1. Introduction
1.1. Background and objectives
To date, policymakers have largely relied on technological solutions to reduce environmental impacts while avoiding distributive conflictsFootnote 1—an approach commonly described as ‘green growth’. Yet mere technical transitions are unlikely to lessen human pressure on Earth’s environment to an extent sufficient to reach the current environmental targets that seek to protect planetary boundaries.Footnote 2 Thus far, emissions reductions achieved by high-income countries are not consistent with the climate targets and equity commitments of the Paris Agreement.Footnote 3 They will need to accelerate drastically in order to keep global warming to well below 2°C above pre-industrial levels, while pursuing efforts to limit it to 1.5°C.Footnote 4 The continuous pursuit of economic growth makes the prospect of such a leap in emissions reductions unlikely, putting the Paris temperature target in jeopardy. Indeed, for any given technological development pathway, until the energy mix is zero carbon, increases in overall production and consumption will inevitably generate more emissions than if such increases did not occur.Footnote 5
This means that to pursue economic growth alongside the reduction of environmental impacts, emissions need to be decoupled from economic activity at an extremely fast rate, i.e. CO2 emissions per unit of Gross Domestic Product (GDP) need to decrease drastically. Thus far, current decoupling ratesFootnote 6 are inadequate. At 2013–2019 rates of emissions reductions and economic growth, it would take high-income countries 220 years to deliver the emissions reductions that must be achieved by the mid-2030s to align with their 1.5°C fair-shares.Footnote 7 To achieve such emissions reductions, high-income countries’ decoupling rates should have increased tenfold by now compared to 2013–2019 and should grow twelvefold by 2030.Footnote 8 This already grim picture worsens when adding to the climate crisis the biodiversity and pollution crises. The current state of environmental degradation is well represented by resource use trends:Footnote 9 contrary to green growth’s claim that resource use can be decoupled from economic growth, in recent decades, the material footprint of high-income nations has risen at a rate equal to or greater than GDP,Footnote 10 including in the European Union (EU).Footnote 11
To return within planetary boundaries, a more ‘fundamental, system-wide reorganization across technological, economic, and social factors’Footnote 12 needs to take place: economic growth should cease to be the primary objective of economic policy.Footnote 13 Instead, ecological economists propose to pursue the enhancement of human wellbeing within ecological limits regardless of economic growth.Footnote 14 In other words, they recommend transitioning towards a ‘post-growth economy’—an umbrella term encompassing research in DoughnutFootnote 15 and wellbeing economics, steady-state economics, sufficiency and degrowth.Footnote 16 To that end, they envision paradigmatic policy changes to reduce resource use while improving wellbeing.Footnote 17 However, before implementing these policy changes, the need for growth in the current socioeconomic system needs to be addressed. Indeed, only after policies that overcome growth dependence—‘those conditions that require the continuation of economic growth in order to avoid significant psychological, social, and economic harms’Footnote 18—have been implemented can a post-growth economy look fundamentally different from a recession.Footnote 19
While ecological economics research has already devoted substantial attention to understanding the growth dependence of socioeconomic systems,Footnote 20 legal scholars have not yet uncovered the role of law in locking in the pursuit of economic growth. Yet, given that legal boundaries limit policy choices,Footnote 21 legal research holds significant potential to explain the persistence of the growth paradigm despite a growing scientific consensus on its structural unsustainability.Footnote 22 To address this research gap, assessing whether EU law reinforces growth dependence is a particularly relevant place to start. Indeed, the EU exerts considerable regulatory power in the economic sphere not only within the Union,Footnote 23 but also globally, as it is able to unilaterally set global regulatory standards.Footnote 24 Grasping the relationship between the EU founding treaties, that is the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU) (together, the Treaties),Footnote 25 and growth should be the first step of this inquiry, given that the Treaties constitute the legal basis of every piece of EU legislation. They require challenging negotiations among 27 Member States to be amendedFootnote 26 and can therefore cement the growth dependence of the EU socioeconomic system and render post-growth policy interventions ineffective, if not impossible.
This article fills this research gap by asking: whether, to what extent and how is the growth dependence of the EU socioeconomic system reinforced by the Treaties? To answer this question, it analyses the legal architecture of the Treaties using doctrinal legal research methods to understand how they produce normative expectationsFootnote 27 reinforcing growth dependence. On that basis, it makes the core argument that treaty reform is necessary if the EU socioeconomic system is to sustain human wellbeing without growth. Indeed, the Treaties hinder and, in some cases, prevent the policy reforms recommended by ecological economists to address the growth dependence of the EU socioeconomic system. However, this does not mean that nothing can be done with the current treaty regime to alleviate growth dependence. Indeed, the Treaties contain a limited level of flexibility towards policies which, while insufficient to eliminate growth dependencies, would constitute first steps in that direction. This leniency varies across institutional sectors: the Treaties grant more leeway to address growth dependencies linked to the general governmentFootnote 28 than to corporations (financial and non-financial).
1.2. Methodology
This article considers the relationship between the EU legal system and the growth dependence of the EU socioeconomic system. A multi-disciplinary methodology has been developed to connect both systems, using ecological economics research on growth dependence as an analytical frame to analyse the Treaties. Ecological economics research has directed which aspects of the Treaties the research focuses on, what legal questions are considered and how the doctrinal legal analysis has been conducted. The methodology followed can be broken down into three dimensions: ecological economics, EU law and the bridge between both.
To begin, ecological economics research on growth dependence was reviewed to understand growth dependencies within socioeconomic systems and policies that could alleviate them. The arguments were summarised by distinguishing between four institutional sectors: households (further divided into working-age people and pensioners), general government, financial corporations and non-financial corporations (Figure 1). Considering growth dependencies embedded in the functioning of these four institutional sectors provides a general understanding of the growth dependence of socioeconomic systems. Indeed, this categorisation rests on the usual aggregation of economic agents into institutional sectors in national accounts: households, general government, financial corporations, non-financial corporations, non-profit institutions serving households and the rest of the world.Footnote 29 Non-profit institutions serving households and the rest of the world were, however, excluded from the analysis; the former because the ecological economics literature has not singled out a specific growth dependency concerning non-profits,Footnote 30 the latter because including the rest of the world would require a complex analysis unfeasible within the scope of one article. Households were further divided into working-age people and pensioners because their different livelihood conditions give rise to different growth dependencies.Footnote 31 To obtain a bird’s eye view of socioeconomic systems, the analysis focuses on the macroeconomic level, namely, on conditions in the functioning of the institutional sectors that require the continuation of GDP growth to avoid significant psychological, social and economic harms on the aggregate.Footnote 32 The analysis strives to portray the current state of ecological economics research on growth dependence, and to include, for each growth dependency, policies that differ in the extent of structural change involved. However, it should be kept in mind that there are considerable theoretical conflicts and disagreements between ecological economistsFootnote 33 and that the research field is still developing,Footnote 34 so some mechanisms described here might be ruled out in the future.
Framework for assessing the growth dependence of socioeconomic systems. The functioning of the institutional sectors is shown within two ideal-typical socioeconomic systems: entirely growth dependent on the left and entirely growth independent on the right. The colour radiant represents all the nuances of growth dependence that can be found between the two ideal-typical socioeconomic systems portrayed.
