A balanced constitutional configuration

We posit that because of the specific constitutional configuration of the Social Title, it leads to results that, by and large, strike a fair balance. Firstly, while perhaps more tangibly political than many other areas of EU law, the objectives for which the Social Title permits the adoption of EU legislation are generally not of a re-distributive nature and thereby deny the EU the power to take the most consequential decisions on ‘the social’ and ‘the market’ from the outset. The protection of workers’ health and safety, improvement of working conditions, protection in the case of termination of employment, information and consultation of workers, gender equality as regards employment and the other fields listed in Article 153(1) TFEU are social in nature, but can still be conceptualised as correcting (internal) market failures, particularly the risk of a race to the bottom, information and power asymmetries between workers and employers and societal externalities.Footnote ⁶ By contrast, the more sensitive issues of combating social exclusion and modernising social protection systems cannot be pursued through legislation on the EU level,Footnote ⁷ and the issues of wage-setting, collective action and the right to strike are excluded from any action under Article 153 TFEU.Footnote ⁸ While these limitations may seem regrettable to those in favour of Social Europe, it can also be argued that the authority to take decisions of such re-distributive impact are rightly withheld from the EU institutions, in light of their limited democratic legitimacy.Footnote ⁹

Moreover, the provisions of the Social Title contain safeguards ensuring that the measures adopted on this basis are not overly biased towards either ‘the economic’ or ‘the social’. On the one hand, the EU may only set ‘minimum requirements’, which ‘shall not prevent any Member State from maintaining or introducing more stringent protective measures’.Footnote ¹⁰ If, for instance in view of internal market objectives, the EU wants to fully harmonise a certain issue of labour protection, thus capping levels of social protection, it will have to use another legal basis. Furthermore, in providing that ‘the Union and the Member States […] shall have as their objectives the promotion of employment, improved living and working conditions, so as to make possible their harmonisation while the improvement is being maintained’, the first paragraph of Article 151 TFEU could be argued to express a non-regression principle for EU social law.Footnote ¹¹ According to some, this entails that Member States and the Union are bound to progressive harmonisation and would be precluded from lowering existing levels of protection either in national or EU law. While the Court has to date not explicitly recognised this principle, many secondary legal instruments in this area do contain so-called ‘non-regression clauses’, which stipulate that the implementation of the measure may not be a reason to lower the previous level of protection.Footnote ¹²

On the other hand, the Social Title also contains safeguards ensuring that its measures are not overly biased towards ‘the social’. Article 153(2)(b) TFEU provides that directives adopted on this basis ‘shall avoid imposing administrative, financial and legal constraints in a way which would hold back the creation and development of small and medium-sized undertakings’. The General Court held in UEAPME that this ‘lays down a substantive obligation, compliance with which is subject to review by the Community judicature’.Footnote ¹³ Admittedly, the Court is reluctant to actively review successfully adopted legislation against this requirement,Footnote ¹⁴ which is understandable in light of the political nature of the criterion. However, concern for economic competitiveness, for small and medium-sized enterprises in particular, has become a key element of the Better Regulation Agenda,Footnote ¹⁵ which entails an assessment of all prospective and existing EU rules to ensure that they do not impose disproportionate regulatory burdens on undertakings. While there has been some criticism about the impact of this agenda on rules of public interest,Footnote ¹⁶ such as labour protection,Footnote ¹⁷ the Better Regulation Agenda indisputably serves to operationalise the ‘market-safeguard’ of Article 153(2)(b) TFEU in a prominent way.

A legitimate constitutional configuration

An important additional safeguard is procedural in nature. The Social Title features two methods for the adoption of EU social law measures: the conventional Community Method and the distinctive ‘Social Method’, which both serve to ensure an overall balanced outcome through their structural involvement of a wide range of representative institutions. The ‘Social Method’ allows the European Social Partners, i.e. representatives of management and labour at EU level, to conclude an agreement between themselves and to have it subsequently implemented by the Council on a proposal from the Commission (Article 155 TFEU). In this unique exception to the Commission’s monopoly on legislative initiative, the Social Partners can thereby actually draft the content of EU legislation.Footnote ¹⁸ Alternatively, the Community Method, with its in-built checks and balances, can be used to pursue the objectives of the Social Title. Following Article 153(2)(b) TFEU, measures are adopted following either the ordinary or the special legislative procedure, depending on which particular objective listed in Article 153(1) the initiative relates to. While under the special legislative procedure the role of the European Parliament is limited to consultation, the unanimity rule in the Council imposes high consensus requirements. Furthermore, national parliaments are now always involved in the Community Method through the Early Warning System.Footnote ¹⁹ Moreover, for any measures adopted based on Article 153 TFEU, there is privileged involvement of the EU Social Partners through a two-stage consultation (Article 154 TFEU).Footnote ²⁰

The structural representation of a wide range of interests is likely to be reflected in the outcome. In particular, the close cooperation with and between the representatives of management and labour in the context of EU social law-making under both methods can be expected to foster balanced results. But perhaps even more importantly, the outcomes can be considered legitimate, as they have been achieved through a transparent, democratic and inclusive process. In addition to the increased transparency of decision-makingFootnote ²¹ and engagement to public consultation in the conventional EU legislative process in recent years, the active involvement of target groups in the substantive decision-making process in the context of the Social Title is conducive to ‘throughput’ legitimacy, and in turn is likely to induce a relatively high measure of cross-spectrum political support for the eventual outcomes and thereby output legitimacy. And indeed, while concerns about the EU’s democratic deficit continue to persist, in terms of input legitimacy the EU legislative process is the most accountable form of international cooperation,Footnote ²² reinforced by many reforms over time to enhance the role of both the European Parliament and national parliaments. This must therefore fundamentally limit our concern with any perceived imbalance between ‘the market’ or ‘the social’ anyway, as such can be assumed to reflect a conscious political choice, which moreover can be contested and adapted through that same process if the political orientation changes subsequently.Footnote ²³ While it would be naïve to portray this area of EU law as consensual and to deny the existence of any political difficulties, the argument is that the typically political and contested nature of the socio-economic questions underlying this area at any level are appropriately accommodated in the EU constitutional framework, leading to, overall, balanced and legitimate outcomes. As such, it is important not to automatically conceptualise ‘no EU action’ as a failure, as that can itself be a legitimate and balanced outcome.

