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Sov versus Integration 01

Sovereignty versus Integration in the Internal Market and the EMU
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Sovereignty versus Integration in the Internal Market and the EMU

Table of Contents

Introduction 2
Subsidiarity and Sovereignty 3
Institutional Subsidiarity 3
Governmental Subsidiarity 4
Civil Subsidiarity 5
Legal Subsidiarity 6
In the Treaty 6
In the Protocol 6
Cases 7
The Internal Market 8
Customs Union 8
Direct Effect 8
Harmonisation 9
Mutual Recognition of Trade Rules 9
Keck 10
EMU 11
Designs for EMU 11
Experimentation on the Way to EMU 11
Maaswtricht 12
Stability and Growth Pact (SGP) 14
Implementation of EMU 14
Conclusion 16
Bibliography 17
Table of Cases 21

Introduction

This papaer begins with a discussion about the various meanings of subsidiarity. Second, some milestones in the development of the internal market are examined in the light of subsidiarity. Third, the impact of EMU in its phases on sovereignty is examined and a comparison . Finally the tensions between integration and sovereignty/subsidiarity in these two domains are compared.


Subsidiarity and Sovereignty

Subsidiarity is an exceptionally difficult word with shades of meaning and divergent usage. The first step in clarifying meaning is to examine context.
"The analysis and the learning of any language should be based on the study of sentences, that is of the language as it is actually found in use. It is useful to study words in order to understand the sentences, but, like roots and stems, isolated words are in fact mere abstractions devised by grammarians for the analysis of language. ... For purposes of study we have to assign approximate meanings to words and list these in vocabularies, but these generalized meanings of words are extremely vague, whereas sentences have exact meanings. In translation one may find close equivalents for sentences, whilst it is often impossible to give close equivalents for words.".

One can examine four ways in which "subsidiarity" is used, four shades of meaning. Each one of the submeanings will be much simpler and more precise than the interwoven complex concept. By examining them in this artificial separation, an then mentally reassembling them the meanings can be better understood.

The usage of the word "sovereignty" is far simpler. For the present purpose a detailed semantic analysis would be superfluous.

Both of these words are important. John Kenneth Galbraith wrote, during the early 1990's, in the final chapter of his summary of the world economy after the world wars;
"The conflict between the advocates of association and the advocates of separate states is currently creating intense debate and dissension in Europe. the sharpest focus is on the plan for a single currency. This is a very attractive goal but one that definitely must await co-ordination of the economic and social and the with the fiscal policies of the individual states. Without such co-ordination, a common currency is a superficially compelling but idle dream."

Subsidiarity can be controversial.
“Subsidiarity is a profound concept, a political choice and not a method of administration like decentralisation. It implies the priority of autonomy over equality, the divorce of politics from the state. The role of the state is no longer to guarantee a 'public interest' but rather to aid citizens in pursuing their own. The result is empiricist, heterogeneous and locally consensual. It's just the opposite in France where there is belief in public interest that is not just the sum of local interests. Subsidiarity renders political decisions contingent, which is a sin against the Holy Ghost in France. French logic is universalist and anonymous, it treats problems, not cases. German logic is the opposite; its legitimacy lies in taking account of particularities because they constitute reality.”

This disagreement between the EC's two strongest founding Members is one, only one, reason why subsidiarity is complex, important and controversial.


Institutional Subsidiarity

The political power of the EC is concentrated in four core institutions. Two, the Court and the European Parliament, function in a supranational way. The Council is by definition intergovernmental. The Commission is best categorised as partially intergovernmental.