To examine whether constraints in EU law reinforce the growth dependencies identified, a bridge needed to be built between this conceptual framework and EU law. To begin with, certain aspects of growth dependence are not (or only marginally) constrained by EU law because the EU lacks competence to influence them. They could therefore be excluded. This is the case of households’ growth dependencies, the general government’s taxation model and non-financial corporations’ understanding of innovation.Footnote 35 This considerably reduced the scope of the legal analysis to be conducted and left a manageable amount of growth dependence dimensions relevant from an EU law perspective. For each of them, the treaty provisions that could hinder the policy reforms towards growth independence proposed by ecological economists were comprehensively mapped. Subsequently, among all the provisions found, those that directly and generally impede the policy reforms proposed were singled out. Indeed, they are the ones with the most potential to explain how the Treaties reinforce growth dependence, and examining all the provisions would not be feasible within one article. Regarding, for example, deficit spending, the obvious choice was Article 126 TFEU and Protocol (No 12) to the TFEU on the excessive deficit procedure because they directly set precise limits on deficit to GDP and debt to GDP.Footnote 36 In contrast, Article 121 TFEU prevents divergences in economic policies within the EU but does not prescribe any specific policy direction, while Articles 136, 140, 143 and 144 TFEU essentially build on Articles 121 and 126. These articles were therefore excluded. This means that this article does not offer a comprehensive account of the relationship between the Treaties and the growth dependence of the EU socioeconomic system, but a targeted analysis of the most salient points. The results of the mapping exercise are represented in Table 1.
Mapping of the provisions in the Treaties reinforcing the growth dependence of the EU socioeconomic system
Thanks to this groundwork, the doctrinal legal analysis was boiled down to a limited number of provisions. The constraints on policy reform that these provisions create were determined by interpreting them using the jurisprudence of the European Court of Justice (ECJ). On that basis, places on the growth dependence/growth independence continuum that the socioeconomic system cannot reach due to constraints in the Treaties were visually represented (Figure 2).
Representation of the constraints to policy reform towards the growth independence of the EU socioeconomic system created by the Treaties. The grey and crossed-out squares represent the nuances of growth (in)dependence that currently cannot be reached with policy reform due to constraints in the Treaties. The results have been obtained by grading the constraining role of the Treaties on the pursuit of selected policy reforms towards growth independence. Grading has been done on a scale of 1 to 10 when the selected policy reform has the potential to achieve full growth independence and on a scale of 1 to 7 when it has the potential to achieve only partial growth independence. For instance, deficit spending alone can only provide limited leeway for paying for public expenditure without growth, while monetary financing has the potential to alleviate the growth dependency related to public expenditure. Deficit spending was therefore graded on a scale of 1 to 7 and monetary financing on a scale of 1 to 10. The results are as follows: deficit spending 3/7, monetary financing 6/10, sovereign money 3/10, local currencies 1/7, novel general company laws 1/10, targeted support for non-profits 5/7. The scores were then averaged per institutional sector. This leads to overall scores of 5/10 for the general government, 2/10 for financial corporations and 3/10 for non-financial corporations.
The article follows this sequential approach: Section 2 examines ecological economics findings on the growth dependence of socioeconomic systems and Section 3 analyses the constraints to policy reform created by the Treaties.
2. The growth dependence of socioeconomic systems
This section draws from ecological economics research to single out growth dependencies stemming from the functioning of four institutional sectors: households, general government, financial corporations and non-financial corporations. For each growth dependency identified, the policies proposed by ecological economists to alleviate it are discussed. On that basis, a conceptual framework for assessing the growth dependence of socioeconomic systems is built.
2.1. Households
The livelihood conditions of households generate a need for growth on the aggregate if households’ ability to afford the effective cost of living is undermined without GDP growth.Footnote 37 The livelihood conditions of working-age people and pensioners are considered separately.
On the one hand, the livelihoods of working-age people are undermined without GDP growth when two conditions are fulfilled. First, livelihoods are dependent on wage labour at the individual level, because workers are separated from the means of productionFootnote 38 and their disposable income when unemployed falls short of the effective cost of living.Footnote 39 Second, employment and/or the adequacy of workers’ incomes is insecure.Footnote 40 Combined, these two conditions undermine working-age people’s ability to afford the effective cost of living in cases of output reductions, because a decreasing GDP implies a decrease in total wage labour, which leads to net job loss and/or income loss.Footnote 41 Even a stagnating GDP would lead to a decrease in total wage labour if labour productivity growth continued to increase.Footnote 42
To dismantle the first vulnerability condition, Vogel et al suggest reducing the effective cost of living and/or increasing net welfare transfers towards unemployed people, through policies like universal basic income (UBI) or universal basic services (UBS).Footnote 43 UBI is ‘the payment of an unconditional, regular income by the state to every resident in a country’,Footnote 44 while UBS is a ‘system which safeguards and develops existing public services while also extending such a model of provision into new areas’.Footnote 45 The key difference is that UBI leaves the fulfilment of needs to the market, while UBS directly addresses people’s needs,Footnote 46 based on the argument that public provisioning systems tend to be more sustainable and equitable than private ones.Footnote 47 Both policies could ensure needs satisfaction independently of paid employment,Footnote 48 while freeing up time for care and voluntary workFootnote 49 and, under certain conditions, reducing environmental impacts.Footnote 50
To dismantle the second vulnerability condition, post-growth scholars have proposed to reduce worktime and to implement a job guarantee.Footnote 51 The rationale for worktime reduction (WTR) is to share the amount of work available to reduce unemployment.Footnote 52 Although it cannot be expected that every reduced hour would be converted to new employment,Footnote 53 empirical evidence supports the argument that WTR improves employment, at least in the short-term.Footnote 54 Alternatively, or in conjunction, employment could also be maintained through a job guarantee, where the State acts as employer of last resort.Footnote 55 This scheme could provide employment in sectors with low energy consumption per hour worked and work-intensive outputs like social, care and cultural activities,Footnote 56 hence combining employment and environmental benefits. To address the added vulnerability caused by workers’ income insecurity, WTR would need to take place without a decline in wages,Footnote 57 except for high-pay workers,Footnote 58 while workers’ wages in the job guarantee would have to be set at a socially defined minimum.Footnote 59
On the other hand, the livelihoods of pensioners may also be undermined without GDP growth.Footnote 60 Funded pension schemes—that invest contributions to finance benefits—are particularly vulnerable to potential asset price crashes when transitioning to a post-growth economy.Footnote 61 In contrast, pay-as-you-go schemes are financed by redistribution and do not invest contributions.Footnote 62 For this reason, Wiman argues that they are better able to ensure sufficient income for pensioners.Footnote 63 They are also better armed to handle the distributional questions brought by a non-growing economy.Footnote 64 Indeed, they can redistribute contributions, while funded plans simply distribute benefits based on contributions made.Footnote 65 At the current (early) stage of ecological economics research on pensions, it therefore looks like shifting towards pay-as-you-go plans is a promising avenue to dismantle growth dependencies stemming from pension systems.
