some readers may possibly prefer to jump directly there), while section 7 poses the question whether the data suggest that any convergence is taking place across the diff erent models.

1 The Four models

Box 1 recalls a well-known defi nition of the four models of social policy prevailing in the EU at the end of the 20th century.

Box 1The Four social policy models according to Boeri (2002)

Tito Boeri (2002), following Ferrera (1998) and Bertola et al. (2001), suggests that the EU-15 members could be assigned to four diff erent social policy models, covering four diff erent geographical areas:

“Th ere are, fi rst of all, the Nordics (Denmark, Finland and Sweden, plus Th e Netherlands which is a hybrid between the Scandinavian and the Continental models and has recently moved Northwards) featuring the highest levels of social protection expenditures, and universal welfare provision based on the citizenship principle. Extensive fi scal intervention in labour markets, based on a variety of “active” policy instruments, substantial tax wedges, and relatively extensive employment in the public sector also belongs to this model while unions’ presence in the workplace and involvement in the setting and administration of unemployment benefi ts generates compressed wage structures.

Next, we have the Anglo-Saxon countries (Ireland and the UK), which are closer to the Beveridgian tradition and feature relatively large social assistance of the last resort schemes. Cash transfers are primarily oriented to people in working-age. Activation measures are important as well as schemes conditioning access to benefi ts to regular employment. On the labour market side, this model is characterized by a mixture of weak unions, comparatively wide and increasing wage dispersion and relatively high incidence of low-pay employment, half-a-way between Europe and the US.

Continental European countries (Austria, Belgium, France, Germany, and Luxembourg), the third group, rely extensively on insurance-based, non-employment benefi ts and old-age pensions. Large invalidity benefi t schemes are also present, which rely on contributions on employment income, along the Bismarckian tradition.

While unions’ membership rates have been falling quite dramatically in the last 20-25 years (Boeri, Brugiavini and Calmfors, 2001), a strong unions’ infl uence has

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been to a large extent preserved by regulations artifi cially extending the coverage of collective bargaining much beyond unions’ presence.

Finally, we have the Mediterranean countries (Greece, Italy, Spain and Portugal), concentrating their spending on old-age pensions and allowing for a high segmentation of entitlements and status. Th eir social welfare systems typically draw on employment protection and early retirement provisions to exempt segments of the working age population from participation in the labour market. Also in this case, strong unions’ infl uence has been preserved by practices (e.g., jurisprudence) artifi cially extending the coverage of collective bargaining. As a result, wage structures are, at least in the formal sector, covered by collective bargaining and strongly compressed in these countries.”

Boeri also suggests that: “Th ree are the main tasks assigned to labour and social policies: (i) reduce poverty and, more broadly, income inequalities, ii) protect against uninsurable labour market risk (and its interactions with longevity risk), and iii) increase the rewards from labour market participation.”

Of these tasks, according to Boeri the third one is especially crucial to the macroeconomic performance of the EU, and also to the success of the Lisbon Strategy:

“Th e macroeconomic performance of Europe in the years to come, its ability to become “the most dynamic economy of the World” will very much depend also on its capacity to score better than the US also on the third criterion.”

“...Increasing competition among systems in Europe have the potential to result in better outcomes in Europe in terms of the third criterion and are not incompatible with a persistently better record of Europe in terms of criteria i) and, possibly, ii).”

“However, competition among systems take a long time to materialise. EU supra-national authorities may play some role in speeding up this process only if they resist the temptation to impose a particular social model over the others and rely instead on the mobility of the European workforce as a driving force of political integration and social policy convergence.”

But why do diff erent countries choose diff erent models of social policy? In his analysis, Boeri observes that “protection against uninsurable labour market risk is typically provided in two ways: (i) by imposing legal restrictions against fi ring − the so called employment protection legislation (EPL); (ii) by providing unemployment benefi ts in addition to those established by collective bargaining (UB). Th e diff erences between these two systems are clear: EPL protect those who already have a job, and do not impose any tax burden; UB can also be targeted to specifi c groups, but generally provide insurance to the population at large and are typically fi nanced by a tax on those who work. Th us insiders, those with a stable and regular job, typically prefer EPL to UB”.

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Figure 1 eff ectively shows how EU countries, toward the end of the 1990s, where characterized by diff erent positions along the EPL-UB tradeoff . In this picture, the four models emerge with suffi cient distinction from each other.

Figure 1:Th e EPL / UB Trade-Off

Source: Boeri (2002)

Figure 2: Th e Equity / Effi ciency Trade-Off

Source: Sapir (2004)

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Following along similar lines of reasoning, Sapir (2004) evaluates the performance of the four models according to the third criterion, that is how they may stimulate labor market participation. He observes that the performance of the four models can be usefully compared “with a typology based on two criteria: effi ciency and equity. A model will be considered effi cient if it provides suffi cient incentives to work and, therefore, if it generates relatively high employment rates. It will be deemed equitable if it keeps the risk of poverty relatively low.” Th is comparison is depicted in Figure 2. Th e four models again appear neatly.

2. The four models and beyond: a reappraisal for the EU-27

Two questions immediately spring out from the previous section: (i) Is the diversity of labor market policies adequately described by the EPL-UB

tradeoff ?(ii) Is there a systematic link between the adoption of a policy stance and the specifi c

position which the adopting country takes on the equity-effi ciency tradeoff ?In short, the answer to both questions will be negative. To begin, we examine

to what extent the four models proposed in the previous section are still helpful to characterize the EU members. Th ree things have changed, since the studies we referred to previously: time has passed and so, possibly, some countries have had time to improve the old, or adopt new policies; new members have joined in the EU; and we have more and better statistics.19

19 Th e Data Appendix briefl y describes the sources from which we have assembled the data analyzed in these sections.

Page 89: European Integration at the Crossroads

89

Tabl

e 1

− L

abor

mar

ket p

rogr

amm

es a

nd E

PL s

tric

tnes

s

Expe

ndit

ure

in L

MP,

% o

f GD

P 2

005

EPL

Stric

tnes

s In

dex

1-6

− 20

03

Act

ive

Ran

kPa

ssiv

e R

ank

Tota

lR

ank

R

ank

Euro

pean

Uni

on

(15)

eu15

0,55

=1,

41=

2,20

==

=

Austr

iaat

0,46

121,

517

2,14

82,

210

Belg

ium

be0,

853

2,36

23,

452

2,5

6

Bulg

aria

bg0,

4413

0,22

210,

7315

..

Cze

ch R

epub

liccz

0,12

200,

2420

0,49

211,

913

Den

mar

kdk

1,43

12,

511

4,10

11,

814

Esto

nia

ee0,

0524

0,12

240,

1924

..

Finl

and

fi 0,

715

1,90

52,

755

2,1

22

Fran

cefr

0,66

61,

636

2,52

62,

93

Ger

man

yde

0,62

72,

353

3,32

42,

56

Gre

ece

gr0,

0623

0,44

150,

5120

2,9

3

Hun

gary

hu0,

2016

0,39

160,

6816

1,7

15

Irel

and

ie0,

4810

0,83

121,

5011

1,3

17

Italy

it0,

4611

0,82

131,

3112

2,4

8

Latv

ialv

0,15

180,

3218

0,54

19..

Lith

uani

alt

0,15

190,

1223

0,34

23..

Luxe

mbo

urg

lu0,

2215

0,67

140,

8914

..

Page 90: European Integration at the Crossroads

90

Net

herla

nds

nl0,

853

2,02

43,

363

2,3

9

Pola

ndpl

0,36

140,

8611

1,22

132,

111

Port

ugal

pt0,

529

1,29

91,

9510

3,5

1

Rom

ania

ro0,

1022

0,36

170,

4922

..

Slov

akia

sk0,

1717

0,27

190,

6118

1,6

16

Spai

nes

0,58

81,

468

2,13

93,

12

Swed

ense

1,10

21,

2010

2,48

72,

65

Uni

ted

Kin

gdom

uk0,

1221

0,19

220,

6717

1,1

18

Ran

k co

rrel

atio

nBe

twee

n Ac

tive

and

Pass

ive:

0,87

Bet

wee

n To

tal a

nd E

PL:

0,27

Lege

nda:

Ac

tive

= ca

tego

ries 2

-7 (L

U: o

nly

3-7)

; Pas

sive

= ca

tego

ries 8

-9

To

tal =

incl

udes

also

ex.

in la

bor m

arke

t ser

vice

s (ca

t. 1)

, exc

ept f

or L

U a

nd P

L

Sour

ces:

Expe

nditu

re d

ata:

Eur

osta

t (n.

a. C

ypru

s, M

alta

,Slo

veni

a)

EPL

data

: OEC

D (n

.a. B

ulga

ria, C

ypru

s, Es

toni

a, L

atvi

a, L

ithua

nia,

Mal

ta, S

love

nia)

Page 91: European Integration at the Crossroads

91

A. EPL vs UB: no longer a tradeoff?

In this section I would like to ascertain whether a tradeoff still exists between the amount of (ex ante) protection (measured by the strictness of EPL) and the amount of (ex post) insurance (measured by the payment of UB and possibly also by the participation to other, labor market programmes). Let us fi rst look at the data assembled in Table 1. Th e fi rst six columns display expenditures in LMP as a ratio to GDP for all available EU countries, as well as their respective rank. We distinguish between expenditures on active programmes, passive (UB, redundancy and early retirement) and total. As a reference, the average expenditure in the EU 15 for active programmes is 0.55% of GDP, and for passive programmes is 1.41: roughly a 2:5 ratio. In general, countries that are generous on one dimension tend to be so also on the other: Th e rank correlation between expenditures in active and in passive countries is 0.87.

Th e group of the most “generous” countries includes, in the fi rst 7 positions, the four Nordic and three Continental countries (BE, DE, FR). Most of these countries keep the same rank for both active and passive LMP: the two exceptions are SE, which is 2nd in the ranking for active programmes, and 10th for passive, and DE, which on the contrary is respectively 7th and 3rd.

Th e group of the least generous includes the three Baltic countries and CZ, GR, RO, SK: and also in these cases each country has similar positions in both rankings.

On the other hand, if we compare generosity in LMP with strictness in EPL, the rank correlation is very low (0.27), but on the whole positive. Th e group of the seven “strictest” countries (index 2.5 or above), includes four which are also among the most generous (BE, DE, FR, SE). With the exception of SE, the other Nordic countries however are out of this group.

Th e same date are shown in Figure 3.a, where I have plotted the index of EPL strictness against the GDP ratio of total expenditure (active and passive) on all labor market programmes (LMP).Figure 3.a:

at

be

cz dkfi

fr

de

gr

huie

it

nlpl

pt

sk

es

se

uk

01

23

45

EPL

Stric

tnes

s (2

003)

0 .5 1 1.5 2 2.5 3 3.5 4 4.5Expenditure on Active and Passive Labor Market Policies, % of GDP (2005)

Data not available for bg, cy, ee, lv, lt, lu, mt, ro and si

graph_1.0.5_2005a

EPL vs Labor Market Expenditure

Page 92: European Integration at the Crossroads

92

In Figure 3.b, instead, I have plotted EPL strictness against a measure of standardized UB.20 Th e overall picture is similar to the one that we have already observed. Countries seem to fall essentially in three groups, according to the generosity of the UB system:• less than 25% of YPC: gr, uk, and the four Visegrad countries (cz, hu, pl, sk);• between 30-60%: all the Continental countries; three Mediterranean (it, es, pt);

two Nordic (fi, se); ie; • above 80%: dk and nl.

Figure 3.b:

On the other dimension (EPL strictness), eight countries (from the fi rst two groupings) are rather strict (between 2.5 and 3.5): the four Mediterranean countries, plus Belgium, France, Germany and Sweden. However, the two dimensions do not seem correlated, and it is hard to identify the four models suggested by Boeri. In general, however we chose to look at the data, the tradeoff does not appear anymore.

Let us then search for other, possibly revealing ways of diff erentiating labor market policies across countries. Countries diff erentiate from each other not only for the amount they allocate to each of these (sub)programmes, but also for the number of intended benefi ciaries: although the target is in general the stock of those currently unemployed, of course not all unemployed will always be entitled to payments, and on the other hand in many cases the benefi ciaries may extend beyond those currently registered as unemployed. A simple way to look at this question is to compare the number of unemployed person to the number of participants to all LMP. As Figure 4 shows, in many countries the latter group is much larger: especially so in be and de, but also in all other Continental and Nordic countries, and in ie and es.

20 In Figure 3.b, UB are measured by taking for each country the total expenditure on out-of-work income maintenance and support, divided by the number of unemployed people and by that country’s income per capita.

at

be

czdkfi

fr

de

gr

hu

ie

it

nlpl

pt

sk

es

se

uk

01

23

45

EPL

Stric

tnes

s (2

003)

0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1Expenditure on out-of-work income maintenance and support per unemployed relative to YPC (2005)

Data not available for bg, cy, ee, lv, lt, lu, mt, ro and si

graph_1.0.3_2005b

EPL vs UB expenditure per Unemployed relative to YPC

Page 93: European Integration at the Crossroads

93

Figure 4:

Th is graph suggests that we should look at how are participants to LMP divided between those who take part in “active” and “passive” measures (the latter being UB, redundancy and early retirement programmes). Th is is done in Figure 5, where both variables are measured as % of the labor force. In addition, the size of each circle is proportional to the GDP share of all LMP expenditures for that country.

Figure 5:

Most countries fall along a 2:1 line, that is, of approximately two participants to passive policies (mostly UB) for each one participant to active policies. Within this line, there are more generous countries (the four Continentals and the four Nordics, plus Ireland), and less generous countries (the UK and most new member States,

at

be

bg

cz

dkee fi

fr de

hu

ie

it

lvlt

nl

pl

ro

sk

es

se

uk

05

1015

20U

nem

ploy

ed p

erso

ns a

s a

perc

enta

ge o

f the

labo

ur fo

rce

(200

5)

0 5 10 15 20 25Participants in LMP (total categories 2-9) as a percentage of the labour force (2005)

Data not available for cy, gr, lu, mt, pt and si

graph_0.3_2005

Unemployed vs Participants in LMP

be

dk

fi

fr

de

it

nl

esse

at

ie

bgcz

ee

hulv

ltro

skuk

05

1015

20Pa

rticip

ants

in P

assiv

e La

bor M

arke

t Pro

gram

mes

, % o

f LF

(cat

. 8-9

, 200

5)

0 1 2 3 4 5 6 7 8 9 10Participants in Active Labor Market Programmes, % of LF (cat. 2-7, 2005)

Data not available for cy, gr, lu, mt, pl, pt and siArea of symbol proportional to public expenditure in LMP as percentage of GDP

graph_0.4_2005

Participants in LM Programs

Page 94: European Integration at the Crossroads

94

NMS).21,22 Th is picture also makes clear that those countries, which are more generous in terms of participants to LMP, are also often more generous in terms of the share of GDP devoted to such policies.

Another way to characterize the data is to single out on one side the expenditure on UB, and on the other all kind of labor market related expenditures: not only for active and passive LMP, but also payments of sick leave. Th is is done in Figure 6, where policies are again weighted by their share in GDP. Th e more a country is closer to the 45° line on the vertical axis, the more its labor market policies rely on UB.Figure 6:

Th e main division line appears again on the basis of relative generosity: in the least generous group (between 0.5 and 2.5 of GDP) we fi nd three Mediterranean countries (gr, it, pt), the two Anglo, and at, cz, hu. All the other countries spend between 3-5% of GDP on LMP, while dk is close to 6%. However within each group some countries rely more on UB (gr, at in the fi rst; de in the second), the others less. In particular cz, hu and uk from the fi rst group and se from the second allocate less than 1/3 of total expenditures on LMP to UB.

Summing up, in 2005 and after the new members’ accession, the EPL-UB tradeoff does not provide a useful way to summarize the diff erent attitudes of EU members towards labor market policies. Instead, it seems more reasonable to distinguish essentially two groups:• Countries with generous LMP: the four Nordic, plus BE, DE and FR, followed by

AT, ES and PT and, in terms of participants involved, especially for UB programmes,

21 PL, SI, and GR are not included in the graph, but they would fi t in this group too. PT, instead, would appear considerably more generous, and also with a remarkable preference for passive measures.

22 Only few countries have more participants to active than to passive LMP (that is, they fall below the 1:1 line). Of these, the more generous ones, in terms of participants involved, are ES and SK.

at

be

cz

dk

fi

fr

de

gr hu

ieit lu

nl

pt

es

se

uk01

23

Expe

nditu

re o

n Un

empl

oym

ent a

nd R

elat

ed B

enef

its, %

GDP

(200

3)

0 1 2 3 4 5Expenditure on LMP (A+P) and Sick Leave, % GDP (2003)

Data not available for bg, cy, ee, lv, lt, mt, pl, ro, sk and si

Graph_0.2_2003

UB vs Labor Market Expenditure

Page 95: European Integration at the Crossroads

95

also IE. Within this group we fi nd both countries with strict EPL regulations (PT, ES, FR, SE, BE, DE) and others that are very permissive (DK, FI).

• Countries with least generous LMP: the three Baltic states and most other NMS (with PL relatively more generous), followed by GR, UK and IT. Also here we fi nd countries with permissive EPL (UK, IE, SK, HU, CZ) and others which are very strict (GR). On average, the benefi ciaries of UB are double in number than those on other

(active) LMP − except in ES, SK, BG, IT, LT, where the ratio of benefi ciaries is closer to 1:1. However, if we look at expenditures, the budget for UB in most countries is about half of the overall budget for LMP and sick leave: hence, on average, benefi ciaries of UB are treated much more cheaply relative to benefi ciaries of other programmes.

B. Equity vs. Efficiency: making room for the new entries

Let us now turn to the equity vs. effi ciency tradeoff . To this purpose I update Figure 2, including 25 out of the 27 EU members.23 Also, since in this case we have data over a longer period, let us begin to examine the year 2000 (Figure 7a). For this year we notice:• Th e “Continental” group is quite reduced: only BE and LU remain as countries

with low poverty risk and also low employment rate, but have been joined by HU and SI.

• DE and CZ have joined AT and the “Nordic” group (low poverty risk, high employment rate)

• Th e Anglo group (high poverty risk, high employment rate) continues to include IE, UK and also PT.

• Most of the new entries are in the “Mediterranean” group (high poverty risk, low employment rate): in addition to GR, ES, IT there are now most NMS: BG, EE, LT, LV, PL, RO. Also FR and MT have approached this group.In any case, the graph maintains a heuristic value, as it vividly represents the

“Equity vs. Effi ciency” choices of diff erent countries, with the Mediterranean model being ineff ective on both counts.

23 Note that in passing from Fig. 2 to 7a the vertical scale has been inverted. Also I will continue to name the four groups according to the Boeri-Sapir distinction, although they have lost part of their geographical connotation.

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96

Figure 7.a:

Figure 7.b:

However, things move, and sometimes even for the better. Th e race to abandon the Mediterranean model before it sinks is open, and some do succeed! Figure 7.b documents this dynamism, over the period 2000-2005. Overall, the EU-15 average has moved towards the Anglo model, but (taking account of all 25 countries):• Th e prevailing fact is that employment rates have increased, especially in the

Mediterranean group.24 • Th e three Baltic countries are now in an intermediate position between the

Mediterranean and Anglo groups.

24 Th e increase in employment rates is not related to cyclical factors. To ascertain this possibility, we recomputed the employment rates, adjusting them for the output gap (Details of the adjustment are available from the author). Th e resulting new graph is however not meaningfully diff erent from Figure 7.b.

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graph_1.1_2000

EU27: Poverty rate vs Employment rate, 2000

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graph_1.1_2000-2005

EU27: Poverty Rate vs Employment Rate

Page 97: European Integration at the Crossroads

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• FR (back in the Continental group) is the only country that has considerably improved its position on the Equity dimension.

• PL and RO unfortunately move out in the wrong direction, drifting towards both ineffi ciency and inequity.

3 Social policy outcomes

Th e benchmark measure of equity assumed by Sapir (and several others) is the poverty rate after social transfers. Let us examine some additional closely related measures of social outcomes. i) How good are social systems at reducing poverty risk? To answer, we look at the

data for 2005, in Figure 8.a. Notice that: Countries more to the right have, in general, a harder task at reducing pov-erty.

Countries above the line do, in general, a worse job at this task.• Nordic, Continental, and CEU (that is: CZ, HU, SK) are all quite good, although

some (BE, DK, FI, HU, SE) start with tougher cases: at which, however, they seems to be quite successful!

• Mediterranean, Anglo and Baltic countries seem to be rather worse, although the harder initial task is for IE and PL

Figure 8.a:

In general, it is noteworthy how the countries that we identifi ed as “generous” in section A. are also, with the exception of ES, those most successful at reducing poverty risk.ii) Figure 8.b compares the same performances between 2000 and 2005. Th is I found

interesting: in particular, it is striking how most countries (especially: HU, FI, SE; but also: BE, CZ, DE, MT) managed to keep almost unchanged the poverty risk after social transfers, despite the heavy worsening of the ex ante conditions.

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graph_2.1_2005

EU27: Poverty risk before and after social transfers, 2005

Page 98: European Integration at the Crossroads

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Instead, the opposite can be said of PL: grave ex post deterioration with no ex ante worsening.25

Figure 8.b:

iii) How representative is the poverty risk measure? As we can see, it is well correlated with other measures of the income distribution, such as the quintile ratio (Figure 9) and the Gini coeffi cient (Figure 10).

