This chapter discusses the currency union’s original set-up. It first discusses the history of European monetary integration, distinguishing between two sorts of motives: one economic, the other political. From the establishment of the European Economic Community up until the Treaty of Maastricht, both have been important drivers of monetary integration. The chapter subsequently turns to the original legal set-up of the euro, in particular its internal policy dimension. The economic and political forces behind the currency union’s creation also exercised great influence on its set-up, which came to institutionalise a stability paradigm. Characteristic of this paradigm was that it granted overriding importance to price stability as a policy goal and argued for a privileged position of the central bank in achieving this. The chapter shows how its influence was most notably evident at the level of aims and principles and in the constitutional position of the European Central Bank. Yet it also shaped the single currency’s economic foundations, in particular, the Union’s limited competences in this area and its focus on fiscal prudence. It even informed the rules governing accession.

This chapter discusses the initiation of the euro’s transformation and the shift from negative to positive solidarity, in the form of financial assistance, that it caused. Its origin lies in a historical meeting of the heads of state or government on 11 February 2010. There, the leaders initiated a change in the Founding Contract by jointly committing themselves to safeguard the currency union’s financial stability. The chapter subsequently focuses on the positive solidarity displayed towards distressed member states through various temporary rescue funds. This not only created difficulties for political leaders back home, politically and legally, it also put great strain on the single currency’s legal set-up that still reflected a stability conception from the past. The third part of the chapter therefore discusses how member states tried to take away this strain by incorporating the shift in solidarity in Union law through the creation of Article 136(3) TFEU, allowing member states in the currency union to establish a permanent rescue mechanism. The chapter traces the process and considerations behind both this amendment and the establishment of the mechanism it enabled.

Not only the member states should be given credit for the survival of the single currency. The European Central Bank deserves credit too. Throughout the crisis it resorted to ‘unconventional’ measures that have proven crucial for the stability of the currency union, especially its government bond programmes SMP and OMT. This chapter examines these programmes and argues that they are an intrinsic part of the transformation of the euro. Since the Bank’s mandate and constitutional position ultimately rest on the Founding Contract between the member states, it could not intervene in bond markets without a prior change in this Contract through which states committed themselves to a different currency union based on a broader stability conception. Only such a contractual change, and confirmation of it through concrete action, could provide the necessary political cover for bond purchases that pushed the boundaries of the Bank’s original mandate.

This chapter examines four flaws in the most essential assumptions underlying the single currency’s original stability set-up that were exposed by the crisis. The first concerns market discipline. The chapter looks at some of the key explanations for the failure of market discipline, in particular, those professed by the ECB. The second flaw concerns the instrument of public discipline. The shortcomings of this instrument were already visible in the early 2000s when France and Germany violated the Stability and Growth Pact. The chapter analyses these violations, the court case to which they gave rise and the reform of the Stability and Growth Pact that followed it in 2005. The third flaw concerns the excessive attention for budgetary discipline. In its preoccupation with ensuring fiscal prudence, the original set-up was blind to risks stemming from other corners of the economy, especially the banking sector. The fourth flaw is the cardinal one. Geared to safeguarding price stability, the single currency’s legal set-up left another stability dangerously exposed: financial stability. The chapter discusses its importance and the need to have it protected by a ‘lender of last resort’.

The change in the Founding Contract that political leaders initiated on 11 February 2010 put great pressure on the legal set-up of the euro that remained largely unaffected. When the European Court of Justice had to rule on the actions to which the change had given rise it consequently found itself between a rock and a hard place. It was not in a position to strike down actions that had been crucial to the single currency’s survival. Yet, in order to approve of them it had to engage in a Herculean struggle with the law that still largely reflected a stability conception from the past. This chapter examines this approval. Two cases are central: Pringle and Gauweiler. Both cases ultimately turned around the question whether and to what extent the law can accommodate the currency union’s new stability conception, characterized by the need to protect financial stability. Most of the Court’s reasoning in these cases is sound or, where it is strained, could have been justified through the use of different arguments. At one crucial point, however, the Court encounters the limits of what can be justified through legal reasoning alone.

This chapter examines the concept of solidarity, especially its existence outside the law, as a mechanism of cohesion. Three features are characteristic of this mechanism. First, solidarity mediates between the community and the individual. Second, as a result of solidarity, unity is created. Third, solidarity carries with it positive obligations, requiring individuals to act in support of, and in conformity with the group. Apart from these three general characteristics, solidarity is a multifaceted concept, with differing implications depending on the context in which it features. To understand these implications the chapter distinguishes between three kinds of solidarity: ‘social solidarity’, ‘welfare solidarity’ and ‘oppositional solidarity’. After a short discussion of each, the chapter pays special attention to social solidarity. On the basis of Aristotle’s notion of ‘friendship’, Rousseau’s ‘social contract’, Durkheim’s ‘mechanical’ and ‘organic’ solidarity and Parsons’s understanding of solidarity as a normative obligation, it analyses the concept’s roots and evolution over time.

The conclusion synthesizes the findings and, on that basis, discusses how the European Court of Justice should have positioned itself in relation to the change in the Founding Contract. It first reflects on the constitution of the Union and shows that this fits the tradition of the ‘constitutional contract’. It then discusses what consequences this has for constitutional actors, including the Court, when faced with a crisis like the one in the currency union. The initiation of the change in the Founding Contract by the heads of state or government on 11 February 2010 was a political act, an exercise of constitutional power outside the law. However, this exercise of political power does receive recognition in the law, in particular, through the principle of loyal cooperation. When the Court has to rule on a measure that has proven essential to preserve the Founding Contract in an emergency, it is under a duty of loyalty to abstain from disapproving it. Yet, instead of assessing and approving such measures on the merits, as the Court did in Pringle and Gauweiler, it should have acted on its duty by silence.

This chapter conceptualises solidarity between the member states on the basis of two spectrums. The first deals with the reasons for acting in the interest of the collective. Its poles are taken up by normative and factual solidarity. Normative solidarity occurs when states display solidarity due to a political obligation. The chapter explains that such political obligations are grounded in joint commitments, how these commitments turn their participants into a unity, and that they may not only exist between individuals, but also between states. Factual solidarity occurs when a state acts in the interest of the whole because it serves its own interest. Two situations are singled out: interdependence and common destiny. The second spectrum is subsidiary in nature and relates to the kind of solidary behaviour displayed. Its poles are negative and positive solidarity. Negative solidarity occurs when the acts displayed by a state in support of the whole relate to itself. Positive solidarity occurs when a state acts in the interest of the collective by directly benefitting another state. The chapter concludes with a discussion of the relation between joint commitments and Union law.