2.2. General government
Scholars working at the intersection of social policy and post-growth economics have argued that the general government’s functioning would be undermined without GDP growth because paying for public expenditure relies on revenue flows and the ratio of spending to revenue flows tends to increase. As explained by Büchs et al, ‘welfare spending is currently mostly funded through social insurance contributions from employers and employees or from taxes on income or consumption’.Footnote 66 These revenue streams would probably shrink if GDP fell,Footnote 67 or stagnate if GDP remained constant. At the same time, welfare needs—particularly pension and healthcare needs—are increasing because of population ageing.Footnote 68 The relative costs of welfare, compared to other goods, are also increasing because productivity gains are lower in the welfare sector.Footnote 69 Because of this, ‘welfare expenditure is absorbing an ever-increasing proportion of GDP’.Footnote 70 There is uncertainty as to what would happen to these dynamics if GDP stopped growing,Footnote 71 but some scholars consider that the combination of increasing needs and costs with stagnating or decreasing revenue flows would challenge the general government’s ability to pay for social welfare.Footnote 72
To overcome this potential growth dependency, Büchs, Koch and Lee argue that the general government should shift its taxation from flows like income to stocks like wealth.Footnote 73 In addition to providing more reliable long-term tax revenues,Footnote 74 stronger wealth taxation would address extreme wealth concentrationFootnote 75 and reduce environmental damage.Footnote 76 Additionally, fiscal and monetary rules that constrain the use of budget deficits to pay for public expenditure would be worth questioning, using insights from Modern Monetary Theory (MMT). According to MMT, ‘a state that issues its own non-convertible currency and has no foreign-denominated debt never faces a financial (or monetary supply-side) constraint to its expenditure’.Footnote 77 Because monetary-sovereign States can create money when they spend it, they cannot run out of money.Footnote 78 In their view, the only limit intrinsic to the functioning of the monetary system—that is, not self-imposed—that a monetary-sovereign State faces when running budget deficits is inflation.Footnote 79 Drawing from MMT, Mastini and Kallis suggest using central banks’ money creation power to support public expenditure.Footnote 80 In other words, they propose to monetarily finance the general government.Footnote 81 In the context of post-growth transformation, this could give governments a window of opportunity to transform the economy before inflation needs to be addressed, for example, through higher taxation.Footnote 82 Monetary financing is, in fact, not new: the large purchases of government bonds on secondary markets during the financial crisis can be understood as monetary financing.Footnote 83 Ecological economists tend to be critical of the limited impact of these purchases on the real economy and favour instead a new type of monetary financing called helicopter money, where money created by the central bank would be transferred directly to citizens.Footnote 84
2.3. Financial corporations
Economics research on growth dependence has heavily debated whether a monetary growth imperative (MGI) stems from the current process of money creation through the issuance of credit by commercial banks.Footnote 85 Douthwaite argued for the existence of an MGI as follows: ‘the amount of money in circulation has to rise, year after year, by a sum at least equivalent to the amount being removed from circulation by the banks as a result of interest payments’.Footnote 86 According to its proponents, the underlying cause of the MGI is that some of the money from interest payments is not put back in circulation because banks need to keep enough capital to cover risks associated with loans.Footnote 87 As a result, there is not enough money to pay interest on loans on the aggregate, unless more money is created. Since, in the current financial system, the overwhelming majority of money is created by commercial banks when they issue credit,Footnote 88 more borrowing is necessary. In a nutshell, more money, and by way of consequence, more debt, is constantly needed to pay interest on existing debts. The economy therefore needs to grow to create demand for loans and facilitate interest payments on aggregate.
Several scholars have challenged this alleged mechanism.Footnote 89 Jackson and Victor demonstrated that it is possible to transition towards a stable stationary state in the presence of debt and interest if there is no capital accumulation.Footnote 90 The existence of an MGI therefore essentially depends on whether capital is accumulated or spent.Footnote 91 In light of this finding, Arnsperger, Bendell and Slater tried to justify the focus on debt-based money creation by arguing that it acts as an important channel of capital accumulation because as banks recirculate the money, ‘interest payments increase the transfer of money to those who are wealthy and more likely to hold that money in a stagnant form’.Footnote 92 Yet since capital can very well be accumulated at an unsustainable rate without debt-based money or interest, Cahen-Fourot argued that debt-based money is not the root cause of the growth dependency related to capital accumulation.Footnote 93 Instead, Cahen-Fourot—followed recently by Driouich and Kallis— considers that the root causes of this growth dependency are to be found in the capitalist relations of production.Footnote 94 Based on these insights, the simplistic mechanism described in the previous paragraph can be ruled out with high confidence,Footnote 95 and research attention has been redirected towards discussing the causes of capital accumulationFootnote 96 and its impact on post-growth transformation.Footnote 97 However, how central a role debt-based money creation plays in current capital accumulation processes remains to be determined, as well as whether capital accumulation can be addressed without reforming the current credit-based money system.
Aside from this theoretical discussion, historical evidence shows that avoiding wealth accumulation in the presence of interest-bearing debt is difficult, as the succession of debt crises in non- or slow-growing economies with lending at interest demonstrates.Footnote 98 Because of this, proposals to reform money creation raised by MGI proponents, although misguided in their understanding of the relationship between money and growth,Footnote 99 may still bear some relevance. Even if they may not help to address the root causes of the growth dependency related to capital accumulation,Footnote 100 they may nonetheless help to increase the resilience of socioeconomic systems and their ability to deal with endemic instability and debt crisesFootnote 101 caused by the (likely) persistence of capital accumulation.Footnote 102 Complementary local currencies may notably increase socioeconomic systems’ ability to adjust to economic instability and/or sudden scarcity of bank-debt money.Footnote 103 Similarly, sovereign money proposals, that aim to enable central banks to play a greater role in money creation, may help to keep money circulating during private sector slowdowns, without relying on public or private debt expansion.Footnote 104 Subsequent research will need to conclusively determine the suitability of these proposals for these purposes.
2.4. Non-financial corporations
At a micro level, non-financial corporations have an existential need to invest—and therefore make enough profits—to keep up with technological progress. They are ‘systematically biased toward investment so as to generate enough innovation to not lose market shares to firms who would decide to invest more’.Footnote 105 In addition to new investments, profits also need to cover debt payments and dividend distribution,Footnote 106 creating together a strong incentive towards profit maximisation. This means that companies need to expand continuously to achieve enough profits.Footnote 107 This microeconomic growth dependencyFootnote 108 can translate into a macroeconomic growth dependency, because competition pressures to decrease costs can negatively affect aggregate demand, therefore reducing aggregate profits and leading to bankruptcies and an economic crisis.Footnote 109 This may only be avoided if sufficient aggregate growth occurs.Footnote 110 At a macro level, the existence of profitability as the driver of private-sector economic activity is also difficult to reconcile with policies designed to avoid unemployment when transitioning to a post-growth economy, like WTR.Footnote 111 Indeed, the collapse of profits might lead to economic contraction before full employment is achieved.Footnote 112 For this reason, Oberholzer considers that ‘only if economic activity does not rely on a sufficient profit rate, thus on positive profits, can we escape the contradiction between post-growth and employment’.Footnote 113
Transitioning towards not-for-profit production would mitigate risks of economic and employment crises during post-growth transformation by redirecting firm-level incentives towards the pursuit of social benefit instead of financial gain. For-profit companies’ (FPs) are constrained by their incorporation structures to prioritise financial gain: the pursuit of financial gain is enshrined in FPs’ legal purpose and shareholders have a right to receive the profit and the assets of the company.Footnote 114 In contrast, not-for-profit companies (NFPs) cannot distribute financial gains, which ensures that ‘resources (including profit) are used for a social benefit purpose rather than private enrichment’.Footnote 115 NFPs are also required to prioritise social benefit by their legal purpose.Footnote 116 These features make them better suited to support social welfare in times of decreasing economic outputs. Several post-growth scholars therefore recommend transforming the current organisational forms of non-financial corporations towards the NFP model.Footnote 117 Non-financial corporations could be incentivised to adopt the model by giving targeted support to NFPs in the form of subsidies or tax exemptions.Footnote 118 The generalisation of NFP corporations would need to be accompanied by the development of a new understanding of innovation, geared towards increasing use-value creation instead of productivity and resting on the development of knowledge commons.Footnote 119
To conclude, the above analysis reveals that the functioning of the institutional sectors considered would probably be undermined without GDP growth. However, it also demonstrates that there are pathways to reducing growth dependencies. Figure 1 summarises the findings by portraying how the four institutional sectors would look within two ideal-typical socioeconomic systems: entirely growth dependent on the one hand and entirely growth independent on the other. This framework can be used to situate socioeconomic systems in relation to both ideal types. In the EU context, the position of the EU socioeconomic system on the growth dependence/growth independence continuum is influenced by the Treaties, which are considered in Section 3.