The role of the European Court of Justice

Does the European Court of Justice’s case law in this area affect the above conclusion? While, as in any other area of EU law, the Court will generally interpret EU legislation constructively in light of the main objectives pursued by the measure, which in this area would be a social one, it can be noted that particularly as regards the labour law directives, the Court has been remarkably careful not to upset the delicate compromises between ‘the market’ and ‘the social’ arduously crafted in the political process.Footnote ²⁴ One exception in this regard is perhaps the Working Time Directive. Although it is, on the one hand, one of the rare instances where the Court has partially annulled a legislative measure for having been adopted ultra vires,Footnote ²⁵ the Court has also interpreted some of its provisions widely. As regards the definition of working time, for the purposes of the application of the minimum rest periods and maximum average working hours, the Court has held that it includes all on-call time served at the workplace even if the worker can rest on-site, such as hospital doctors on night shifts.Footnote ²⁶ Furthermore, the Court has held that the right to paid annual leave should be maintained also in cases of long-term sick leave.Footnote ²⁷ Both lines of case law have been criticised by some, for arguably preferring workers’ interests over those of employers.Footnote ²⁸ It should nevertheless be questioned whether, objectively, these judgments actually lead to unbalanced outcomes. The Court has held that stand-by time at home does not have to be counted as working time,Footnote ²⁹ and the Working Time Directive contains many derogations, particularly for sectors where on-call time is common,Footnote ³⁰ including an ‘individual opt-out’ when the worker is willing to work in excess of the Directive’s limits.Footnote ³¹ The impact of the case law on annual leave has been mitigated by the Court itself, allowing the right to carry-over leave not taken due to illness to be capped at 15 months.Footnote ³²

The Court has taken a more unequivocally active stance as regards the principle of equal treatment. Already in the early days of European integration, the Court gave a wide interpretation of the equal pay provision in the Treaty,Footnote ³³ and on those foundations an important non-discrimination acquis has been built. While the Court’s approach in this area has been validated by the Masters of the Treaty through an expansion of EU competences, and by the European legislator in secondary law, the Mangold judgment should be mentioned as an exception to the finding that the Court in this area is deferential to compromises forged in the democratic process.Footnote ³⁴ The Court held that the prohibition of age discrimination was a general principle of EU law and therefore already bound the Member States before the expiration of the transposition deadline of the non-discrimination directive.Footnote ³⁵ Nevertheless, even though the judgment was important in terms of legal principle and prompted a flurry of academic analysis,Footnote ³⁶ its actual impact in terms of balancing ‘the market’ and ‘the social’ has arguably been rather limited. The transposition deadline of the non-discrimination directive eventually expired, so the Court’s judgment merely advanced the application of the legal norms legitimately decided in the legislative process.

Interim conclusions

The foregoing discussion leads to the conclusion that in the area of EU social law, the balance between ‘the social’ and ‘the economic’ is generally being decided through democratic, transparent, inclusive and accountable procedures. Partly because of that, and partly because of a number of counterbalancing constitutional safeguards, the overall outcome is, by and large, fairly balanced and, in political terms, centrist.Footnote ³⁷ A relatively restrained role by the European Court of Justice serves to reinforce that conclusion. The Court’s activism in this area has generally been limited to securing the right to equal treatment. In a constitutional democratic system, such active judicial protection of fundamental human rights – sometimes at the expense of the legislator – can be defended as legitimate. Overall, using the legitimacy vocabulary developed by Schmidt, this means that EU social law benefits from a relatively high degree of input, output and ‘throughput’ legitimacy,Footnote ³⁸ or ‘a Triple A legitimacy rating’.

Bias towards ‘the market’?

For a long time, the degree of negative integration of national social and labour standards remained rather limited. Firstly, where it was held that social standards can imply a restriction on companies’ free movement rights, such as certain labour rules, the Court conducted a relatively relaxed proportionality review, upholding most measures as justified.Footnote ⁴¹ Secondly, it should be kept in mind that the majority of national social protection measures are redistributive benefits and services provided by the state, which by their nature are not liable to be qualified as restrictions to the internal market provisions, leaving these measures outside the reach of negative integration.Footnote ⁴² To the extent that Article 48 TFEU on the free movement of workers and the provisions on EU citizenship do demand that such social benefits and services are, under certain circumstances, made available to mobile EU citizens and their families on equal terms, this actually contributed to the EU’s social dimension.

The situation changed with the Laval and Viking judgments,Footnote ⁴³ and libraries have been filled with critical commentary.Footnote ⁴⁴ Pointing to the horizontal application of the internal market provisions to organised labour, the wide definition of restrictions to economic freedom, and the priority accorded to this freedom over the right to take collective action, the majority of commentators agree that in these judgments the Court gave preference to the market freedoms at the expense of social objectives. Also, international organisations have weighed in, most notably with the Council of Europe’s European Committee of Social Rights condemnation of the Swedish legislation implementing the Laval ruling, and thereby indirectly the European Court of Justice’s ruling itself, for breaching the European Social Charter.Footnote ⁴⁵ The Laval and Viking rulings were followed, and their effects strengthened, by a third landmark case. In Rüffert, the Court held that EU law precluded Member States from requiring, in public procurement, that contractors pay their employees the remuneration prescribed by the collective agreement in force at the place where those services are performed.Footnote ⁴⁶ The Court’s reasoning was especially striking as regards the possible justification on grounds of worker protection: to require a level of remuneration exceeding the minimum rate of pay applicable pursuant to national legislation cannot be necessary for the protection of workers – otherwise, the same rate of pay would be required nationally and/or for the whole sector.