Figure 9:

25 Th ere is no evidence that this deterioration is purely cyclical, since the GDP of PL for 2005 is almost identical to the potential.

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graph_2.1_2000-2005

EU27: Poverty risk before and after social transfers, 2000-2005

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graph_2.2_2005

EU27: Poverty risk vs Inequality of income distribution, 2005

Page 99: European Integration at the Crossroads

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Figure 10:

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graph_2.3_2005

EU27: Poverty risk vs Gini Coefficient, 2005

4. Policy outcomes vs. inputs

How do policy outcomes relate to the policy inputs? Let us fi rst examine the relation between expenditure on all LMP (relative to GDP) and poverty risk (Figure 11). Th ree groups of countries stand out:• High poverty risk, low expenditure on LMP: the three Baltic states, the four

Mediterranean states, the two Anglo states, plus PL and RO; • Low poverty risk, low expenditure on LMP: three of the four Visegrad countries

(CZ, HU, SK), plus BG and LU;• Low poverty risk, high expenditure on LMP: the four Continental and the four Nordic

countries.

Figure 11:

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Data not available for cy, mt and siPoverty risk data for bg replaced with 2004 data

graph_3.3_2005

Poverty risk vs Labor Market Expenditure (% GDP)

Page 100: European Integration at the Crossroads

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In general, Figure 11 shows a clear, negative relation between the ex post poverty risk and the extent of expenditures on LMP. In relation to our previous fi ndings, we observe that:• All countries with a high proportion of people at risk of poverty after transfers

belong in the group of countries previously identifi ed as least generous in terms of LMP

• Among the countries with a low (below 15%) poverty risk, we fi nd both some of those previously identifi ed as “least generous” countries and all the generous ones (with the exception of ES). Moreover, as Figure 12 shows, expenditures on LMP are also positively (albeit

weakly) associated with employment rates. On the other hand, the relation between expenditures on LMP and unemployment rates exhibits a wider dispersion, since, at lower rates of unemployment, one fi nds the coexistence of countries with both high and low levels of expenditures.26 However the overall impression (Figure 13) is of a negative relation, thus pointing to the fact that LMP do not appear to encourage unemployment, or to contrast the attainment of high employment rates.

Figure 12:

26 Th e same relations emerges if, instead of payments for all LMP, we consider only UB.

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graph_3.8_2005

Labor Market Expenditure (%GDP) vs. Employment Rate

Page 101: European Integration at the Crossroads

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Figure 13:

If we examine other indicators of labor market policies, instead, their relation with labor market outcomes is less favorable. For instance, Figure 14.a depicts a weak but negative association between the Union Protection Index and employment rates, and Figure 14.b gives no evidence of any degree of association between EPL and employment rates.

Figure 14.a:

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Labor Market Expenditure (% GDP) vs Unemployment Rate

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graph_3.10_2005

Union Protection Index vs Employment rate

Page 102: European Integration at the Crossroads

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Figure 14.b:

Th ese graphs point to the fact that, contrary to LMP, purely defensive policies, that attempt to “rule out” supposedly labor-unfriendly behavior, are not associated with positive employment outcomes. On the contrary, Figures 15.a and 15.b show that, if anything, they are associated with negative unemployment outcomes

Figure 15.a:

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EPL vs Employment Rate

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graph_3.14_2000

EPL vs Unemployment Rate

Page 103: European Integration at the Crossroads

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Figure 15.b:

5. Economic performance

Although the main purpose of this section is to show the diversity of labor market policies across EU members, it may be useful to conclude this overview by showing that employment rates are favorably associated to various indicators of economic performance. Hence, ranking countries on the basis of their employment rates provides a reasonably good preliminary indicator of an effi cient economy.

First, Figure 16 shows that most countries that have increased their employment rates between 2000 and 2005 have also, at the same time, improved or kept their GDP per capita, relative to the EU 25 average. Th is is true in particular for BG, CY, EE, ES, GR, IE, LT, SI: a prima facie dismissal of the “lump-of-labor” fallacy.

Figure 16:

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EPL vs Unemployment Rate

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EU27: GDP per capita vs Employment rate, 2000-2005

Page 104: European Integration at the Crossroads

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Focusing in particular on long-term unemployment, we see from Figure 17 that reduction in long-term unemployment and increase in employment rates generally move together (and vice versa). An unfortunate exception is SK.

Figure 17:

What about employment rates and growth rates? If we plot growth rates for 2000-2005 against the employment rate in 2005, we really see two groups (see Figure 18, where I have fi tted separate lines of best fi t for each group): • EU-15 countries, with growth rates on average quite low and a widely dispersed

employment rates. • NMS, where employment rates and growth rates (in the previous fi ve years) appear

positively correlated. • Each group has its own “defectors”: GR and IE for the EU-15 and CZ and SI for

the NMS.

Figure 18:

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EU27: Long-term unemployment vs Employment rate, 2000-2005

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EU27: Real GDP growth rate vs Employment rate, 2005

Page 105: European Integration at the Crossroads

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It would be interesting to explore at length possible links between policies and outcomes in the economic and social dimensions. Th is is not feasible here, but I would like to use some space, before concluding, to point out at some interesting associations (or correlations) between policy indicators or outcome measures.

First, countries that have ensured their macroeconomic stability through disinfl ation (Figure 19) and/or by reducing their Government defi cits (Figure 20) between 2000 and 2005 have done this at apparently no cost to their employment rate.

Figure 19:

Figure 20:

Similarly, while government size (measured as % of Govt. expenditures on GDP) is in general unrelated to employment rates, countries which have reduced the size of their government sectors have often also increased their employment rates: this is true for GR, ES, the Baltics, SI and SK. Th e main signifi cant exceptions are RO and PL (who has done badly on both accounts) (Figure 21).

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EU27: Inflation rate vs Employment rate, 2000-2005

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EU27: Government deficit/surplus vs Employment rate, 2000-2005

Page 106: European Integration at the Crossroads

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Figure 21:

Employment rates seem also associated negatively (which means favorably) with the Ease of Doing Business (Figure 22) and Ease of Paying Taxes (Figure 23) indicators:27 Nordic and Anglo countries share the best positions with respect to these indicators.

Figure 22:

27 Source: World Bank.

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EU27: Government size vs Employment rate, 2000-2005

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EU27: Ease of Doing Business vs Employment rate, 2005

Page 107: European Integration at the Crossroads

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Figure 23:

Looking specifi cally at transition countries (among the EU NMS), Figure 24 shows that employment rates have increased in parallel with the process of enterprise restructuring.28 PL and RO are the two only exceptions.

Figure 24:

Finally, we look at three indicators that are related to how countries may be “laying the grounds for future growth and innovation”. Figure 25 documents the positive association between Expenditure on R&D and Employment rates, with the Nordic group again performing on top of the scale.29 Figure 26 documents the same positive association for the number of Graduates in science and technology and Figure 27 for IT expenditures.

28 Source: EBRD.29 Figure 25 and 26 are for 2005. Th e same pictures for 2000 would be very similar.

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EU27: Ease of paying taxes vs Employment rate, 2005

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EU27: Enterprise restructuring vs Employment rate, 2000-2005

Page 108: European Integration at the Crossroads

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Figure 25:

Figure 26:

Figure 27:

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EU27: GERD vs Employment rate, 2005

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EU27: Graduates in science and technology vs Employment rate, 2005

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EU27: IT expenditure vs Employment rate, 2005

Page 109: European Integration at the Crossroads

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6. Summing up

What have we learned from this fact-fi nding exercise? I’ll tentatively sum it up as follows:• Labor market policies are quite diff erent across EU members. Although of course

labor market insiders may still be fi ghting to defend or secure EPL, the extent of this protection does not seem to be the main discriminant line. Instead, it appears that both UB and Active Labor Market Programmes, and the relative mix between the two, are used quite diff erently across countries. Th e simplest way to describe countries is to say that Nordic and Continental countries plus Spain have broadly similar policies, in terms of both the policy coverage (which extends beyond the number of the currently unemployed) and of policy generosity (the size of LMP expenditures relative to GDP). However, within the group of the more generous countries, some are leaning more towards the use of UB (like Germany), others more towards active LMP (like Sweden).

• In terms of policy outcomes, the equity-effi ciency paradox noticed by Sapir (2004) still appears: countries with a high poverty risk are also countries with low employment rates. In the fi rst group or close to it one still fi nds (in 2005) Greece and Italy and most NMS (with the exceptions of the Czech Republic and Slovenia).

• A clear, negative relation appears between the ex post poverty risk and the extent of expenditures on LMP. Here three groups of countries emerge: High poverty risk, low expenditure on LMP (the three Baltic states, the four Mediterranean states, the two Anglo states, plus PL and RO); Low poverty risk, low expenditure (three of the four Visegrad countries − CZ, HU, SK), BG and LU); Low poverty risk, high expenditures (the four Continental and the four Nordic countries).

• In particular, however, it seems clear that countries which are more “generous” in terms of LMP are also those most successful at reducing poverty risk. Spain and Portugal provide an exception to this fact.

• Employment rates have increased in many countries (although for many the Lisbon objective is still far away). At least for the NMS, this is associated with higher growth rates.

• Countries that have been reducing infl ation rates, or the government defi cits, or the size of government expenditures, did not suff er any deterioration in their employment rates.

• In another dimension, several indicators of reform and of investment in a country’s future seem positively associated with employment rates. In particular, this is true for indicators of the Ease of Doing Business, Ease of Paying Taxes, Enterprise Restructuring (in NMS), R&D Expenditures and other Science and Technology-related indicators.

• Many of the above correlations can be interpreted as suggesting that policy measures that appear generically advisable in reference to sound micro and/or macro principles

Page 110: European Integration at the Crossroads

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(in the social and in other dimensions) can be implemented without compromising overall effi ciency. However, it will be interesting to study formally how diff erent mix of labor market and social policies contribute to generate better economic and social outcomes: this will be a topic for future research.

7. Wither convergence?

Several of the graphs we have examined point to the fact that countries do “move”; that is, within our period of observation they have modifi ed some policy indicator and possibly some outcome or performance indicator. A natural question to pose is: do such moves point to a pattern of convergence? Are countries implicitly coordinating towards the acceptance of one de facto “European” social model? On these issues, I propose the following remarks:• Most NMS (with the exception of the wealthier ones) featured in 2000 some aspects

which rendered them affi ne to the Mediterranean model. Probably this was more a matter of fact (initial conditions) than of choice. But in general most countries have shown a tendency to move out of that model (the “sinking ship”), towards the Anglo model.

• Th e Continental model is on the move, and on many accounts Belgium, France and Germany (as well as Austria and the Czech Republic) have adopted some of the effi ciency-improving features of the Nordic models. Spain is also moving in the same direction.

Table 2. Not yet an Anglo-Nordic model

DK SE UK-IENet Replacement rates Hi Hi LoTax Wedge (cost of LM policies) Hi Hi LoEPL Lo HI LoUB duration Hi Me-Hi MeSpending on ALMP Hi Me-Hi Lo

Source: Information provided in Zhou (2007).

• At the same time, the Anglo model itself has been evolving. For those aspects which we have examined in this paper, this is especially true for Ireland. Nevertheless, the diff erences between the Ireland and UK and most Nordic and Continental countries to date persist, at least in the fi eld of LMP. Table 2, which has been drawn on the basis of Zhou (2007), confi rms this point, in reference to various policies having a direct impact on labor markets. While some of the diff erences (such as the lower tax wedge) point in favor of the Anglo countries, others place the Nordic countries in a more favorable light. In any case, the two group of countries still seem rather apart from each other.30

30 Th ere are other dimensions of social expenditures by the public sector, which are not directly related to

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• However, it would be incorrect to think that all that matters is for each country to fi nd and then possibly adopt the “best” (or possibly even a reasonably good) social model. A good social model is expensive (as also the Nordic experience proves), but high expenditure can produce good results and support a high degree of participation to the labor market if it is also coupled with other policies and institutions. It is up to these policies and institutions to generate suffi cient incentives and mobilize enough resources, which in turn are conducive to high and increasing levels of productivity and of technological progress. Th us perhaps it is also in some of these characteristics31 that lay the secrets of the Nordic success.

V. ConclusionsTh e EU is unique in many dimensions. Foremost among these is that its member

countries share the largest common or internal market. Maybe this will not be for long, if other countries in other continents follow suit, which would be good, but at present it is a unique arrangement, unrivalled in scope and achievements.

Th e Internal Market is truly a common good. Th e IM itself is not a goal, but is the essential tool for many goals, and for many dimensions of our welfare. It needs to be completed and improved (although here I have deliberately chosen to gloss over all its current shortcomings). It needs to be complemented by other policies and other, non-confl icting agendas: among the former, social policies. Among the latter a common environmental and energy policy, and a common foreign, security and defense policy.

Some of these policies, as most policies that concern the IM directly, require centralization: hence exclusive or prevailing competence of the Community institutions. Th is goes for competition policy and for the common commercial policy in particular. In this fi eld, individual member states should have no power of veto.

But the IM also thrives on diversity. And just as trade thrives on the diversity of the goods exchanged, so a Union of many peoples and cultures can only thrive on

labor markets, but which have nevertheless an indirect impact on it. In this paper we have not examined them. Some scholars have pointed out that, if we took these policy measures into account, the UK would appear much less distant from the Nordic countries. Th is is not necessarily so. If we look at total social expenditures as % of GDP, the UK ranks 16th out of the 19 countries included in the OECD Dataset. However, a closer look at more disaggregated data suggests that it ranks 8th in terms of social expenditures towards the family, and fi rst in terms of housing expenditures (in-kind benefi ts). Th us it might well be the case that these polices in the UK are an effi cient substitute for LMP, which would be aimed more directly at the labor markets, and that they might have contributed to ensure high employment rates. It is nevertheless true that on the basis of several measures of social outcomes (poverty rates, inequality measures) the UK still performs quite diff erently from the Nordic countries.

31 Th ese include informal institutions, such as the “civicness” so often referred to in expositions of the Danish welfare system. It also includes policies that lead to deregulation of product markets, high levels of R&D expenditures, that promote the importance and quality of scientifi c training and the ability of the fi nancial sector to promote the growth of innovative fi rms. Some of these aspects are discussed in the EAAG Report (2007), chapter 4.

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the diversity of social policies and institutions within its members. Th e fi rst reason is subsidiarity. Following the principle of subsidiarity, social policies must be chosen and implemented democratically within each member state.

Another reason is that the same policies, even good policies, will have diff erent eff ects when exported from one context into another. Many such eff ects will be unforeseen; some will be counterproductive. And there is no way to be sure ex ante what they are going to be. Each country must fi nd its own way, by trial and error, but also by benefi ting from the others’ experiences.

Th e only possible reason to adopt uniform social policies, other than the arrogance of bureaucrats or of born-again central planners, is the fear that, left to their own, individual member states would engage in a competition to the bottom, leading to the disappearance of our welfare states. To take this fear seriously, however, requires a serious disregard for the ability of democracies (and electorates) to learn from mistakes and to ultimately yield welfare-improving choices. We should not share these fears. If one conclusion can be drawn from the data that I have described and interpreted so far, it is that they give no support to those who argue that decentralized social policies are leading to the disappearance of the welfare states. Quite to the contrary, the winners are often those who also chose to invest in their social policies and improve the institutions that implement them.

On the positive side, although social policies are ultimately to be designed and improved within each member state, EU institutions can be of help by suggesting fl exible regulations, based on minimum standards, leaving room to the possibility for derogations and by proposing non-binding recommendations. But that would be a diff erent story.

Also on the positive side, and an interesting topic for research, is the question of what makes the adoption of social models with desirable features possible in some countries, and quite diffi cult in others. Models of the status quo bias obviously provide the starting point for this analysis, but since we know that in principle such biases can be overcome by an appropriate design of credible compensations, the question remains open to analysis. In this respect, it is interesting to look at both the old32 and new member states of the EU. NMS are a particularly intriguing object of study, since they were all in need of extensive reforms, but then they chose quite diff erent paths to reform from each other, thus coming close to being a sort of natural experiment.33 To reach a proper understanding of the diff erent motivations and outcomes of these experiments is another task for future research.

32 On reforms in the “old” EU members, and more generally in OECD countries, see Castanheira et. al. (2006) and Høj et al. (2006).

33 Th e literature on the political economy of reforms (and of partial reforms and reform reversals) in transition countries is growing in size and interest almost by the day. See e.g. Hellman (1998), Roland (2002), World Bank (2002), Byung-Yeon Kim and Jukka Pirttilä (2006), and the Symposium edited by Jan Fidrmuc and John E. Jackson (2006).

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References Alber, Jens (2006) “Th e European Social Model and the United States”. European Union Politics, 7 (3), pp. 393-419.Bertola, Giuseppe, Juan Francisco Jimeno, Ramon Marimon and Christopher Pissarides (2001) “Welfare Systems and Labor Markets in Europe: What convergence before and after EMU?” In: Giuseppe Bertola, Tito Boeri e Giuseppe Nicoletti (eds.) Welfare and Employment in a United Europe, Cambridge: Mit Press. Working paper version: http://www.frdb.org/documentazione/scheda.php?id=53&doc_pk=9046.Boeri, Tito (2002) “Let Social Policy Models Compete and Europe Will Win”. Unpublished paper. Castanheira, M., V. Galasso, S. Carcillo, G. Nicoletti, E. Perotti and L. Tsyganok (2006) “How to Gain Political Support for Reforms”. In: Boeri, T., M. Castanheira, R. Faini and V. Galasso (eds.) Structural reform without Prejudices. Oxford University Press. Cooper, Robert (2003). Th e Breaking of Nations, Atlantic Books.EEAG (European Economic Advisory Group) (2007). Report on the European Economy 2007. Cesifo. http://www.cesifo-group.de.Eurobarometer survey (2007) “European social reality”. Special Eurobarometer 273, February. http://ec.europa.eu/public_opinion/archives/ebs/ebs_273_en.pdf.European Convention (2003). “Contribution by the UK, Spanish and Estonian government representatives”. Working Group XI “Social Europe”, Working Document 13, January. http://european-convention.eu.int/docs/wd11/6477.pdf.Ferrera, Maurizio (1998) “Th e Four ’Social Europes’: Between Universalism and Selectivity”. In Rhodes, Martin, and Yves Meny (eds.) Th e future of European welfare: a new social contract?, Basingstoke: Macmillan.Fidrmuc, Jan and John E. Jackson (2006) “Introduction to Symposium on: Th e political economy of job creation, job destruction, and voting”. European Journal Of Political Economy, 22 (2), 345-348.Friedman, Th omas L. (2006). Th e World is Flat, Farrar, Straus and Giroux (2nd ed.) Griswold, Daniel T. (2001) “Seven Moral Arguments for Free trade”. Cato Policy Report, July/Aug., Vol. XXIII, No. 4. http://www.cato.org/pubs/policy_report/v23n4/freetrade.pdf.Hellman, Joel S. (1998) “Winners Take All: The Politics of Partial Reform in Postcommunist Transitions”. World Politics 50(2), 203-234.Høj, J. et al. (2006), “Th e Political Economy of Structural Reform: Empirical Evidence from OECD Countries”. OECD Economics Department Working Papers No. 501. http://dx.doi.org/10.1787/881353527404.

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Kim, Byung-Yeon, and Jukka Pirttilä (2006). “Political constraints and economic reform: Empirical evidence from the post-communist transition in the 1990s”. Journal of Comparative Economics, 34, 446-466.Moravcsik, Andrew (2003) “Debate. Should the European Union be able to do everything that NATO can?” Nato Review, Autumn. http://www.nato.int/docu/review/2003/issue3/english/debate_pr.html. Moravcsik, Andrew (2005) “Th e European Constitutional Compromise and the neofunctionalist legacy”. Journal of European Public Policy 12 (2), 349-386.Monnet, Jean (1976). Memoirs, Fayard (Engl. transl: Collins, 1978).Oates, William E. (1999) “An Essay on Fiscal Federalism”. Journal of Economic Literature, XXXVII, 1120-1149.Roland, Gerard (2002) “Th e Political Economy of Transition”. Journal of Economic Perspectives, 16(1), 29-50.Sapir, André (2006) “Globalization and the Reform of European Social Models”.Journal of Common Market Studies, 44 (2), pp. 369-390. Skinner, Kiron K. and Th omas Schwartz (1999) “Th e Myth of Democratic Pacifi sm”. http://www.hoover.org/publications/digest/3512216.html.Treaty establishing a Constitution for Europe. Offi cial Journal C 310, 16 December 2004. http://eur-lex.europa.eu/en/treaties/dat/12004V/htm/12004V.html. Treaty establishing the European community (1957). Consolidated version. http://eur-lex.europa.eu/en/treaties/dat/12002E/pdf/12002E_EN.pdf.World Bank (2002) Transition: Th e First Ten Years. Th e World Bank, Washington D.C.Zhou, Jianping (2007) “Danish for All? Balancing Flexibility with Security: Th e Flexicurity Model”. IMF Working Paper no. 07/36, February.