3. The constraints to policy reform created by the Treaties
If the analytical frame developed in the previous section is applied to the EU socioeconomic system, growth dependencies become swiftly visible. For instance, it is well documented that, in the EU, disposable income when unemployed falls short of the effective cost of living,Footnote 120 that the overwhelming majority of corporations are FPs,Footnote 121 and that taxation relies considerably on revenue flows.Footnote 122 However, using this analytical frame for analysing the constraints created by the Treaties is less straightforward. A bridge has therefore been built between ecological economics and law by selecting, for each policy reform towards growth independence proposed by ecological economists, the provisions in the Treaties that directly and generally impede it (Table 1). The present section interprets these provisions using doctrinal legal research methods to determine whether, to what extent and how they impede policy reform and, therefore, reinforce the growth dependence of the EU socioeconomic system.
3.1. General government’s fiscal and monetary framework
3.1.1. Deficit spending
The first option for Member States to spend sufficiently to cover the increasing needs and costs of welfare would simply be to run higher budget deficits.Footnote 123 Yet the Treaties directly constrain deficit spending. Indeed, Article 126 TFEU and Protocol No 12 trigger an excessive deficit procedure if deficits exceed the following thresholds: three per cent of planned or actual government deficit to GDP or 60 per cent of government debt to GDP.Footnote 124 This procedure starts with a report by the European Commission (Commission)Footnote 125 and an opinion addressed to the Member State,Footnote 126 on the basis of which the Council of the European Union (Council) can make a decision on the existence of an excessive deficit,Footnote 127 followed by recommendationsFootnote 128 and notices.Footnote 129 If the Member State does not comply, sanctions may be imposed.Footnote 130 In practice, however, Member States have never been sanctionedFootnote 131 because Article 126 leaves substantial interpretative leeway.
First, although the Commission will always write a report if the thresholds are exceeded,Footnote 132 the Treaty provides several avenues for closing the procedure after the report. For deficits above three per cent of GDP, the procedure will be closed if ‘the ratio has declined substantially and continuously and reached a level that comes close to the reference value’, or if ‘the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value’.Footnote 133 Similarly, for debt above 60 per cent of GDP, the Commission will close the procedure if the ‘ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace’.Footnote 134 In addition, the treaty language supports taking into account ‘other relevant factors’ for determining whether to pursue the procedure,Footnote 135 although secondary legislation has restricted their scope.Footnote 136 If secondary legislation were reformed, it could be argued that the ecological crisis constitutes ‘other relevant factors’ that warrant deficit spending to finance the general government without growth.
Second, the Treaty enables the Council to extend deadlines to comply with its recommendations and notices. In other words, it can give more time to Member States to reduce their deficits. Indeed, paragraphs 7 and 9 require the Council to accompany its notices and recommendations with deadlinesFootnote 137 but do not prevent the Council from adjusting the deadlines to unexpected events. The only restriction is that the initiative for recommendations—and a fortiori, revisions of recommendations—belongs to the Commission.Footnote 138
Third, the Commission enjoys an extensive power of initiative under Article 126(5) and (6), which permitted the freezing of almost all excessive deficit procedures after the submission of the first report during the pandemic.Footnote 139 The Commission justified the freezing on the basis of Articles 3(6) and 5(2) of Regulation 1467/97.Footnote 140 However, it was actually the Commission’s ability to decide whether to continue the procedure under Article 126(5) and (6), that made the freezing possible.Footnote 141 Indeed, the Council can only assert the existence of an excessive deficit under Article 126(6) if the Commission has proposed to do so and addressed an opinion to the Member State concerned. The Commission can therefore simply refrain from doing so to freeze the procedure.Footnote 142
Fourth, the Council has the power to refuse to adopt the measures proposed by the Commission for political reasons.Footnote 143 This power has been demonstrated in deficit procedures against Germany and France in 2003, when extensive lobbying by the two countries led to the suspension of the procedures, even where the Commission recommended moving forward.Footnote 144 The Commission brought the case before the Court, who partly sided with the Council by declaring the action of the Commission inadmissible in so far as it sought annulment of the failure of the Council to adopt acts.Footnote 145 The Court ruled that the Council can hold the procedure de facto—but not de jure—in abeyance by failing to obtain the required majority.Footnote 146 This case concerned measures under paragraphs 8 and 9, but the same logic would apply to sanctions under paragraph 11, and to the decision on whether the deficit is excessive under paragraph 6.Footnote 147 Why then has this leeway rarely been used since 2003?Footnote 148 The reasons are to be found outside the Treaties: Eurozone countries have committed to supporting the proposals and recommendations submitted by the Commission in the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union.Footnote 149
In a nutshell, the above analysis shows that while, at the surface level of the treaty text, Article 126 appears incompatible with post-growth transformation, the open-endedness of the provision coupled with the discretion left to the Commission and the Council make the picture less straightforward. In practice, whether Member States could run higher budget deficits in the context of post-growth transformation would heavily depend on the goodwill of the Commission and the Council.
3.1.2. Monetary financing
For Member States to spend sufficiently to cover the increasing needs and costs of welfare, some ecological economists consider some form of monetary financing necessary.Footnote 150 Monetary financing would ideally be carried out through helicopter money schemes that directly target the real economy.Footnote 151 The TFEU places direct constraints on the ability of the European System of Central Banks (ESCB) to conduct such policies because Article 123 TFEU (and the almost identical Article 21 of the Statute of the ESCB annexed as Protocol (No 4) to the TFEU (ESCB Statute)) explicitly prohibit the granting of credit facilities and the purchase of debt instruments in favour of European public law bodies by the ESCB.Footnote 152 Yet the Court has shown flexibility in interpreting these articles when ruling on the unconventional monetary policies undertaken by the ESCB during the financial crisis.Footnote 153 The Court has ruled on two government bond purchase programmes on secondary markets: on the one hand, the Outright Monetary Transactions (OMT) programme targeting Member States receiving financial assistance, which was never implementedFootnote 154 and, on the other hand, the public sector asset purchase programme (PSPP) covering all Member States except GreeceFootnote 155 and implemented for over eight years.Footnote 156 It appears that the flexibility found in the rulings would not justify broader uses of monetary financing.
Admittedly, Article 123 on monetary financing leaves more leeway than would appear at first glance. Indeed, Article 123(1) only prohibits the direct purchase by the ESCB of sovereign debt from Member States,Footnote 157 while Article 18(1) ESCB Statute expressly authorises the ESCB to operate in financial markets.Footnote 158 Interpreted together, these provisions mean that the ESCB can purchase government bonds on secondary markets.Footnote 159 However, the compatibility of the purchase with Article 123 is subject to two conditions. First, the purchase cannot have ‘an effect equivalent to that of a direct purchase of bonds from the public authorities and bodies of the Member States’.Footnote 160 Second, the ESCB must build sufficient safeguards to ensure that the programme will not reduce the impetus for Member States to follow a sound budgetary policy.Footnote 161
Regarding the first condition, the Court analysed the design of the OMT and PSPP programmes to determine whether they allowed market operators to act de facto as intermediaries by giving them certainty that government bonds would be purchased by the ESCB.Footnote 162 In Weiss, even though the monthly volume of asset purchases envisaged and the expected duration of the programme were publicly announced,Footnote 163 the Court found that the scheme did not equate to direct purchasing. Indeed, the operators could not be certain at a microeconomic level that a given bond was going to be bought by the ESCB.Footnote 164 A helicopter money scheme that would transfer money directly to citizens’ bank accounts would impact sovereign bond markets even less. The first condition would therefore probably be met.