This trilogy of judgments thereby simultaneously widened the already broad definition of potential restrictions on the free movement provisions, seemingly embracing a full ‘market without rules’Footnote ⁴⁷ approach qualifying all national legislation applicable to foreign companies (as well as collective agreements, and collective action by workers aimed at procuring such agreements) as prima facie restrictions,Footnote ⁴⁸ while also narrowing the scope for justification on social grounds. Thereby, the Court fundamentally altered the balance between ‘the economic’ and ‘the social’ in the context of the internal market, with real and non-negligible consequences. First of all, these cases are game-changers. Judgments like Viking, Laval, and Rüffert inform the Commission’s subsequent infringement actions not only against the country to which the judgment related, but also other Member States,Footnote ⁴⁹ and they inform national courts and authorities, who adapt their action accordingly in the affected areas and beyond. This means that these ‘few’ judgments become the hard and fast norm for all pay standards in public procurement across Europe, on all labour standards imposed in (potential!) temporary cross-border service provision, and on all collective action undertaken against companies’ market freedoms. On the European level, these judgments change the terms of the argument about the market-social balance, providing one side of the argument significant leverage over the other, within the EU institutions, between the institutions and vis-à-vis national actors. Economic actors seek to exploit this new legal landscape to the fullest by bringing new claims to national courts, inviting even further market-favouring expansion of these doctrines.Footnote ⁵⁰

Secondly, Laval, Viking and Rüffert are not just occasional ‘lapses’ by the Court. Less high-profile but equally significant judgments carry forward this same trend, somewhat under the radar. A good example is the C-576/13, Commission v Spain judgment.Footnote ⁵¹ The Court held that the Spanish dock work system, which required all companies wishing to perform cargo handling services to register with the dock workers’ company and to hire, with priority, workers from that company, amongst whom a certain number on permanent contract, constituted an unjustified restriction of the freedom of establishment. In rejecting the justifications that were inter alia based on worker protection, the Court followed a lowest common denominator approach, pointing to other Member States’ more liberal systems as proof that the measures were not necessary for the protection of workers. The ruling puts pressure on social standards in a sector that is highly symbolic of the power of unionisation, where in the face of harsh and precarious working conditions workers’ solidarity has been able to procure high standards of protection through a variety of complex systems in ports across Europe. This social organising power was able to block the EU’s attempts to liberalise port services in 2001Footnote ⁵² and 2004,Footnote ⁵³ with fierce union protest actions leading the European Parliament to an unprecedented vote-down of the proposed directive after having already reached a compromise in the conciliation phase.Footnote ⁵⁴ A new proposal for a regulation is pending, but it excludes cargo handling from being opened up to the market.Footnote ⁵⁵ The Commission v Spain judgment, rendered without the Opinion of an Advocate General and available only in Spanish and French, now does just that, thereby showcasing the surreptitious power of negative integration, achieving outcomes that would be more difficult to procure in a democratic arena.

Moreover, beyond the specific area of port labour, this judgment could be used as a precedent for the finding that all restrictions on the type of labour contract that companies can use is a restriction on the free movement provisions. National provisions limiting the use of precarious and temporary contracts would be caught, at least to the extent that they (may?) apply to foreign companies. Taking this logic to its extreme, Member States would have to defend why they do not allow, for instance, the unlimited use of zero-hours contracts. And, even if justification is possible in theory, this does not save all measures.Footnote ⁵⁶ Indeed, as Barnard has pointed out, ‘the ECJ’s “restrictions” analysis gives primacy to the economic freedoms […] and creates a presumption that the national rule is unlawful. This puts the defendant, usually the state, on the back foot, defending national social policy choices and showing that the legislation is proportionate’.Footnote ⁵⁷ This proportionality assessment imposes unrealistic rationality requirements on the national democratic process (‘policy perfection’),Footnote ⁵⁸ and, since Rüffert, the acceptable standard of social protection is low. Furthermore, it leaves the defence of hard-fought social protection achieved on the national level in the hands of national governments, who are not necessarily the owners of these standards, or even in favour of them. It thereby gives governments a tool to eliminate social rules that they do not support, without having to face the normal political contestation at the national level. This leaves social rules systematically vulnerable to attack at both the European and the national level.

Political re-balancing?

The political process has been unable to readjust the balance. Importantly, this is not because the outcome of the case law coincides with the majority political view, but instead because there is a structural incapacity of the political process either at national or European level to correct the negative integration resulting from European Court of Justice case law. As Scharpf has argued, the constitutionalisation of the market freedoms, applied by the Court in a rigorous way severely limiting the Member States’ regulatory capacity in all policy areas regardless of whether they fall within an area of Member State autonomy, accompanied by the relative political and legal weakness of EU legislative abilities to set social standards at the European level, has had deregulatory effects.Footnote ⁵⁹

Laval is the textbook example: national social standards laid down in collective agreements could not be protected by trade unions through collective action as this limited companies’ freedom to provide services across borders. The EU legislator in turn could not fill this social gap, partially because legislation itself is subject to the fundamental freedoms laid down in the Treaties, and partially because (national parliaments considered that) the EU lacked legal competence to act on this issue.Footnote ⁶⁰ Moreover, even if the legislative proposal passed review by national parliaments, it is not at all certain that the Council would have reached agreement. Negative integration favours the negotiation position of Member States with a ‘Liberal Market Economy’ who have no incentive to legislate upward to change the liberalised status quo.Footnote ⁶¹ This structural asymmetry has worsened since the accession of Central Eastern Member States that tend to favour the Liberal model, making it even more difficult to pass social legislation at the EU level.Footnote ⁶² The one measure that was eventually adopted after an arduous legislative process, the Posted Workers Enforcement Directive, only serves to prove this point. The sole compromise that could be reached was to allow host States more effective methods of policing their legitimately imposed labour standards, rather than broadening the scope of these standards themselves.Footnote ⁶³

The way that European Court of Justice case law structurally influences political outcomes can also be seen from more recent developments in the area of posted workers. Perhaps in response to the criticism levelled at its hardened stance toward labour standards, the Court readjusted its position to the benefit of national social regulatory autonomy in two recent rulings. In Elektrobudowa, the Court was again asked to interpret the Posting of Workers Directive.Footnote ⁶⁴ The case concerned 186 Polish workers posted to Finland, who considered that they had not received sufficient wages. They assigned their claims to a Finnish trade union, which seized a national court, which in turn asked the European Court of Justice for guidance on what the employer could be obliged to pay the workers under host State rules. The Court, in a remarkably generous judgment, sided with the trade union, confirming the possibility of workers to assign their wage claims to unions if the host Member State law so provides, regardless of whether home State law permits this. Even more importantly, the Court gave a broad interpretation of what host States could consider as constituting the mandatory ‘minimum rates of pay’ under Article 3(1) of the Directive. Contrary to the Advocate General, the Court held that the minimum wage could be calculated by categorising workers into pay groups based on criteria such as qualifications, training, experience and type of work (if this is done transparently), and that it could include a posting-specific flat-rate daily allowance applicable for the entire duration of the posting. Similarly, it could include a reimbursement for daily travelling time. The Court also considered that the cost of accommodation provided by the employer and meal vouchers could not be deducted from the minimum rates of pay payable to the workers.

