“Well written and an interesting perspective.” Clan Rossi --- “Your article is too good about Japanese business pushing nuclear power.” Consulting Group --- “Thank you for the article. It was quite useful for me to wrap up things quickly and effectively.” Taylor Johnson, Credit Union Lobby Management --- “Great information! I love your blog! You always post interesting things!” Jonathan N.

Saturday, September 10, 2011

Automatic Standing: The American States in Federalism Cases

Unlike that of the E.U., the U.S. system of public governance is structurally biased toward  political consolidation at the expense of federalism. In fact, the bias extends to jurisprudence. This is evident in a ruling by the U.S. Court of Appeals for the Fourth Circuit on September 8, 2011 against Virginia on the 2010 federal health-insurance reform law.

According to the Wall Street Journal, at issue was “whether the federal government can require Americans to either carry health insurance or pay a fee starting in 2014.” In a unanimous opinion, a three-judge panel at the U.S. Court of Appeals for the Fourth Circuit in Richmond Virginia “found Virginia Attorney General Ken Cuccinelli lacked legal standing to bring his challenge. That threw out a ruling [in 2010] by a lower court judge who said Mr.Cuccinelli was entitled to sue and found the law’s requirement to carry insurance went beyond Congress’s powers under the U.S. Constitution. Mr. Cuccinelli, a Republican, had argued Virginia had standing because, shortly after President Barack Obama signed the health law, the state’s previous governor had signed a law saying the state’s residents shouldn’t be required to carry health insurance. But the Fourth Circuit judges found that law alone wasn’t enough to generate standing for Virginia, and the state couldn’t show it was directly burdened by the insurance requirement. ‘If we were to adopt Virginia’s standing theory, each state could become a roving constitutional watchdog of sorts; no issue, no matter how generalized or quintessentially political, would fall beyond a state’s power to litigate in federal court,’ Judge Diana Gribbon Motz wrote. She and the other two judges were appointed by Democratic presidents.”


In her statement, Judge Motz fails to grasp one of the fundamental mechanisms of modern federalism—namely, that the two systems of government—that of the states and the federal government—check and balance each other. This is necessary because governmental sovereignty is divided up between the two systems in modern federalism. The division and the related enforcement mechanism of “check and balance” are means of protecting the citizens’ liberty at the expense of tyranny (i.e., unaccountable government action). For modern federalism to work effectively, any encroachment on the sovereignty of one system by the other must be repelled. Otherwise, even one successful encroachment by one system could snowball into such an imbalance of sovereignty between the two systems that the federalism itself is defeated and the union is either de facto dissolved or consolidated with the people’s liberty paying the ultimate price.

Accordingly, governments of republics that are members of a modern federal system of governance have standing constitutionally, as semi-sovereign members, to challenge possible encroachments by the general government. I contend that Virginia had standing in the appeal because a Congressional over-reach based on the interstate commerce clause (i.e., the enumerated power authorizing Congress to regulate the commerce between two or more states) would be at the expense of Virginia’s sovereign sphere. Moreover, it is in the interest of the federal system itself, and the U.S. Constitution, that members or branches of one of the two systems of government have standing to contest over-extensions by a member or branch of the other system because otherwise one system could come to eclipse the power of the other (i.e., consolidation or dissolution).

It could be argued that Virginia’s standing is pretty obvious given Virginia’s membership in the U.S. federal system and the fact that Congress’s encroachment would be at the expense of the polity members because the federal law would bind the Virginia government. The fact that the appeals court is itself a member of one of the branches of one of the parties may account for the judge’s refusal to find standing.

In terms of the constitutional law jurisprudence, being burdened should not be required of Virginia in order for the republic to have standing; merely having an interest in terms of its sovereignty should be sufficient. Such an interest is triggered by a possible encroachment by Congress beyond its enumerated powers because the Virginia government would not otherwise be confined in its legislative, executive or judicial actions. Above all, it is in the interest of the federal system itself, and thus the United States, that both systems of government within the system have standing to contest any and all possible encroachments. Perhaps if the state governments’ standing were recognized where it is possible that Congress, the president or a federal court has unduly constricted the states’ semi-sovereign situs in the federal constitutional order, the U.S. system of public governance would be closer to federalism rather than consolidation. Given the extent of the latter, it would not be a bad thing to have each state “become a roving constitutional watchdog of sorts; no issue, no matter how generalized or quintessentially political, would fall beyond a state’s power to litigate in federal court.” Perhaps then a balance of power—and of the respective sovereignties—which is necessary for a modern federal system (i.e., not confederalism, such as in an alliance), would be within reach; the check and balance between governments that exists in viable federalism could once again function (if it ever did in the American context).