To be compliant with the second condition, the programmes must be limited in terms of credit quality, scale and duration, which directly constrains the monetary financing of post-growth transformation. Credit quality conditions are the least constraining: under the PSPP programme, the bonds of all Member States except Greece could be bought.Footnote 165 The Court relied more heavily on scale limitations to conclude that the OMT and PSPP programmes did not lessen the impetus to follow a sound budgetary policy. In Gauweiler, the fact that the programme was restricted to Member States undergoing a structural adjustment programme was perceived to ‘[limit] the scale of the programme’s impact on the financing conditions of the States of the euro area’.Footnote 166 In Weiss, the Court considered that the fact that the PSPP purchases did not exceed 33 per cent per issue and per issuer ensured that Member States could not avoid the consequences of the deterioration of their budgetary position.Footnote 167 This would directly limit the reach of the monetary financing of post-growth transformation. The Court also considered that duration limitations were important safeguards against the lessening of the impetus to follow a sound budgetary policy. According to the Court, both programmes were temporary because they would cease when they were no longer necessary for the maintenance of price stability.Footnote 168 Since net purchases and reinvestments under the PSPP lasted for eight years,Footnote 169 there are reasons to doubt its temporary character. However, the Court considered the fact that the programme could potentially stop at any point sufficient to create uncertainty and prevent Member States from relying on the continuation of the programme when defining their budgetary policy.Footnote 170 If net purchases under the PSPP programme were to continue in the long-term, the Court could probably not maintain this reasoning. In the context of post-growth transformation, this means that monetary financing may not last long enough for the transformation phase to take hold.
In Gauweiler and Weiss, to determine whether the ESCB acted within its powers conferred by the Treaties,Footnote 171 the Court referred ‘principally to the objectives of that measure’ and subsidiarily to ‘the instruments which the measure employs in order to attain those objectives’.Footnote 172 In terms of instruments, the Court verified whether the operations conducted used one of the monetary policy instruments expressly mentioned in the Treaties.Footnote 173 Helicopter money schemes are absent from the TreatiesFootnote 174 and are therefore unlikely to pass the Court’s scrutiny, unless the scheme is adopted on the basis of Article 20 ESCB Statute, by a majority of two thirds of the votes of the Governing Council.Footnote 175 In terms of objectives, Articles 127(1) and 282(2) TFEU, together with Article 2 ESCB Statute, provide that ‘the primary objective of the ESCB shall be to maintain price stability’ and that ‘without prejudice to that objective, it shall support the general economic policies in the Union in order to contribute to the achievement of the latter’s objectives’.Footnote 176 The Court leaves a broad discretion to the ESCB on the objectives pursued by government bond purchase programmes.Footnote 177 It only needs to find that the objectives of the programmes can be attached to the maintenance of price stability,Footnote 178 either because of a deflationary contextFootnote 179 or because of the disruption of the monetary transmission mechanism.Footnote 180 This means that if post-growth transformation were carried out in the context of a crisis, there would likely be grounds to justify similar programmes as the PSPP and OMT. Still, the programmes’ durationFootnote 181 and scaleFootnote 182 would need to be limited to pass the proportionality test, and even more so if novel instruments like helicopter money were used.
To conclude, the prohibition of monetary financing and the ESCB’s monetary policy competence are not as restrictive as a superficial reading would suggest. On closer analysis, they reveal some leniency towards the monetary financing of post-growth transformation, although with important limitations in terms of policy instruments, duration and scale. Namely, if post-growth transformation occurred in the context of an acute economic crisis, the ESCB could resume past government bond purchase programmes, but this is as far as it could go.Footnote 183
3.2. Financial corporations’ role in money creation
3.2.1. Sovereign money
To improve the EU socioeconomic system’s resilience to endemic instability and debt crises caused by capital accumulation, the ESCB could help to keep money circulating during private sector slowdowns by playing a greater role in money creation.Footnote 184
To do so, the ESCB would need to be able to create digital money that it would either transfer directly to citizensFootnote 185 or loan to NFP community banks.Footnote 186 This is not so far-fetched given that the European Central Bank (ECB) is currently considering the issuance of a digital Euro.Footnote 187 The only possible legal bases for the issuance of a digital Euro directly accessible to all residents of the Eurozone with the status of legal tender are Articles 128 and 133 TFEU and Article 16 ESCB Statute.Footnote 188 Article 128(1) (reproduced verbatim in Article 16 ESCB Statute) gives the ECB the power to authorise the issuance of all Euro banknotes and grants exclusive legal tender to these banknotes.Footnote 189 Article 133 confers powers on the European Parliament and the Council, after consultation of the ECB, to legislate for the use of the Euro as the single currency.Footnote 190
Articles 128(1) and 133 provide the ESCB and the EU legislature with the necessary powers to issue and regulate both physical and digital Euro banknotes. Grünewald et al consider that the notion of ‘banknotes’ in Article 128(1) includes both physical and digital currency.Footnote 191 They argue that ‘banknotes’ should not be defined by their format, but by their function as a ‘credit-risk free and trusted means of payment and store of value that is accessible to the general public’.Footnote 192 The Advocate General followed this understanding in Hessischer Rundfunk by defining money depending on its functions, ‘no matter what form it takes (physical, cash or non-physical)’.Footnote 193 He went on to argue that the regulatory powers of the EU legislature include the possibility to assign the status of legal tender to non-physical forms of currency.Footnote 194 The Court did not mention the digital Euro in its judgment.Footnote 195 In this case, silence is probably acquiescence. The Court was aware of the digital Euro debateFootnote 196 and would have certainly specified if it intended to restrict Articles 128(1) and 133 to physical banknotes.
The conditions, scale and objectives of the issuance of a digital Euro are, however, restricted by the Treaties. In Hessischer Rundfunk, the Court ruled that the monetary policy competence comprises ‘three elements: a single currency (the euro), the definition and conduct of a single monetary policy, and the definition and conduct of a single exchange-rate policy’.Footnote 197 The Court understands single currency activities as a ‘precondition for the effective conduct of the European Union’s monetary policy’.Footnote 198 Indeed, for the Court, the effectiveness of monetary policy in operational terms depends on the singleness of the Euro.Footnote 199 This suggests that while monetary policy in operational terms pursues the objective of price stability, single currency activities under Articles 128 and 133 pursue the separate—although related—objective of guaranteeing the singleness of the Euro.Footnote 200 This understanding is also supported by Article 119(2) TFEU, which refers to the objective of price stability only in relation to the single monetary policy and exchange-rate policy.Footnote 201 Single currency activities are therefore separate from operational monetary policy and cannot be used for monetary policy purposes. They are limited to the issuance of banknotes, whether physical or digital, that mimic the functions of cash.Footnote 202 This means that the ESCB cannot use the digital Euro to keep money circulating during private sector slowdowns nor, for that matter, to transfer helicopter money to citizens.
Therefore, the Treaties do not give the ESCB the power to create a digital Euro to an extent sufficient to improve the EU socioeconomic system’s resilience to endemic instability and debt crises caused by capital accumulation. However, the issuance of a digital euro that mimics the functions of cash is a first step in the direction of post-growth transformation, because it would provide an existing technical infrastructure to implement sovereign moneyFootnote 203 following treaty amendment.