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Appendix

The Data For the purpose of this and subsequent research we have assembled on March-

May 2007 a data set for the EU-27 members, based on several sources available through the Internet. Th e sources used for the calculations and the fi gures presented in this paper are:

Eurostat (http://epp.eurostat.ec.europa.eu): National Accounts and Public Finance data. Growth rates. Structural indicators on innovation and research, education, employment, unemployment, inequality and social cohesion, market integration and business demography. Expenditure and participants to labor market programmes. OECD (http://stats.oecd.org/WBOS/Default.aspx): Expenditure on labor market programmes and EPL indicators.European Bank for Reconstruction and Development (http://www.ebrd.com/country/sector/econo/stats/index.htm): Transitional indicators on privatisation, restructuring, liberalisation, and other reforms.World Bank − World Development Indicators 2006 (http://devdata.worldbank.org/data-query/): Data on agriculture, energy, FDI, infl ation, population.World Bank − Doing Business (http://www.doingbusiness.org/EconomyRankings/) Data on ease of doing business, of employing workers and of paying taxes.

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Communitarization of the Third Pillar EUJiří Zemánek *

I. Criminal justice: an inevitable dimension of European integrationTh e progressive abolishment of barriers to movement of people and other circulation

freedoms within the common/internal market had to be accompanied − since the very beginning of this process − by an adequate abolishment of barriers between national criminal jurisdictions, rooting in their traditionally locked territorial nature. Otherwise, the appearance of a Community-wide environment, favourable to international crime, would have had to be unavoidable.

Th e initial victory of pragmatism over federalism, when designing the integration concept, therefore, necessitated an implicit inclusion of non-economic, i.e. political objectives into the integration portfolio, which could empower a prevention or suppression of crimes immediately at the place where they occurred in abuse of fundamental freedoms. Th is had been anticipated already in the Preamble to the Rome Treaty establishing the European Economic Community (TEC) in 1957 by the evolutionary clause stipulating “to lay the foundations of an ever closer union among the peoples of Europe”, enhanced in 1992 by second para. of Art. 1 of the Treaty on the European Union (TEU), which “marks a new stage in the process of creating an ever closer union among the peoples of Europe” and added in the Treaty of Amsterdam (TA) by the provision “[…] in which decisions are taken as openly as possible and as closely as possible to the citizen”.

Accordingly, such a formula, even when its wording was very abstract (but not vague), has been justifying the functional spill-over of Community action into domains linked with the mainstream of economic integration and postulating its deepening on the basis of a conferral of new powers by Member States. Under third para. of Art. 1 TEU, the policies and forms of cooperation, supplementing the European Community, a.o. the Justice and Home Aff airs (JHA), shall serve to organisation, “in a manner demonstrating consistency and solidarity, [of ] relations between the Member States and between their peoples” (all emphases added by the author). Th is unmistakably evidences that the Union is something more than an organisation of States, seeing that it is of direct concern to the citizens, too.1 Th e vital function to provide citizens with safety in the area of police and criminal justice should remain with Member States as they have the capacity to cope with crime individually; but, they should have to act in common so far as to avoid undermining of legal positions of citizens established by their fundamental freedoms and fundamental rights under Community law.

* JUDr. Ing. CSc., Jean Monnet Professor of European Law, Charles University in Prague. Th e author is grateful to Jiří Vlastník, the PhD-student at the Department of European Law, for his stimulating comments.

1 Koen Lenaerts/Piet Van Nuff el, Constitutional Law of the European Union, Second Edition, Th omson/Sweet & Maxwell 2005, p. 50.

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Th e spill-over process, nevertheless, met in the police and criminal part of the JHA with diffi culties, originating in traditional doctrines of sovereignty, prevailing over political élites in some Member States. Instead of a conscious counter-balancing the common/internal market developments in a parallel way, the concept of the European area of criminal justice resulted − as an appendix of the economic integration − from emergency situations and its birth was a thrilling catch up story: the Union became “a product of several crises”.2 A bottom-up integration of the national systems of criminal justice, arising out of the principle of subsidiarity (second para. of Art. 2 TEU), did not take place, and a horizontal co-operation between the Member States, instrumentalised through mutual recognition of decisions of national judicial authorities and their direct links, features the scene. Th e implementation of this cooperation is in some Member States opposed by the argument of national identity, which is to be respected by the Union action [Art. 6(3) TEU], but its substance has not been cleared yet: does it embrace all external aspects of criminal justice as essential State functions, too? 3

However, neither the Union, nor the Member States as mutually complementary levels of the united legal system, which may be called “the European constitutional area” 4 − can escape their indivisible responsibility “to provide citizens with a high level of safety within the area of freedom, security and justice by developing common action among the Member States in the fi eld of police and judicial cooperation in criminal matters” [Art. 29 (1) TEU], including their contribution to combating terrorism in the global perspective. Th e motto of the Union − expressed in Art. I-8 of the Treaty establishing a Constitution for Europe (CT): “Europe united in diversity” − indicated an advancement of integration, denominated by the dynamic concept of “an ever closer union …” mentioned above.

Th e existing national distinctions of investigative and punitive cultures between the Member States have been recognised, but the exclusivity of criminal law-making and law-enforcement at national level will not remain an inviolable feature of State sovereignty forever, if it occures not frustrating the acquis of the Union. Th e diversity gives opportunities for testing and mutual learning between the individual systems of criminal justice, which diverge in the size of scales or judicial policies and are fairly well backed by popular support, rather than in the hierarchy of values and interests, harmed by the crime. Any Union-wide criminal justice harmonisation, lacking sensitivity for the reaction of public opinion and related concerns, could paralyse the Union’s legitimacy to respond to challenges of international crime by a collective action.5

2 … as Hjalte Rasmussen fi ttingly said in his paper „Making the European Court System More Eff ective“ published in this volume.

3 See below at 7.4 Ingolf Pernice, Bestandssicherung der Verfassungen: Verfassungsrechtliche Mechanismen zur Wahrung

der Verfassungsordnung, in: Roland Bieber/Pierre Widmer (eds.), L’espace constitutionnel européen. Der Europäische Verfassungsraum. Th e European constitutional area, Schulthess 1995, p. 261.

5 Martin Killias, Th e European Arrest Warrant − How Effi ciency Led to Ignore Diversity, p. 810.

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What are the prospects of the European area of criminal justice now, when − on the one side − new forms of international organised crime, imminent threat of terrorism and continuous illegal immigration urge a prompt and eff ective action and − on the other side − the constitutional reform of the Union, aiming, a.o., at streamlining the instruments, the procedures and the judicial review by removal of the pillar structure of the Treaties, has not succeeded yet? An outline of evolution of the legal and institutional framework of the PJCC could facilitate the answer.

II. Early years of the PJCCFollowing the fi rst intergovernmental platforms for discussion of questions of law and

order, study and co-ordination of national policies like Trevi 6 and Celad,7 the Schengen agreements (1985, 1990), a “pilot project” of a multi-speed Europe, following the Benelux Treaty (1960), together with amendments to the Council of Europe conventions on extradition and on mutual assistance in criminal matters (1957, 1959), facilitated the co-operation between national police and judicial authorities, using standard instruments of international law and practice.

Under the Maastricht TEU, the European Communities and the JHA and the CFSP (as supplementary policies and forms of cooperation, strongly intergovernmental in nature) subsisted within the Union as diff erent paths towards integration. Th e JHA-policies, which constituted the Th ird Pillar of the Union aiming at anticipating security risks resulting from the free movement of persons, operated outside the ambit of the Community competence in accordance with procedural rules, set out in Title VI and in common and fi nal provisions of the TEU. Th e decision-making in this fi eld, based on the right of initiative of the Member States, was in the hands of the Council (hence of the national governments collectively), deciding by unanimity on joint positions, joint actions and conventions, the latter being recommended to Member States for adoption. Th e European Parliament was entrusted with the right to be informed and to make recommendations (Art. 39 TEU). Th e consistency of the heterogeneous pillar structure of the Union and continuity of its activities was ensured by the single institutional framework (Art. 3 TEU) and by the clause protecting acquis communautaire against any encroachments by Union policies (Art. 47 TEU).

6 Terrorisme, Radicalisme, Extrémisme et Violence Internationale (1976). 7 Comité européen pour la lutte anti-drogue (1989).

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III. Th e reform in Amsterdam: Area of freedom, security and justiceTh e TA transferred non-criminal part of the former JHA-policy into the First

(Community) Pillar (Title IV TEC),8 integrated the Schengen acquis in the EU and conferred on the Court of Justice (ECJ) the limited competence for the PJCC (Title VI, Art. 35 TEU). Th e agenda of the JHA, splitted now in two pillars EU, was embraced under the umbrella of the Area of freedom, security and justice. Although the ECJ has not been empowered to actions for infringement of PJCC law obligations by Member States, it obtained the jurisdiction for actions for annulment of PJCC acts (review of legality). What was even more important, the ECJ has been confi ned with the competence to consolidate the application of common enforcement measures to the PJCC at the national level, i.e. the competence to give preliminary rulings on the validity and interpretation of PJCC acts, though subjected by Member States’ foregoing acceptance and narrower in the scope of review, compared with the respective procedures under Community law (Arts. 234 and 68 TEC).

Although the legislative initiative of Member States (even when not exclusive any more), unanimity voting in the Council, the new consultative role of the European Parliament and the capacity of a Member State to oppose opening of the enhanced co-operation between other Member States may be attributed to the intergovernmental method of cooperation, the introduction of additional new elements aimed at strengthening the effi ciency and accountability of the Union action within this area in a Community-like way, in particular: • the framework decision, a new instrument for criminal law harmonisation, was

assumed to serve similar to a Community directive, even when its direct eff ect was dropped (Art. 34(2)b/ TEU);

• some fl exible relieves were introduced at the expense of democratic legitimacy: conventions, adopted in accordance with Member States’ respective constitutional requirements (Art. 34(2)d/ TEU), might be substituted simply by Council decisions, for instance, an concerning the mandate of the Europol (originaly based on such a convention); this shortcoming of democracy, even when manifested mostly in technical modifi cations of convention, could have to be compensated during the parliamentary scrutiny of governmental position, preceding its presentation at the Council session;

• the international agreement, if necessary for implementation of the PJCC, can be concluded (still on the recommendation from the Presidency) also − as the case may be − by a qualifi ed majority in the Council; however, it shall not be binding on the Member State when it made a reservation of its compliance with requirements of the State’s constitutional procedure and until such procedure has been passed with a consonant record (Art. 25 TEU);

8 Th is communitarization was not free of specifi c provisions on procedures (transition periods) and structural limitations (access to judicial review).

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• the passerelle clause made possible to transfer parts of the PJCC into the First Pillar by a Council decision,9 even when its enactment will be subjected by adoption through the Member States in accordance with their respective constitutional requirements (Art. 42 TEC), i.e., as the case may be, not necessarily by a parliamentary ratifi cation; this clause, an obvious answer to the half-way communitarization of the JHA, evidences the temporary nature of the Th ird Pillar. Th ese novelties implied conferral of the new structural competence on the

Union, giving it the power to impose obligations on Member States, whereas their implementation and enforcement at national level had been supposed to be governed by national practice in conformity with the principle of sincere cooperation.10 Hence, in spite of a compromised substantive reform of the JHA by the TA, distributing its parts into two diff erent pillars EU, the intergovernmental approach to this area − regardless of the introduced modifi cations − was preserved, even when its characteristics may by more precisely called a non-community path to integration.11

IV. Maintaining status quo in NiceTh e Treaty of Nice incorporated Eurojust, already established by the Council decision

after the Tampere summit EU 1999, into the Union primary law [Arts. 29 and 31(2) TEU] and made the conditions, necessary for the opening of an enhanced cooperation, more easy (Arts. 40-40b/ TEU). However, the institutional background of the Union’s and Member States’ action in the PJCC has been still missing a transparent co-ordination (the role of the Commission remained unchanged) and democratic control (the European Parliament continued to be consulted by the Council, but not involved in co-decision procedure). Th erefore, the assumed “progressive adoption of measures establishing minimum rules relating to the constituent elements of criminal acts and to penalties in the fi eld of organised crime, terrorism and illicit drug traffi cking” [Art. 35(1)e/ TEU] by secondary legislation − as a substantive “approximation, where necessary” (Art. 29 TEU) − resulted in a fragmented regulatory frame which could not provide the mutual recognition of national judicial decisions or other procedural instruments with the necessary support. Such a situation has been demanding from national authorities much reliance on proximity (when not equality) of their respective criminal legislation and compensatory extra-judicial trust-building measures.

9 By a unanimous vote of the Council, initiated by the Commission or by a Member State, in consultation with the European Parliament.

10 As the ECJ demonstrated in its path-breaking decision in case C-105/03 Maria Pupino [2005] ECR I-5285, indirect eff ect of a non-duly transposed PJCC-framework decision should impose on national law applicants identical duties as in the case of a non-transposed Community directive: to interpret − so far as possible − the entire legal order of the Member State in conformity with such a framework decision.

11 See Koen Lenaerts/Piet Van Nuff el, op. cit. in note 1, p. 61, who speak about „accentuation“ of intergovernmental features there. A still reserved assessment of changes brought about by the TA have Matthias Pechstein/Christian Koenig, Die Europäische Union, 3. Aufl age, Mohr Siebeck 2000, pp. 185-193.

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Th e absence of the own full-blooded Union fundamental rights protection policy incl. clear rules for their uniform enforcement by the Member States when implementing Union law have also weaken the horizontal networking between national judicial authorities in application of instruments of legal cooperation in this area, as was recently demonstrated, a.o., by misgivings of the constitutional courts in some Member States when deciding on national implementation measures to the Council framework decision on European arrest warrant and surrender procedure.12

V. Removal of the pillar structure by the Constitutional Treaty Taking seriously global challenges to the Member States’ vital functions in

management of their external and internal security as well as of legal certainty for their citizens in cross-border civil or criminal matters means a more integrated agenda of JHA, than the Maastricht TEU originally foresaw. Th e admission of necessity to provide the action taken in the Area of freedom, security and justice with a functional cohesion in relation to the single market and other Community policies encouraged the Member States in Amsterdam to a Treaty revision: to a limited subjection of policies on border checks, asylum and immigration as well as of the judicial cooperation in civil matters under the Community approach to policy-making. Th e remaining part of the JHA − the PJCC − continued to be governed by intergovernmental method, though strengthened by the introduction of some Community law-like elements.

Th is structural policy move brought more democratic legitimacy to the Union’s decision-taking and more eff ective law enforcement only in the part of the JHA. It aimed, a.o., at reaching a rapid progress in development of the comprehensive European migration policy and avoiding the threat to the internal labour market by illegal employment. But the progress made since the TA has been rather modest there. Th e reform intentions in the other, non-civil part of the JHA aspired to safeguard rights of persons aff ected by criminal justice through their improved access to the judicial remedies and to the better protection of their civil liberties, too. Th is has not happen in a satisfactory range yet. After the later eff orts to bring PJCC close to the Community method of policy-making by the application of the “passerelle clause” of Art. 42 TEU had failed, the attempt to resolve the “Amsterdam left-overs” to this end, made in Nice 2000, resulted − apart from the said technical adaptations − in “the second-best” solution − a more fl exible access to enhanced cooperation. Th at is why the Laeken Declaration on the future of Europe 2001, giving the mandate for the Convention on the fundamental reform of the Treaties, addressed the accumulated expectations connected with the PJCC in a comprehensive way.

12 For analysis of this experience see: Jiří Zemánek, Reinforcing the horizontal dimension of fundamental rights by the constitutional reform of the European Union, in: Matthias Niedobitek/Jiří Zemánek (eds.) Continuing the European Constitutional Debate: German and Czech Legal Perspective/Fortsetzung der europäischen Verfassungsdebatte: deutsche und tschechische rechtliche Sicht, Berlin 2008, 169 (176 ff .).

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Only the CT − when the fi ght against terrorism and combating of international crime became acute after 11 September 2001 − drafted a radical consolidation of the area of freedom, security and justice by removal of the pillar structure, although it again kept or introduced few specifi c provisions relating to the PJCC, too.13 Th e eff ect of this removal would eliminate residual lines of the former diff erentiated position of Th ird Pillar in the Union’s agenda, which had to play a complementary role towards Community policies and was only “served by” the single institutional framework (Art. 3 TEU). Th is could reverse the existing legal situation: none of the Community rules applies at present automatically in a non-Community fi eld, unless that is expressly specifi ed,14 i.e., exhaustively listed in Arts. 41 or Art. 28 TEU. Instead, the CT introduced the following major innovations into the former PJCC: • clearly classifi ed the competence in the Area of freedom, security and justice as shared

between the Union and Member States [Art. I-14(2)j/ CT], listed basic methods of its execution − prevention, mutual recognition of judgements, approximation of laws where necessary, coordination and cooperation of national authorities [Arts. I-42(1), III-257(3) CT] − and their limits: respect of fundamental rights and of diff erent legal systems and traditions of the Member States [Art. III-257(1) CT]; therefore, legal bases for a Union’s action in this area would need not to specify the modes of adoption of legal acts (the right of initiative, the type of voting rule in the Council and the way of the European Parliament’s participation) individually;

• instituted the ordinary legislative procedure (i.e., “Community method” − Art. III-396) with two modifi cations [legislative initiative of a quarter of the Member States besides the proposals from the Commission − Art. III-264 CT; passing of draft European legislation on criminal law approximation to the European Council, where a Member State considers that it would aff ect aspects of its criminal justice system, so called “emergency break” − Arts. III-270(3) and III-271(3) CT];

• introduced the Union-wide set of legal instruments incl. direct eff ect and direct applicability at national level;

• compensated streamlining of legislative procedure and binding force of Union acts by much more precise defi nition of the scope of Union action in the PJCC in general and of law approximation in particular [Arts. III-270(2) and III-271(1, 2) CT];

• allocated competence for the establishing minimum rules on criminal off ences and sanctions, essential to ensure the eff ective legal harmonisation in a Union policy area, with the area concerned, using the same procedure as followed for the adoption of the harmonisation measure [Art. III-271(2) CT].15 Obviously, the − instrumental and political − coherence of such a sectoral approximation of

13 So far the denomination „communitarisation“ is not perfectly precise.14 Jean-Claude Piris, Th e Constitution for Europe. A Legal Analysis, Cambridge University Press 2006,

p. 66. 15 Th is refl ected the ECJ case C-176/2003 Commission v. Council [2005] ECR I-07879, on annulment of

the Council framework decision (Th ird Pillar) on the protection of environment through criminal law.

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criminal rules of the Member States with the harmonised substantive policies has been preferred;

• involved the participation of national parliaments in the impartial evaluation mechanisms of the implementation of the Union policies by Member States’ authorities (Art. III-259) as well as in the political monitoring of Europol and Eurojust (Arts. III-276 and III-273 CT); the Europol’s activities, considerably enlarged, but without its own coercive powers and linked with harmonised sanctions in specifi c Union policies, might be scrutinised by the European Parliament acting together with national parliaments; the Eurojust could obtain also some executive competencies, including an initiation of criminal investigations, and become the most important institution in the Area;

• introduced the Union-wide scope of jurisdiction of the ECJ, save that expressly excluded; the full exploitation of the system of judicial remedies and procedures permitting the ECJ to review legality of Union acts and compliance of national implementation measures, including for the benefi t of individuals, would not be restricted or subjected by Member States’ acceptance of the ECJ jurisdiction any more;16 the “opt-out” protocols in favour of some Member States remained in force;17

• so far, the exclusion of the ECJ jurisdiction “to review the validity or proportionality of operations carried out by the police or other law enforcement services of Member States or the exercise of the responsibilities incumbent upon Member States with regard to the maintenance of law and order and the safeguarding of internal security”, was preserved (Art. III-377 CT);

• the “non-aff ectation” rule (Art. 47 TEU), protecting acquis communautaire against encroachments through the acts of non-Community law and setting a special authorisation of the ECJ, could disappear;

• the Union had to become in respect of all its policies an entity based on the rule of law, enforceable towards Member States; inclusion of the Charter of Fundamental Rights EU into the primary law should made this broad catalogue of constitutional rights and principles an undoubtedly binding standard for Union’s action within all of its policies and for the Member States, whenever they would be implementing Union law,18 incl. the Area of freedom, security and justice;

• the extension of the rules, developed by the ECJ case law and governing the eff ects of Community law in the national legal systems (primacy, full eff ectiveness), on the former Th ird Pillar law, should imply setting aside the respective national

16 Under Art. 35, the ECJ has neither jurisdiction to rule on infringements by Member States, nor on a failure to act by Union’s institutions; persons cannot bring actions for annulment against PJCC acts, nor apply for compensation of damages. By 1st January 2007, only 14 Member States (incl. Czech Republic) out of 27 had accepted the jurisdiction of the ECJ to deliver preliminary rulings.

17 For instance, opt-outs of United Kingdom and Ireland from the Schengen acquis or of Denmark from implementation measure in the Area of freedom, security and justice.

18 Part II CT − Th e Charter of Fundamental Rights of the Union, Art. II-111.

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constitutional rules applied until now and amount to an additional transfer of national competence;

• even when the project of Corpus Juris Criminalis, anticipating a separate Union’s law enforcement competence for the protection of its own interests before national courts, was not adopted, the CT initiated creation of the European Public Prosecutor’s Offi ce; it could obtain 19 a Union coercive power for the protection of values and interests that exceed the sovereign reach of the individual Member States, especially in the budgetary sphere; this innovation indicated an intention of the Member States to create a separate, even when clearly limited new power of the Union, rather than a body acting only “on behalf ” of the Member States, however without depriving them of their already established power to prosecute crimes based on national law.