This important shift was followed in the highly anticipated Regiopost ruling.Footnote ⁶⁵ Contrary to the position of the Commission, the Court held that the award of public contracts may be made subject, by law, to a minimum wage. In particular, the Court accepted the requirement of Stadt Landau for tenderers to commit to paying (sub-)contractors an hourly wage of €8.50 as stipulated in the regional public procurement law. Regiopost, one of the three German tenderers to provide municipal postal services, had argued that this requirement was incompatible with Article 56 TFEU, and could not be authorised under the Posting Directive or the Public Procurement Directive 2004/18, in reference to the Rüffert and Bundesdruckerei judgments.Footnote ⁶⁶ While in Rüffert the collective agreement in question had not been declared universally applicable as required under Article 3(8) of the Posting Directive, and the Public Procurement Directive 2004/18 (which allows the imposition of special social conditions)Footnote ⁶⁷ was not yet applicable, and while the Bundesdruckerei case involved the rather special situation where the work was to be carried out in the home state, Regiopost appealed to the underlying reasoning of the Court in these two cases, where it subjected both directives to the interpretation of Article 56 TFEU as primary law and held that wage requirements could only be justified in the name of worker protection if constituting the absolute minimum applicable in the most general terms, and so not including higher levels of protection set by public procurement.

The Court disagreed, considering the regional provision a ‘law’ that lays down a ‘minimum rate of pay’ under Article 3(1) of the Directive. The fact that the law only applied to public contracts did not make any difference, since the Directive makes the criterion of ‘universal application’ only applicable to collective agreements. This interpretation was ‘confirmed […] by a reading […] in light of Article 56 TFEU’.Footnote ⁶⁸ The Court reiterated that while wage requirements can constitute a restriction of the freedom to provide services, they may be justified by the objective of protecting workers. The fact that the requirement only applies in the context of public contracts again did not matter. While thereby departing from the Rüffert approach, the Court does not explicitly reverse its stance but instead goes to great length to distinguish it, stating that its ruling was based ‘on certain characteristics specific to th[e] measure [in question]’.Footnote ⁶⁹ The measure in Rüffert was a collective agreement applying solely to the construction sector, which did not cover private contracts and had not been declared universally applicable, and the pay set by that collective agreement exceeded the minimum pay applicable to that sector under the German Posted Workers Law. By contrast, the minimum pay imposed in Regiopost is laid down in a legislative provision, which applies generally to the award of public contracts in the Land Rhineland-Palatinate, irrespective of the sector, and (at the time of the facts) no other minimum wage provisions applied. To avoid an explicit and principled reversal of its case law, the Court confines the ruling to the specific facts, thereby leaving a number of burning questions unanswered.Footnote ⁷⁰ But even if the extent to which Laval, Rüffert, Luxembourg and Bundesdruckerei have been overturned is open to discussion, the permissive signal to Member States and their courts is a strong one.

The judgments may thereby already go a long way toward addressing the political concerns about social dumping since Laval and Rüffert, although the stakeholders involved can be expected to remain insistent in their desire to see the text of the Directive itself revised.Footnote ⁷¹ It is understandable that they do not feel confident leaving their fate in the hands of sometimes unpredictable and volatile case law. President Juncker campaigned on a strong social message, prominently including commitments to bolster the right of host States to enforce their labour standards through revision of the Posting of Workers Directive following an ‘equal pay for equal work’ principleFootnote ⁷² to address the political fallout after Laval and Rüffert.Footnote ⁷³ The Commission had indeed already announced a ‘targeted review’ of the Directive. The proposal envisages, inter alia, to replace the notion of ‘minimum rates of pay’ of Article 3(1)(c) with ‘remuneration’, and to allow social standards to be imposed through other collective agreements than those that have been declared universally applicable in the context of subcontracting.Footnote ⁷⁴ With the now reinforced power of the Member States under Article 3(1) of the Directive since Elektrobudowa and Regiopost, the bargaining position of the ‘Social Market Economy’ Member States has significantly improved, meaning that the political likelihood of such a revised Directive being agreed upon in the Council has become higher (although, ironically, less necessary). However, the proposal has received the required number of negative opinions from national parliaments to trigger the yellow card procedure for the third time in history,Footnote ⁷⁵ sending the proposal back for consideration to the Commission, a development which underlines once again the difficulty of (re-)regulating an area covered by EU case law.

Constitutional imbalance: the excessive role of the judiciary

Of course, for those in favour of high social standards, the Court’s recent re-adjustment of the balance between ‘the economic’ and ‘the social’ in the internal market is all the more welcome in light of these continuing political difficulties. Further examples of this recent recalibration can be mentioned, such as the AKT rulingFootnote ⁷⁶ on the Temporary Agency Work Directive.Footnote ⁷⁷ And while the recent case law on access to benefits for non-economically active EU migrants may by contrast be considered a less social turn, it could also be argued to fit the new trend that respects national regulatory autonomy (who to include and to exclude) on social questions.Footnote ⁷⁸ All these recent judgments show that the Court is, to a certain extent, responsive to societal concerns about its case law. But on a more fundamental level, the foregoing lays bare the remarkably decisive role that the case law plays in these essentially political questions, making one wonder whether it is acceptable that the Court (pre)determines political outcomes to such an important degree.

The role of any judiciary in balancing ‘the market’ and ‘the social’ is a thorny enough issue, let alone in the EU’s constitutional order, where the ‘correction’ by the political process of such judgments is exceedingly difficult. As discussed above, the EU may lack the competence altogether to ‘re-regulate’ the issue, or it must rely on the internal market legal bases which lead to an economic bias by demanding that the measure serve the functioning of the internal market.Footnote ⁷⁹ The EU legislator is subject to high consensus requirements, that is must fulfil in the context of a very diverse EU28, with national parliaments posing an additional hurdle. The effect of the case law on the bargaining conditions in the Council makes it difficult for the legislator to deviate from that case law in practical terms. Moreover, a fundamental deviation is difficult also in legal terms, as the Court’s interpretations of the internal market provisions are of a constitutional nature. The legislative process is powerless in that case to alter the interpretation given by the European Court of Justice; only a Treaty revision would suffice. Of course, ultimately, the final power therefore lies with the Masters of the Treaties, but the picture clearly emerges that it is the Court that, to a very large extent, decides on the political question of the place of the market in our societies, and on the power of our societies to regulate the market.