To call the Commission partially intergovernmental is a bit iconoclastic and requires justification. First, the Commission's meetings are prepared by Coreper I and II which are attended by the ambassadors and vice ambassadors of the Member States. Second, the Council frequently makes requests, which resemble direct orders, to the Commission. Third, obedience to the Commissioners' oath of office which calls for complete independence, is unverifiable and unenforceable. Fourth, where the Council delegates powers to the Commission it routinely installs a management committee or even a regulatory committee. By the rules of comitology, the Commission needs to gain the support of a qualified minority (management committee) or even of a qualified majority (regulatory committee) of national government representatives in order to proceed with its plans. Fifth, most of the EC work on the ground of Europe is carried out by national administrations co-operating, more or less, with the Commission and with one another. Because the Commission is dependant on the Member States' good will; only extreme cases of persistent defiance can be brought before the Court. Sixth, the budget for the EC institutions is collected by the governments of the Member States. It is symptomatic that the Commission used to remit ten percent of these so called “own resources” to the Members as a collection fee, and has now increased that to twenty-five percent.

Seventh, there are many reports of members of national government who influence the Commission in a manner that is at best semi-official and only slightly transparent. In 2002 Romano Prodi and Gerhardt Schröder had dinner together with some key aides. "As one senior official said afterwards: 'In formulating policy, the Commission will give heightened attention to some of the things which were discussed during the dinner., If there is a feeling from such an important and distinguished national leader as Chancellor Schröder about the capacity to accept change, then that is something to think about.'" Please note; there is no claim that the Chancellor's facts and logic were overpowering, a "feeling" from a "distinguished national leader" will be considered when policy is formulated.

It is the two at least partially intergovernmental institutions that begin the process of decision taking. The EP becomes active afterwards and finally the Court of Justice may intervene, provided that a suit is brought before it. The masters of the Treaties have structured the system of institutions in such a way that their sovereignty remains difficult to challenge.


Governmental Subsidiarity

The previous section addressed those parts of Member State governments' that are actively involved in the European decision process. Only a very small fraction of the national civil servants are involved in "Brussels" and can thus directly identify with the goals and methods of the EC as participants. They consist the EC in-group. The remainder of the national civil servants are no more than observers of this complex process, the out-group. They lack the motivation and capacity to study European affairs profoundly enough to understand the reasons behind decisions they are being asked to implement. What is left for them is a sense of alienation from an incomprehensible foreign power. This leads to a defence of sovereignty and subsidiarity that can be called an unconditioned reflex, to borrow a term from behaviourist psychology.

This structural resistance against being overpowered by the EC institutions has been effective. Three decades after the European customs union was completed, Kamil Mortelmans could write that "a genuine internal market still does not exist. Approved EC directives are not respected, for instance in the field of public procurement."

As long as a government remains below certain thresholds with its de facto subsidiarity, it has little to fear from the Court because "it is probable that in most circumstances of small-scale individual loss barriers to effective access to justice will be too high to provoke vigorous private litigation even where aggregate loss is considerable."

In Germany the Länder have sufficient influence to remind the federal government of the importance of observing subsidiarity. They have their own representations to the EC in Brussels and a majority of Länder can block much federal legislation in the Bundesrat. The Länder governments campaigned vigorously for subsidiarity during the preparations for the Maastricht IGC. These 16 subnational governments add their weight to that of the 15 national governments when it comes to defending diversity.


Civil Subsidiarity

The most effective defenders of sovereignty and subsidiarity have been the people themselves. Germans have defended subsidiarity since the Holy Roman Empire;

“For all there attachment to the creation of a united Germany, Bismarck and his successors never dared to disrespect the existence and the rights of the federated states, not even of those who formed the Prussian confederation. The competences that they had been accorded were never reduced by the republics of Weimar and Bonn. Only Hitler and the USSR suppressed them, a proof of their legitimacy a contrario.”

There is a division of labour: French citizens specialise in the defense of national sovereignty, while Germans concentrate on subsidiarity.

The most straight forward effect of civil discontent made itself felt when the original versions of the Treaty of Maastricht, and of Nice were defeated in referenda despite strong efforts by the political classes of Denmark and Ireland. The French referendum on Maastricht resulted in approval by a thin margin. "As one highly placed énarque has recently put it; 'Of course we want monetary union. Ninety per cent of the élite want it. There is a little danger because the people do not want it; but we will take care of that.'" To take the Irish example; "... the Commission's reprimand on Irish budgetary policy. The latter move struck a chord with Irish public opinion, which felt annoyed at the criticism from their EU partners and surprised at the right of the EU to comment on domestic budgetary plans.".