VI. Developments since the collapse of ratifi cation process of the Constitutional Treaty

Do nothing has not been an option since the negative results of referenda on the CT in France and the Netherlands. A couple of decisions of the Union’s institutions and decisions of several national authorities having sometimes also mutually synergetic infl uence, showed their conviction, that the development supporting a gradual communitarisation of the PJCC should have to continue. Let us briefl y summarise some of them: • the ECJ soon after the both rejections to ratify the CT upheld the eff ective

enforcement of the PJCC-act on legal approximation at the national level by reference to the same principle of sincere cooperation, which is governing the enforcement of Community acts;20 several constitutional courts − even when against diff erent constitutional backgrounds − were aware of protection of fundamental rights in national implementation of the PJCC-act, but the position of the Czech Constitutional Court, which was deciding later, has been facilitated by the above mentioned recourse of the ECJ to the principle of sincere cooperation; the Czech decision,21 it seems, was refl ected in another ECJ case, where validity of the said PJCC-act was questioned in preliminary procedure; 22 the Czech Constitutional Court did not need to give a general priority to the prosecution of Czech off enders, who committed a crime in another Member State, by Czech judicial authorities as an expression of the a vital function of the Czech State, whereas the respective prosecution results from the vital function just of another Member State;

19 By unanimous decision of the European Council with consent of the European Parliament, escaping the vote of national parliaments (Art. III-274 CT).

20 Case Maria Pupino, see note 10.21 Decision Pl. ÚS 66/04 European arrest warrant, reported as no. 434/2006 Coll. (CZ). 22 Th e ECJ decision of 3 May 2007 in case C-303/05, where the ECJ confi rmed the preliminary question on

validity of the Framework Decision on the European arrest warrant and surrender procedure, submitted by the Belgian Arbitragehof (not yet reported).

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125

• on the other hand, the ECJ allocated the implied competence for protecting of Community policies by means of criminal law with the Community rather than with the PJCC, ensuring a less reliable enforcement of laws; 23

• the Council’s (JHA) decision to integrate the essential provisions of the Prüm Treaty 24 into the Union’s legal framework as a pre-step to next communitarisation of the matter (see the earlier example of the Schengen Treaty), which will help to intensify cross-border police cooperation;

• the Council’s (JHA) decision to transform the Europol Convention,25 which will avoid cumbersome process of approval by national parliaments, but which invite them to take a more active (and a more fl exible) part in scrutiny of governmental positions before their presentation at the Council’s session; 26

• the invitation by the Commission from June 2006, supported later by the European Parliament,27 to use the passerelle clause of Article 42 TEU, which would institute that Union’s actions on closer cooperation between police forces, customs, judicial and other competent national authorities as well as on approximation of national rules on criminal matters (Art. 29 TEU) shall fall under TEC (Title IV). Th e progress in gradual communitarisation of the PJCC will depend on the extent, to

which the process of the Treaty reform will take over the innovations drafted by the CT.

VII. Perspectives within the current Treaty reformTh e new reform Treaty of Lisbon signed on 13 December 2007 under the terms of

the mandate,28 given by the preceding German Presidency Conclusions, and drafted by the Intergovernmental Conference,29 will introduce into the existing Treaties, which remain in force, the innovations resulting from the CT 30 and modifi ed in this mandate. Th ese modifi cations concern also the area of police and judicial cooperation in criminal matters, where a mechanism will be introduced, enabling to the Member States to go forward on a draft act while allowing others not to participate.

Such a modus vivendi − as a product of the period of refl ection following the collapse of the CT-ratifi cation process − does not alter the initial idea to remove the Th ird Pillar from the non-Community sphere and to subordinate the agenda of the PJCC to the Community method of policy-making. Henceforth, the Title VI TEU shall be replaced by the Treaty on the functioning of the European Union, Chapter 4 on “Judicial cooperation

23 Case Commission v. Council, see note 15.24 Concluded outside of the Union law by Austria, Belgium, France, Germany, Luxembourg, the Netherlands

and Spain, applicable insofar as it will not be contrary to Union law.25 Presidency Conclusions, Brussels European Council 21/22 June 2007 (11177/07), point 25. 26 See comments above.27 Document B6-0625/2006 of 30 November 2006.28 CIG 1/07.29 OJ C 306, 17. 12. 2007.30 See the foregoing chapter.

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in criminal matters” (Arts. 69e − 69i = Arts. III-257 to III-264 and III-270 to III-274 CT) and Chapter 5 on “Police cooperation” (Arts. 69j − 69l = Arts. III-275 to III-277 CT) under the new Title IV called “Area of freedom, security and justice”, embracing also the civil part of the existing JHA agenda. Th e indicated modifi cation shall soften the access to an enhanced cooperation in a case of “emergency break” (see above) as well as in a case of absence of unanimity in the Council: when no consensus in the European Council has been afterwards reached, the authorisation (of at least one third of the Member States) shall be deemed to be granted.

Although the gradual process of communitarisation of the PJCC does respond to the course of developments experienced in practice of its implementation throughout many years and the CT as well as the Treaty of Lisbon exploited it, too, there are still forces (not surprisingly: also in the new Member States) which question it as “a stealthy, not inevitable installation of the political dimension of the EU”, referring to prerogatives of State sovereignty.31

To attain the Union’s objective of providing „citizens with a high level of safety“ assumes to bring Member States’ criminal law policies closer together and to establish gradually the European area of criminal justice, where the action taken should correspond to the occurrence of international crime. Th e traditional doctrine of sovereign authority of the State coverning the whole domain of criminal law and policy as one of the State’s vital function has already been relieved, as was evidenced recently in the European arrest warrant-implementation at national level.

Th e single improvements of the institutional (intergovernmental) co-operation or the attribution of an implicit competence for the criminal law approximation within the ambit of individual Community harmonisation policies may only soften this national perception, but not evoke its reconsideration. Th e effi ciency (fl exibility), transparency and democratic legitimacy of the current heterogenous co-operation should be enhanced by a fundamental structural change, bringing progressively together both diff erent paths towards the Area of freedom, security and justice, as was projected by the CT and reinforced today by the Treaty of Lisbon or by the “passerelle clause” of the TEU (Article 42). National courts, when referring questions to the ECJ for preliminary rulings, should provide the ECJ with their awareness of national constitutional confl icts. In addition, national legislative and executive authorities should learn from the experience of the respective bodies in other Member States, which could contribute to desirable horizontal trust building measures, fi tting well with their position within the system of multi-level governance.

31 A. Vondra in his opening speech of this Conference on 16 March 2007.

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Negotiating the European Constitution: Actor Cleavages and Bargaining Outcomes

Madeleine O. Hosli *

I. IntroductionTh is paper explores actor preferences in the bargaining process on the European

constitutional treaty and aims to see what kind of cleavage lines have structured these negotiations. In order to do this, it fi rst presents an overview of selected theoretical insights as regards cleavages in European politics (section III). It continues by addressing the affi liation of actors in terms of nationalities and political parties in the context of the European Convention (section IV). It then presents a quantitative exploration of cleavages in the bargaining process on the constitutional treaty, in a comparison between newer and older EU states, actors located on the left or right of the left-right dimension and, for example, those facing more or less support for European integration in domestic politics (section V). Th is part of the analysis uses data assembled in the framework of the ‘Domestic Structures and European Integration’ project.1 Finally, the paper presents some conclusions based on the results of the empirical analysis.

II. Th eoretical ApproachesRecent literature, utilizing various methodological techniques, aims to assess the

dimensionality of the ‘European political space’. On the basis of techniques used by the Party Manifestos Group project − notably an analysis of policy positions of the Socialist, Christian Democrat and Liberal party leaders in the European Parliament (EP) between 1976 and 1994 − Simon Hix (1999) fi nds the prevalence of two major dimensions of contestation in EU politics: an integration-independence and a left-right dimension. Th e fi ndings concerning a possible two-dimensional setup of EU policy-making are corroborated, for example, in Gabel and Hix (2002). By comparison, a recent in-depth study of voting behavior within the EP, by Simon Hix, Abdul Noury and Gérard Roland (2006), fi nds that the left-right dimension is clearly dominant.

Based on expert interviews as regards positions of domestic political parties, Hooghe et al. (2002) identify a left-right dimension in EU politics ranging from social democracy

* Professor of International Relations and Jean Monnet Chair, Department of Political Science, Leiden University

1 Th e DOSEI project involved several academics mainly from European universities. It was funded by the European Union’s 5th Framework Program. Th e project was coordinated by Th omas König at the University of Speyer. Detailed information on this project is available on the project’s homepage at http://dosei.dhv-speyer.de. Publications deriving from this project are, for example, König (2005), Hug and Schulz (2005) and König, Finke and Daimer (2005)

Page 128: European Integration at the Crossroads

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to market liberalism, and in addition to this, a European integration dimension spanning the range from nationalism to supranationalism.

However, in research focusing on decision-making in the Council of the EU, Elgstrøm et al. (2001) fi nd little empirical evidence for cleavages in processes of coalition-formation and EU decision-making, with the exception of a North-South division. Th is is also a central fi nding of the analysis presented by Zimmer et al. (2005).

Exploring linkages between policy dimensions in more detail, Hooghe et al. (2002), as well as Marks et al. (2006), fi nd that the relation between party support for European integration and party left-right positioning is based on an ‘inverted U-curve’: more extreme parties on both the left and right ends of the policy scale tend to be least supportive of European integration. Th is fi nding is largely supported by Aspinwall’s (2002) analysis of party preferences for European integration.

Did such cleavages in EU politics also structure negotiations leading up to the European constitutional treaty? Th e next section will give an overview of actors involved in the Convention process and list their party affi liations, in order to place them into a left-right context in EU bargaining and policy-making.

III. Actor Cleavages and the European ConventionOn the basis of texts submitted to the Convention on the Future of Europe,2

table 1 lists all participants and their affi liations in terms of EU member states, delegations (e.g. whether being a government representative or a representative of the European Parliament, EP), affi liation with domestic political parties and subsequently, EP party groups.3 It also shows the membership of each delegate (or alternate) in terms of Convention working groups. Th e assessment is for twenty-eight states (the current twenty-seven EU member states plus Turkey).

Table 1

Based on the information provided in table 1, how were Convention delegates and their alternates clustered regarding affi liation with EP groups? Clearly, most delegates were members of the middle spectrum on the left-right policy scale. Th is confi rms the general impression that the Convention mainly represented political parties in the center of political contestation, but not those located at extreme ends of the policy scale (e.g. see Benoit et al. 2005). In addition, in general terms, delegates from various member states and party groupings were fairly evenly spread over the diff erent Convention working groups.

2 Th ese texts were available at http://european-convention.eu.int. E.g. see Hosli and Arnold (2006).3 Party classifi cations are largely based on information available in Hix and Lord (1997) and Marks and

Steenbergen (2004).

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129

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Page 130: European Integration at the Crossroads

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Page 131: European Integration at the Crossroads

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Page 132: European Integration at the Crossroads

132

Anto

nio

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Page 133: European Integration at the Crossroads

133

Man

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ANT

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Page 134: European Integration at the Crossroads

134

Iren

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Page 135: European Integration at the Crossroads

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Page 136: European Integration at the Crossroads

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IV. Relations between Left-Right Positioning and Support for European Integration

In an attempt to see whether government positioning on the left-right policy scale across the EU and support for European integration (i.e. a left-right and pro-/anti-integration dimension) are indeed related to each other − possibly in the form of an ‘inverted u-curve’ − the following technique will be used. Due to data availability, just for the EU-15, the exploration systematically assesses left-right positioning of governments and support for European integration in domestic politics (for the EU-15, i.e. 1995 to 2004 constellation). Left-right positioning of governments is measured by assessing, for each of these fi fteen EU states, how many cabinet posts − ministerial positions in government − were held by representatives of domestic political parties. Scores for each domestic political party on the left-right scale, in turn, are derived from data as collected by Benoit and Laver (2005). Hence, the data entry for each government in the 1995 to 2004 time span is the number of cabinet posts held by each domestic political party, multiplied with this party’s left-right score as provided by Benoit and Laver (2005). By comparison, support for European integration is measured on the basis of Eurobarometer data, again for the 1995 through 2004 time span. In practice, for each EU state, average values are calculated on the basis of two yearly Eurobarometer surveys, by assessing the percentage of respondents indicating that their country’s membership of the EU is ‘a good thing’ minus those claiming it is ‘a bad thing’. Th e respective fi gures for the 15-member EU − on the basis of the two yearly Eurobarometer surveys − are given in table 2.

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137

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Page 138: European Integration at the Crossroads

138

Table 2

Clearly, there is much variation in terms of support for European integration in public opinion across years and across EU member states. Some states were faced with systematically higher levels of Euroscepticism in domestic politics (e.g. the UK), whereas others had publics more supportive of European integration (e.g. Luxembourg and Ireland).

How are government left-right positioning and support for European integration related to each other? On the basis of the calculations as described above, fi gure 1 demonstrates that indeed, a kind of ‘inverted u-curve’ can be discerned for the relation between government location on the left-right policy scale and support for European integration for the 1995 to 2004 time frame.4 Note, however, that the measurement of support for European integration, in this paper, refers to preferences for integration in public opinion. Hence, interestingly, at least for the EU-15, in countries in which support for European integration among the public was low, there tended to be governments located on the more extreme ends of the left-right policy scale.5 It is unclear how the causality runs as regards this relation, as it is conceivable that more Euro-sceptic publics will be inclined to vote for more extreme parties on the left-right scale. Conversely, it is possible that extreme governments on the left-right policy scale contribute to more Euroscepticism in domestic public opinion.

Figure 1: Support for European Integration (Public Opinion) and Government Left-Right Positioning

4 Figure 1 is based on Hosli (2007).5 In addition, please note that the position of EU-15 states, assessed on the basis of Benoit-Laver data, is

somewhat ‘shifted to the right’, with governments only starting at a location of 8 on the 1 to 20 scale, but ending at almost point 18 on the right.

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Finally, in the negotiation process on the European constitutional treaty, can any of the actor cleavages as described above be discerned? Th e next section will address this issue, by resorting to an analysis of the preferences of governmental representatives in the negotiation process on the European constitutional treaty, for the twenty-fi ve member EU (i.e. 2004 to 2006).

V. Actor Cleavages and Bargaining OutcomesTh e following analysis uses preference scores for each EU government, based on

the DOSEI data set, on a wide range of issues integrated into the constitutional treaty. It shows to which extent actors either on the left or right of the left-right policy scale, those located in older as compared to newer EU states, larger as compared to smaller states, those supported by more or by less Eurosceptic publics and ‘net benefi ciaries’ as compared to ‘net payers’, performed in the overall negotiation process, when comparing end results (constitutional treaty) with preferences held towards the end of the year 2003 and in the very beginning of the year 2004, respectively.6 Table 3 displays results of bivariate (Pearson) correlations between that capture ‘cleavages’ and ‘distance’ (the dependent variable), and provides respective levels of signifi cance. ‘Distance’ is measured in terms of total normalized distance for each member state government between its preference and the fi nal solution as incorporated into the constitutional treaty, for all items on which the DOSEI project collected information.7 Population size is measured in millions for each EU state (in 2003). Length of EU membership is measured in years. Support for European integration refers to percentages in domestic public opinion who judge EU membership to be ‘a good thing’ minus those indicating it is a ‘bad thing’ on the basis of Eurobarometer data. Finally, ‘net budget status’ refers to payments or receipts of EU states of the EU budget as a percentage of their Gross National Income (GNI).8

6 Th is is the time frame in which the DOSEI interviews were conducted (leading to data points for each issue).7 More in detail, ‘distance’ is measured in terms of the normalized value of absolute units from the preference

of a government to the fi nal treaty provision. For example, if a government preferred option 3 on an item measured by a 1-4 scale, but the actual outcome (as incorporated into the constitutional treaty) was 1, non-normalized ‘distance’ was 2. Similarly, if a government preferred option 2 on an item displayed on a 1-5 scale, but the actual outcome was 4, non-normalized ‘distance’ to the end result was 2. Th e quantitative assessment presented here ‘normalizes’ these distances, by defi ning the fi rst answer category as the starting point and 100 as the end-point on respective scales. In example two, for example, normalized distance would be 50 (as the distance from answer 2 to 4 is 50 percent on the full scale ranging from answer 1 to answer 5 for this item). Th ese normalized distances for each issue measured by DOSEI data were summed up, leading to a total normalized distance measurement for each EU member state.

8 On the measurement of these data, also see Hosli and Arnold (2006).

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Table 3: Actor Cleavages and Overall Distance to Contents of the Constitutional Treaty (Bivariate Analysis, Pearson Correlation Coeffi cients)

Distance

Pearson correlation, signifi cance (two-tailed) in brackets

Government left-right position -0.0225(0.9151)

Length of EU membership -0.3700(0.0687)

Support for the EU (public opinion) 0.0688(0.7439)

Population size (2003) -0.4049(0.0447)

Net budget position (% of GNI) 0.2608(0.2079)

As table 3 demonstrates, only two independent variables are moderately related to the variable ‘distance’: population size (2003) and length of EU membership. For the other variables, no signifi cant correlations with ‘distance’ can be discerned.

Table 4: Explaining ‘Distance’ to the Constitutional Treaty by Length of EU Membership and Population Size (Bivariate OLS Regressions)

Independent Variables Model 1b (std. error)

Model 2b (std. error)

Length of EU membershipPopulation size (2003)Constant

- 7.46 (3.90)*–

1757.61 (99.12)***

–- 6.64 (3.13)**

1750.075 (91.55)***R2

F

Prob > F

n

0.14

3.65

0.069

25

0.16

4.51

0.045

25

* p < .10; ** p < .05; *** p < .01

For the two variables in which signifi cant correlations with ‘distance’ can be found, table 4 provides results of bivariate Ordinary Least Squares (OLS) regressions of the dependent variable on variables capturing possible ‘cleavages’ in EU politics. Clearly, both population size and length of EU membership have a signifi cant, negative eff ect on ‘distance’. Th is implies that in general terms, the larger an EU state, the smaller was

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its distance to the fi nal outcomes as incorporated into the constitutional treaty. Th e signifi cant, negative coeffi cient of the variable ‘length of EU membership’ indicates, in addition to this, that the longer a state had been in the EU, the smaller its distance to the negotiation outcomes. In other words, the constitutional treaty was closest to the initial priorities of the governments of original members and those that joined in the framework of the fi rst enlargements. In quantitative terms, the regression, however, also shows that total (normalized) distance to the negotiation outcome is about 1758 for an EU member state, but with each year of EU membership, this total distance decreases by about 7.5. Similarly, model 2 estimates that distance is about 1750 for each EU state, but with each increase by one million inhabitants, normalized ‘distance’ decreases by about 6.5. In other words, eff ects of length of membership and population size are small, but still relevant.

„Multivariate analyses allow testing the eff ect of independent variables while holding the level of remaining independent variables constant. Th is analysis reveals that in a multivariate assessment, eff ects of both population size and length of EU membership still show the expected signs, but the relations are no longer signifi cant. In other words, when controlling for the eff ect of other variables, neither of these variables signifi cantly explains ‘distance’.

VI. ConclusionsWhich cleavage lines have structured the negotiation process on the European

constitutional treaty? Were some governments closer to the overall bargaining results than others? What was the structure of the European Convention in terms of actor affi liations with member states, political parties and working groups?

Th is paper fi rst provided an overview of membership in the European Convention, listing actors’ affi liation with EU member states and political parties. It provided an overview of the extent to which support for the EU has been developing in EU states over time, calculating fresh fi gures for the EU-15 constellation. In addition, the analysis shows that left-right positioning of governments in the EU appears to be linked to support for European integration in domestic publics by an ‘inverted u-curve’: more extreme governments on the left-right policy scale across the EU tend to have domestic publics less supportive of European integration, while those located more in the center of this scale are supported by domestic audiences that are more convinced their EU membership is ‘a good thing’.

In light of theoretical literature on prevailing cleavage lines in European politics, the paper then analyzed, on the basis of empirical data on actor preferences in the negotiation process on the European constitution, whether governments located on the left as compared to the right on the left-right policy scale, those in newer as compared to older EU member states, members supported by more or by less supportive domestic publics as regards European integration, smaller as compared to larger states and ‘net

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benefi ciaries’ of the EU budget as compared to ‘net payers’, performed diff erently in the overall process leading to the text of the constitutional treaty.

Th e empirical analysis reveals that holding the infl uence of other variables constant, no clear division lines could be discerned. For example, it cannot be argued that the constitutional treaty, overall, presents the interests of governments located to the ‘right’ more than those located to the ‘left’, or interests of ‘net payers’ as compared to ‘net benefi ciaries’ of the total EU budget. Nonetheless, bivariate analyses accounting for the infl uence of only one variable at a time showed that although the infl uence is small, it does turn out that increasing length of EU membership implied less ‘distance’ of own preferences to the fi nal negotiation outcome. In other words, governments of older EU states, overall, appear to have performed somewhat better compared to newer ones in a comparison of their original preferences with fi nal bargaining results. Similarly, preferences of larger EU states were somewhat better accounted for in the fi nal text of the constitutional treaty than were those of smaller EU states.

