The European Stability Mechanism and the Fiscal Compact in European Integration

Abstract

The European Stability Mechanism (ESM) and the Treaty on Stability, Coordination, and Governance, often referred to as the Fiscal Compact, constitute two of the main European Union (EU) instruments for dealing with the eurozone crisis. Both had to be established as intergovernmental agreements outside of, but parallel to, the EU’s legal framework. However, the instruments were closely linked to the European Community framework and made extensive use of Community institutions. The ESM was originally set up as a loan facility to Eurozone countries facing problems financing their debt, but it became much bigger in size and scope than originally envisioned by the member states. The Fiscal Compact, on the other hand, can be considered as the fiscal counterpart to the ESM. It received a lot of attention in the press and academia, but it was first and foremost required as a political signal that would allow further enhancements of the ESM. The two instruments are often employed in the literature as part of a continuing juxtaposition of intergovernmentalist and supranationalist methods or approaches. However, from a theoretical perspective, the ESM and Fiscal Compact reflect an acknowledgment of new realities in European integration, in which intergovernmental actors and action channels play a more prominent role in decision making, but this does not necessarily come at the expense of the supranational actors. The instruments exemplify the rise of the European Council’s centered governance for dealing with major reforms. The processes of setting up the ESM and Fiscal Compact were undoubtedly political and top-down, but they were less driven and controlled by the big member states than the label ‘intergovernmental’ implies.