3.2.2. Local currencies
Instead of top-down ESCB measures, another means to improve the EU socioeconomic system’s resilience to crises caused by capital accumulation would be to rely on bottom-up measures at the initiative of local authorities. Parrique notably called for the decentralisation of monetary policy through the development of local currencies.Footnote 204 However, the legal tender status of Euro banknotes enshrined in Article 128 TFEU and Article 16 ESCB Statute constrains their generalisation.
To begin with, local currencies cannot be given legal tender status, even within a small portion of a Member State’s territory. Indeed, Article 128(1) TFEU and Article 16 ESCB Statute provide that Euro banknotes ‘shall be the only such notes to have the status of legal tender within the Union’.Footnote 205 Two interpretations can be given to these provisions. Either, following Grünewald et al, the term ‘such notes’ means digital and physical banknotesFootnote 206 and Article 128(1) therefore prevents the granting of legal tender to any currency (physical or digital) that is not authorised by the ECB and issued by the ESCB,Footnote 207 or, following the Advocate General in Hessischer Rundfunk, ‘such notes’ means physical banknotesFootnote 208 but the EU’s exclusive competence on monetary policy encompasses ‘all the powers and competences necessary for the creation and proper functioning of the single currency’,Footnote 209 including the ability to ‘define which good or instrument (tangible or non-tangible) has the status of legal tender in the euro area’.Footnote 210 Whichever interpretation the Court prefers, they lead to the same conclusion: local currencies (whether physical or digital) cannot be given the status of legal tender, even within a small portion of a Member State’s territory.
Moreover, national measures incentivising the uptake of local currencies might be considered incompatible with the legal tender status of Euro banknotes. Proposed measures include—in the French context—increasing the maximum yearly volume of transactions possible, no longer requiring a full backing in Euros and enabling local authorities to use local currencies for their expenses.Footnote 211 These measures, particularly if taken in conjunction, might be considered indirect limitations on payments in Euro cash because they make Euro cash less attractive. This does not mean that they would necessarily be incompatible with Article 128(1) given that the Court ruled, on the basis of Articles 10 and 11 of Regulation 974/98 read in the light of recital 19 of that Regulation, that limitations on payments in Euro notes and coins can be justified if certain conditions are met.Footnote 212 The first condition set by the Court is that limitations on payments in Euro cash cannot have the object or effect to abolish, in law or in fact, cash in Euro.Footnote 213 Indeed, in the words of the Advocate General, Article 128(1) ‘guarantees the very existence of euro banknotes at a constitutional level, which suggests that their complete abolition would be contrary to EU law’.Footnote 214 The Court also concluded that restrictions on payments in Euro cash need to be justified by reasons of public interest.Footnote 215 Finally, and unsurprisingly, the Court ruled that restrictions can only be adopted provided that other lawful means for the settlement of monetary debts are available and that they comply with the proportionality principle.Footnote 216
What do these conditions entail for policies in favour of local currencies? First, the abolition condition means that if national laws facilitate complementary currencies to such an extent that they undermine the possibility, as a general rule, of discharging a payment in Euro cash, they would not be compatible with Article 128(1).Footnote 217 This would be the case even if the impact on Euro cash is not a consequence of the legislation itself but rather results from the greater uptake of local currencies by citizens: the rule applies both in law and in fact.Footnote 218 In other words, policies that incentivise the uptake of local currencies cannot be too effective. Second, the justification for the limitation must qualify as a reason of public interest.Footnote 219 As the ecological crisis unfolds, it cannot be excluded that addressing growth dependencies will become a matter of public interest. Yet, thus far, the Court has never considered it as such. Third, regarding the existence of other lawful means for the settlement of monetary debts,Footnote 220 if local currencies are authorised by competent authorities, this condition is likely to be met. Fourth, the result of the proportionality testFootnote 221 will essentially depend on the measure taken, notably its impact on payments in Euro cashFootnote 222 and the accessibility of the local currency.Footnote 223
To conclude, the legal tender status of Euro banknotes and coins, as interpreted by the Court in Hessischer Rundfunk, prevents the generalisation of local currencies to an extent sufficient to enhance the EU socioeconomic system’s resilience to crises caused by capital accumulation. This means that the treaty provisions on the single currency need to be revised to enable post-growth transformation, if monetary diversity is deemed necessary to deal with risks of endemic instability and debt crises.
3.3. Non-financial corporations’ relationship to profit
3.3.1. Novel general company laws
To alleviate the macroeconomic growth dependency created by the profit-seeking behaviour of non-financial corporations, general company laws could be amended. Amendments would pursue two objectives: reducing non-financial corporations’ reliance on a sufficient profit rateFootnote 224 and preventing the private distribution of profit.Footnote 225 These amendments would bring all companies closer to the NFP model, where profit can only be reinvested or used for social benefit.Footnote 226 Different amendments can be envisioned: making the pursuit of social benefit the sole (or at least primary) legal purpose of companies, changing ownership structures to remove (or at least reduce) owners’ financial rights and preventing (or reducing the share of) equity-based investments.Footnote 227 These amendments are likely to be incompatible with Article 63 TFEU, according to which ‘all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited’.Footnote 228
To begin with, the Court has consistently held that in the absence of a treaty definition, the notion of ‘movement of capital’ can be derived from the nomenclature set out in Annex I to Council Directive 88/361/EEC.Footnote 229 The notion of ‘movement of capital’ therefore covers both direct and portfolio investments included in the Annex,Footnote 230 and the receipt of dividends, which is not explicitly mentioned but presupposed in the Annex.Footnote 231 Given that the amendments to general company laws envisioned would reduce the distribution of dividends, they would fall within the scope of the notion of ‘movement of capital’.
Next, the Court has consistently held that:
national measures must be regarded as ‘restrictions’ within the meaning of Article 56(1) of the Treaty Establishing the European Community (now, Article 63(1) TFEU) if they are liable to prevent or limit the acquisition of shares in the undertakings concerned or to deter investors of other Member States from investing in their capital.Footnote 232
On the one hand, the notion of ‘national measures’ comprises any ‘exercise of legislative power by the national authorities duly authorised to that end’.Footnote 233 There is therefore little doubt that amendments to general company laws adopted by the legislature would be covered. On the other hand, characterising the existence of a ‘restriction’ is more contentious. The Court has evolved from a discrimination approach based on the demonstration of unequal treatment of nationals of other Member States to a restriction-based approach that can potentially cover any measure liable to make investments less attractive.Footnote 234 This shift in approach was clearly articulated by the Court in Commission v Portugal, where it stated that the prohibition of restrictions on the movement of capital between Member States ‘goes beyond the mere elimination of unequal treatment, on grounds of nationality, as between operators on the financial markets’.Footnote 235 The breadth of the notion of ‘restriction’ is also increased by the formalistic approach of the Court to the characterisation of a restriction.Footnote 236 The Court does not verify whether the contested measure actually deterred direct or portfolio investors from making investments, but only assesses whether the measure is liable to have deterred actual or potential investors.Footnote 237
The potentially all-encompassing scope of the freedom of movement of capital has caused scholars to question whether general company laws could be subjected to the review of the Court.Footnote 238 Indeed, nothing in the restriction formula used by the Court excludes its application to general company law.Footnote 239 In fact, in Volkswagen, the national measures challenged were modifications to general rules of company law.Footnote 240 However, the Court was careful to specify that they constituted restrictions in that they derogated from general company law,Footnote 241 which prevents drawing conclusions.Footnote 242 The Idryma Typou case was more straightforward: in this case, the Court held that a national measure that made shareholders above two and a half per cent liable for fines imposed on Greek television and radio companies constituted a restriction on freedom of movement of capital.Footnote 243 The measure was a company law mechanism laid down in sector-specific legislation. The ruling would probably have been the same if the mechanism applied to all sectors, given that the impact on capital movements would be even greater.Footnote 244 The Idryma Typou case is also interesting in that the measure did not affect access to the companies’ capital, nor shareholders’ participation in the management of the companies or in their control, but only created a financial risk. By analogy, it is hard to see why amendments to general company laws that would impact the ability of investors to receive dividends would not be considered restrictive. Indeed, these measures would negate (or at least strongly impair) the very purpose of portfolio investments: making a profitable financial investment. In a sense, the more effective the measures would be in reaching the objective of preventing the private distribution of profit, the less likely they would be to survive the Court’s review.