The integration process owes a great debt to the Court’s case law, especially where it bypassed precisely these political stalemates of the past through landmark judgments like Cassis. Nevertheless, this very case law has also created a debt of its own – not just a social one, but ultimately a democratic one. Through its wide interpretation of indirect and potential restrictions prima facie caught by the Treaty market freedoms and its configuration of the rule of reason, the Court has placed itself structurally in a position where it scrutinises and second-guesses sensitive and re-distributive political choices made both on the national and the European level. The results of such intensive review can only benefit ‘the market’ at the cost of other public interest concerns, including social ones. The stakes are such that ‘the market’ has much less to lose than ‘the social’ here: a judgment accepting a national social ‘restriction’ as justified still allows Member States to adopt more market-friendly rules, but a judgment condemning a national social rule prohibits all Member States from adopting or maintaining such rules. Hence, more judicial restraint is in order. Therefore, the recent case law in this area should be welcomed, although it seems insufficient to resolve the deeper, constitutional asymmetry that makes the judiciary omnipotent, renders the European legislator ineffective and leaves the national legislator vulnerable and powerless. Indeed, judgments such as Commission v Spain show that the same dynamic continues in remarkably unnoticed ways. While, as Kilpatrick rightly points out, we should be equally careful not to sanctify the legislative process,Footnote ⁸⁰ its legitimacy to decide on the fundamental balance between ‘the market’ and ‘the social’ must be accepted as being significantly higher than the judicial process. Judicial law-making on these issues possesses only low levels of input and throughput legitimacy, and the fierce reactions to the Viking and Laval judgments show its doubtful output legitimacy.

Interim conclusion

The foregoing leads to the conclusion that in the internal market, the balance between ‘the social’ and ‘the economic’ has been decided in favour of the latter. The Viking, Laval and Rüffert judgments are of fundamental importance in that respect, as they altered this balance by widening the interpretation of potential restrictions and narrowing the scope for social justification. Even if recent case law suggests a more cautious approach, the problem lies deeper. In the current legal framework governing this area, the odds are not only systematically stacked in favour of ‘the economic’, but these decisions of high political importance are not being taken by the democratic process either on the national or on the European level, but instead by the judiciary. While this is arguably the natural consequence of the constitutionalisation of the free movement provisions and the hierarchy of norms, this finding should argue in favour of a relatively restrained approach by the European Court of Justice. However, rather to the contrary, the internal market freedoms are probably where the case law has traditionally been most activist. The current doctrines of market access and potential hindrance, and the proportionality test with its component of (strict) necessity, are almost entirely the Court’s making, quite far removed from the Treaty text. However useful this has proven to further the European integration process, the outcome is difficult to defend from a legitimacy point of view. Judicial review is a normal part of constitutional democracy with its intent being to insulate certain overriding values from the majoritarian democratic process, but the balance between ‘the social’ and ‘the market’ should not be such a value – instead it is, and should be, the bread and butter of the political process.

The social impact of the Euro-crisis measures and the European Semester

The economic and sovereign debt crisis threatening the stability of the Eurozone and the EU economy more generally has led to the adoption of harsh austerity measures in the affected countries. The Commission, through the European Stability Mechanism and its siblings,Footnote ⁸¹ coordinates the financial support provided by Euro countries and the International Monetary Fund in the form of economic adjustment programmes, requiring reforms to address economic imbalances, specified in Memorandums of Understanding. Such Memoranda have been signed under the European Stability Mechanism, the European Financial Stability Facility and earlier financial assistance agreements, with Cyprus, Greece, Hungary, Ireland, Latvia, Portugal, Romania and Spain. The detailed conditionalities specified therein have resulted in a significant and widely reported reduction of health,Footnote ⁸² social protectionFootnote ⁸³ and labour standards. For instance, the various Memoranda signed with Greece require inter alia an increase in ‘flexible’ forms of work, such as fixed-term work and temporary agency work, extended probation periods, decreased protection against collective redundancies, reduction in pay, increased working time and allowing wage growth below sectoral agreements, increased retirement age, and decreased holiday pay.

The negative social impact of the reforms is uncontested, and deplored.Footnote ⁸⁴ Furthermore, the legality of these measures is in dispute.Footnote ⁸⁵ The Greek reforms have been condemned by the European Committee of Social Rights, concluding that it had not been established ‘that efforts have been made to maintain a sufficient level of protection for the benefit of the most vulnerable members of society, even though the effects of the adopted measures risk bringing about large scale pauperisation of a significant segment of the population’.Footnote ⁸⁶ Due to the cumulative effect of the restrictive measures and the procedures adopted to put them in place, they constituted a violation of Article 12(3) of the 1961 European Social Charter.Footnote ⁸⁷ Also the International Labour Organization’s Committee on Freedom of Association condemned certain austerity measures taken in Greece under Troika auspices. ‘While deeply aware that these measures were taken within a context qualified as grave and exceptional, provoked by a financial and economic crisis’, the Committee found that there were ‘a number of repeated and extensive interventions into free and voluntary collective bargaining and an important deficit of social dialogue’.Footnote ⁸⁸ The Committee warned that ‘the elaboration of procedures systematically favouring decentralized bargaining of exclusionary provisions that are less favourable than the provisions at a higher level can lead to a global destabilization of the collective bargaining machinery and of worker’s and employers’ organizations and constitutes in this regard a weakening of freedom of association and collective bargaining contrary to the principles of Conventions Nos 87 and 98’.Footnote ⁸⁹ While formally the European Committee of Social Rights and International Labour Organization do not hold the EU responsible for these transgressions, but instead only the Member State itself, they clearly do call into question the legitimacy of the EU’s Euro-crisis policy.