Th e analysis reveals that systematic explorations of the bargaining process on the European constitutional treaty may provide fresh insights that help understand cleavages in current EU politics, as well as actor alignments in the European Convention and the subsequent intergovernmental bargaining process.

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ReferencesAspinwall, Mark (2002): “Preferring Europe: Ideology and National Preferences on European Integration”, European Union Politics, 3, 1, 81-111. Benoit, Ken and Michael Laver (2005): Party Politics in Modern Democracies. London: Routledge.Benoit, Kenneth, Michael Laver, Christine Arnold, Paul Pennings and, Madeleine O. Hosli (2005): “Measuring National Delegate Positions at the Convention on the Future of Europe Using Computerized Word-Scoring”, European Union Politics, 6, 3, 291-313.Elgström, Ole, Bo Bjurulf, Jonas Johansson and Anders Sannerstedt (2001): ‘Coalitions in European Union Negotiations’, Scandinavian Political Studies, 24, 2, 111-128.Gabel, Matthew and Simon Hix (2002): “Defi ning the EU Political Space”, Comparative Political Studies, 35, 8, 934-964.Hix, Simon and Christopher Lord (1997): Political Parties in the European Union. Basingstoke: Macmillan.Hix, Simon (1999): Dimensions and Alignments in European Union Politics: Cognitive Constraints and. Partisan Responses, European Journal of Political Research, 35, 69-109.Hix, Simon, Abdul Noury and Gérard Roland (2006): Democratic Politics in the European Parliament. Cambridge: Cambridge University Press.Hooghe, Lisbet, Gary Marks and Carole J. Wilson (2002): “Does Left-Right Structure Party Positions on European Integration?” Comparative Political Studies, 35, 8, 965-989.Hosli, Madeleine O. and Christine Arnold (2006): Th e Importance of Actor Cleavages in Negotiating the European Constitution, paper presented at the 102nd Annual Meeting of the American Political Science Association (APSA), Pennsylvania, August 31 − Sept 3.Hosli, Madeleine O. (2007): Explaining Voting Behavior in the Council of the European Union, paper presented at the 1st World Meeting of the Public Choice Societies, Amsterdam, March 29-April 1, 2007.Hosli, Madeleine O. and Christine Arnold (2007): Actor Preferences for European Legislative Provisions and Council Decision Rules (mimeo).Hug, Simon and Tobias Schulz (2005): “Using Mass Survey Data to Infer Political Positions”, European Union Politics, 6, 3, 339-352.König, Th omas (2005): “Measuring and Analysing Positions on European Constitution-Building”, European Union Politics, 6, 3, 259-267.König, Th omas, Daniel Finke and Stephanie Daimer (2005): “Ignoring the Non-Ignorables? Missingness and Missing Policy Positions”, European Union Politics, 6, 3, 269-290.Marks, Gary, Carole Wilson and Leonard Ray (2002): “National Political Parties and European Integration”, American Journal of Political Science, 46, 585-594.

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Marks, Gary and Marco Steenbergen (2004): Marks/Steenbergen Party Dataset, Chapel Hill, NC: University of North Carolina Chapel Hill, available at http://www.unc.edu/~gwmarks/data.htm.Th omson, Robert, Jovanka Boerefi jn and Frans N. Stokman (2004): ‘Actor Alignments in European Union Decision-making’, European Journal of Political Research, 43, 2, 237-261.Zimmer, Christina, Gerald Schneider and Michael Dobbins (2005): ‘Th e Contested Council: Th e Confl ict Dimensions of an Intergovernmental Institution’, Political Studies, 20, 403-422.

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EC-Judicial Effectiveness: A Tradable GoodHjalte Rasmussen*

I. Positioning the Paper’s ProblemsTh e organizers of the Prague Conference of March 2007 invited me to present my

views on EC-judicial eff ectiveness. Graciously they left behind any defi nition of the notion or concept of ‘eff ectiveness’.

Th e lacuna: What do we mean by judicial eff ectiveness? must be fi lled. However, once one begins to refl ect on the possible meanings of this familiar concept some confusion spreads. Obviously, one connotation of it pertains to output quality. Viewed from this angle, eff ectiveness encapsulates, surely among other things that a vast majority of the Court’s clients and other customers will assess that it delivers the best, wisest, utmost nuanced, in policy terms most balanced and, in terms of law, unquestionably justice-serving judgments. In point are conditions or variables, which, if met, will enable the Court and its judges to translate the described ideal into reality. From this perspective, judicial eff ectiveness presupposes that a rich multitude of enhancing, external circumstances are in place. To illustrate, any possibly ideal-withering factors such as budget-concerns, irrelevant concerns about the nationality of judges, lack of a complete judicial organizational and decisional autonomy, institutional vanity and more are shrugged off .

It is rare to see quests for judicial eff ectiveness posed and discussed in all these ramifi cations in one draw. Respectful of this tradition, the present paper envisions to discuss the concept of judicial eff ectiveness not as a dimension of greater or lesser judicial wisdom or pertaining to the distribution of individual or societal justice. Th is implies that themes such as, for example, the eff ectiveness of complainants’ direct access to justice and courts or of the protection of individual rights, or of the desirability of more or of less judicial self restraint or activism fall outside the paper’s thematic ambit. Nor does the paper purport as a rule to explore the motives, which inspired the national treaty-makers to impose working conditions on the Court, which would almost invariably hamper an ideal eff ectiveness of its action by installing a regime of laisser faire.

Focus will within these analytical limitations be placed on a narrow selection of policy areas where judicial eff ectiveness is lagging − but not because the ideal conditions for its promotion were unknown. In contrast, the following observations about defi cient eff ectiveness take as their starting point that an enhancement of any variant of eff ectiveness rarely comes without a price tag and often a very unpleasant one. Th at is one necessitating trade off s where, in casu, the Masters of the treaties demonstrated that they were unwilling to pay the (full) budgetary or otherwise price for eliminating an identifi able, concrete barrier to full eff ectiveness.

* Professor of European Law at the Faculty of Law of the University of Copenhagen

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Note, that there is nothing new in that the price or cost of pressing through greater eff ectiveness in most situations brings in line another good, interest or value which will have to be sacrifi ced. My point here is a diff erent one which is about the paper’s measuring rods for selecting the issues to be discussed. Th ese are, to be sure, that the defi cient eff ectiveness must be the result of a trade off . Th at is: In focus will be situations in which a top judicial eff ectiveness was sacrifi ced in order to avoid that other values, interests or goods deliberately succumb by being given a lesser priority than eff ectiveness. Th e second parameter is that will be singled out for prominence barriers only that were upheld deliberately and not by sheer inadvertence or negligence. Th ird, an article to appear in an anthology will have to respect inevitable space limitations.

To illustrate, losses may, obviously, come in budgetary or money terms. For example, a quicker translation and publication of EC-judicial documents can be had by employing more translators. Assuming that they are available on the market, the primary and often sole cost of investing more human resources will be calculable in money. Th is will notably be the case if the extra expense on translation can be spent without depriving some other appreciable good(s) of its/their indispensable budgetary basis. Far from delving on budgetary questions, the paper will turn its interest towards situations of balancing the interest of eff ectiveness against interests which do not pertain to the realm of funding.

Within these topical limitations, focal interest will be concentrated on the time the Court spends on processing its preliminary docket. I use this expression short hand for those cases which national judges under Article 234’s scheme of co-operation send to the Court to obtain the latter’s guidance on how to interpret European laws which are relevant in cases pending before the referring court.

As for the Court’s handling of this co-operational docket, the paper assumes that answers to interpretative questions ought to be expedited quickest possible, the ideal being a processing time no longer than 12-15 months on average. Th is should be measured against that it took on average the Court in 2005 between 23 and 24 months to process a preliminary case.1 Towards its end, the paper lists briefl y some of the causes which can be expected will generate a further creep-up of processing time − if robust up gradations of the Court’s case processing capacity are left in waiting.

First, however, the following Section discusses the pros and cons of granting the Court a so-called certiorary power.

II. A No to a Certiorari-Power Equals, a No to Time Saving Eff ectiveness

Th e present Section will focus on the Court’s ability to cut the time it spends on processing its preliminary docket if it were granted a so-called certiorary power. Th is is a terminology borrowed from American judicial language designating a judicial

1 Court of Justice, 2004 Annual Report, p. 174.

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empowerment to classify diff erently the cases it is asked to handle − in accordance with the importance the court attributes to the legal questions raised by the cases and/or to the societal necessity or expediency of providing an authoritative judicial answer to them at the present juncture. And, no less importantly, to leave it to the court’s discretion to pick and choose the cases it wants to deal with on their full merits, alternatively such to be processed with less ado or simply dismissed from its docket without any decision or reply.

Obviously, if such a power were granted to the European Court it would enable it to spend its limited case processing time and resources only on those preliminary cases it deems it desirable to resolve on their merits.2 Especially in the light of the threatening increases in the Court’s time consumption that will fl ow from the factors listed in the Section on ‘Overload problems’ (towards the end of the paper), it would seem indispensable to grant the European Court such a fi ltering power. However, from what is known, opposition to it apparently still runs high.

It is on record though, that the Court of Justice and the Court of First Instance Prior to the Nice-treaty intergovernmental conference (IGC) together tabled a sort-of proposal to the eff ect of permitting the European Court to apply a fi lter to preliminary submissions.3 Th is was a fi lter mechanism which, if adopted, would have enabled the Court to admit for a full hearing and ruling on their merits only cases of greater importance for the Union’s legal order. And to refuse access to its docket of cases not meeting this standard. ‘Sort-of ’ suggests that it was never wholly clear whether the proposal was seriously or only half-heartedly made.

Be this as it may, opponents of any sort of fi lter mechanism won the debate by warning that picking and choosing implied that a hierarchy existed between the European judicature and those of the Member States, the former ranking above the latter. Th us, a fi lter power could not, in this view, be obtained without admitting that the Court of Justice was the highest court of the land. Opponents explained furthermore that the admittance of a national judicial subordination was likely to wreck havoc on the prevailing relationship of trust and equality of arms between the EC’s and the national judiciaries. On these premises, the IGC evaluated that the price to pay for enhancing eff ectiveness would too high wherefore the Court should not be empowered to apply a fi ltering mechanism to preliminary references. As it were, time saving eff ectiveness was deliberately sacrifi ced at the altar of national judicial self-esteem and self-indulgence.

Th e IGC was in other words unconvinced that time was ripe for admitting that the Court is, and has for decades been behaving as, a more supreme court than its

2 A lot has been written about that power. Liz Heff ernan, for one, placed it a EU-context in: Th e Community Courts: A European Certiorari Revisited, International Comparative Law Quarterly, vol. 52, October 2003, at p. 914 f.

3 Court of Justice and Court of First Instance, Th e Future of the Judicial System of the European Union (Proposals and Refl ections) (1999).

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national counterparts. Unimpressed, however, by the IGC’s reluctance some authors have of lately given new impetus to the view that a fi lter mechanism becomes more indispensable by he day. For one, the former president of the CFI, Mr. Bo Vesterdorf, commented in 2003 favourably on the idea of introducing a fi lter-mechanism in a not too far future.4

If one day granted, the Court will enjoy full authority to decide whether there should be digestion problems and bottlenecks or not. Without it, the risk is imminent of a break down of the societal importance and relevance of the Court and its cooperation with national courts. Th is can be taken to fossilize in line with that the latter will fi nd the still longer queues in front of the Court’s docket unacceptable. Th en, they will presumably shy away from submitting new preliminary questions in order to avoid that litigants will have to wait and wait before the national courts which can do nothing to keeping their case-processing time down. Th en, the Court’s legitimacy might well be endangered.

Judge Federico Mancini bluntly admitted in 1989 that the way in which the Court handles its preliminary docket “results in the Court of Justice acquiring a power of review analogous to [...] that routinely exercised by the US Supreme Court and the constitutional courts of some Member States”.5 Th is article’s author has long advocated for the introduction of an EC fi lter mechanism. Th is view acknowledges as already noted that the European Court actually occupies a position comparable to that of a federal supreme court. And that it, if this cannot be denied, serves little purpose to feign that there is not already in function a hierarchical relationship between it and the courts of the Member States. I fi rst argued this point in On Law and Policy in the European Court of Justice. A Comparative Study in Judicial Policy-making (1986),6 renewing the advocacy in Th e European Court of Justice (1998).7

III. Imperfect Judicial Autonomy and Low Eff ectivenessNext, it seems justifi able to assume that greater judicial eff ectiveness goes hand in

glove with a growth in the Court’s autonomy. Th e possible grant of an EC-certiorari-power represents merely one, although a primordially important procedural device for the promotion of judicial eff ectiveness (preceding Section).

However, old strictures on the Court’s procedural autonomy hamper or threaten to hamper the eff ectiveness of its handling of the preliminary cases it is asked to decide on. As it is, the Court has not been granted a complete freedom to decide over its own procedure, organization, planning and discharge of its business. Much might in this

4 Bo Vesterdorf, Th e Community Court System Ten Years From Now and Beyond: Challenges and Possibilities, 2003, European Law Review, 203.

5 In: Th e Making of a Constitution for Europe, (1989) 26, Common Market Law review, pp. 595-614.6 In: Nijhoff Publishers, Dordrect, 1986, notably Chapter Six.7 GadJura (publishers), Copenhagen, 1998, pp. 158 ff .

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respect be done diff erently. It probably would be so, if judicial eff ectiveness did not have to compete for uninhibited consideration with other values, interests and goods.

Up to the Nice-IGC, the Court’s tabled a quest for granting it a more, or best, a complete procedural, organizational and budgetary autonomy. Th is ranged in fact high on its pre-Nice wishing list. A real autonomy was perhaps the one thing the Courts most hoped to obtain at the end of the Nice-negotiations. Being kept if only in part under perpetual tutelage of the national governments made the Court feel it was being treated as a minor. Th is sentiment was certainly not an unjustifi able one. Yet, at Nice, suffi ciently many Member States were reluctant to go along with a full liberation. Why did the European Council not budge? What price did the heads of state and government deem unacceptable?

A reply to that question might begin by making an obvious point. Th is is to remind of the Court’s tendency to policy-activist and occasionally legally unpredictable behaviour. Th e Court has indeed legally shaped the European Union’s constitutional order much in its own image and correspondingly given less eff ect to the texts of the Treaties and the original intentions of the Founding Fathers. One of the Court’s former presidents, the German judge Hans Kutscher, gave voice to this teleology-obsessed determination of EU-law when he, as early as in 1976, in an extra-judicial speech uttered that “Interpretations [of EU-Law; ed.] based on the original situation [the treaties; ed.] would in no way be in keeping with a Community law oriented towards the future”.8 His Luxemburg colleague and ideological companion-in-arms at the Court, Pierre Pescatore, seven years later explained what the ‘orientation towards the future’ really meant. It was that the Court at the time was deeply involved in rewriting the texts of the treaties so as to make them express, not what the framers’ thought they wrote into them. Instead, when the judges explained what the texts meant they made them embody the judges’ own specifi c idea about the society the Union ought to be.9 If someone would still wonder from where the European judicial “Oriental Cadis” 10 got these ideas, the (late) Italian judge, Federico Mancini, a decade later completed the picture when he stated that “Th e [Court’s] preferences for Europe is determined by the genetic code transmitted to the Court by the Founding fathers, who entrusted it the task of ensuring that the law is observed in the application of a Treaty whose primary objective is an ever closer union among the peoples of Europe” (italics added).11

By pursuing a teleological agenda of its own distillation, the Court probably alienated some sovereignty-loyal Masters of the Treaty by demonstrating an unwillingness to submit

8 In: Methods of Interpretation: As Seen by a Judge at the Court of Justice, papers from: Judicial and Academic Conference, organized by the Court itself and published by its services.

9 In: Th e Doctrine of Direct Eff ect: An Infant Disease of Community Law, (1983) 6, European Law Review, pp. 155-177.

10 Th e expression is borrowed from Alf Ross’ characterization of the “subjective arbitrariness” of some sorts of judges, in: On Law and Justice, Stevens, London, 1958, at pages 151-152.

11 In: Democracy and the European Court of Justice, (1994) 57 Modern Law Review, pp 175, f (at page 186).

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to their authority. Th ose Member States had especially reason to be perplexed who never had intended to transmit a ‘genetic code’ to the members of the European Bench − but simply asked them to ensure that the/their law is observed (Article 220). It can be taken that these Masters were convinced that they alone possessed the prerogative to decide what EU-law ought to look like and what constitutional construct the Union ought to be given. Th ey may have been resentful over the Court’s inclination to disobedience to society’s lines of command − and deemed it a sign of immature youthfulness.

Seeing their authority ruined by the Court, it seems reasonable to hypothesize that in some quarters of the national governments the perception grew and matured of an uncontrollable European judicature. Whence, the likewise unverifi able hypothesis that it were a suitable means of maintaining some useful control over the Court not to grant it the complete autonomy it asked for.

Be this as it may, it is on record that the IGC was not prepared to set the judicature entirely free of political tutelage. It decided though that after Nice the Council shall approve of amendments to the Rules of Procedure by qualifi ed majority, thereby replacing the previously prevailing requirement of unanimity [Article 224(5)].

IV. On Judicial Numbers and Heterogeneity After Enlargement?Assume for example that scientists have verifi ed that a quango’s ideal number of

members is nine. Th e underlying assumption of this postulate is that when a quango’s membership mounts to eleven, thirteen or fi fteen, its decision making capacity and eff ectiveness will begin to deteriorate. What will cause functional decline is that its members’ interpersonal and other ways of communication and will-formation will become increasingly cumbersome and diffi cult. Th us, a college’s usually well prepared, largely mishap-safe across-the-board case processing will suff er. Ultimately, the quango invariably will start to metamorphose. Its character will begin to change from being an eff ective decision taking institution to becoming a deliberative assembly.

At this place, this numbers’ game will be plaid out in respect of the college of European judges. Th is will be done on the stated hypothesis that at fi rst disintegration takes place progressively. And assuming that once the college’s membership moves beyond fi fteen, seventeen or nineteen, the quango’s functional ability might even start to deteriorate exponentially.

Be this as it may, it seems in any event incontestable that the present mass of twenty seven EC-judges is plenty too many. Moreover, in all fairness, to the twenty seven judges or sitting members ought perhaps to be added that the Court also features eight advocates-general or standing members of the Court. Th is is reasonable in the present context because the voices of the standing members mingle with those of the judges and must be granted (ample) time to be listened to when they present their case analyses and argumentation.

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Th e latter mode of calculation brings the total of judicial red-robed stakeholders up to a frightening thirty fi ve. Frightening because something drastic will have to be done in order to reduce the number of voices − assuming that there is a commitment to recapture lost decision making eff ectiveness or some of it.

If not, the cacophony has come to stay. In fact, this seems the likelier exit of the numbers’ dilemma. Any suggestion to sever the link between a state’s EU-membership and its right to ‘appoint’ a judge will presumably turn out to be short lived. It will probably be vetoed by most if not all Member States.

If this can be taken, the Court must accommodate its organization to a reality of twenty seven (and in the future more) sitting members. Th is can be done in a variety of ways and with diff erent goals one of which might be to seek to steer free, to the extent possible, of the most negative consequences of being in terms of numbers a deliberative assembly. One organizational mode of promoting this objective might consist in the erection of a formal and organizational frontier between a large group of second ranking judges travelling in orbit around a smaller elite group of sitting members handling all or most of the Court’s most important business in a chamber of nine or eleven or a maximum of thirteen judges.

Th is would be unfortunate in spite of that, with such an organization in place, it seems hardly disputable that judicial eff ectiveness will stand to gain. Such a construct would probably also improve conditions of jurisprudential consistency and coherence. In sum, it would probably neatly prepare the ground for a continuation of judicial policymaking determination. Th is conclusion represents hardly a far fetched extrapolation from the hypothesized thorough limitation of the number of infl uential minds and, by implication, a potential marginalization of aberrant judicial philosophies and traditions.

Th ese benefi ts, if one will consider them that, would arguably come at a price, though, a price which to begin with might perhaps look acceptable. However, in the longer run a European judicial organization featuring the characteristics just outlined might develop nefarious consequences. A calamitous situation will emerge in which frustrations and alienations will be likely to conquer the minds of the second ranking. In stead of being dismissed out of hand, this perspective merits in my view to be taken very seriously. On this premise, it must cause worry that the organizational mode just briefl y discussed is hardly distinguishable from the European Court’s actual organizational set up, with its recent creation of a mighty and prestigious Grand Chamber of thirteen.12

I noted above that any suggestion to sever the link between a state’s EU-membership and its right to ‘appoint’ a judge would presumably turn out to be short lived although

12 I have analysed this and associated problems emerging in the wake of setting up of the Grand Chamber in an article entitled Present and Future European Judicial Problems after Enlargement and the Post-2005 Ideological Revolt − presently in press but to appear in the November-December 2007 issue of Common Market Law Review’.

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if implemented it stands to regenerate decisional eff ectiveness. Th is point will now be developed a bit further.

In fact, eff ectiveness can only be obtained by obliging a large group of Member States to relinquish their present-day right to “have” a judge of their own. Th is will represent a move causing national sovereignty, vanity and prestige to suff er. Most if not all Member States can therefore be expected to object strongly to any link-eliminating measure − and consequently to veto it.