Restrictions can, however, be justified under certain conditions. As the Court has consistently held:
a State measure which restricts the free movement of capital is permissible only if, in the first place, it is justified by one of the reasons referred to in Article 65 TFEU or by an overriding reason in the public interest and, in the second place, it observes the principle of proportionality, a condition that requires the measure to be appropriate for ensuring, in a consistent and systematic manner, the attainment of the objective pursued and not to go beyond what is necessary in order for it to be attained.Footnote 245
Could Member States rely on one of the reasons referred to in Article 65 TFEU or on an overriding reason in the public interest to justify their amendments to general company laws? Among the reasons referred to in Article 65, the public policy and public security grounds are the most promising.Footnote 246 However, in Église de scientologie, the Court held that public policy and public security grounds must be interpreted strictly.Footnote 247 They ‘may be relied on only if there is a genuine and sufficiently serious threat to a fundamental interest of society’ and they ‘must not be misapplied so as, in fact, to serve purely economic ends’.Footnote 248 Given that the arguments for addressing growth dependencies rest on economics research, the Court could consider that the proposed amendments to general company laws fall under the umbrella of ‘purely economic aims’. The Court would probably be inclined to follow this line of reasoning to avoid intervening in an economics debate and contradicting the objectives of the internal market enshrined in the Treaties.Footnote 249
Member States would face the same difficulty if they relied on an overriding reason in the public interest to justify the measure. In Verkooijen, the United Kingdom tried to argue that a restrictive measure was objectively justified by an overriding reason in the general interest because its ‘intention [was] to promote the economy of the country by encouraging investment by individuals in companies with their seat in the Netherlands’.Footnote 250 The Court rejected the argument because it fell under the umbrella of ‘aims of purely economic nature’.Footnote 251 The neoliberal assumption that the more freedom of movement of capital, the better, can hardly be contested.
In both cases, even if by some miracle, Member States managed to justify the measures, they would probably fail the proportionality test. Indeed, amendments to general company laws hindering the private distribution of profits would create important distortions of the conditions of competition between Member States, therefore affecting the very principle of an open market economy.Footnote 252
The last chance for Member States to justify their measure would be to rely on Article 345 TFEU, according to which ‘the Treaties shall in no way prejudice the rules in Member States governing the system of property ownership’.Footnote 253 However, the Court interprets this provision restrictively. A restrictive measure governing the system of property ownership must still be justified by an overriding reason in the public interestFootnote 254 because Article 345 ‘does not have the effect of exempting such a system from the fundamental rules of the Treaty’.Footnote 255 Yet, Article 345 can help to justify restrictive measures dictated by reasons of an economic nature if the underlying objectives pursued are related to Member States’ choices of ownership structures.Footnote 256 In the case at hand, the link between the measure and choices of ownership structures was too loose for this to hold.Footnote 257 There is therefore little doubt that the proposed amendments to general company laws would fail the Court’s review (unless they are so limited that they cannot achieve the very objectives of their adoption). The Treaties are, in this regard, in stern opposition to post-growth transformation. In practice, this incompatibility would even be reinforced by the need to accompany the proposed amendments with restrictions of capital movements to avoid capital flight.
3.3.2. Targeted support for NFPs
Given that amending general company laws in line with the NFP model is not possible, Member States could instead incentivise corporations to adopt the model by giving targeted support to NFPs in the form of subsidies or tax exemptions.Footnote 258 Yet this support would need to be compatible with the State aid rules enshrined in the Treaties. Article 108 TFEU requires Member States to notify the Commission of any new ‘aid’ meeting the criteria set forth in Article 107(1) and to cooperate on existing ‘aid’ meeting the same criteria.Footnote 259 The treaty language is relatively flexible on the scope of the notification obligation and allows justifications for the granting of State aid. Some form of targeted support towards NFPs would therefore be possible.
Support targeting NFPs is included in the notion of ‘State aid’ set forth in Article 107(1) TFEU. For a measure to be considered State aid, four conditions need to be met. First, there must be an intervention by the State or through State resources. Second, that intervention must be liable to affect trade between Member States. Third, it must confer a selective advantage on the recipient. Fourth, it must distort or threaten to distort competition.Footnote 260 The third condition is where the heart of the question lies. Indeed, support granted by Member States to NFPs is undoubtedly State intervention (first condition),Footnote 261 while the second and third conditions are understood broadly by the European courts. The mere fact that undertakings have less chance of accessing the market of a Member State is enough for European courts to find that trade is affectedFootnote 262 (second condition) and ‘if aid has an effect on trade, it inevitably also distorts competition’ (fourth condition).Footnote 263 The European courts divide their analyses of the third condition into three parts: an undertaking (a) must have been conferred an advantage (b) in a selective manner (c).Footnote 264
The notion of undertaking (a) encompasses any ‘entity engaged in an economic activity’,Footnote 265 while ‘any activity consisting in offering goods and services on a given market is an economic activity’.Footnote 266 This broad definition includes NFPs if they are providing goods or services in competition with profit-seeking entities.Footnote 267 The notion of undertaking only excludes ‘legal entities that are based on financial solidarity and have solely a social function’Footnote 268 like those involved in providing solidarity-based social security, public healthcare and public education.Footnote 269
The notion of advantage (b) encompasses any ‘economic benefit which an undertaking could not have obtained under normal market conditions’.Footnote 270 However, support measures can avoid the qualification of advantage if they can be regarded as ‘compensation for costs incurred to provide a service of general economic interest’.Footnote 271 Certain conditions aimed at ensuring that there is no overcompensation need to be complied with, none of which favour support directed towards NFPs.Footnote 272 For the Court, the fact that an undertaking cannot derive any profits from the activity does not suffice to demonstrate that there is no overcompensation.Footnote 273
The notion of selectivity (c) means that ‘the measure applies only to certain (groups of) undertakings or certain sectors of the economy in a given Member State’Footnote 274 and/or only to certain parts of the territory of a Member State.Footnote 275 Tax exemption measures can escape the selectivity criterion if it can be demonstrated that they do not apply different regimes to the same situation, but different regimes to different situations.Footnote 276 A tax exemption scheme for cooperatives has notably escaped the qualification of State aid because cooperatives conform to different operating principles than other economic operators.Footnote 277 This would, however, not be the case for individual measures favouring a subset of all the cooperatives established within a Member State.