Click to add a question or comment on the standing of states to challenge Congressional encroachments in federal court.


Janet Adamy, “Court Upholds Health Law,” Wall Street Journal, September 9, 2011. http://online.wsj.com/article/SB10001424053111903285704576558671304247398.html

On the Perils of E.U. States Being In Charge

Wolfgang Schäuble, the finance minister of the state of Germany, does not mince words when it comes to the state of Greece sticking to its promise to reduce its deficit in order to receive aid from the E.U. through its Financial Stability Facility. Aid will be paid, he said on September 8, 2011 in a radio interview, “if Greece actually does what it agreed to do.” If monitors do not sign off on Greece having fulfilled its promises, then “Greece has to see how it gets access to financial markets without help from [the E.U. facility].” Ouch! Meanwhile, the state government of Finland was still insisting on collateral from Greece as a condition for contributing to the aid. Adding still additional pressure on the Greek government, Mark Rutte, prime minister of the Netherlands, had said on the previous day that states receiving aid should either cede control over their budgets or drop the euro. According to the New York Times, many economists believe that the ripple effects from Greece’s departure from the euro “could be catastrophic for the world economy.”

Throughout 2011, Europe was finding itself in a pickle. Greek austerity was reducing economic growth in the state, and this in turn was making it more difficult for the state to reduce its budget deficit as promised. The seventeen states using the euro found themselves between a rock and a hard place in trying to pressure the patient to take its medicine while not suffocating it. Edwin Truman of the Peterson Institute for International Economics put the quandary in the following terms for Europe: “You either go forward to more European economic governance or backward. And if you go backward, you go backward pretty far, to the fragmentation of Europe.” Playing devil’s advocate for a moment, I might ask whether a complete transfer of fiscal sovereignty from the seventeen states to the E.U. is necessary for the euro to be “saved.” It could also be asked whether Greece dropping the euro would really mean ruin for the E.U. as a whole.

The human mind has a rather marked propensity to create stark false-dichotomies. The history of European integration has been quite different: small spurts “forward” (i.e., toward ever closer union) followed by challenges that have seemed catastrophic while going on. For example, when the state of France vetoed the accession of Britain, some Europeans undoubtedly thought European integration had been irreparably lost. Yet the UK joined and the E.U. went on to integrate even more, allowing for different levels of integration (the U.S. could take a lesson here—but this would require recognizing that the E.U. exists and is comparable).

I don’t have to tell Europeans that Europe integrates by small bites accompanied with undue chewing and followed by the baleful possibility of throwing up. Trying to swallow a huge clump of meat has never worked. Doing so in the context of federalizing fiscal policy would trigger referendums in the seventeen states using the euro. Given the requirement that each state approve any change—whether big or small—to the E.U. and the extent of euroskepticism in some states, triggering a big gulp is a recipe for going back to the drawing room to cut off a piece of the clump so the state legislatures can bypass the popular discontent.

Even though “going forward” by an amendment of constitutional significance creating “a new set of institutions, with more oversight and power over [member state] budgets and tax regimes . . . would need to be ratified” only by the 17 states using the euro, because such a proposal “would involve a serious ceding of economic sovereignty to a central authority, democratic governments would have to seek the approval of their voters.” This follows from the fact that governments, being subject to basic law, cannot themselves enact it by statute because they could obviate it simply by passing another statute. The point, after all, is to give the E.U. Government more authority with which to constrain wayward state governments for the good of the whole (i.e., Europe).  Es gibt zu viel Angst über das—wirtlich.

So amid palpable pressure amid the restlessness of debt-guarantee markets and questions regarding the exposure of European banks to too much state debt, Europeans in 2011 found themselves between a rock and a hard place. Like a swimmer who is half-way in a pool on a cool, cloudy day, one is predisposed either to plunge all the way in, as the Americans did in 1787, or quickly get out of the water and dry off. Diving in and enduring a moment of coldness is worth it, in my view. Yet European integration has never happened like that since the formation of the EC in 1957. The E.U. itself is not a creature of abrupt change. So in finding a way out of the bind of states in deep financial trouble, E.U. leaders ought to be oriented to making incremental. In other words, Europe needs time, just as Greece does.