A lesser radical but number-saving measure would consist in considering standing (advocates-general) and sitting (judges) judicial membership under one hat. Under the prevailing conditions, this would bring total judicial membership down to twenty seven. Th us, any Member State could be granted a right to appoint either a sitting or a standing member of the Court.

While it is, on the one hand, diffi cult to predict if national opposition to the ensuing reduction in the number of sitting members would be less violent, much space should not, on the other, be spent on discussing its pros and cons. In fact, even if such a compromise were possible, its implementation would do little to make the number-problem less contagious: Th ere would still be twenty plus sitting judicial members and therefore still arguably (far) too many.

However, why is there so much opposition? When answering this question, it is probably safe to assume that antagonists of a link-cutting measure will ostensibly be swayed by objective reasons and concerns. In fact, for years the standard argument has been that severing the link between States and judgeships will result in an unacceptable loss in judicial legitimacy. Th is argument might not be wholly empty although I have never felt strongly in favour of it. It features a hollow ring, I would argue, by postulating that once there will not be, say, a Spanish judge on the Court, Spain will be likely to default more frequently on its duty to comply with its legal Union obligations. However, where is there proof or just circumstantial evidence of the existence of such a link of causation? Be this as it may, the better assumption to date is that the Court will be manned by twenty seven (and in the future more) judges and eight advocates-general.

Confronting this multi-member situation without preconceived ideas, an attempt should be made to put down on paper what unacceptably high price it is which will fl ow from not maintaining the existing division between fi rst and second ranking judges? Which would be the pros and cons of operating a court manned by twenty seven equally important and infl uential stakeholders in the judicial decision making processes?

Arguably, equality of judicial importance might wreck havoc to the European judicial activist tradition which is symbolized in the Court’s habit of rendering groundbreaking, constitution- and union making judgments. However, as the decade long, entrenched and vivid discussions between protagonist and antagonists of judicial self restraint and activism handsomely suggest, it is not self evident that the prevalence in the future of

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more judicial minimalism and self restraint needs to be regretted − not unconditionally in any event. Th e activist habit of the Court’s can certainly be exonerated.

For the rest, it seems to me hard to tell that it ought to ring judicial disaster that twenty seven or more judges on an equal footing of access to infl uence were entrusted with handling the Union’s judicial business. Admittedly, the ideal number of judicial members from a point of view of eff ectiveness of decision making would long be passed. Also, precious judicial time will have to be spent on avoiding occasional hitches, inconsistencies and incoherency.

However, noteworthy benefi ts would also fl ow from the availability of many more judicial heads and hands dealing with the Union’s judicial business without too much policymaking. If I am not mistaken this not-so-vanguard approach to performing the Court’s job would not be unique but well in line with how judges are in the habit of working in most of the World’s jurisdictions. An obvious, additional benefi t will be that judicial equality will quite certainly cause a signifi cant fall in the average time spent on processing each individual preliminary submission. Just how powerful the time saving eff ect will prove to be cannot of course be predicted with much certainty. It will depend on whether most of the Court’s business will be dealt with by mostly three-judge chambers. If so, it seems to me to be a safe guess that average case processing time might well decline rather sharply, even in the face of the gross increases in the Court’s total annual case-inputs which the predictions of the following Section gives ample cause to fear.

V. Overload Problems and the Preliminary DocketIt is well known that the Court has always characterized its preliminary competence

as the most cherished one in its armoury of powers. In view of this competence’s high priority, the assumption does not appear as very far fetched that all and everything has and will done in order not to permit to deteriorate the conditions for the Court’s exercise of it, especially for its punctual handling of its preliminary docket.

However, as the following pages demonstrate little has been done for their upkeep. Th is must give cause to concern not least in view of the ongoing fairly endless expansion of the laws and legal matters which fall under the ambit of co-operation procedure. In fact, these developments cry for measures designed to inaugurate an era where preliminary time consumption will be sent spiralling downwards.

It was mentioned in the above that by 2005 the Court’s preliminary case processing time evolved around 23 to 24 months. Arguably, it ought to be three quarter of a year lower if the pre-Nice Reports 13 stand to be believed. Several of these emphasized that

13 Amongst the multiple offi cial and semi-offi cial reports and valuable work done by think-tanks, the following two drew most interest: Court of Justice and Court of First Instance, Th e Future of the Judicial System of the European Union (Proposals and Refl ections) (Luxembourg, 1999); and the European Commission’s so-called Due Report: Report by the Working Party of the Future of the European Communities’ Court System (the latter is of 2000). It should be added, also, that the President of the Court communicated directly with the outside

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a further increase in time-consumption would squeeze into irrelevance the preliminary reference’s branch of the EU’s judicial construction. Viability and legitimacy will crumble if cases cannot be disposed of within reasonably short periods of time. It is, in other words, the Court’s accumulated credit which will put on trial. Th is trial will open once national courts and judges begin on a regular basis to think twice before launching a cooperating with the Court. Th is critical mass will be reached when national judges ever more frequently feel unable to defend the still greater expenses in terms of time and money which for them and the litigants appearing before them, are associated with complying with Article 234.

With this sinister warning in mind, the dominating perspective in the remainder of this paper is to establish what the future is most likely to bring. Will preliminary time consumption continue to creep upwards? If yes, for which reasons?

Anticipating at this place the conclusion infra, the overall picture is one of benign neglect a point which I propose to document in the following three subsections:

Th e fi rst point pertains to the number of national courts with an empowerment to co-operate with the Court under the preliminary questions procedure. After the entry into force of the Nice treaty, the enlargements of 2004 and 2007 have added thousands of new courts to the already long list of Article 234-entitlements. It is obvious that the taking in under Article 234’s umbrella of so many new jurisdictions will buttress a stable and solid growth in the number of docketed preliminary submissions. As it is, past experience informs us that some time will usually pass from some new state’s EU-membership until the full eff ect of the enlargement will become wholly felt. However, sooner or later preliminary references from enlargement-courts will press upwards the annual number of preliminary cases which the Court will have to process. Ceteris paribus, the average time spent on any one case will mount.

Th e second point is that the fi rst years of the present Century have witnessed an untrammelled growth in policy-areas in full or partly regulated by or impacted on by EC and EU laws. More subject-matters will also be added to the EU’s regulatory reach once the Reform treaty enters into force.

In this process, subject matters such as, for example, security, freedom, justice, criminal law, asylum, visa and immigration have within less than a decade come under the yoke of EU-law, and especially Article 234. Th is followed when the Amsterdam treaty decided to expand the Court’s preliminary competence to encompass questions coming out of the highest national courts about most or all of these subject matters [Article 68(1)]. Under this provision falls, moreover, questions pertaining to the interpretation of the Brussels-I-regulation 14 that came to life as a conversion into

world via the press − to get the judicial reform issue off the ground: Th e EC Court of Justice and Institutional Reform of the European Union (2000; also published in Le Monde of 28 April, 2000).

14 See Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil matters ([2001] O.J. L 12/1.

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EU-law of the Brussels Convention of 27 September 1968.15 So do also several other Community instruments in the area of judicial cooperation such as the so-called Brussels-II-Regulation, the planned Rome-I-Regulation on the law applicable to contractual obligations and the Rome-II-Regulation on non-contractual obligations. Yet, there is more and notably the non-Communitarized laws falling under Title VI pertaining police and cooperation in criminal matters. As for these policies, a somewhat limited preliminary Court competence was laid down in Article 35EU. Th e incoming Reform treaty will as noted tend to expand the realm of EC competencies into the fi elds of energy, tourism, civil protection and sport. While these policy areas might perhaps not cause the Court’s preliminary docket to grow out of proportion in any near future, such an eff ect might well result from the, likewise, entry into force of the Reform treaty’s Charter on Fundamental Rights.16

Th e third point to be made is that the Court has itself added to this dismal picture. It has in fact generously granted national courts’ additional access to it via the preliminary co-operation procedure by interpreting Article 234 very expansively. Th ese recent jurisprudential developments will add handsomely to the engrossment of the Court’s preliminary docket − as if the pressures on it caused by the (already noticed) lawmaking activities of the political institutions and treaty makers did damage it enough in their own right. Th e following jurisprudential developments merit specifi c notice.

Among the expansive case laws, one might cite the CILFIT-ruling 17 of 1982 and its aftermath. Th is judgment, and its unnecessary case-proliferating potentiality, was truly inspired by sheer megalomania.18,19

Moreover, according to the wording of Article 234 the Court should be concerned in the abstract only with the interpretation of provisions of EC/EU-law laid before it by national courts. In fl agrant disregard of this, the Court has long insisted on it being necessary for it to dig deep into all the facts of the cases as well. Th is is necessary, the Court explains, in order for it to subsume the facts under the relevant law. It is compelling for it in this process to ignore the limits on its competence which Article 234 imposes on it. Indeed, the Court has persistently professed that it would

15 To this Convention was added a Protocol of 3 June 1971on its preliminary interpretation which still applies to Member States that stand outside the application of the Regulation mentioned in the preceding footnote. (See consolidated version the Protocol in [1998] O.J. C27/1).

16 Which was in the Part Two of the defunct constitutional treaty. I develop this point in some detail in my article to appear soon in Common Market Law Review, cited in footnote 13, to which I refer the reader. Th ere, I also highlight the enormous potential for confl ict-generation of the so-called Service-Directive.

17 In case 283/81 [1982] E.C.R. 3415.18 I had occasion to single out this ruling for criticism seven years ago in Remedying the Crumbling EC-

Judicial System (2000) 37 C.M.L.Rev. 1071-1112, at page 1108.19 In a several years younger article EC-judge and Professor Koen Lenaerts also commented critically on

this judgment; see his Th e Unity of European law and the Overload of the ECJ − Th e System of preliminary Ruling Revisited, in: Pernice et al (eds), Th e Future of the European Judicial System in a Comparative Perspective, 6 European Constitutional Network Series 211 (Baden-Baden, Nomos, 2006).

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not be able to give a (suffi ciently) useful answer to the typical, national court’s query, if it did act beyond its expressly granted empowerment.

Furthermore, the Court has in the same expansive vein not denied itself the right to answer moot, including prematurely posed, interpretative questions. In the article already quoted, Lenaerts has criticized both this and the just mentioned jurisprudential approach on the ground of their almost unlimited case generating potentials.20

However, the calamities do not stop here. In fact, the Court’s largesse has been no less remarkable when it comes to satisfying its national Brethren’s real or alleged appetite for more and more interpretative enlightenment. Th us, for example, while the wording of Article 234 seems to rule clearly that the Court’s interpretative competence is limited to give replies to questions about interpretation of EU-law only, a time honoured jurisprudence ignores this limitation by answering also questions about the proper understanding of certain national laws.21 Th e result of this is, of course, to congestion further the Court’s docket and to extend the already too long case processing times.22 Finally, but not least, one should not forget the greatly case-generating potentials of the Court’s case laws on the (very wide) defi nition of a “court and tribunal” in the meaning of Article 234. Th is, which is of longstanding notoriety, is here only mentioned in passing.

Summing up, if inaction continues it will by necessity bring about further, disastrous delays and decays. Th erefore, vigorous rescue measures has to be adopted and implemented − and soon.

Th e little that has been done to compensate for the realized and threatening sharp growths in the annual incoming number of preliminary cases has been successful like a snowball in hell.23

20 Source cited in preceding footnote. 21 Th is expansive reading of the Court’s competence to encompass matters of national law is often referred

to as its Dzodzi-case law − after Case C-297/88 [1990]E.C.R. I-3783. 22 Advocate-general Jacobs expressed rather sharp criticism of the Dzodzi-jurisprudence in his Opinion in

inter alia Case C-130/95 Giloy [1997] E.C.R. I-5291. Along the same lines, both Lenaerts and I express our doubts as to the wisdom of the Dzodzi-line of case laws, in the sources cited in footnotes 19 and 20.

23 Here, I wish to refer the interested reader to Koen Lenaerts’ article cited in footnote 20, pages 232-238.

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What kind of EU does the EU foreign policy need?Petr Drulák *

War made the state and the state made war Charles Tilly

An explicit recognition of the link between the shape of a polity and its external environment has been largely missing in the discussions about the European Union (EU) reforms. Even though most political leaders and observers call for a more active role of the EU at the international stage, they usually fail to refl ect on what that would imply for both EU internal structures and the international system. Most of the discussion focuses on the former and addresses either the institutional and intergovernmental challenges made to the EU Common Foreign and Security Policy (CFSP) or other EU-internal specifi cities without actually engaging the latter.

I argue that the discussion about the EU reforms would benefi t from an engagement with international relations (IR) literature, which traditionally recognizes the shape and construction of a polity to be largely determined by the construction of the environment in which the polity is situated. It is especially the connection between a war prone international system, on the one hand, and a territorial state, on the other, which has been studied by realist scholars. Th us, several students of IR expanded on the above insight by Charles Tilly, (1975: 42, quoted in Hobden 1998: 99) who argued that the modern state as we know it is primarily war-making machinery that arose from the great European wars. Kenneth Waltz provides a theoretical generalisation of this point by claiming that the international system makes all its units alike by turning them into states (Waltz 1979). Similarly, Immanuel Wallerstein conceptualises the state as a political structure, which was developed as a medium to stabilise the capitalist world-economy (Wallerstein 1984).

Unlike the realists, Wallerstein sees states as historical, interim structures that will disappear once the terminal crises sweeps away the world capitalist system. However, one does not have to adopt a Marxist perspective, such as Wallerstein’s, to fi nd an alternative to the realist connection between war and state. Alexander Wendt’s constructivist theory of the international system is one such example (Wendt 1999). He argues that the current war prone international system is likely to evolve into one whose units no longer resort to war to settle their disputes. Moreover, he observes that the units in this new peaceful, or Kantian, system will change and hints at the idea of a “postmodern state” replacing the traditional territorial state. However, he does not elaborate on these links and concepts. Th us, while war makes the state, as we know it, peace seems to generate the postmodern polity.

* Institute of International relations, Prague, and Faculty of Social Sciences, Charles University, Prague

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Th is article uses these insights to deepen our understanding of what is at stake when the EU’s external actions are discussed. It examines the language of the European Security Strategy, from 2003, which is a key document of the EU’s conceptual thought in the area. It raises three questions with respect to it. First, what is the constitutional shape of the EU implied in the discourse? Second, what kind of international system and what kind of external challenges are addressed there? Th ird, how do these two discursive constructions (i.e. the EU as a unit and its environment) match?

Th e discursive constructions are analyzed in terms of metaphors. First, several conceptual metaphors of the EU polity and of the EU environment are suggested on the basis of the theoretical refl ection. Second, these metaphors are revised on the basis of speeches. Th ird, the empirical signifi cance of the metaphors is established fi nding out which metaphors prevail. Finally, congruence between the prevailing metaphors is discussed.

I. Metaphorising the EU Our analysis of metaphors makes a clear distinction between specifi c metaphorical

expressions and conceptual metaphors representing abstract models to which these metaphorical expressions refer. Th e conceptual metaphor, such as STATES ARE PERSONS,1 is abstract. It cannot be identifi ed with any single specifi c word or expression. Rather, “it is the ontological mapping across conceptual domains” (Lakoff 1993: 208), from the source domain of PERSONS to the target domain of STATES. Lakoff (ibid.) further explains that the conceptual metaphor “is not just a matter of language, but of thought and reason”, and that it makes us apply what we know about one area of our experience (the source domain) to another area of our experience (the target domain).

In contrast, a metaphorical expression is a specifi c statement, which draws on a general conceptual metaphor (Lakoff 1993: 209). While a conceptual metaphor connects conceptual areas, metaphorical expressions connect constitutive elements of these conceptual areas. So the statements “France decided to go to war” and “Germany is our ally” are two diff erent metaphorical expressions, but both draw upon the same conceptual metaphor of STATES ARE PERSONS.

Th ere is a growing body of literature on the metaphors of international politics and European integration (e.g. Chilton 1996; Hülsse 2003; Luoma-aho 2004; Musolff 2001). In my previous research, I argued that the conceptual metaphors of the EU as MOTION, CONTAINER, EQUILIBRIUM OF CONTAINERS and CORPORATION are especially important for our understanding of the European integration (Drulák 2006). Each of these implies a diff erent image of the EU.

Th e metaphor of MOTION depicts the EU in terms of a steady internal transformation with no clear borders or purpose. Apart from metaphorical statements,

1 From here on I use capital letters when referring to conceptual metaphors, and quotation marks when referring to metaphorical expressions.

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which actually refer to the EU as moving and changing, the idea of MOTION is also expressed by hybrids (describing the EU as something between two well defi ned states) and oxymorons (ascribing to the EU mutually exclusive features). Th e CONTAINER metaphor makes the EU look like a territorial state, being clearly delimited by borders and being an autonomous agent in international politics. Th e EQUILIBRIUM metaphor emphasises that it is the member states that are the true agents and the EU is derived from their mutual consent. Finally, the CORPORATION metaphor likens the EU to an economic enterprise.

II. Metaphors for the EU’s external actionsTo what extent are these images relevant for the consideration of the EU’s external

action? At fi rst glance, the conceptualisations we come across in the respective literature substantially diff ered from the above images. Th us, Sten Rynning (2003: 21) has come up with four models for the EU’s external actions: the strategic actor, the directorate, the civilian actor and the community. While the strategic actor is inspired by traditional state-based great powers capable of projecting military power, the model of community extrapolates the past absence of the EU’s external actions. In this connection, the main purpose of the community is to keep internal cohesion inside the EU without any unifying vision for its international role. Th e model of the directorate pre-supposes that a limited coalition of the able and willing can occasionally act as a single great power in the world; however, this ‘actor-hood’ is the result of a temporary overlap of interests among European great powers lacking any long-term basis. In contrast, the civilian actor can rely on a fi rm institutional basis, including all the EU members, but it is unable to reach a consensus on such sensitive issues, like use of force. However, this does not prevent the EU from engaging in preventive diplomacy, peacekeeping and post-confl ict reconstruction.

Th e concept of the civilian actor is sometimes related to the concept of “normative power” (Manners 2002; Sjursen 2003). In this perspective, the EU diff ers from traditional great powers in that it focuses on spread of democratic and human rights norms whereby it relies on its soft power refraining from coercion. Th e two concepts may sometimes refer to the same kind of behaviour; however, they diff er fundamentally in ontology. While the civilian actor is defi ned by a realist perspective as defi cient and, at best, complementary to the militarily capable strategic actor, the normative power is theorised by constructivists as a deliberative and norm-driven actor representing a fundamental alternative to the traditional great power politics (Sjursen 2003). Th erefore, there is actually no fundamental diff erence between a strategic actor and a civilian one, since the latter is like the former except for its inability to use military force.

While the distinction between the civilian and strategic actor is not that profound, the distinction between civilian actor and normative power is essential (Manners 2002). As Manners (2002: 239) observes: “One of the problems with the notions of civilian or military power is their unhealthy concentration on how much like a state the EU looks.”

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In contrast, the concept of normative power “is an attempt to refocus analysis away from the empirical emphasis on the EU’s institutions or policies, and towards including cognitive processes, with both substantive and symbolic components” including “common principles and willingness to disregard Westphalian conventions.”

He further argues that this specifi c and unique international identity of the EU is the result of its historical development and constitutional confi guration as well as of its hybrid polity. Th is ‘hybridity’ denotes that the EU does not fi t into the Westphalian, i.e. state-based, way of thinking. It is neither a supranational state (which is assumed by the model of the strategic or civilian actor) nor a mere group of states (corresponding to the concept of directorate). Th is ‘hybridity’ leads to an emphasis on shared norms inside the EU, and, by extension, to the emphasis on normative external actions.

To sum up, the actor (strategic or civilian), the directorate and the normative power represent three choices, which are discussed when the EU’s external actions are addressed. In this respect, the community model does not represent a comparable alternative because it implies the lack of any action.

Now, even though at the nominal level these concepts signifi cantly diff er from the above conceptual metaphors of the EU, there are important connections between them. Th us, the model of actor, strategic or civilian, fully overlaps with the conceptual metaphor of CONTAINER. Both of these use the sovereign states as an institutional role model for the EU. Also, the model of directorate corresponds to the conceptual metaphor of EQUILIBRIUM. Both the model and the metaphor base the EU’s actions on an agreement between the great European powers to which the only real agency is ascribed.

Even though there is no straightforward link between the model of normative power and the conceptual metaphor of MOTION, both express the uniqueness of the EU and its distinctness from state-like structures. While MOTION draws our attention to the permanent internal transformation of the EU, normative power refers to its reliance on soft power and its reluctance to use force. At a theoretical level, they share, fi rstly, a normative commitment to deliberation (the principle problem-solving method) and secondly, the concept of ‘hybridity’.

First, Sjursen (2003) argues that the deliberative perspective can serve as a tool for analysing the CFSP much better than a rational choice perspective. Moreover, the deliberation is connected with the possibility of a fundamental change on the basis of reasoning, which corresponds to the MOTION metaphor. Second, the ‘hybridity’ of the EU’s polity is responsible for its emphasis on norms in external action (Manners2002), while the rhetorical use of the very same ‘hybridity’ can be see as evidence of motion, which is depicted by two Westphalian terms (Drulák 2006). In this connection, it is quite telling that the very concept of normative power is burdened with an oxmoronic pension which is acknowledged by Manners who yet argues that it is not “a contradiction in terms” (Manners 2002: 236). Th is connection

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with the MOTION metaphor shows that one does not have to panic whenever self-contradictory terms are used.