Targeted support towards NFPs is therefore not given preferential treatment and will, as a rule, be considered State aid, unless their activities are entirely non-economic, contribute only to the provision of services of general economic interest (under certain conditions) or unless the support takes the form of a tax exemption scheme applicable to all NFPs. If none of these conditions is present, the aid needs to be notified to the Commission in accordance with Article 108(3) TFEU.Footnote 278
Nonetheless, the Treaty allows the Council to exempt certain types of aid from the notification obligation of Article 108(3) TFEUFootnote 279 and the Commission to adopt regulations further specifying the conditions for the exemptions.Footnote 280 On that basis, the General Block Exemption Regulation currently exempts 90 per cent of new State aid.Footnote 281 The Council and the Commission could decide to broaden the scope of the exemptions to exclude from the State aid regime all financial support towards non-profits under a certain amount. There is nothing in the treaty language that prevents this, particularly given that the list of possible justifications under Article 107(3) is open-ended.Footnote 282
If an aid is notified to the Commission, the Commission can still accept justifications.Footnote 283 Article 107(3) provides derogations at the discretion of the Commission for a variety of reasons (economic development of certain economic activities or certain economic areas, remedying a serious disturbance in the economy, etc.)Footnote 284 that may be used for supporting NFPs. These justifications have been relied upon extensively to justify various forms of State support, including aid towards restructuring in particular industries and aid for financial institutions in the context of the financial crisis.Footnote 285 The Commission enjoys a wide discretion for determining whether a measure qualifies under the justifications of Article 107(3).Footnote 286 Whether targeted support for NFPs would pass its review would therefore heavily depend on the Commission’s State aid policy. The European courts’ review has been limited to verifying whether the Commission does not add conditions for the justifications not found in the treaty text.Footnote 287 The Court has notably ruled that the Commission’s assessment of the compatibility of the aid with subparagraph (c) cannot depend on whether the aid pursues an objective of common interest because, as opposed to subparagraph (b), the condition is not present in the treaty text.Footnote 288 Although the environmental integration principle could support the systematic consideration of environmental protection objectives by the Commission,Footnote 289 the Court has so far restricted its reach to ensuring that the aid does not infringe rules of EU law on the environment.Footnote 290 In addition, the European courts have also verified whether the measures comply with the principle of proportionality.Footnote 291 The stringency of the proportionality test essentially depends on the type of aid at stake: operating aids are reviewed more carefully given that they are forbidden in principle.Footnote 292 This means that if the type of aid is carefully considered and if the Member State manages to link it to the justifications of Article 107(3), the aid has a good chance of surviving review by the Commission and the Courts.
Last but not least, Article 108(2) also permits the Council to derogate in exceptional circumstances from Article 107 and from the regulations provided for in Article 109 by deciding that a given aid is compatible with the internal market. The Council enjoys a wide margin of discretion in determining whether ‘exceptional circumstances’ warrant its decision, making Article 108(2) close to a silver bullet for State aid in the context of an economic crisis.Footnote 293
To conclude, although the treaty provisions on State aid do not favour NFPs specifically, certain types of targeted support towards NFPs could escape the notification procedure of Article 108(3), be justified under Article 107(3) or even, in exceptional cases, be declared compatible with the Treaties by the Council under Article 108(2). The Treaties would even allow new exemptions and justifications for State aid in favour of NFPs, as long as they remain limited enough so as not to deprive Article 107(1) of meaning. This means that in the absence of a grand overhaul of general company laws, targeted support towards NFPs could be used to a limited extent to facilitate the post-growth transformation of non-financial corporations.
4. Conclusion
This article is the first attempt to study how legal systems reinforce the growth dependence of socioeconomic systems. It rests on a methodology that combines the bird’s eye view of ecological economics with detail-oriented doctrinal legal research. First, a conceptual framework for assessing the growth dependence of socioeconomic systems as understood by ecological macroeconomists was developed. Then, key applicable treaty provisions were interpreted to determine whether, to what extent and how they hinder policy reform towards growth independence. This research led to the conclusion (represented in Figure 2) that the Treaties considerably reinforce the growth dependence of the EU socioeconomic system, although at varying degrees and through different legal mechanisms across institutional sectors.
First, the Treaty provisions on fiscal and monetary policy contain some flexibility for paying for public expenditure without growth, although with important limitations. The excessive deficit procedure is significantly more lenient towards increases of budget deficits than a surface-level reading would suggest. Yet whether this flexibility is granted to Member States depends on the willingness of the Commission and the Council to deviate from the current budgetary policy paradigm. In addition, the limited scope of the ESCB’s monetary policy competence and the prohibition of direct monetary financing limit the range of monetary policy instruments available to the general government to pay for public expenditure without growth. Past government bond purchase programmes could be resumed for that purpose, but this is as far as the ESCB could go in terms of policy instruments, duration and scale.
Second, the Treaties reinforce even more markedly the need for GDP growth stemming from capital accumulation. Indeed, they prevent the adoption of monetary diversity measures to strengthen the EU socioeconomic system’s resilience to crises caused by capital accumulation. The ESCB is not competent to issue sovereign money to an extent sufficient to keep money circulating during private sector slowdowns. Further, the legal tender status of the Euro leaves limited room for Member States to incentivise the uptake of local currencies because they cannot undermine the possibility, as a general rule, of discharging a payment in Euro cash.
Third, the Treaties are not compatible with policies that would make NFP corporations the rule rather than the exception. The Court’s jurisprudence on freedom of movement of capital does not allow a grand overhaul of general company laws in favour of NFP incorporation structures because preventing (or at least, strongly reducing) the private distribution of profits would make investments less attractive for investors from other Member States. In contrast, State aid rules are more flexible and allow Member States to give targeted support to NFPs under certain conditions. Yet this support can only have a limited impact on the overall profit-seeking behaviour of non-financial corporations, as long as general company laws are not transformed.
These findings indicate that treaty reform is necessary if the EU socioeconomic system is to sustain human wellbeing without growth. However, they also show that there is a limited level of flexibility towards policies which, while not making the EU socioeconomic system growth independent, would constitute first steps in that direction. Indeed, the Treaties allow government bond purchase programmes, but not helicopter money, a digital Euro that mimics cash, but not full-blown sovereign money, and some targeted support towards NFPs, but not a grand overhaul of general company laws. Another important finding is that the level of flexibility varies across institutional sectors: while growth dependencies created by the general government’s functioning can be partially addressed under the current treaty regime, the Treaties only provide very limited leeway for addressing growth dependencies associated with the functioning of corporations (financial and non-financial).
The need for treaty reform must, however, be qualified by the fact that the doctrinal analysis conducted has focused on the current jurisprudence of the European courts. It cannot be excluded that it would evolve as the ecological crisis unfolds, but given the Court’s reluctance to depart from past jurisprudence,Footnote 294 a jurisprudential overhaul appears unlikely. The present research also suggests that certain conclusions, like the fact that the ESCB’s monetary policy competence does not permit the issuance of sovereign money to an extent sufficient to keep money circulating during private sector slowdowns, could not be overturned by novel treaty interpretations without undermining the rule of law. Nonetheless, further research could investigate possible alternative interpretations of the constraining treaty provisions discussed in this article.
The methodology developed in the article could also inspire further research assessing how legal systems reinforce the growth dependence of socioeconomic systems. Legal research on growth dependence is still in its infancy, and much could be done using this methodology. For instance, it could be used to assess how legal systems other than that of EU reinforce growth dependence. EU law researchers could also delve deeper into the constraints on policy reform within the EU legal system by broadening the analysis to both primary and secondary law. Considering the constraints created by the provisions that were found to impede policy reform only indirectly or to have a role limited to specific fields would also considerably contribute to improving knowledge on the topic.
Looking forward, legal scholars will need to examine how the Treaties could be revised to enable the implementation of policies towards growth independence. There is no time to lose in considering how to make legal systems compatible with post-growth transformation. The worsening ecological crisis is making it increasingly clear that post-growth transformation will be the only viable adaptation strategy.
Acknowledgements
I am very grateful to my PhD supervisors, Professor Niko Soininen, Dr Teemu Koskimäki and Dr Kaisa Huhta, for their valuable guidance and advice throughout this project. I am also grateful to the Saastamoinen Foundation for providing funding for this research. I would also like to thank two anonymous reviewers for their helpful comments on an earlier version of this manuscript. Any errors remain my responsibility.
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