The threats and demands made by state officials in September 2011 demonstrate that the E.U. relies too much on its state governments at the expense of one voice looking out for the good of Europe as a whole. In other words, the requirement of unanimity for any change to the E.U.’s competencies is too costly for Europe. Europeans might remember that only a supermajority of the American republics had to sign off on the U.S. constitution. The same could be so for the E.U. Otherwise, Europeans are advised to cut their meat into very little pieces, chew like a Rockefeller (John D. used to count his chews for efficient digestion), and not freak out if you think you may throw-up (barf, in American slang). In the context of feeling nauseous because the E.U. is in an “already, not yet” liminal condition of inherent instability, it is best to be making some kind of incremental movement, whether toward fiscal integration or away from monetary union. Even if the people are not yet with them as of September 2011, Europe’s political and business classes seem already reconciled to the inevitability of still ever closer union. The question is how. Baby-steps, so as not to frighten those who are still sleeping—still dreaming of their respective sovereign state.


Steven Erlanger, “Europe Steers Into a Zone of Uncertainty,” New York Times, September 9, 2011. http://www.nytimes.com/2011/09/09/world/europe/09europe.html

Jack Ewing, “In Europe, Greece Gets a Warning about Aid,” New York Times, September 9, 2011. http://www.nytimes.com/2011/09/09/business/economy/european-leaders-escalate-tough-talk-on-greece.html

Thursday, September 8, 2011

Balancing Budgets: Italy vs. Wisconsin

In what could be dubbed a tale of two states, Scott Walker of Wisconsin bragged about bringing the budget into balance without raising taxes while Silvio Berlusconi broke his pledge not to raise taxes in order to balance his budget for 2013. Walker relied on spending cuts and constricting the collective bargaining of government employees, while Berlusconi agreed to a package of tax increases, spending cuts and fewer labor protections to make up for $76 billion (54 billion euros) by 2013. The tax increases include raising the value-added tax from 20 to 21 percent and imposing a “solidarity tax” of 3 percent on state residents who earn more than $420,000 (300,000 euros). The latter tax would run through 2013. At a news conference in August, 2011, “Berlusconi acknowledged that he had pledged never to raise taxes, but that the attention of world markets had forced him to do so.” Was breaking his pledge a vice or a virtue?

Scott Walker would undoubtedly say “A VICE!” To be sure, there is merit in Walker’s feat in balancing a government’s budget without asking more from residents in terms of taxes. However, there is also merit in Berlusconi’s decision to “spread the pain” fairly even to the rich. Solidarity is a value that implies that we are all in it together so everyone sacrifices—not just those least able to do so. Choosing a spending-cuts-only approach wherein sustenance of the poor is compromised while the rich are not asked to contribute evinces not only a certain set of priorities, but also a certain value-set, which is antipodal to the principle of solidarity. From this standpoint, Berlusconi’s breaking of his pledge can be pardoned.

However, if excess government spending (i.e., not affecting the sustenance level) exists, it may be unnecessary to raise anyone’s taxes to balance a budget. To be sure, legislatures can pad lobbyists’ pockets by inflating budget items, and it is virtuous to cut such spending particularly to balance a budget. Also, labor unions can gain excessive power and demand too much from governments as well as workers. For example, in Wisconsin even part-time temporary instructors at public junior colleges must pay union dues amounting to a significant part of their pay per class. Someone teaching one class for one term only has different interests than a career instructor who teaches full-time at a college, yet the teachers’ union does not discern this difference. The problem comes in when a supermajority in government goes beyond correcting for such excess power in seeking to balance the budget on one segment of the population while another segment is allowed to go unaffected. The basic principle of fairness is violated in such a case.

The core principle not to be violated by any government may be put as follows: Instead of affecting the safety net on the sustenance level, taxes should be raised on those residents able to afford the additional tax. Being able to afford a tax justifies not depriving the poor of basic living requirements such as food, shelter and medical services. Contributing where one is able without undue hardship and a human right to sustenance can be said to be the two pillars of the principle of solidarity. Without this principle, a society is merely the sum of parts—a mere aggregate wherein selfishness rules rather than bows to a higher good. That is to say, solidarity thwarts misordered concupiscence while being necessary for genuine society.