Legal Subsidiarity

Distinguishing the legal meaning of "subsidiarity" from the other three more political meanings will much eliminate confusion.


Subsidiarity in the Treaty

Art. 5 excludes most areas of EC (and EU) action from the scope of subsidiarity.

First, subsidiarity concerns the European Community, not the European Union. Second, subsidiarity in Art. 5 is applied exclusively to the sharing of power between the Community and the Member States.

The areas of Pillars II and III and the “exclusive competences” of the Community under Pillar I are excluded from the compulsory application of subsidiarity under Art. 5. That leaves the shared competences of the Community under Pillar I for subsidiarity. Craig and de Búrca rightly call exclusive competence an “ill-defined concept” . They contrast Toth's extensive interpretation of subsidiarity with Steiner's more restrictive one which includes all those areas in which the Community has already legislated. The internal market and the EMU have been subjected to extensive primary and secondary legislation by the Community, taking them into the realm exclusive EC competence even under its narrower definition. Thus legal subsidiarity applies neither to EMU nor to the internal market.


Subsidiarity in the “Protocol on the Application of the Principles of Subsidiarity and Proportionality”

The bulk of the Protocol's text is devoted to limiting the application of subsidiarity. Art. 2 ordains that subsidiarity will respect “the general provisions and the objectives of the Treaty, particularly as regards the maintaining in full of the acquis communautaire and the institutional balance, it shall not affect the principles developed by the Court of Justice regarding the relationship between national and Community law …”.
This places the internal market legislation of the SEA and the EMU provisions of the TEU beyond the reach of legal subsidiarity.

Art. 5 of the Protocol gives three guidelines for deciding when Community action is justified. EMU and the internal market are covered by all three. Thus, even if there were no EC legislation in these fields at a given moment, such legislation would be in accord with the Protocol and would then take both fields into the area of exclusive competence.


Cases involving Subsidiarity

Directive 98/44/EC sought to establish a European framework for the legal protection of biotechnological inventions. The Netherlands brought an application for annulment which included as its second plea the submission that the Directive violated the principle of subsidiarity, or at least did “not state sufficient reasons to establish that this requirement was taken into account” . The Court rejected the part of the plea based on the principle on grounds that “As the scope of that protection has immediate effects on trade, and, accordingly, on intra-Community trade, it is clear that, given the scale and effects of the proposed action, the objective in question could be better achieved by the Community.” It rejected the part of the plea based on insufficient reasons by noting that three of preamble's recitals refer to protecting the internal market from impediments. This means internal market directives, at least, are immune to legal subsidiarity except in the improbable case in which the legislator openly expresses contempt for Article 5.

However, the answer to the third plea brings something of a surprise. There, the Dutch government had pleaded that the Directive breached the principle of legal certainty by giving “national authorities a discretion in applying concepts expressed in general and ambiguous terms, such as order public and morality” . The Court answered that “However, that scope for manoeuvre is necessary to take account of the particular difficulties to which the use of certain patents may give rise in the social and cultural context of each Member State, a context which the national legislative, administrative and court authorities are better placed to understand than are the Community authorities.” The s-word was carefully avoided, but the meaning remained clear. The Court rejected legal subsidiarity while applying the institutional kind.

In Gourmet the Court referred the decision about the proportionality of a ban on alcohol advertising back to the national court in both the contexts of freedom to trade in goods and to provide services. If this pattern is repeated, that will constitute a trend towards the practice of subsidiarity and away from explicit references to Article 5.

After reviewing case law one author concluded that "Judicial review is likely to be confined to examining whether the assessment reached by the responsible institution has been vitiated by manifest error or abuse of powers, or whether the institution has manifestly exceeded the limits of its discretion."