Furthermore, the crisis has given momentum to the so-called European Semester, in which the Council, upon Commission proposal, adopts country specific recommendations as part of the coordination of Member States’ economic and employment policy. As Zeitlin and Vanhercke note, the Semester brings together within a single annual policy coordination cycle a wide range of EU governance instruments with different legal bases and sanctioning authority, from the Stability and Growth Pact, the Macroeconomic Imbalances Procedure, and the Fiscal Treaty to the Europe 2020 Strategy and the Integrated Economic and Employment Policy Guidelines.Footnote ⁹⁰ Under the Excessive Deficit Procedure and the Excessive Imbalance Procedure, the recommendations are backed up by the possibility of financial sanctions if Member States repeatedly fail to take action on public finances or macroeconomic imbalances.Footnote ⁹¹ There have been highly detailed country specific recommendations concerning a range of labour market and social standards in a great number of Member States.Footnote ⁹² While some of these recommendations encourage Member States to increase social inclusion and worker protection,Footnote ⁹³ many others entail the opposite.Footnote ⁹⁴ In fairness, steps have been taken to ‘socialise’ the European Semester in response ‘to rising social and political discontent with the consequences of post-crisis austerity policies’.Footnote ⁹⁵ The 2016 Semester promises closer engagement with civil society, including the Social Partners. Nevertheless, the process still challenges national social and labour standards and subjects them to a logic of economic stability and competitiveness.

Lack of politics, lack of law, or lack of democracy?

The balance between ‘the economic’ and ‘the social’ has thus clearly been decided in favour of the former in EU economic policy. Perhaps this is only natural, considering the nature and objectives of this policy area. But the effects are so wide-ranging and intrusive, subjecting all other policy areas to this singular logic and these one-sided objectives, that it fundamentally affects the overall socio-economic balance in the EU polity, giving decisive precedence to economic concerns over social ones. Is this imbalance justified and legitimised as a conscious choice made by the citizens of Europe through their representatives and with their active participation and deliberation, and can they subsequently change their choice through national and European elections? While complex and not unequivocal, the answer to all these questions seems to be in the negative.

The country specific recommendations, adopted by the European Council upon Commission proposal, are non-binding and thereby leave the ultimate decision to be taken at the national level. Nevertheless, the political pressure they exert on national standards should not be underestimated, especially as they take place in a structured framework with an eventual possibility for sanctions. Admittedly, country specific recommendations are followed only in a minority of casesFootnote ⁹⁶ perhaps because national parliaments can indeed refuse to legally implement them. Nevertheless, governments can play into a lack of transparency and sense of urgency to (selectively) push through the implementation of the reforms, arguing that ‘international obligations’ have to be met, perhaps pointing at the threat of sanctions or reduced EU-level funding. Indeed, it is especially national executives that are empowered in such intergovernmental settings. As Moravcsik has argued, ‘international cooperation redistributes domestic power in favour of national executives by permitting them to loosen domestic constraints imposed by legislatures, interest groups, and other societal actors’.Footnote ⁹⁷ These concerns apply especially to EU soft law, in which the substantive decision-making is limited to (national and supra-national) governmental officials and where the involvement of parliaments, as well as civil society actors and the Social Partners, is marginal. Furthermore, the country specific recommendations’ lack of direct legal effect does not make them inconsequential. Soft norms construct a narrative and influence institutional actor’s behaviour in subtler ways,Footnote ⁹⁸ and although difficult to establish empirically, a certain opportunity cost is involved, in that a number of potential policies on the European and national level may not be initiated.

Furthermore, the fact that country specific recommendations are non-binding means that they are not reviewable under the EU Charter of Fundamental Rights,Footnote ⁹⁹ and that they can circumvent the EU’s social legal basis of Article 153 TFEU and its safeguard principles of social dialogue, minimum harmonisation, non-regression and the exclusion of issues such as pay, with impunity. Compared to the Social Title, the legal framework of economic policy coordination seems to lack the appropriate constitutional safeguards to ensure balance and/through inclusion, accountability and legitimacy. Is the conclusion then that the problem with the country specific recommendations is a lack of law? It should be emphasised that the European Semester does have a legal mandate, a formal basis in the Treaties, and an elaborate framework of secondary legislation.Footnote ¹⁰⁰ Economic policy coordination itself is thus firmly rooted in EU primary and secondary law. However, the actual, substantive decision-making by contrast takes place in an intransparent, exclusionary and undemocratic way, between the Commission and the Council. The problem is that the role of law in this case is to legalise the ‘outsourcing’ of highly sensitive, political questions that from a democratic perspective should be taken through the legislative process, to an executive, intransparent forum. The parliamentary complicity in setting up the framework is understandable in light of the crisis situation at the time, but cannot validate the indefinite displacement of substantive decision-making on highly crucial issues, locating it outside the democratic safeguards embedded in the legislative process.

What of the Euro-crisis measures? The ‘first generation’ of financial assistance programmes was adopted based on Article 122(2) TFEU, as a stop-gap, until the adoption of the European Stability Mechanism Treaty was made possible by Article 136(3) TFEU through a Treaty revision. Indeed, it has been correctly pointed out that Member States in their handling of the Euro-crisis have in fact resorted to legal measures to a much greater extent than could perhaps be expected and than sometimes seems to be suggested.Footnote ¹⁰¹ Moreover, the most important Euro-crisis decisions were taken by Heads of State, which undeniably enjoy an important measure of legitimacy, and politicians of the highest level remain involved in the follow-up processes alongside the Commission, the European Central Bank and the International Monetary Fund, and in the formulation of the concrete financial assistance measures and their conditionalities. Nevertheless, as Scharpf notes, ‘these conditionalities were not defined by European legislation under the Community Method or through consensus-oriented voting in the Council but through extremely asymmetric bargaining between creditor and debtor governments that resembled conditions of an unconditional surrender’.Footnote ¹⁰² Furthermore, the international European Stability Mechanism Treaty is not reviewable under the EU Charter,Footnote ¹⁰³ and the Memoranda much like the country specific recommendations allow ‘circumvention’ of the EU’s social legal basis of Article 153 TFEU and its social safeguard principles, thereby undermining the division of national and European competences.Footnote ¹⁰⁴ The legal status of these Memoranda is unclear,Footnote ¹⁰⁵ which is troublesome in light of their scope and breadth, ‘including very detailed instructions regarding the state budgets both on the revenue and on the spending side’ ‘affect[ing] policy choices in areas which are not within the EU legislative competence’.Footnote ¹⁰⁶