Rachel Donadio, “Italian Senate Approves Austerity Plan,” New York Times, September 8, 2011. http://www.nytimes.com/2011/09/08/world/europe/08italy.html

E.U.: Ever Closer Energy

Günther Oettinger, the energy commissioner at the E.U. Commission (the E.U.’s executive branch), said at a news conference on September 7, 2011 that the E.U. needs to look “beyond its borders to ensure the security of energy supplies.” Having the states “act together and speak with one voice” through their federal government is the rationale for ever closer union. To be sure, ever closer union has its limits; the hominization of Europe via political consolidation would ignore the innate diversity that exists within any empire-level union of states, whether the E.U., A.U. or U.S. Even so, fear of consolidation need not hamper Europe from being able to benefit from united action.

                                                                               Thierry Roge/Reuters

Mr. Oettiger was proposing the right to demand information on international energy deals involving E.U. states before such deals are signed. The E.U. Commission could sue any state government to change the terms of any agreements that threaten the E.U.’s energy security. Unfortunately, each state government must sign off on this proposal (so must the E.U. Parliament). The state veto element is problematic because powerful utilities, which do not necessarily have the public interest in mind, can dominate at the state level. A state government, jealous that its portion of governmental sovereignty be retained, could be easily influenced by lobbying from its local utility. According to the New York Times, state governments “might balk if major oil and natural gas companies vying for new contracts in places like Libya insisted that sharing such information would jeopardize their negotiations.” Oettinger insists that the federal government can be trusted to preserve confidentiality in commercially sensitive cases. The problem is that state officials benefitting from a powerful utility and jealous of their power being federalized could use a utility manager’s concerns as a subterfuge.

The underlying problem, once again, is the requirement that all of the state governments approve any increase in the authority of the federal government. The state governments face a conflict of interest in deciding whether to give up some of their own power, and giving each state government a veto unnecessarily hampers the E.U. from looking out for Europe’s interest when individual states might be tempted to substitute a local utility’s interest for that of Europe. As the Times observed in 2011, “Europe’s relations with Russia in the energy sphere have long been tricky. Russia supplies nearly a quarter of Europe’s natural gas.” Conflicts between Russia and Ukraine have led to shortages in regions of the E.U. during winter months. Accordingly, in addition to proposing additional E.U. authority to investigate particular deals at the state level, Oettinger proposed that he be given the authority to negotiate an agreement with Azerbaijan and Turkmenistan on a trans-Caspian gas pipeline, which would be a crucial feeder for Nabucco.

Enhancing Europe’s energy security such that people do not freeze from natural gas being cut off by Russia for political purposes need not result in political consolidation at the E.U. level in Europe. The state veto could be replaced by qualified majority voting by the states, or the European Parliament rather than the state governments could be the body to decide whether E.U. competencies should be augmented (where the augmentation is not significant in the sense of altering the constitutional balance of powers). Were the Parliament given this exclusive role, a supermajority of state governments could perhaps have a veto, given the Parliament’s vested interest in expanding E.U. competencies. However, the representatives are directly elected by the people—rather than appointees—so popular suspicion of growing E.U. power could prompt the Parliament to refuse a proposal from the Commission that increases its authority.

In short, each state government does not need a veto to thwart possible political consolidation at the E.U. level. Energy security for Europe need not be held hostage by local utilities in particular states.


James Kanter, “Brussels Seeks More Control Over Energy Deals,” New York Times, September 8, 2011. http://www.nytimes.com/2011/09/08/business/global/eu-seeks-power-to-bloc-bilateral-energy-deals.html

Wednesday, September 7, 2011

Are There Constraints on a Supermajority?

How “extreme” can a legislative supermajority get? Complicating an answer, the term extreme may be applied to a piece of legislation by one person and refused by another. I come from a medium-sized city in the Midwest, where extreme includes commuting to work by bicycle during the summer (such things are likened to “thinking outside the box”). Where a pathological fear of change grips a town, you don’t have to go far to find someone proscribing something or other as too extreme. At the level of the U.S. governmental institutions, one party might deem universal health insurance through extant private insurance companies as extreme—tantamount to demonic European socialism—while another party might view the reform as unduly constrained by the status quo (i.e., via private enterprise, absent even a public option). Extreme, it turns out, depends on the observer.

