How The Troika Breaches EU Law

How did the troika come about formally?

In 2010 it became apparent that the European constitution offers no clues as to how one should handle financial crises on this scale. So, instead of setting in train the democratic procedures designed to do this, EU law swiftly went out of the window and one seized on international law instead. The troika is a construct that came about via regulations in international law concerning rescue mechanisms.

What would have been the right way to proceed?

An amendment to the EU treaties foreseeing the early involvement of the European Parliament. The Parliament would have had a veto right via a convention and the “new” amended treaties would have to have been ratified by national parliaments as well according to individual countries’ constitutional procedures.

Would that also have meant, on the other hand, that an individual country would have had a right of veto and could have stopped the whole thing?

Precisely.

How are the agreements put into effect?

Here there’s a very clear division of labour: The Eurogroup is really only there to co-ordinate things – even if it has lots of power in real terms, legally it can’t decide anything. In rescue politics as such, the “programme” countries. e.g. Greece or Portugal, reach deals with the troika known as programmes – aka “memoranda of understanding.” These programmes prescribe conditions. If the conditions are met, then money is transferred from the rescue funds. But then ratification in the relevant rescue funds is required. Right now, that’s the European Stability Mechanism or ESM, which foresees a governing body having to take a unanimous vote on each programme as it comes up.

Who sits on this governing body?

The finance ministers of the countries in the euro.

What did the troika programmes of recent years prescribe?

On the one hand, radical cuts in public services, on the other hand, competitiveness via wage and social dumping. These were in any case the conditions of the programmes for handing out money. A quarter of Greece’s GDP went under, unemployment is now around 28%, even as much as 60% among young people. Half of Greeks are no longer insured against ill health, rates of suicide and premature deaths in kids have gone through the roof. Even the real goal that’s constantly been trumpeted so loudly – cutting debt – hasn’t been achieved: in 2010, debt was about 120% of GDP, now it’s closer to 175%. Putting this together, one can say that in Greece it’s not the workers, the poor and the jobless who’ve been rescued.

If a troika measure doesn’t conform to the laws in the relevant country, what happens then? There’s for example the case of the cleaning women who were employed in Greek ministries and were sacked during execution of the cuts programme. These sackings were declared illegal in Greece’s highest court.

There are various paths: first, as we said, to make an issue of the fact that this is contrary to the constitution of the relevant country. If that succeeds, this can lead the constitutional court to annul the corresponding measure. This happened twice in Portugal with regard to pensions reforms prescribed by the troika. Of course there are other ways, for example using EU law. But the problem here is that, although many measures of the troika are extremely dubious under EU law and almost certainly are in breach of it, there’s only a limited legal protection: If I wanted to enter an action to declare it null and void, that could only go ahead without further conditions if I were a member state or an EU organ. If I were one of the affected cleaning women I would have to furnish very complicated evidence that I am “directly affected.” That’s pretty hard for the most part.

There’s also a study about this – “The politics of austerity and human rights” examines the troika’s policies of recent years for their legality. What are the most pertinent findings?

The central findings are: Conditions pertaining to money from rescue funds are not problematic in themselves. It is about the concrete shape of the conditions. If you consider that the Greek health service was brutally curtailed, you can see that such conditions are in breach of certain basic rights which are guaranteed by the EU charter of fundamental rights or in the European convention of human rights. Here, for example, the right to health. The study examines that by way of various Memoranda of Understanding and concludes that several fundamental rights have been massively breached. On this, one can declare that states can of course interfere with fundamental rights but must act proportionately: they must prove that they had no lesser means of intervening in order to achieve a certain goal. This goal was the consolidation of budgets. Clearly, there could have been less interventionist possibilities of consolidating budgets – such as through wealth taxation which in Greece is below the Eurozone average level. Or via defence spending which is far too high in Greece, disproportionately so compared to the Eurozone. But no conditions were set in this area.

The media always report that “creditor countries” always insist on the need to “stick to the treaties” – a mantra repeated by Juncker and Schäuble. But others talks of German “imbalances.” What are the rules of engagement here?

There’s a lot of hypocrisy here because the demands made of Greece can be applied to the institutions themselves. The troika is obviously in breach of EU law because of the inadequate mandate of the ECB; its concrete programmes breach the charter of fundamental rights.

What rules would Germany be subject to when one is considering external economic imbalances within the single currency zone that affect all Euro countries?

Unfortunately, Germany succeeded during the negotiations in pushing through the argument that current account deficits and surpluses (like that of Germany) should not be treated equally. They may be two sides of the same coin as economists such as Heiner Flassbeck assert but Germany used its undoubted power in the negotiations to push through an agreement that surpluses have far higher margins than deficits. So, the EU Commission has not set in train the type of procedure that would challenge the “world champion exporter” role of Germany.

What parallels can we concretely draw with the way the crises were handled politically in the 1930s?

In the 1930s the same thing happened in Germany and Austria as now: the collapsed economy meant that the state’s receipts sank like a stone. The argument on the conservative and ordo-liberal side was that this was not the problem of financial markets and deregulated capitalism but the excessive demands of the population, of workers, and of the unions. The idea of how this should be handled – it’s interesting that the same concepts have really been used here – was, for example, the introduction of a “debt brake” in Germany, the introduction of cuts commissars for certain countries and cities. We’re experiencing the same breach of law that we can also observe partially today at EU level. That is, bypassing the then valid Weimar constitution, laws were enacted executively through emergency decrees.

Is that also the reason why the Greek government always raises the idea that the only solution in its view is a pan-Eurozone debt conference – back to the future, so to speak?

I don’t think history simply repeats itself. But it’s clear that today’s crisis politics, which is very similar to that of the 1930s, makes it more likely that there’ll be authoritarian solutions. It would be vitally important to counter this early on and I think the Greek government’s proposal to at least draw similar lessons as one did then and summon a debt conference would be sensible. Interestingly enough, the debt conference that took place after World War 2, judged by external conditions, was in a similar condition as today’s: Germany then had even higher debts than Greece. After the war caused by Germany and Austria German debt stood at 200% of GDP. People said then that these debts were not sustainable and if one didn’t provide any relief there was a great risk that right-wing authoritarian forces would win through again. So, one went for a haircut then, wrote off half of Germany’s debt and linked repayment of the remaining debt to renewed economic growth in Germany. In the end that helped Germany’s post-war economy to grow very successfully.

This is an edited version of the transcript of an interview with Lukas Oberndorfer, a lawyer and EU expert in the Austrian chamber of labour, carried out by Johanna Jaufer of state broadcaster ORF. The full interview (in German) can be read here: http://fm4.orf.at/stories/1755186/