The Internal Market

Customs Union

This first phase in the construction of the internal market went smoothly and was finished ahead of schedule.

That this political ease is a long term, structural effect can be seen by the continuos progress that customs cooperation has enjoyed. 1993 was a difficult year for European institutions, but it was also the year in which the "Common Customs Code" was adopted, going beyond mutual recognition and harmonisation all the way to the unification of European customs law.

It was governmental subsidiarity that began to make itself felt.


Direct Effect

In 1962 the developing customs union was challenged by a part of the Dutch government through a small increase of customs duty on ureaformaldehyde. Among other things the Dutch authorities asked whether theirs' was "an unlawful increase within the meaning of Article 12 of the EEC Treaty or whether it was in this case a reasonable alternation of the duty applicable before 1 March 1960, an alteration which, although amounting to an increase from the arithmetical point of view, is nevertheless not to be regarded as prohibited under the terms of Article 12"

This is governmental subsidiarity in practice; the Treaty is treated as a flexible guideline for a sovereign state that acknowledges arithmetic, but does not bow before it.


Harmonisation

Eliminating non-customs barriers to trade proved to be far more difficult than implementing a customs union. The EC made the same bad experience at the European level that GATT made internationally.
.“The most important reason for the adoption of total harmonisation as the main instrument for creating the internal market lies in distrust of and intolerance towards the protectionist rules and procedures of other Members as well as the protectionist stance of each Member State. Thus the Member States refused to adopt the Commission proposal for automatic mutual recognition during the reforms of 1986 and later did not apply Article 100 b, which they had adopted, in Counsel.” Here governmental subsidiarity developed into the institutional variety; the Members had discovered how to use EC institutions to thwart the EC.

Directive 83/189 "which provided for an information procedure in the field of technical standards and regulations" is emblematic of the struggle over technical standards. "In a Communication of October 1, 1986 the Commission stated that non-compliance with the notification procedure would have the effect that the technical regulations could not be binding on private parties." The Court confirmed the direct effect of Article 8 of this directive in 1996. That is to say that the Commission needed ten years and the help of the Court in order to obtain the enforceable right to be notified of technical standards.


Mutual Recognition of Trade Rules

In Dassonville the Court ruled that although the Community had no system for guaranteeing the correctness of designations of a products origin, the Members could not maintain their own authentication schemes. Such schemes were found to be a discrimination against indirect in favour of direct importers. The implication was that if a Member had lost his right to discriminate between different kinds of importers, it had surely lost the right to discriminate against all importers.

Cassis de Dijon is the most important and the best known decision of the Court to date. The Court swept uncounted national regulatory rules aside with this one precedent. It was practising the opposite of institutional subsidiarity, while the Commission was still supporting the Members right to regulate markets.


Keck

Mortelmans writes that "one has the impression that most of the Member States approve of the application by the Court of Justice of the subsidiarity principle in the Keck case." It has been seen above that legal subsidiarity cannot have been applied because of exclusive Community competence, so the question arises as to what kind of subsidiarity influenced the outcome of Keck.

Paragraph 16 of the Keck judgement places the "national provisions restricting or prohibiting certain selling arrangements" beyond the reach of harmonisation and mutual recognition provided that they "apply to all relevant traders operating within the national territory and so long as they affect in the same manner, in law and in fact,, the marketing of domestic products and of those from other Member States" . For good reason there is no mention of Article 5 or the Subsidiarity Protocol. The words "all traders operating within the national territory" cannot be reconciled with the principle of subsidiarity because they impose the principle of equality on the national legislator.

There is an example of how Keck can clash with, at least, the German idea of subsidiarity and which has the potential to come before the Court one day. Art. 70 of the Grundgesetz gives the Länder control over public holidays. Some Länder have as few as nine, others as many as twelve public holidays. Overall there are fifteen dates to choose from. With a few exceptions for the convenience of travellers and transport workers, all shops remain closed on public holidays. Depending on the accidents of the calendar, some traders have three days per year more than others to move their merchandise. This differentiation has tangible economic and ecological effects: on Catholic-only holidays the shopping malls of adjoining Protestant Länder overflow and the Autobahn leading there is jammed. It appears that Keck offers no protection to this national arrangement for respecting local customs.