It follows that it is extremely difficult to determine whether a supermajority has gone too far in legislating its will through a government. Concluding the resultant legislation is too extreme, given the legitimacy that comes with the democratic process, is subject to critique and repudiation. What limits exist on a supermajority’s legislative prerogative? What limits should exist? Should any exist?

In the E.U., states have certain planks in their basic law that cannot be changed by amendment. This represents a limit on what a supermajority can do. The American states have no such permanent basic law; any part of a constitution can be changed through amendment. Of course, both the E.U. and U.S. contain limitations on what can be in a state constitution. For instance, an E.U. state cannot add a plank to its constitution nullifying all E.U. laws while remaining a member of the union. South Carolina tried such a move in 1830 only to be rebuffed by Andrew Jackson in the White House. So being in a political union can act as a limit on a supermajority in a state legislature.

Additionally, having to satisfy other parties in the governing coalition in a parliament can act as a constraint on any one party getting too extreme. Furthermore, having a bicameral (i.e., two chamber) legislature can permit divided government. Two-party systems tend to rely on this constraint. When a supermajority controls both chambers and the executive’s veto pen, the courts become the final constraint other than possibly the next election. In the American context after the 2010 election, Republicans had a supermajority controlling the legislatures and chief executives in several of the republics. The question of limits moved to the fore.

For example, the Republican Party enjoyed a supermajority of 124 to 41 in the Kansas legislature—plus control of the executive branch. Rather than contending coalitions checking each other within the party, a conservative bloc guaranteed a united supermajority. As a result, a series of anti-abortion bills were quickly made law. Enter the federal court in the summer of 2011. The judges imposed injunctions preventing two of the new laws from taking effect pending the outcome of suits against them. The New York Times observes that “in a year in which expanded Republican majorities in many states have been able to operate without the usual obstacles presented by divided government—threat of veto from a governor, split chambers or even minority opposition large enough to force compromise—these court challenges amount to the first real efforts to slow the crush of conservative legislation.” The paper goes on to note that such efforts are no guarantee that the crush would necessarily be lessened.

In Wisconsin, the republican legislative and executive branches pushed through limits on collective bargaining of government employees, including teachers. The Wisconsin Supreme Court subsequently affirmed the legitimacy of the law. One might say that the Republican Party had an insurmountable majority in all three branches of government. Where this is the case, one might wonder how—in James Madison’s language—the minority can be protected from the tyranny of a majority. The judiciary has the role of protecting individual rights against a government, but that branch can effectively be controlled by the same party that holds the supermajority. Also, were the judiciary is at the union level, the effect can be one of political consolidation, which creates pressures particularly when the union is on the empire scale (e.g., U.S. and E.U.). This must be weighed against the power of local elites in the judiciaries of the states. The abortion cases in Kansas demonstrate how the rights of individuals can hang in the balance (i.e., not just of minority political parties).

Lest divided government be lauded as the answer, however, one might recall that gridlock can bring inaction more than compromise when different parties control the legislative chambers (and/or executive branch). An intractable problem, such as having over $14 trillion in government debt (the U.S.), may require significant governmental action that can be stymied by stubborn gridlock. The cost of partisanship was evident in July 2011 as Congress’s “handling” of the debt-ceiling resulted in a AA rating from AAA by Standard & Poors and a public approval rating of only about 20 percent.

Moreover, a patchwork of laws, each based on particular compromises made by the contending parties, may enervate the economic or political system itself. So rather than preventing one party from being able to enact its program by relying on divided government, Americans might want to consider structural limitations that are not triggered before any legislation is passed. Making the judiciary less partisan by how judges are selected might be a step in this direction. Also, making it easier for more than two political parties to be represented in a two-party-system legislature might temper the impact of any one party’s ideology from carrying the system too far—too extreme—in one direction. Such constraints are better than the alternative of gridlock paralysis, particularly at the state level—given the extent of political consolidation in the U.S.

Divided government can be less relied on at the state level that at the federal level. This differential alone would structurally “push” more domestic government back closer to the people and accommodate the innate cultural differences that exist across a continent and beyond. Oklahoma is not Vermont (even if most Europeans tend to mesh them vaguely as “American”). Systemic thinking, such as is evinced in allowing—by structural design—for divided government more in Washington than in Austin, is urgently needed in America. Even so, Americans are more oriented to going from issue to issue—even while observing that the system is somehow fundamentally broken—than looking at the system itself and proffering and voting on systemic proposals apart from any particular partisan issue.