In social terms, the only constitutional safeguards applicable to (the national implementation of) these Memoranda are, firstly, the social acquis, such as the minimum standards laid down in the Working Time and Fixed-Term Work Directives, and, secondly, the fundamental social rights laid down in international law. Regrettably, neither have proven sufficiently effective to remedy the social crises that have emerged in certain Member States. While, as Lenaerts points out, Regulation 472/2013 now requires that the draft macroeconomic adjustment programme implemented in a Member State in receipt of financial assistance ‘shall fully observe Article 152 TFEU and Article 28 of the [Charter]’ and that ‘[t]he Commission shall ensure that the [Memorandum of Understanding] is fully consistent with the macroeconomic adjustment programme approved by the Council’,Footnote ¹⁰⁷ this provides a social safeguard only in a very indirect and minimal way. So, while Euro-crisis governance could be argued to be generally founded on a legal framework of EU primary and international law which certainly benefit from a degree of democratic legitimacy, much like in the case of economic governance the effect of the framework has been to authorise the ‘outsourcing’ of substantive questions balancing ‘the economic’ and ‘the social’ to be taken in the actual management of the Euro-crisis, most saliently the Memoranda, to an executive, intransparent and exclusive forum. Although national parliaments have had to sign off on much of the implementation of the conditionalities, it is not credible to claim that this reflected a genuine exercise of democratic authority. At best, all this complies with a very formalistic, thin notion of democratic legitimacy.

Interim conclusions

EU economic governance is affecting a wide range of other – highly sensitive – policy areas in unprecedented ways. The old concerns about competence creep, subsidiarity and the protection of national regulatory autonomy in the context of ‘over-expansive and intrusive’ EU legislation that gave rise to a number of constitutional reforms over the course of various subsequent Treaty revisions seem positively trivial when compared to the competence coup taking place through European economic governance. Affected Member States are given detailed instructions about the level of their wages and the procedures for setting them, about their pensions, their health care and education systems, and face political and financial sanctions or bankruptcy if they fail to obey. ‘The social’ can be broadly defined to encompass all these issues, and the balance between these interests and ‘the economic’ has unequivocally been decided in favour of the latter. This is all the more worrying considering that these decisions have been and are still taken without the necessary legitimation. As expounded upon by scores of scholars, there are grave concerns ‘resulting from the policies, the politics, [and] the processes of Eurozone governance’Footnote ¹⁰⁸ with all types of legitimacy: input, output and throughput.

The internal market

How can the foregoing insights be concretely operationalised, in terms of possible reforms? As regards the internal market, many authors have identified the problematic consequences of the case law since Viking, Laval and Rüffert. For EU lawyers, it is perhaps natural to seek the solution in convincing the Court to change its approach, either in the margins or more fundamentally. Barnard has proposed to ‘to restrict restrictions’ of the free movement provisions, in order to better protect Member States’ regulatory powers.Footnote ¹¹⁰ Under this approach, non-discriminatory rules, such as labour laws on salaries and occupational health and safety, would not constitute prima facie restrictions of the freedom to provide services or establishment, and are thus spared the proportionality assessment. In addition, the free movement provisions’ reach could be limited by denying that collective action can constitute a restriction. Excluding such private action from the application of the internal market provisions would do justice to the fundamental nature of the rights to collective bargaining, action and freedom of assembly and expression.Footnote ¹¹¹ As regards the justification stage, in cases where the EU lacks competence to harmonise, the national rule should benefit from a ‘presumption of compliance’Footnote ¹¹² and Member States should be granted a wide margin of appreciation. Such rules are only to be struck down in case of manifest error. This would apply to areas of complementary competence, but also to other areas if harmonisation is excluded, such as pay and the right to strike under Article 153(5) TFEU.

However, it is unlikely that the Court itself would come to this change of heart unprompted, and even if it did, it could change back at any point. The last time the Court did something similar, with the Keck doctrine,Footnote ¹¹³ it found it very difficult to maintain this deferential approach, and many consider Keck to have been significantly diminished, if not overturned, by later case law.Footnote ¹¹⁴ To take matters out of the Court’s hands, the above approach could instead be adopted by means of a Treaty amendment. The free movement provisions could be changed to make clear that they do not apply to non-discriminatory measures, to collective action or lack horizontal direct effect altogether, and that Member States are granted a wide margin of discretion in the assessment of whether the pursuit of a public interest justifies a restriction in areas where EU competence is limited. While this option is perhaps just as unlikely to succeed, it would be the more effective option in the long term.

Perhaps the most effective, albeit difficult, proposal has been made by Scharpf, namely to ‘de-constitutionalise’ the internal market provisions altogether.Footnote ¹¹⁵ This would entail removing the four freedoms from the Treaties and the EU Charter as part of a more general ‘reduction of the domain of constitutional law in the EU’,Footnote ¹¹⁶ where the EU legal order would be reorganised with, at the highest level, a lean constitution comprising human (political and social; but not economic) rights, institutional provisions, provisions on competence division and legislative procedures. The internal market would be demoted to a specific policy domain, regulated exclusively by secondary legislation. Lowering the standing of the free movement provisions in the hierarchy of norms, granting priority to certain other rights and objectives, would make the case law concerning the internal market much more adaptable by the European legislator. These changes would have to be made unequivocally and clearly asserted in the text of a new Treaty, if only to prevent the Court from reintroducing the constitutional nature of the four freedoms via the backdoor as ‘general principles of EU law’.

Economic and monetary union

Several proposals have been made to increase the social legitimacy of European economic, monetary and employment policy. De Schutter has argued that the EU should accede to the European Social Charter.Footnote ¹¹⁷ While this seems unfeasible at the moment, both politically and legally,Footnote ¹¹⁸ on its merits a case could be made. Accession would subject the EU, including the European Court of Justice’s judgments, directly to the high social standardsFootnote ¹¹⁹ of the European Social Charter and would constitute a clear political commitment. It is not certain, however, that this would make a real difference in the context of economic, monetary and employment policy. The European Stability Mechanism is, at least formally, an independent international organisation outside the EU legal framework, and the country specific recommendations do not have a binding legal status. And even if the Committee of Social Rights could find a way to apply the European Social Charter nevertheless, its opinions are not binding, and do not have the same standing as that of the European Court of Human Rights, let alone the European Court of Justice.