While Keck has no relation to the other three aspects of subsidiarity, it is an example of institutional subsidiarity practised by the Court in favour of the regulatory power of national governments.



EMU

Minting currency is the right of a state. Does an entity that has transferred this right elsewhere still count as a sovereign state? Doubts about this grew with each step towards completion of EMU.


Designs for EMU

In September 1964 the Commission published a policy paper entitled “Initiative 1964” which set out economic union and monetary union as two goals. Based on the Barre Plan, the Final Communiqué of The Hague Summit in December 1969 made EMU a goal of the then EEC.

The Werner Report laid out a road map to monetary union in 1971 with a view to reaching that goal by the end of the decade, but twenty years went by before agreement was reached at Maastricht. After one more decade the Euro coins and bills physically displaced most of the old national currencies.

These designs for an EMU were not taken as a threat to any countries sovereignty.


Experimentation on the Way to EMU

The Bretton Woods system of fixed exchange rates collapsed in the summer of 1971, creating both a need and a willingness to experiment with monetary policy. The first response was the informal creation of the currency 'snake'. Europe's central banks were to keep its currencies within 4.5% of their exchange rates through interventions in the market. The currency snake might have been called a 'raft' with more justification. It was the European attempt to float together rather than drown separately.

The snake was developed further into the European Monetary System, the EMS, by Giscard d`Estaing and Helmut Schmidt. “The EMS was based on a non-legally-binding instrument, the Resolution of the European Council of 5 December 1978, which lay down the structure of the EMS. Operating procedures were set down in another non-legally-binding instrument, an Agreement between the Central Banks of the Member States of 13 March 1979.” Given the difficulty of enforcing those commitments that are legally binding, it appears that the non-binding arrangements of the 1970's and 1980's had no negative impact on any state's sovereignty.

The Third Capital Directive of 1988 abolished restrictions on capital movements within the EC, closing a last potential loophole for national interest rate policies. During the nearly two decades that bankers had lived without Bretton Woods most people had grown accustomed to media reports about an anonymous entity going by the pseudonym "foreign exchange market" that was strongly influencing what they could earn with their savings and what their loans cost. What aggravated the situation was the correct perception that power over the price of money was being transferred not to the Council of Ministers but of the directors of the Bundesbank. This strong influence was the natural result of decades of successful struggle against inflation, but the notion that Germany's central bank might be somehow justified in influencing monetary policy across Europe by its record was inconceivable. The advocates of sovereignty preferred national deficits and patriotic inflation to Teutonic stability. Threats to sovereignty coming from the crumbling USA or from anonymous markets could not compare to the long shadow of a Germanic central bank. This situation at the end of the 1980's had become unsustainable as the collapse of the east German Democratic Republic became ever more likely while nearly no one foresaw the weakness that reunification would bring to Germany.

The way out of the dilemma was to adopt German methods while eliminating D-Mark?. German methods, with the "made in Germany" label removed, where quite acceptable to the bulk of Europeans because “average voters and politicians typically prefer central bankers who are even more rigid and more averse to inflation than themselves” .

The EMS fell apart in September of 1992 when the sterling withdrew completely, the lira was suspended and the peseta devalued. There had been no realignments within the system since 1987, giving an appearance of strength that was out of proportion to the reserves of currency available to counteract speculation and market pressure. This re-enforced the impression of being at a crossroads leading either to the abandonment or the completion of the monetary union.

The phase of monetary experimentation had driven home the conclusion that what was needed was either an enforceable system of rules, or no system at all. A challenge to sovereignty had emerged from the tumult of the money market.


Maastricht

From the point of view of sovereignty there was reasonable to proceed towards monetary union with all possible speed because it was feared that a united Germany might become so strong that it would simply refuse to give up its currency. There was not the time to worry about the "E" of EMU.