A.G. Sulzberger, “Courts Put the Brakes on Agenda of G.O.P.”, New York Times, September 6, 2011. http://www.nytimes.com/2011/09/06/us/06legal.html

The German Court in the E.U.: Exasperating or Mitigating Germany's Veto in the E.U.?

Did Angela Merkel violate the property rights of residents in the state of Germany by agreeing to the initial bank bailout in the E.U.? Should she have gotten the approval of the Bundestag first? According to a German state court on September 7, 2011, “no and a qualified yes.” The court ruled that the approval of the Bundestag’s budget committee is necessary for significant increases in the European Financial Stability Facility.

The question as put by the Wall Street Journal the day before the ruling can be viewed as whether parliamentary politics on the state level should be allowed to potentially slow or obstruct the E.U.’s crisis-response ability. That is, should the prerogatives of state officials be strengthened just when the E.U.’s monetary affairs require more rather than less fiscal coordination?  By requiring the approval of the budget committee in the lower house of the state legislature, the German state court ruling avoids the potentially aggravating effects of a wider circle of state legislators. Even so, other states could follow suit with respect to their committees, making it more difficult for state officials to function at the E.U. level.

Making the questions even more difficult to answer, the Wall Street Journal inaccurately likens the place of the German state court in the E.U. to the U.S. Supreme Court in the U.S. Specifically, the statement, “The Karlsruhe-based constitutional court, Germany’s equivalent of the U.S. Supreme Court,” implies that the German state court has the final judicial review of E.U. law for the E.U. rather than just for one of its states. Even in looking at E.U. law for the state of Germany, the state court has already acquiesced to the claim made by the European Court of Justice of being the E.U.’s Supreme Court concerning E.U. laws, regulations and directives.

                           Justices of the German state court                     European PressPhoto Agency

Treating a state court as though it were the E.U. Supreme Court is just one of the category mistakes plaguing Europe’s attempt at ever closer union. In terms of the E.U. having sufficient fiscal competencies to support the euro, obfuscating a state and federal court can be dangerous. Specifically, it can give the false impression that any state court has the final say on extending the bailout. Should a state court say that a bailout was unconstitutional even for just that state, the ECJ could overrule that court and mandate that the state participate nonetheless.

The underlying problem facing the E.U. is that any state government can veto a proposed competency of the E.U., or even an expansion of an existing competency. Even though the E.U. has already gained some governmental sovereignty, such that the state governments are semi-sovereign, the fiction of the “sovereign states” mandates that any amendments to the E.U.’s competencies be unanimous. In the U.S. by contrast, unanimity is not required to change the union’s basic law. There is a good reason for that, particularly when the states are already semi-sovereign.

On the day of her state’s court ruling on the legality of the bailout, Angela Merkel said that changes to the basic law, or constitution, of the E.U. should not be ruled out. But rather than suggesting that each state government no longer have a veto, she said that one state’s fiscal policies should not be allowed to put the euro itself at risk. Additionally, she pointed out that there was at the time no mechanism in the Lisbon amendment “to force” states violating the Stability and Growth Pack back in the fold. Without addressing the state veto—an omission no doubt related to her vested interest as a state official—Merkel’s recommendation can only be partial. Put another way, continuing to require each state government to approve even an expansion in an existing E.U. program undercuts the ability of the E.U. merely to enforce its existing laws, let alone add more fiscal coordination devices.

In my view, expanding the bailout (and strengthening fiscal coordination, given the euro) should not hinge on the approval of every state government. To pretend that a E.U. state is somehow still in a state of nature internationally even as the state is already semi-sovereign in a political union effectively undercuts the E.U.’s basis while expecting it to function viably.

When governmental sovereignty was first transferred to the E.U. institutions from the state governments, the process of amendment should have been geared to qualified majority rather than unanimity.  Without this change, the E.U. exists inherently at cross-purposes with itself—a contradiction in terms. The arrangement, in other words, is set up to fail, even if unintentionally. The basic problem is that Europeans demand that their states are still sovereign countries even though some governmental sovereignty has already been transferred to the E.U. Simply put, the illusion undercuts the reality. Given the debt crisis in the E.U. and the possibility of a double-dip recession, Europeans can ill-afford the fantasy of state attachments at the expense of ever closer union. To be European is nothing to be ashamed of.