Th e metaphor of the CORPORATION can be useful in depicting the inner workings of the EU. However, its external implications are unclear. It could be argued that its focus on an economic dimension connects it to the concept of the civilian actor. But this concept includes a much wider variety of activities then just the metaphor of the CORPORATION, which is also more narrow than the civilian actor because of its focus on instrumental, profi t-oriented activities. Th erefore, I chose to leave this metaphor out of the analysis.

Hence, clear connections can be established between the models of ACTOR, DIRECTORATE and NORMATIVE POWER, on the one hand, and the conceptual metaphors of CONTAINER, EQUILIBRIUM and MOTION, on the other hand. Th erefore, each kind of external action implies a diff erent kind of EU internal structure. Th ree connections can be formulated in this respect. To start with, military and civilian operations, for which the whole of the EU is responsible (actor), would rely on state-like structures at the EU level (CONTAINER) that echo the insight “war made the state”. In these conditions, national constitutional rules are likely to reappear at the EU level.

However, if similar operations are undertaken by changing coalitions of the willing (directorate), then the EU needs to develop alliance-like structures (EQUILIBRIUM): War made the state but war also made the alliance. Th e result probably depends on the frequency of war conditions. While permanent wars make the state, occasional wars make alliances. In these conditions, no reproduction of national constitutions at the European level is needed since international treaties provide the necessary co-ordination framework.

Finally, the EU, which focuses primarily on a non-coercive spread of democracy and human rights (normative power), needs a self-refl exive institutional structure that goes through a permanent change resulting from constant deliberation (MOTION). Th e connections are summarised by the below table.

Diff erent kinds of action require diff erent kinds of polity

External action Th e shape of the EU

Military or civilian ACTOR Implies CONTAINERDIRECTORATE Implies EQUILIBRIUMNORMATIVE POWER Implies MOTION

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III. Metaphorising the international order Th e above metaphors of the EU also make assumptions about the international

order. Now, there are a lot of ways to conceptualise the international order. Waltz (1979) assumes that the international system is always based on the states and that its most distinctive mark is the global distribution of power that distinguishes between bipolar and multi-polar systems. Wallerstein (1984) diff erentiates between diff erent modes of economic production, thus he distinguishes between pre-capitalist systems, the capitalist World-Economy and the post-capitalist system. Wendt (1999) looks into the norms that governed the use of international violence and distinguishes between Hobbesian, Lockean and Kantian cultures of anarchy.

What all these conceptualisations have in common is their focus on the Westphalian system of international relations, which has been the current order of international politics for a few hundred years. Th is order is based on states defi ning themselves by sovereign control over their territories and their competition for power and infl uence. Th ey use diplomacy and war to settle their disputes. Referring to the Westphalian system, Wallerstein speaks about the capitalist World-Economy, Wendt analyses the Lockean culture of anarchy and Waltz simply speaks about the international system. Th ey all agree that the Westphalian system is existentially connected with the state as the predominant kind of polity. Th erefore, it is the CONTAINER and EQUILIBRIUM as well as the corresponding models of the ACTOR and DIRECTORATE that are best compatible with the Westphalian order.

However, the Westphalian order is challenged by a variety of factors such as trans-national movements, international and supra-national organizations and economic and technological interdependence. Most observers agree that we are currently undergoing a transition from the Westphalian order to some kind of the post-Westphalian system, whose features are not known yet. Wendt argues that the future is the Kantian system in which states and other actors (which may be more important than the states) do not use violence to settle their disputes. However, this optimistic vision could be qualifi ed by what Wendt describes as the Hobbesian system, which according to him preceded the Westphalian system and prevail against unlimited violence. Unfortunately, apart from a progressive perspective on history, there is no guarantee that the post-Westphalian international order will be Kantian and not Hobbesian. Th erefore, the two options, peace and chaos, should be seen as possible alternatives to the Westphalian system.

What are the implications of the post-Westphalian orders for the shape of the polities? Th ere is an obvious link between the Kantian PEACE, NORMATIVE POWER and MOTION, since the non-coercive action fi ts into the non-coercive world. Yet, there is another connection between the Hobbesian notion of CHAOS (the system of permanent instability) and MOTION (which refl ects that instability). But in that case the MOTION is not implied by a NORMATIVE POWER but by a very diff erent kind of polity, which could be called a FIGHTING POWER. Th is

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constantly self-transforming entity relies on coercion and brute force rather than on normative commitments. Its use of force may be de-territorialised and very diff erent from what CONTAINERS tend to do. Th e ‘Cyber-attack’ is an example of such a use of force. Both the networks, which attack, and the networks, which are attacked, can be global and territorially indistinguishable. Th e table below summarises the connection between international order, external action and the shape of the polity.

Implications of international order

International order External action Polity

WESTPHALIAACTOR CONTAINER

DIRECTORATE EQUILIBRIUM

POST-WESTPHALIAPEACE NORMATIVE POWER

MOTIONCHAOS FIGHTING POWER

IV. Operationalisation and empirical resultsA conceptual analysis has provided us with a series of conceptual metaphors, as well as

links in between. Th ey represent theoretically coherent options for the conceptualisation of EU conduct and of its environment. Now, I apply this framework to the analysis of the current EU discourse in order to determine which of these options are signifi cant for political practice and to what extent this practice is coherent. To do this, I have analysed the key document of the European external action, which is the European Security Strategy from 2003. Th is document has shaped the offi cial CFSP discourse.

Each of the conceptual metaphors needs to be connected with corresponding metaphorical expressions, which can be found in the discourse. Th e metaphorical expressions corresponding to WESTPHALIA refer to the realities of inter-state politics, as we know it (e.g. war has not disappeared, WMD arms race, nuclear activities in North Korea, transatlantic relationship, partnership with key actors). On the other hand, the metaphorical expressions related to POST-WESTPHALIA point to some new international realities (e.g. increasingly open borders, internal and external aspects of security are indissolubly linked, non-state groups playing a part in international aff airs, new threats which are more diverse), which can be either elements of PEACE (e.g. eff ective multilateral system, a stronger international society, well functioning international institutions, rule-based international order) or CHAOS (e.g. global wave of terrorism, collapse of state, drug trade pays for private armies).

Th e metaphorical expressions associated with the ACTOR stress the ability of the EU to act as an individual (e.g. a global player, eff ective actor, coherent foreign policy, developing operations involving both military and civilian capabilities, EU takes a greater responsibility, a more capable Europe), while the DIRECTORATE emphasises its collective features (e.g. European countries are committed, concerted European

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action, combines the resources of member states). NORMATIVE POWER points to the non-violent promotion of democratic norms and human rights (e.g. restoring good government to the Balkans, fostering democracy, confl ict prevention and threat prevention, the European interest that countries on our borders are well governed, establishing a rule of law, protecting human rights, multilateral cooperation, respect for common values, etc…). FIGHTING POWER implies a non-traditional use of violence.

Finally, the conceptual metaphors of the CONTAINER and EQUILIBRIUM represent generalisations of the conceptual metaphors of ACTOR and DIRECTORATE respectively. Th erefore, all metaphorical expressions that are related to ACTOR and DIRECTORATE are also related to CONTAINER and EQUILIBRIUM. Th e conceptual metaphor of MOTION relies on the metaphorical expressions that present the EU as constantly changing (e.g. new steps, leaps forward, avoiding a drifting off course, accelerate the integration, new locomotive, continuous process, permanent treaty-making, never-ending circle of treaty change) (Drulák 2006).

Th e results of the European Security Strategy analysis are summarized in the below table. Some conceptual metaphors did not appear in the document and they are crossed out. Some turned out to be very frequent and very important and they are placed in italics. Conceptual metaphors that appeared in the document without being dominant are there in normal script.

POST-WESTPHALIAN CONTAINER?

International order External action Polity

WESTPHALIAACTOR CONTAINER

DIRECTORATE EQUILIBRIUM

POST-WESTPHALIAPEACE NORMATIVE POWER

MOTIONCHAOS FIGHTING POWER

As the table shows, the Westphalian system remains an important point of reference, although the post-Westphalian perspective prevails, whereby both post-Westphalian peace and post-Westphalian chaos are equally signifi cant. Speaking of the external action, the model of the ACTOR is as important as the model of NORMATIVE POWER while the DIRECTORATE is much less used and FIGHTING POWER is missing. At the level of polity, the CONTAINER clearly prevails, EQUILIBRIUM has some presence and MOTION is absent.

Th ese fi ndings reveal major inconsistencies in the discourse. While the international order is to a large extent metaphorised as post-Westphalian, the EU itself is metaphorised exclusively as a Westphalian polity. Even though the document acknowledges the challenges of the post-Westphalian system both peaceful and violent, it does not provide an adequate response to them. Firstly, in its belief that post-Westphalian violence can be

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dealt with by Westphalian means (ACTOR or DIRECTORATE) it addresses only the peaceful response (NORMATIVE POWER). Secondly, even the peaceful response, which indeed addresses (NORMATIVE POWER), lacks an embedded correspondence with the polity, which is seen as only Westphalian.

Th us, even though the document is quite open and acknowledges the changes in the international order, it fails to draw the implications of these changes for the shape of the EU. Instead, it goes back to the model of the CONTAINER, which implies the creation of the state-like structure at the European level.

V. ConclusionsMost arguments about the desirable shape of the EU polity focus on domestic

considerations without taking into account the structural constraints of the international order. Even the discussion about the EU’s external actions suff ers from underestimating the impact of international order on the EU. Its arguments are based on the Westphalian scheme of the EU, which is represented either as a state (CONTAINER) or a group of states (EQUILIBRIUM) as if these were the only options and as if Europeans could indeed decide about this freely without any systemic constraints. Paradoxically, participants in the debate about the EU’s external actions are well aware of the changing nature of the international system. However, they fail to see its possible impact on the EU itself.

Th e European Security Strategy, which is the central document of this debate, epitomizes this failure. On the one hand, the document analyses the post-Westphalian challenges which need to be addressed now and are likely to proliferate in the future. On the other hand, the thrust of its recommendations is deeply anchored in Westphalian concepts. If the analysis is right, the recommendations are wrong, or at least incomplete.

To make them more relevant, the metaphor of the EU as MOTION needs to be taken more seriously. Th is metaphor is actually part of the ‘common sense’ of European integration (Drulák 2006). However, its implications are so radically at odds with general common sense politics that they are left hidden. All the same, they allow us to deal with such phenomena as de-territorialisation of threats and the de-territorialisation of polities which are diffi cult to grasp with the conventional, conceptual tool box but present, at the same time, the practical problems of today and, even more so, of the near future.

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ReferencesChilton, Paul (1996) Security Metaphors: Cold War Discourse from Containment to Common House. New York: Peter Lang.Drulák, Petr (2006) Motion, Container and Equilibrium: Metaphors in the Discourse about European Integration. European Journal of International Relations, vol. 12(4), 499-531.Hobden, Stephen (1999) International Relations and Historical Sociology: Breaking down boundaries. London, New York: Routledge.Hülsse, Rainer (2003) Sprache ist mehr als Argumentation: Zur wirklichkeitskonstruieren-den Rolle von Metaphern. Zeitschrift für internationale Beziehungen, vol. 10, no. 2, 211-246.Lakoff , George & Johnson, Mark (1980) Metaphors We Live By. Chicago: Chicago University Press.Lakoff , George (1993) Th e contemporary theory of metaphor. In: Ortony, Andrew (ed.) Metaphor and Th ought. Second Edition, Cambridge: Cambridge University Press, 202-251.Luoma-aho, Mika (2004) “Arm” versus “pillar”: the politics of metaphors of the Western European Union at the 1990-91 Intergovernmental Conference on Political Union. Journal of European Public Policy. 11 (1), 106-127.Manners, Ian (2002) “Normative Power Europe: A Contradiction in Terms?” Journal of Common Market Studies, 40, 2, 235-258. Musolff , Andreas (2001) Th e Metaphorisation of European Politics: Movement on the Road to Europe. In: Andreas Musolff et al., eds, Attitudes Towards Europe: Language in the unifi cation process. Aldershot: Ashgate, 179-200.Rynning, Sten (2003) “A fragmented external role: the EU, defence policy, and New Atlanticism” In: Knodt, Michele and Sebastiaan Princen, eds., Understanding the European Union’s External Relations. London, New York: Routledge, 19-34.Sjursen, Helene (2003) “Understanding the common foreign and security policy: analytical building blocks” In: Knodt, Michele and Sebastiaan Princen, eds., Understanding the European Union’s External Relations. London, New York: Routledge, 35-53.Tilly, Charles (1975) “Refl ections on the history of European state making” in: Tilly, Charles, ed., Th e Formation of Nation States in Western Europe. Princeton: Princeton University Press.Wallerstein, Immanuel (1984) Th e Politics of the World Economy: Th e States, the Movements and Civilizations. Cambridge: Cambridge University Press.Waltz, Kenneth (1979) Th eory of International Politics. Reading MA: Addison-Wesley.Wendt, Alexander (1999) Social Th eory of International Politics. Cambridge: Cambridge University Press.

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Country of Origin Principle − a Myth, Fiction or Rule of the European Law

Luboš Tichý *

I. IntroductionTh e recent development, in particular, namely the legislative process regarding the

directive on services in the internal market (eventually, the directive was approved on 12 December 2006 as Directive of the European Parliament and Council No. 2006/123/ES) has revealed certain interesting aspects of the very principle of the internal market. I’ll just remind that the original draft of this directive assumed dominant anchoring of the country of origin principle and after a very long and very controversial period of development the Council itself fully abandoned this concept and therefore the directive is basically a transposition of the primary law in the interpretation of the ECJ. Th e draft directive had a very noteworthy story that has been refl ected in the total change of concept of the draft. A turbulent discussion within the legal community commenced, mainly over the country of origin principle and its position in the international private law as a special limit criteria. In the public, the draft directive functioned as a some detonator of very intensive reactions tinged with nationalist focus, rejecting positions against the country of origin principle as the cause of destruction of traditional national economies (France) of old member countries as a result of social dumping. Perhaps it was also this draft that represented, mainly in France, the beginning of the moods leading then to the rejection of the European constitution in the referendum in 2005.

Th e country of origin principle has been primarily developed as a consequence of the Cassis de Dijon case law and concerns the internal market, particularly the two fundamental freedoms (goods and services) and the tax law area. However, in this contribution I will address the fi rst area only, and to top it all, in a very limited extent. First of all, I will not analyze this principle in the light of the international private law but I will try to break down its position in relation to other legal instruments including, but not limited to the fundamental rights and freedoms.

Th e country of origin principle is a kind of an opposition to the principle of the country of destination and it means that goods and services (immaterial performances) are obligatorily acceptable within the entire market if they meet the requirements of the country of origin at the moment they are given into circulation, i.e. when they occur in the market. Th e principle means that in performance of these two fundamental freedoms it is necessary to respect the values of the country of destination, including its law that is decisive for their acceptation.

* Prof., JUDr., CSc., Head of the Department of European Law at the Law Faculty, Charles University, Prague.

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It is not only in Czech literature that the issue of the Country of Origin Principle has failed to receive adequate attention. If at all, this phenomenon is mentioned only marginally in various works,1 or is considered as one of the aspects, functions or features of the internal market.2 Its connections or relations to other phenomena are also monitored; for example, in the recent case of its relation to International Private Law, or to confl ict of laws provisions.3

However, a comprehensive discussion of the Country of Origin Principle is lacking. It is therefore our ambition to contribute to fi lling this gap by focusing our central attention on the Country of Origin Principle, which we examine from the perspective of all its relevant connections. We will therefore be proceeding in a diff erent way from a standard treatment: we will not be assessing the Country of Origin Principle from the perspective of its status on the internal market, but we will examine the internal market as the object of its application.

In choosing this method we are proceeding from the following basic considerations: the realization of a common (internal) market entails the functioning of basic market freedoms. Th is assumes the free movement of basic market factors: persons, goods and services, subject to adherence with certain agreed standards, established on a value-based and empirical foundation. Th e primary features serving to ensure adherence with these standards are the qualifi cation of the persons (including their experience), the quality (including adherence to safety standards and other prerequisites) of goods, and the level (including the method of provision) of services. Th ere are several methods for achieving this aim.

1 Cf. the infl uential commentaries such as W. Frenz, Handbuch Europarecht, vol. 1, Europäische Grundfrei-heiten, Berlin et al. 2004, P. Chr. Müller-Graff , Commentary on Art. 28-31 EC Treaty, in: J. Schwarze (ed.) Kommentar zum Vertrag über die Europäische Union und zur Gründung der europäischen Gemeinschaft, 6. ed., Baden-Baden 2004.

2 See W.-H. Roth, Die Freiheiten des EG-Vertrages und das nationale Privatrecht, ZEuP 1991, 5 f., E. Steindorff , Gemeinsamer Markt als Binnenmarkt, ZHR, 1986, 687 f., E. Steindorff , Unvollkommener Binnenmarkt, ZHR 1994, 149-169, W.-H. Roth, Th e European Court of Justice´s Case Law on Freedom to Provide Service: Is Keck Relevant?, in: Andenas/Roth, Services and Free Movement in EU Law, Oxford 2002, 1-24, E. Steindorff , Gemeinsame Markt als Binnenmarkt, ZHR 1986, 150 f., but there are also exceptions: P. Mankowski, Wider ein Herkunftslandprinzip für Dienstleistungen im Binnenmarkt, IPRax, 2004, 384, E. Lomnicka, Th e home country control principle in the fi nancial services directives and the case law, G. Reichel (ed.), Das Herkunftslandsprinzip im europäischen Gemeinschaftrecht, Vienna 2006, 71 f.

3 See W.-H. Roth, Die Freiheiten des EG-Vertrages und das nationale Privatrecht, ZEuP 1991, 5 f., E. Steindorff , Gemeinsamer Markt als Binnenmarkt, ZHR, 1986, 687 f., E. Steindorff , Unvollkommener Binnenmarkt, ZHR 1994, 149-169, W.-H. Roth, Th e European Court of Justice´s Case Law on Freedom to Provide Service: Is Keck Relevant?, in: Andenas/Roth, Services and Free Movement in EU Law, Oxford 2002, 1-24, E. Steindorff , Gemeinsame Markt als Binnenmarkt, ZHR 1986, 150 f., but there are also exceptions: P. Mankowski, Wider ein Herkunftslandprinzip für Dienstleistungen im Binnenmarkt, IPRax, 2004, 384, E. Lomnicka, Th e home country control principle in the fi nancial services directives and the case law, G. Reichel (ed.), Das Herkunftslandsprinzip im europäischen Gemeinschaftrecht, Vienna 2006, 71 f.

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1. On the legal regulatory level there is the possibility of a unified regime (ad a), a national regime (ad b) and the regime of origin (ad c)

a) By unifying the legal other normative arrangements we achieve a unifi ed foundation in the sense of foundation based on a single normative structure. Th is actually then leads to the erasure of the concept of trans-border movements, since all legal alterity has been removed.

b) A national regime assumes subjection to the legal and other normative regimes of the host country. In this sense we can speak of the principle of the country of reception.

c) Th e regime of origin, which we can call the Country of Origin Principle, means accepting the standard of the state in which the goods were produced, the persons involved attained their qualifi cations and the service was provided.Th ese three regimes can be applied exclusively or in a mutual combination.

2. In order to achieve a common (internal) market it is possible to make use of several instruments of varied nature.

a) From the perspective of creation of norms one can use legislative measures and, naturally, case law, including the case law of administrative bodies. Legislation may adjust each of the said regimes (methods) using the means available to it on all three levels (international treaties, primary law, secondary law). In the realization of a common market, as we know from experience, case law may make a signifi cant contribution.

b) Recognition of the so-called principles and confl ict of laws provisions comes in the form of certain instruments, which have a signifi cant status for the realization of common market. Recognition means the acceptance of legal and other norms, the acts of application of law or normative acts on the border between applicatory and normative activity. Recognition plays an extraordinarily important role in the functioning of the regime of origin, whereas in the case of the national or unifi ed regime this instrument has essentially no signifi cance. By the principles we understand an optimized solution of quasi-normative nature, which signifi cantly infl uences both the creation and the application of legal and other norms. In this sense we understand the principles to include the Country of Origin Principle and the principles of the country of reception. Confl ict of laws provisions serve to resolve confl icts which arise during the incomplete unifi cation of the legislation. Confl ict of laws provisions and the apparatus accompanying them (renvoi etc.) decide which legal and other normative regime will be used in a specifi c case to resolve a situation on the border of several legal codes.

c) Institutional securing. Th e functioning of the internal market also necessitates institutions, in particular supervisory bodies and confl ict resolution bodies. In situations of confl ict involving cross-border movements of market factors one

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can consider jurisdiction for trans-national, international or community bodies, bodies in the country of origin or the country of reception.

d) Complementary instruments. We understand complementary instruments to mean factors which level out particular inequalities in the functioning of the preceding instruments. Amongst these belong for example basic human rights. Th ese may correct the functioning of the instruments and the methods described above.Th e scheme given above serves as a type of framework for the technicalities of

further procedure. We have therefore divided the examined material on the basis of this framework into certain partial problems which we shall resolve one by one.