The Maastricht criteria for entry into EMU appeared draconian, but there they were only imposed on candidates who volunteered to join. Three Member States who were as well qualified as the average volunteer state exercised their sovereignty by declining to join. This could be done in the Treaty, or through a referendum and Protocol or by not joining the EMS.

A candidate could enter after fulfilling the criteria for three years and there were no provisions for expulsion or even suspension.

A more detailed look at the four criteria and their application shows some additional non-apparent flexibility.

As to the ceiling on national debt; it was not applied. No EMU-applicant was barred because of it. Greece and Belgium exceeded the limit considerably and they certainly could not force their way into the club, but the door opened for them.

The limit on deficits was applied more strictly and caused some discomfort. One mitigating factor lay in the charms of creative accountancy; were the debts of provinces, regions, communes, public and semi-public enterprises and institutions should be entered into the balance sheet was debatable. The public private partnerships promoted by the Commission could also provide some camouflage for budgetary problems. There was the question of valuation of public assets. Second, as noted above, there remained the prospect of loosening the budgetary belt once the three years were over.

The two other criteria can be treated together because they involve interaction between markets and central banks. They concern EMS membership and the long-term interest rate. It would be very difficult to deceive the thousands of well-informed professionals who make the markets over a period of three years. Some real belt-tightening in the form of budget cuts became necessary.

When rules about how to spend its resources are imposed on a state, albeit with its consent, that is certainly a reduction in what might be called its absolute sovereignty. What about relative sovereignty? There is some institutional subsidiarity at work here because the binding obligations concern the bottom line of the national budget, not the individual budget lines that go into it. At Maastricht the directive rather than the regulation was used as a model by the EMU draftsmen. Observing the convergence criteria adds to public resources by cutting down on the cost of interest. Money that is saved in the present can be spent later. Taking a long term view, there is probably a modest net gain in sovereignty through greater independence from financial markets.

To summarise, at Maastricht state sovereignty was pooled and short-term sovereignty was transformed into long-term.


The Stability and Growth Pact (SGP)

The risk or opportunity of Member States diverging from the convergence criteria after they had irrevocably been admitted to the EMU was noticed and discussed. The Stability and Growth Pact (SGP) was an attempt to forestall such developments.

According to the SGP a Member that violated the deficit or debt criteria would be reprimanded, it would be forced to lodge an non-interest bearing deposit of up to 0.5% of its GDP, finally this deposit would be confiscated if the Member does not correct its policies. There were some reasonable exceptions; if a Member's economy had contracted by 0.75 - 2.0 % if might be given permission to run a deficit that exceeding the criteria, if its economy had contracted by more than 2.0%, it had be given this special permission.

The SGP was given the form of a directly binding regulation. The conditions and the timeframe for protecting stability were spelled out in detail. Its rigor was reinforced by a resolution of the European Council calling for its unflinching enforcement.

On paper, this began to look like a threat to a Member's sovereign right to borrow as much money as the market would lend.


Implementation of EMU

Sovereignty was soon reasserted as the second phase of EMU progressed. First, the French government exerted strong pressure in order to obtain the post of ECB Director for its candidate. Given the generally poor track record of French monetary policy this demand was strongly opposed by other Members. As a compromise, the Director's term of office was shared between the leading Dutch candidate, who enjoyed an excellent reputation, and his French rival. Mr. Trichet, the French candidate, subsequently came under investigation for his role in the Credit Lyonaisse banking scandal.

Second, the French government proposed various more or less formalised committees to supplement and complement the EMU institutions. Most commentators concurred that these organisms would neutralise and at least partially nullify the Treaty-based institutions.

Third, there was a weakness in the SGP's design.
" In December 1996 Otmar Issing complained already that one cannot be satisfied with a decision mechanism in which fiscal sinners pass judgement on other sinners. Our experimental results provide clear and convincing evidence to support this hypothesis." In practice, punishing a sovereign state, regardless of its power, proved to be extremely difficult.