If the state governments don’t want to agree to merely augmenting E.U. competencies by QMV, then perhaps rather than the requirement that all of the relevant state governments sign off on any such marginal changes to E.U. competencies (i.e., domains of authority), the European Parliament might be vested with the authority to augment existing competencies, such as in expanding a bank bailout program under EFSF. Of course, each state government (or, even better, via referendum) must consent to this new power.  

It could be argued that the state officials have a conflict of interest in deciding whether to transfer more governmental sovereignty to the E.U. because those officials would stand to lose power as a result. Of course, representatives of the E.U. Parliament would also have a conflict of interest (gaining power as a result), were they to vote on augmenting their own power. It follows that any major (i.e., constitutional) changes to the E.U. federal government, such as in giving its lower legislative chamber more power, should, strictly speaking, be decided by referendum, ideally without respect to the state governments.

The German state court’s ruling concerning the required approval of the Bundestag’s budget committee can be taken as a harbinger of similar likely measures by state governments to make the expansion of E.U. authority more difficult—even when the authority is necessary to obviate a financial crisis. There is danger, in other words, in continuing the state veto. At the very least, the E.U. Parliament should be given a necessary and proper clause with which to augment programs within existing competencies. The entire question of what machinery within a given state government must sign off on an incremental change could thus be obviated. Europe itself, in the only European legislature—whose representatives directly represent the people—could debate whether to expand or contract programs within a given competency without suffering from any “democracy deficit.” As per the American experience, the challenge would be to keep the legislative necessary and proper clause from encroaching on the purview of constitutional amendments. Expanding a given competency could be distinguished from adding a new competency, with the European Court of Justice rather than a German state court interpreting particular cases.

Concerning adding (or subtracting) competencies to the E.U. governmental institutions (rather than making changes to an existing competency), ideally E.U. citizens should vote directly via a referendum without respect to state boundaries. Governments cannot sign off on changes to basic law because governments are constrained by such law. If a referendum is not possible, then either a qualified majority of state governments or of the European Parliament should be the mechanism for ratifying amendments. Both bodies consist of elected representatives and are subject to a conflict of interest. Which conflict is less harmful?  Both involve power—losing and gaining. Using the referendum mechanism would obviate both. Although it is admittedly a judgment call, I would say that counting on a state governments to agree to give up power is the more problematic conflict of interest-especially when a union’s danger is dissolution rather than consolidation. So I would say that if a referendum is refused by the state governments or the E.U., the European Parliament should be tasked with amendments to the basic law (as well as with changing existing E.U. competencies, as discussed above). E.U. state governments could still stop encroaching E.U. legislation through the E.U. Council (of Ministers). As the American experience unfortunately attests, political consolidation can ensue once the state governments are relegated in the federal government. The task for the Europeans is to maintain this check while reducing the ability of particular state governments to unilaterally freeze the E.U. even in addressing a crisis.  

Click to add a question or comment on the German state court being able to nullify a E.U. law.


Gregory T. Smith and Bernd Radowitz, “Germany’s Judgment on Bailouts Looms,” Wall Street Journal, September 6, 2011. http://online.wsj.com/article/SB10001424053111903648204576552763055567014.html

William Launder and Todd Buell, “German Court Upholds Bailouts,” Wall Street Journal, September 7, 2011. http://online.wsj.com/article/SB10001424053111903285704576555961131733324.html?mod=WSJ_hp_LEFTWhatsNewsCollection

Tuesday, September 6, 2011

Slovak Resistance to Expanding the E.U. Bailout

Richard Sulik, Parliament Speaker of the Slovakian legislature, has argued that the only real solution to the debt crisis in the E.U. is rigorous enforcement of the E.U. regulations on budget deficits and public debt. He has been particularly angered by his state, the second poorest in the E.U., having to bail-out a richer state that has consistently violated the E.U. regulations. Additional debt, he has insisted, is not a way out for the PIGS. Slovakia, after all, had to adhere to strict limits on everything from budget deficits to inflation rates in order to be able to adopt the euro. “Now when I see what is being allowed for Greece and Italy, it really makes me angry,” Sulik admits. “We have to pay because of this double standard. It’s a real injustice.” Indeed it is. Bailing out Greece so the state won’t default effectively rewards that state government for profligate spending and tax avoidance in violation of the E.U. regulations.  