Th is paper therefore has three basic parts. In the fi rst we concentrate on the general question of the Country of Origin Principle. In the second we examine the function and operation of the Country of Origin Principle in the fi eld of the free movement of services, and in the last part we evaluate our fi ndings and off er a solution.

II. Th e concept of the Country of Origin PrincipleTh e Country of Origin Principle is a phenomenon which at fi rst glance has

the function of a type of choice of laws criterion. It is compared to a type of border designation instrument. However, it undoubtedly has a broader meaning, as we show in this article.

Its role likes primarily in the economic fi eld, in the fi eld of integration. As a consequence, its application shifts with (follows) economic, production and human factors and the legal code of the country.4

In connection with services, where it is most markedly applied, it places its emphasis on the interests of the service provider.5 Th e legal regime of a state is imported along

4 Even a fl ow of works published in the connection of e-commerce directive and draft directive on the services in the internal market, predominantly by German authors: K.-H. Fezer, S. Koos, Das gemeinschaftsrechtliche Herkunftslandprinzip und die e-commerce-Richtlinie, IPRax 2000, 349 f., B. Lurger, S. M. Vallant, Grenzüberstreitender Wettbewerb in Internet, RIW, 2002, 188 f., P. Mankowski, Das Herkunftslandprinzip als internationales Privatrecht der e-commerce-Richtlinie, ZVglRWiss 2001, 137 f., M. Hellner, Th e Country of Origin Principle in the E-commerce Directive − A Confl ict with Confl ict of Laws?, ERPL, 2004, 193 an., A. Th ünken, Das kollisionsrechtliche Herkunftslandsprinzip, Frankfurt 2003,W. Drasch, Das Herkunftslandsprinzip im internationalen Privatrecht, Baden-Baden 1997, M. Blasi, Das Herkunftslandsprinzip der Fernseher- und der E-Commerce-Richtlinie, Berlin et al., 2005, J. Hrádek, Princip země původu ve směrnici o E-commerce, (Country of origin principle in the e-commerce directive) Právník 2005, 285 f., P. Mankowski, Herkunftslandprinzip und deutsches Umsetzungsgesetz zur E-commerce − Richtlinie, IPRax, 2002, 257 f., J. Basedow, Dienstleistungsrichtlinie, Herkunftslandsprinzip und internation J. Basedow, Dienstleistung der Rechtlinie, Herkunftlandsprinzip und internationales Privatrecht, EuZW, 2004, 423; J. Basedow, Herkunftslandprinzip und internationales Privatrecht im europäischen Binnenmarkt für Dienstleistungen, Liber amicorum Pazdan, Katovice 2005, 621 f.

5 Cf. H. Weyer, Freier Warenverkehr und nationale Regelungsgewalt in der Europäischen Union, Berlin, New York, 1997, passim.

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with any service which is to be provided outside the border of such state from the perspective of the provider. Th e provider of the service is undoubtedly a signifi cant stimulus and the basis of the free movement. Th e service provider need not take into consideration the regime of the state in which it provides the service, since its relations, including the legal relations of the recipients of the services, are governed by its domestic laws: if the service is provided lawfully in the domestic state of the provider, it may be provided in all other member states (states of reception) under the same terms and conditions.6

Th e Country of Origin Principle is contained, as is known, not only in primary law, but in a whole range of sources of secondary law, primarily directives.7 A serious problem arose with the issuance of a directive on electronic transactions and in connection with the preparation of a directive on services, since it could obtain the status of a confl ict of laws provision. Even if we allow that the Country of Origin Principle does not represent a rule from the rules of international private law (also used in an abbreviated form as PIL), the problem of its relationship thereto is not thereby removed. It is necessary to admit, in accord with prevailing opinion, that the infl uence of the Country of Origin Principle is massive, since legal norms chosen according to confl ict of laws provisions may not restrict the freedom of movement of services (e.g. paragraph 23 of the preamble to the services directive).

A range of questions have arisen, of which the most important are:a) does the Country of Origin Principle operate purely on the substantive law level or

does it have confl ict of laws signifi cance or does it incorporate operation on both these levels? 8

b) Vis-à-vis which type of legal norms does the Country of Origin Principle (further also abreviated “COP”) operate − vis-à-vis the whole legal code or only in relation to private law or public law norms?

c) Is not it a factual issue in the case of COP, i.e. should not be COP considered a fact and not a legal principle?

d) To what extent an economic analysis also works here, or a mere consideration assessing the costs and benefi t or, as the case may be, their mutual relation in use of COP?

6 Cf. M. Poiares Maduro, Harmony and Dissonance in Free Movement, in: Andenas/Roth, Services and Free Movement in EU Law, Oxford 2002, 41 f.

7 Cf. E. Steindorff , Gemeinsame Markt als Binnenmarkt, ZHR 1986, 150 f., P. Behrens, Die Konvergenz der wirtschaftlichen Freiheiten in europäischen Gemeinschaftsrecht, EUR 1992, 145 f.

8 E. Steindorff , Grenzen der EG-Kompetenzen, Heidelberg 1990, E. Steindorff , Unvollkommenner Binnen-markt, ZHR 1994, 149-169,W.-H. Roth, Angleichung des IPR durch sekundäres Gemeinschaftsrecht, IPRax, 1994, 165 f.

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III. COP, PIL and the Internal MarketTh e Country of Origin Principle is enforced by means of recognition. Th e relationship

between the COP and the PIL is of paramount importance.

1. Recognition

Recognized are not only decisions or, as the case may be, judgments, but, above all, legal orders as systems of law in their total extent and eff ects. Th erefore, these recognitions do not constitute “fi ltered penetrations” as, e.g., when foreign decisions are recognized, but rather “massspillovers” of legal orders and their applicability beyond their “original” territorial operation.9

a) Th e principle of equality is in danger. Several varying treatments are being established in an identical environment, with diff erences (in the position of the persons concerned) ranging from marginal to substantial.10

b) A threat to the public interest arises. Th e goods whose protection is in the public interest may be aff ected. Th ese are thus external negative eff ects: protection of the environment, health, personal safety and labor safety.11

2. Effects of the COP to the Governing Law

Th e governing law is set under the confl ict of laws provisions, not under the COP. Once the governing law is set, the COP enters the stage as the sole gauge. Th e

following distinction must be made at the level of secondary Community law: In areas where the Community law has not been harmonized, the provision of the governing substantive law of the country of reception is compared to similar rules or regulations of the country of origin. If the scale of harmonization has been minimal, the secondary law of the Member State of reception serves as the grounds for comparison.12

Confl ict of laws provisions whereunder the law of the service provider prevails may not restrict the fundamental freedoms of the European Communities pursuant to the COP.13 If we follow the seat of the creditor, the loans and credits sector will bear

9 Cf. G. Spindler, Herkunftslandprinzip und Kollissionsrecht − Binnenmarktintegration ohne Harmonisierung, RabelsZ, 2002, 633 f.

10 Cf. T. C. W. Beyer, Rechtsnormanerkennung im Binnenmarkt, Berlin 1998 passim, E. Jayme, Chr. Kohler, Europäisches Kollissionsrecht 2001: Anerkennungsprinzip statt IPR, IPRax, 6/2001, 501 f., T. Struycken, Herkunftslandsprinzip und Dienstleistungsrichtlinie, in: G. Reichel (ed.), Das Herkunftslandsprinzp im europäischen Gemeinschaftsrecht, Vienna 2006, 35 f.

11 See L. Tichý, Fundamental Rights and Fundamental Freedoms, in: Pernice/Zemánek (eds.), A Constitution for Europe: Th e IGC, the Ratifi cation Process and Beyond, Baden-Baden, 2005, 51 f., T. Körber, Grundfreiheiten und Privatrecht, Tübingen 2004.

12 Cf. D. Martiny, Gemeinschaftsrecht, Ordre public, Zwingende Bestimmungen und Exklusivenormen, in: Chr. von Bar (ed.), Europäisches Gemeinschafsrecht und internationales Privatsrecht, Berlin 1991, 211 f.

13 Cf. W.-H. Roth, Angleichung des IPR durch sekundäres Gemeinschaftsrecht, IPRax, 1994, 165 f.

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the consequences mentioned above. Th e same issues arise if we try to fi t international labor law into the COP template.

In the cross-border sector, the PIL takes over functions for which the COP has never had any relevance. Th e confl ict of laws provisions serve to identify the law that must be applied to international contracts.

Any attempt to use the fundamental market freedoms with the aim of forcing the Member States’ confl ict of laws provisions to prefer the law of the country of origin must inevitably fail with view to Art. 31 of EC Treaty and to the Categorical Requirements Doctrine.14

Th ere is another argument counting against the attitude towards determination of the collision-law content of the fundamental freedoms based on the COP concept. It is not only the service providers but the service recipients who can appeal to the protection of freedoms. A person that accepts a holiday off er from a foreign travel agency etc. can defend itself against the limiting national regulations, in the same way as the foreign contractual partner, by means and based on the fundamental freedom relating to the given case.15

Anchoring the autonomy of the parties’ will into the fundamental freedoms results in the fact that any and all limitations of the collision-law autonomy need to be reasoned through categorical requirements of the general welfare. Th e contracts, on which international economic relations are based, may be subordinated by objective link-up only if such a procedure is supported by the general welfare and reasonability principle; the content of the material-law entitlements is irrelevant in such case.16 Th e fundamental freedoms are not limited only in the cases where the material law of the objectively applicable law burdens the transaction more than a comparable law, but through each irrespecting of the legal choice made by the parties.

Although both the systems have a number of similar features (e.g. the principle of equality of laws), the impact on relations with an international and/or European element etc., it is not possible to think about their functional equivalence. It is already their reason of existence itself, which is diff erent. Th e more their objectives diff ers. PIL pursue the abstract justice and is neutral in every level (save for the exceptions, as ordre public).17 Th e collision norm is not interested in the result. On the other

14 See K. Siehr, Das Herkunftslandsprinzip im IPR, in: G. Reichel (vyd.), Das Herkunftslandsprinzip im europäischen Gemeinschaftrecht, Vienna 2006, 93 f., G. Spindler, Herkunftslandprinzip und Kollissionsrecht − Binnenmarktintegration ohne Harmonisierung, RabelsZ, 2002, 633 f., M. Hellner, Th e Country of Origin Principle in the E-commerce Directive − A Confl ict with Confl ict of Laws?, ERPL, 2004, 193 f.

15 See T. Körber, Grundfreiheiten und Privatrecht, Tübingen 2004 passim.16 W.-H. Roth, Die Grundfreiheiten und das internationale Privatrecht, GS Lüderitz, Baden-Baden, 1999,

635 f.17 O. Karas, Das Herkunftslandsprinzip in der Dienstleistungsrichtlinie, G. Reichel (ed.), Das Herkunftslands-

prinzip im europäischen Gemeinschaftrecht, Vienna 2006, 101 an. E. Steindorff , EG-Vertrag und Privatrecht, Baden-Baden 1996.

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hand, the fundamental freedoms have a diff erent objective. Th is is a specifi c result. In other words, PIL is based on the idea of collision-law justice, while the fundamental freedoms pursue a material justice. PIL is a matter of assessment of each individual relation, while COP is a mass issue; it is a principle and normative solution.18

Another disadvantage is represented by the interference with the market or the competition, as the case may be, as the service provider brings along also its law against an unfair competition. Th us it imposes the standards of the law of the country of origin to third persons that are not in contractual relation to the provider and that neither have nor want to have anything in common with the provider. Th is also concerns the competitors of the provider.

Th e use of COP results in the support of chain-organized off erors of services at the expense of small and medium-sized enterpreneurships.

A missing or inconsistent control, as the case may be, as a result of the unilateral use of COP can also mean a creation of transaction costs as a consequence of defects in the service provision.19

An eff ective control in use of COP can be realized in selected segments only, e.g. in the insurance and banking industry. Th is concerns specialized control institutions, the regulators that can asses the activity of entrepreneurs in their segments comprehensibly.

Another weak point consists in inconsistence of COP amendments in the directives, i.e. the secondary law, which have created COP as a positive legal regulation, with a specialized regulation of the private and procedural international law, i.e. with the Brussels I, Rome I and Rome II regulations.20

Another disadvantage is represented by the necessary division of situations with respect to the services provided from the EU territory or, as the case may be, from outside of the EU territory. Th us, there are still cases created within the cummulation of EU laws, to which cases the law of third countries applies.21

It is only the law of the country of origin, i.e. COP, that decides on qualifi cation of the participation of a certain product or economic entity as a service provider in

18 See also H. J. Sonnenberger, Europarecht und internationales Privatrecht, ZVglRWiss 1996, 3 an. M. Hellner, Th e Country of Origin Principle in the E-commerce Directive − A Confl ict with Confl ict of Laws?, ERPL, 2004, 193 an. P. Mankowski, Wider, ein Herkunftslandprinzip für P. Mankowski, Wider, ein Herkunftslandprinzip für Dienstleistungen im Binnenmarkt, IPRax, 2004, 384.

19 Dienstleistungen im Binnenmarkt, IPRax, 2004, 384.20 Cf. P. Mankowski, Wider, ein Herkunftslandprinzip für Dienstleistungen im Binnenmarkt, IPRax, 2004,

384.21 P. Mankowski, Wider ein Herkunftslandprinzip für Dienstleistungen im Binnenmarkt, IPRax, 2004,

384; J. Basedow, Dienstleistungsrichtlinie, Herkunftslandsprinzip und internationales Privatrecht, EuZW, 2004, 427; W. Drasch, Das Herkunftslandsprinzip im internationalen Privatrecht, Baden-Baden 1997, E. Brödermann, H. Iversen, Europäisches Gemeinschaftsrecht und internationales Privatrecht, Tübingen, 1994, M. Blasi, Das Herkunftslandsprinzip der Fernseher- und der H. D. Jarass, Elemente einer Dogmatik der Grundfreiheiten, EuR, 1995, 202 f.

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the internal market. As to the market participation itself, the law of the country of reception has the decisive role. Th e solution of this problem is based on three levels:a) It has no relevance if the priority of one of the principles colliding with the internal

market principles in a specifi c case is neutralized already by division of the powers;b) It is necessary to point out that if the principles are derived from various objectives

and the Treaty regulations, in the end it is necessary to make a decision, in the case of a confl ict, based on the consideration of interests;22

c) It is necessary to stress the coordination dimensions of the fundamental freedoms as the protection parameters.23

Th e solution itself then follows from the previous:1) COP decides with respect to the legislative jurisdiction regarding the qualifi cation

for putting into circulation;2) Th e country of reception principle decides with respect to the jurisdiction regarding

the regulation of the participation in the market.

IV. Intent of Country of Origin PrincipleIt is a fault and mistake to think that the fundamental market freedoms and COP

are the same things. Th is principle contains neither suffi cient nor necessary conditions for realization of these freedoms.24 COP is a harmonization tool, i.e. a secondary communitarian law instrument. Allegedly, COP does not bring any knowledge for the primary communitarian law.25

1. Primary and Secondary Law of Internal Market

Th e country of origin principle is a direct deduction of the contents of articles 30 and 49 of the EC Treaty. Both these provisions forbid restrictions in reception of goods and services for other reasons than enumeratively recognized exceptions. It is logical that the producer and dealer of goods or the service provider, as the case may be, build on their environment, including the law of their own country. On the primary law level the country of origin principle means a unifi ed extent of reception of goods and services produced or provided under diff erent conditions. Realization of the country of origin principle means an implicit recognition of diff erent yet uniformly acceptable standards in the area of the fi rst and fourth freedom. Th us it also means realization of the principle of recognition of various quality standards in the individual member countries. At the same time this principle is an expression of the equality principle and thus of the prohibition of any discrimination based on the origin, which means, in this

22 Cf. A. Th ünken, Das kollisionsrechtliche Herkunftslandsprinzip, Frankfurt 200323 E. Brödermann, H. Iversen, Europäisches Gemeinschaftsrecht und internationales Privatrecht, Tübingen,

1994, but in particular 7 and 78 H. D. Jarass, Elemente einer Dogmatik der Grundfreiheiten, EuR, 1995, 202 f.

24 See H. D. Jarass, Elemente einer Dogmatik der Grundfreiheiten, EuR, 1995, 202 f.25 P. v. Wilmowsky, EG-Vertrag und kollisionsrechtliche Rechtswahlfreiheit, RabelsZ, 1998, 1 f. and 11.

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respect, a mere realization of the principle stipulated in art. 12 of the EC Treaty, i.e. the prohibition of any citizenship based diff erentiation.

2. Fundamental Rights and Freedoms

Understanding to the fundamental freedoms in the country of origin principle also means a very consistent execution of the fundamental freedoms, including but not limited to the freedom to protect ownership and entrepreneurship.26

Th e country of origin principle is a kind of synthesis of a number of principles that, in a certain rudimentary stage, can stand one against other. On the other hand, this means, after all, a harmonization of objectives of the common market and of the fundamental social rights.27

However, realization of these objectives supposes a minimum divergence of the individual national environments, including the law environment, and thereby a harmonization of laws of the member countries. Only in this way the various levels of the individual laws can remain bearable for a development of the common market. Only in this way it is possible to understand the fundamental human rights as communitarian human rights in the sense of a single legal environment in the territory of all member countries.

3. Relation to Domestic Values

Th is problem has two levels. Th e fi rst one is completely logical and comprehensible. It means that the law of the origin of the producer or provider is decisive for production or provision of goods or services. Th e second level is more diffi cult. It supposes a certain harmonization of the country of origin principle with the country of reception principle. Th e above-mentioned assumption means harmonization of diff erent environments and getting over confl icts.

First of all, it is necessary to avoid certain misunderstandings, which no doubt were one of the reasons of the original draft of the Bolkenstein directive failed. Th at’s because the country of origin principle has its logical limits, the neglect of which means occurrence of this misunderstanding. It is necessary to make diff erences between the production and sale of goods and provision of services (putting into circulation) on one hand and the reception of these values on the other hand. Here, an absolutely clear border has to be raised. Th e conditions of storage of goods, its repairs and modifi cations, reception of service, including the conditions that are inseparable from this action (e.g. a building permit, surgery furnishing etc.), to which the law of the

26 W.-H. Roth, Systemwechsel in europäischen Kollisionsrecht, in: Bauer/Mandel (eds.), Systemwechsel in europäischen Kollisionsrecht, 47 f. p. 90, P. v. Wilmowsky, EG-Vertrag und kollisionsrechtliche Rechtswahlfreiheit, RabelsZ, 1998, 1 and 12 f.; L. Tichý, Fundamental Rights and Fundamental Freedoms, in: Pernice/Zemánek (eds.), A Constitution for Europe: Th e IGC, the Ratifi cation Process and Beyond, Baden-Baden, 2005, 51 f.

27 T. Körber, Grundfreiheiten und Privatrecht, Tübingen 2004.

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country of reception (destination) applies, has to be necessarily separated from putting of the service or goods into circulation.

V. Conclusions and Solutions1. Th e COP is, similarly as other principles and phenomena labeled in this way, an

expression of optimization of a certain solution (task) of the inner market functioning. It means aff ecting a certain tendency (of interpretation or understanding) of a fundamental freedom that was also expressly stated in the secondary law.

2. However, the express anchoring of COP is an “abstract” solution, as it necessarily allows a very broad interpretation that can be applied in diff erent ways to the positive-law regulations contained in both the primary and, above all, the secondary law, and also to the interpretation of the factual circumstances.

3. COP is a solution preferring basically the off er side of the market to the demand side, as its law is decisive for the area of admissibility, entry into the market and inspection of the service provision.

4. Th e key aspects for application of COP, from the fundamental human rights point of view, include but are not limited to the following: the protection of ownership and equality, possibility of effi cient control, PIL principles, possibility of recognition and perspective of legal safeguard or legitimate expectation, as the case may be.a) It is necessary to measure the occurrence and discrepancies in the area of so-

called reverse discrimination from the fundamental human rights points of view, provided that this occurrence and discrepancies are not caused exclusively by legislation of the country of reception.

b) An effi cient subsequent control is a part of the principle of legal community and an impossibility of its effi cient realization is an unambiguous limitation of the COP eff ect.

c) MPS principles. Th e limits of COP assessment are given by the area of the public law, although even this area can in exceptional cases aff ect the segment of private-law relations regulated by PIL in the form of absolutely mandatory norms.

d) Recognition is of a substantial importance and it is also necessary to under-stand its limits. Th ey are very important, though they might be hardly noticed in the area of the positive law, as it does not stipulate the conditions or obsta-cles, as the case may be, for the recognition so far.

e) Legal safeguard and legitimate expectations. Th e legal safeguard and its conse-quence consisting in a legitimate expectation are the primary requirements for establishment of the relatively well ascertainable limits of the COP eff ect.

5. Th e COP eff ect and its limits representing the possibility of realization of a public interest are given by the following factors:

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a) COP has not the absolute position in regulation of the fundamental market freedoms, including the freedom of free provision of services. Th is is also docu-mented by an array of exceptions in the secondary law regulations in force (see the directive).

b) Th e material competence is limited to the public-law relations, save for the direct impact on the absolute mandatory norms.

c) COP includes the principle of recognition, the limits of which has to be deter-mined for the case of confl ict with the public order, in particular.

d) Th e COP material competence means not only the possibility of application of other principles, including but not limited to the country of reception princi-ple, but also the general exceptions based on the public interest of the country of reception.