The reprimand to Ireland in 2001 concerned non-compliance with the Broad Economic Policy Guidelines, it was thus related to the EMU, but not directly to the SGP.

In 2002 both Germany and France became eligible for an Article 104 early warning regarding their deficits that were approaching the 3% limit. Both governments undertook to lower their deficits provided that there was adequate economic growth, defined as 3% of GDP in each of the next several years by the French government. The Commission then refrained from formally issuing the warnings, bowing to the fact that in terms of Realpolitik these two governments are far more powerful than the all the EC institutions together. In any event, the facts had at least been published.

In disgust at this spectacle the Prime Minister of Luxembourg declared the SGP and its credibility to be dead and buried. It had been Jean-Claude? Juncker who signed the SGP into law while serving as President of the Counsel.

He was too hasty. A newly elected Portuguese government audited the books of its predecessors only to discover that the deficit for 2001 was 4.1%. The Commission began the SGP procedure while noting that "Budgetary surveillance cannot function properly unless member states and statistical offices pay the outmost (sic) attention to this task. It is not possible to substitute at European level for national shortcomings." This illustrates two points. First, governmental subsidiarity is not used to defend the actions of a defeated predecessor. Second, institutional subsidiarity is largely the expression of how tasks and resources are currently distributed between the EC and its Members. There is very little scope for confrontation with a Member.

The urge to regain some more ground for sovereignty made itself felt in two proposals. First, MEPs have proposed to calculate the numbers for assessing compliance with the SGP criteria on cyclically adjusted rather than on raw data, giving some relief to countries in the grip of recession. Second, the Commissioner for Research and Development, Philippe Busquin, has suggested that because expenditure for R&D is an investment in the future rather than just consumption it should not be counted as part of the deficit. Discussion of the merits of these proposals can be left to side. It is enough to note that these sovereignty-enhancing proposals come from within the EC institutions.


Conclusion

When the internal market and EMU are examined in the light of sovereignty and subsidiarity a puzzling picture with few clear contours emerges.

Legal subsidiarity proves to be inapplicable to both markets because they fall under the EC's exclusive competence. Governments working against the EC institutions in what has been called "governmental subsidiarity" and through these institutions ("institutional subsidiarity") came close to aborting the internal market. It was saved by the Court that forced mutual recognition on them in Cassis de Dijon. In cases such as Keck and Gourmet the Court practiced some inevitable institutional subsidiarity without giving up ground that it had gained for the internal market.

Concerns about sovereignty surfaced much later in the EMU process. When they did, the Bundesbank and not the EC was its target. For the members of the old D-mark-block there was probably a modest gain in sovereignty because the Treaty gave them more influence on the ECB than they ever had on its predecessor in Frankfurt. This does not apply to Germany itself, of course. The SGP has put more flexible restraints on participants' exercise of monetary sovereignty than the foreign exchange markets do. Little real sovereignty was sacrificed for EMU; it was pooled and transformed from short-term to long-term.

The examined evidence shows that the internal market is hardly more amenable to unshared sovereignty than EMU.

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28. Temple Lang, J.
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30. Warder, A. K.
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31. Watson, Rory
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Table of Cases

1. Cassis de Dijon
(case 120/78), 1978, ECR 649

2. Commission v France
(case C-265/95), 1997, ECR I-6959

3. Commision v Germany
(case 178/84), 1987, ECR 1227

4. Dassonville
(case 8/74), 1974, ECR 837

5. Gourmet
(case C-405/98), 1998, ECR 1

6. Jongeneel Kaas v The Netherlands
(case 237/82), 1984, ECR483

7. Keck and Mithouard
(joined cases C-267 and C-268/91), 1993, ECR I

8. Netherlands v Parliament and Council
(case 977/98), 2001, ECR 1

9. Van Gend en Loos v Nederlandse Administratie Der Belastingen
(case 26/62), 1963 ECR 1


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