Law, Fiscal Federalism, and Austerity

Abstract

In response to the Eurozone crisis, European Union leaders have undertaken a number of dramatic reforms, including the imposition of a new regime for fiscal governance of Eurozone Member States. The 2012 Fiscal Compact Treaty, one of the lynchpins of this package of reforms, requires states to incorporate judicially enforceable balanced-budget rules into national law. This article explores this effort to judicialize austerity in the European Union, focusing on two interrelated sets of questions. First, why did EU leaders turn to the courts and ask them to become the stewards of fiscal discipline, and second, should we expect the effort to judicialize fiscal discipline through the Fiscal Compact to work? I argue that after the failure of the Maastricht Eurozone governance regime, Member State governments concluded that the enforcement of fiscal rules must be shielded from political interference and entrenched at the national level, where national courts could assure that EU rules were respected by reluctant governments. Nevertheless, I conclude that these efforts will fail because they are based on a misunderstanding of when and how fiscal rules are actually enforced. The vague character of the balanced budget rules adopted in the Fiscal Compact Treaty along with other background conditions in the structure of the Eurozone mean that the rules are unlikely to be enforced.