                                       Richard Sulik                                                                       Reuters

Solely from the standpoint of debt, adding more is not a way out, according to Sulik. “The more we let [states] violate the rules, the worse things will get,” he said. So he opposes expanding the bailout. Undoubtedly putting a chill in the halls of banks in rich states such as France and Germany, he has bluntly stated, “Greece has to go into bankruptcy.” This would demonstrate that the E.U. is not an agency of the big banks holding questionable semi-sovereign state debt.

At the very least, having a state government official resist the interests of the big banks and their politicians in the “core” states is in the interest of a fuller debate within the E.U. as a whole on how to deal with “bad” states. In fact, potentially at least, a state like Slovakia can serve as a check on plutocracy gaining a foothold in the E.U. According to Sulik, it simply is not fair to ask poor Slovaks to bailout the big banks and richer states—even apart from the latter’s violation of the E.U. regulations. In short, the E.U. should not be run in the interest of French and German banks. At the same time, giving each state government a veto is a recipe for impotence at the E.U. level.

If the bailout must be expanded to obviate a financial collapse of the E.U., then having one hold-out can be a very expensive price to pay to avoid giving the E.U. additional competencies in fiscal matters. Were a qualified majority needed to augment E.U. competencies, Sulik's argument could still win the day--but his points would have to be sufficiently persuasive among the poorer states. If the banks' interest must be satisfied in order to avoid financial collapse, enough of the neutral states could turn from Sulik, who might otherwise be able to prevent the E.U. from avoiding catastrophe.

See Related Essay: Slovakia Stands Up to the E.U.


Gordon Fairclough, “Slovak Official’s Delay of Rescue Fund Vote Poses Problem for Euro Zone,” Wall Street Journal, September 6, 2011. http://online.wsj.com/article/SB10001424053111903648204576552504140991880.html

Monday, September 5, 2011

Federalizing Fiscally: E.U. looks to Early U.S.

I suspect many Europeans would bristle at the suggestion that Europe could learn a thing or two from American history.If the E.U. corresponds to the U.S. and has a federal balance-of-power roughly the same as that which existed in the U.S. at, say, 1820, then the Europeans could do worse than look at American history for lessons both in what to emulate and what not to do. 

The complete essay is at "Is the E.U. a Federal System?"

AOL Ignores TechCrunch’s Conflict of Interest

According to the New York Times, “When Michael Arrington, the editor of the popular Web site TechCrunch, told his bosses at AOL that he was forming a venture capital company to finance some of the technology start-ups that his site wrote about, they did not fire him or ask for his resignation. Instead, . . .  they invested about $10 million in his fund.” Tim Armstrong, AOL’s chief executive, issued the following statement when CrunchFund was announced: “TechCrunch is a different property and they have different standards. We have a traditional understanding of journalism with the exception of TechCrunch, which is different but is transparent about it.” As for Michael Arrington, Arianna Huffington claimed that he would have no influence on coverage—that there would be, in effect, a Chinese wall between TechCrunch’s news site and venture-capital firm. However earlier on the same day, Arrington stated, “I am TechCrunch and TechCrunch is me.”

We can learn at least two lessons from this case study. First, a tendency may exist, particularly for (but hardly limited to) vested interests, to dismiss the baleful nature of a conflict of interest. That is to say, we may not take actual conflicts of interest seriously enough. AOL’s monetary interest aside, Tim Armstrong presumed that transparency was sufficient to obviate any unethical consequences.  This leads to the second lesson.

“Managing” a conflict of interest by means such as disclosure and even the construction of a firewall within a firm is insufficient to prevent unethical consequences.  Start-ups that are not F.O.M. are not likely to be assuaged by Arrington’s status having been changed to “unpaid blogger.” Huffington’s claim that the former editor would somehow no longer have any influence editorially at TechCrunch rings hollow to people who live in the real world of organizational politics wherein differential power is a fact of life. Simply disclosing that some parties may be harmed unfairly or pretending that an organizational policy will thwart differential power from flowing down-stream under the gravity of the profit-motive does not rid us of avoidable conflicts of interest.

Click to add a comment or question on AOL ignoring the conflict of interest at TechCrunch.


David Carr, “Tech Blogger Who Leaps Over the Line,” New York Times, September 5, 2011, p. B1. http://www.nytimes.com/2011/09/05/business/media/michael-arringtons-audacious-venture.html?pagewanted=1&_r=1&src=dayp