Barnard has proposed the adoption of a European Social Compact or similar type of protocol, to be adopted as primary law in a Treaty amendment, or as a Decision of the Heads of State and Government meeting within the European Council.Footnote ¹²⁰ As the European Trade Union Confederation has also proposed, such a protocol could pronounce an unequivocal priority of social rights over the economic freedoms and competition law, and could bolster the non-regression principle as currently laid down in Article 151 TFEU, to explicitly provide that ‘the Union ensures that improvements are being maintained, and avoids any regression in respect of its already existing secondary legislation’.Footnote ¹²¹ While this would certainly boost Member States’ social regulatory powers in the context of the internal market provisions, it is not clear to what extent such a protocol could prevent the reduction of social standards under the European Stability Mechanism or European Semester, for the same reasons that accession to the European Social Charter would not be effective in this regard: the European Stability Mechanism is not EU law and the country specific recommendations are not legally reviewable acts. Furthermore, it would once again place an important socio-economic question above political contestation, albeit now to the benefit of ‘the social’ rather than ‘the economic’, leaving the above-discussed legitimacy questions unaddressed.

It would seem that the solution thus does not lie in imposing more balanced outcomes, but in ensuring that the legislative process is the way through which outcomes are achieved. Chances are that such outcomes will be more balanced, but in any event, they would be legitimate. Along those lines, several authors have argued for democratising the Economic and Monetary Union. MaduroFootnote ¹²² and KummFootnote ¹²³ have made far-reaching proposals that certainly have merits, but as Dawson and de Witte note, their proposals are ‘problematic in so far as they call for a democratisation of the Commission, but not for a democratisation of the Union’.Footnote ¹²⁴ Habermas,Footnote ¹²⁵ CollignonFootnote ¹²⁶ and HixFootnote ¹²⁷ have proposed genuine democratisation of the EU as a whole, proposing to transform the Union into a parliamentary democracy, the Commission into a parliamentary government, and to replace the veto positions of national executives through majority rule in a bicameral European legislature, but such majoritarian democracy poses normative problems in the present EU context due to a lack of protection of persistent minorities.Footnote ¹²⁸ While such far-reaching reforms may indeed be necessary in the longer term, in the meantime it may be best to work with the democratic instruments that are already available: the European legislative process.

Indeed, it would seem that any effective change in this respect would have to directly challenge the crucial fact that these processes are allowed to operate outside the EU’s legal and/or legislative framework. Admittedly, the Court explicitly validated the legality of the European Stability Mechanism Treaty in Pringle,Footnote ¹²⁹ and the country specific recommendations have a legal basis in the Treaty, making it difficult to argue that they are, as such, illegal. But, as discussed above, even if they have formal validation under the Court’s current interpretation of EU law, these processes are illegitimate from a democratic and fundamental rights perspective. As Tomkin has argued, ‘the creation of a permanent stability mechanism that is liable to have a direct impact on the lives of Union citizens and yet lies outside and beyond the reach of the Union legal order, and is subject neither to general principles nor to the rights enshrined in the Charter of fundamental rights, may be regarded as undermining of the principle of effective judicial protection and democratic accountability’.Footnote ¹³⁰ The same can be said, mutatis mutandis, for the country specific recommendations.

It should be recalled that under Article 10 TEU, the functioning of the Union is founded upon representative democracy, with citizens having the right to democratic participation, and with decisions taken as openly and as closely as possible to the citizen. While this provision does not grant citizens a directly effective ‘right to democracy’, the Court could still use it as a source of interpretation. Furthermore, under the principle of sincere cooperation, Member States are to refrain from any measure which could jeopardise the attainment of the Union’s objectives. On the basis of these principles, a case could be made that it is not permissible for Member States and EU institutions to engage in parallel action outside the EU legal framework.Footnote ¹³¹ While the EU legal framework suffers from a democratic deficit, the intergovernmental model is much worse as it ‘leads to an even higher executive dominance and even greater parliamentary exclusion’.Footnote ¹³² Therefore, there should be a general principle of precedence of the EU framework over parallel action – as a kind of sibling to the subsidiarity principle.

This argument is, of course, most convincing if the EU itself had the competence to do what the parallel action envisages. In that case, the very decision to operate outside the EU framework, if competence existed to operate inside it, should be considered to be contrary to sincere cooperation and democratic governance. The Court does seem to be heading in that direction in Pringle, where after establishing that the stability mechanism does not constitute ‘monetary policy’ – which lies within the EU’s exclusive competence and therefore does not allow parallel action – it examines whether it ‘affects the Union’s competence in the area of the coordination of the Member States’ economic policies’Footnote ¹³³ and concludes that, as the EU did not have explicit competence under that header to adopt the stability mechanism, ‘the Member States whose currency is the euro are entitled to conclude an agreement between themselves’.Footnote ¹³⁴ This, a contrario, implies that if there had been a specific legal basis in the Treaties, the Member States would have had to use Union measures.Footnote ¹³⁵ It is regrettable that the Court did not follow through with this logic, by also applying it to the flexibility clause of Article 352 TFEU. Surely this provision ‘does not impose on the Union any obligation to act’Footnote ¹³⁶ but, based on the principles outlined above, it would seem that it should nevertheless be sufficient to trigger the preference for Union action in all areas where it is possible for the EU to act.

What if there is no EU competence at all, even taking Article 352 TFEU into consideration, for example because of a prohibition of harmonisation, such as the exclusion of pay in Article 153(5) TFEU? Article 352(3) TFEU provides explicitly that measures based on this article shall not entail harmonisation in cases where the Treaties exclude such harmonisation. So, if no other legal basis can be found to use as a ‘back door’ to establish EU competence (as the prohibitions of harmonisation are not horizontal and only limit the legal basis in which they are included), it would be difficult to deny the Member States the possibility to engage in parallel or soft law action. It could be argued that for that reason, counter-intuitive as it may sound, the EU should be granted a general legislative competence.Footnote ¹³⁷ That would prevent the counter-productive situation that areas of national competence would be more vulnerable to illegitimate European integration than those where the EU has been authorised to harmonise.

More realistically, it would seem that at least some measure of democratisation of the day-to-day operation of the EU’s economic, monetary and employment policy is urgently needed. In the first place, the powers and responsibilities of the European Parliament should be drastically enhanced, as should the involvement of the Social Partners. In addition, the measures adopted in this context could be subject to the Early Warning System, where national parliaments are consulted and have a right to vote. It comes down to recognising that posing the question of what is the best solution for the EU’s economic problems does not imply a regulatory question with a Pareto-efficient”Footnote ¹³⁸ answer, but rather a political and moral question that should be resolved in a democratic forum, not a technocratic one.