EU Law and Economics

S einbach, A min
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EU Law and Economics
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Sugges ed Ci a ion: S einbach, A min (2025) : EU Law and Economics, ISBN 978-0-19-892091-5,
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EU Law and Economics
EU Law and Economics
ARMIN STEINBACH
P o esso o EU Law and Economics, Depa men o Law, École des Hau es
É udes Comme ciales (HEC) Pa is, F ance

G ea Cla endon S ee , Ox o d, OX2 6DP,
Uni ed Kingdom
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ISBN 9780198920885
DOI: 10.1093/ 9780198920915.001.0001
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Ad ance P aise
Unde s anding he Eu opean Union equi es mo e han s udying he ules laid
down in he Eu opean T ea ies. EU Law and Economics opens an insigh ul
and hough -p o oking dialogue be ween wo dis inc disciplines. W i en wi h
lucid e udi ion, S einbach deploys economic analysis o illumina e co e s uc u al
ques ions abou he Eu opean legal o de . I is an impo an new con ibu ion o
he heo e ical and p ac ical unde s anding o EU law.
—Pascal Lamy, Fo me Di ec o Gene al o he Wo ld T ade O ganiza ion
(WTO) and Vice-P esiden o he Pa is Peace Fo um
EU Law and Economics p o ides a mas e ul analysis o he in e ac ion be ween
law and economics in he Eu opean Union, and he di e en pe spec i es ha
lawye s and economis s ha e when app oaching he why, how, who, and wha o
in eg a ion. The book is des ined o become an essen ial e e ence o schola s,
p ac i ione s, s uden s, and policymake s in law and economics.
—Rosa Las a, Si John Lubbock Chai in Banking Law and Chai o he
Ins i u e o Banking and Finance Law a he Cen e o Comme cial
Law S udies, Queen Ma y Uni e si y o London
A min S einbach’s esea ch wo k combines an acu ely insigh ul g asp o he
minu iae o he Eu opean Union’s legal sys em wi h an excep ionally pe cep i e
command o he economics o Eu opean policy in eg a ion. This mas e piece book
will no doub p o e indispensable ead o bo h legal schola s and economis s.
—Jean Pisani-Fe y, P o esso o Economics a Sciences Po (Pa is),
Senio Fellow a B uegel (B ussels) and Pe e son Ins i u e o
In e na ional Economics (Washing on)
In his insigh ul olume, A min S einbach p o ides an inno a i e, cohe en ,
and sa is ying app oach o unde s anding he ules, p ocesses, and cons i u ional
s uc u e o Eu opean in eg a ion. This olume shows, o pa aph ase Moliè e in
Le Bou geois Gen ilhomme, ha o 70 yea s he EU has been ‘speaking’ law and
economics wi hou knowing i .
—Joel P. T ach man, Hen y J. B ake P o esso o In e na ional Law,
The Fle che School o Law and Diplomacy, Tu s Uni e si y
P e ace
The ambi ion o his book is no o demons a e ha economics could emedy he
insu icien igou o he EU legal discipline, no o ques ion he sel - su iciency o
legal science. The p oduc i e con ibu ion o economics o EU law aims o o e
complemen a y insigh s in o he unde s anding o EU ules and p inciples, o un-
co e empi ical p emises ha a e implici in (no ma i e) legal p o isions, and o
highligh (in)consis encies be ween legal and economic iews. EU Membe S a es
ans e cen alized powe o some compe ences, while no o o he s, in i ing us
o ask whe he hei p ope unde s anding should be in e p e ed h ough he legal
p inciples o con e al o powe s and subsidia i y (law), o h ough he economic
concep s o p e e ences, spillo e s, and economies o scale (economics). EU law
oscilla es be ween igidi y and lexibili y, p o oking us no only o ask wha com-
pliance wi h EU law means (law) bu also why compliance occu s (economics);
and he ac ions o ins i u ions c ea ed h ough he T ea ies should no only be
unde s ood as exogenous e en s o be measu ed agains a bina y ‘law– unlaw ul’
s anda d (law) bu as an endogenous unc ion o in e es , con ol, and sanc ions
(economics). Mo e undamen ally, coope a ion h ough law, es ablished by p i-
ma y law o c ea ed h ough delibe a e policy- make decisions in EU seconda y
law, does no jus exis as a p e- de ined posi i is legal benchma k (law) bu as he
ou come o coope a ion mo i es shaping ins i u ional, p ocedu al, and subs an-
i e a angemen s (economics).
Wi h he why o T ea y- making, compe ence alloca ion, and ule- compliance
being a la gely dis ega ded analy ical ca ego y o lawye s, he inqui y in o mo i es
o s a e conduc a e co e o an economic analysis, channelled h ough p e e -
ences and payo s. Ins ead o a bina y legal s anda d, economics examines incen-
i es, wel a e, e iciency, and dis ibu ion. I is he consequen ialis o ien a ion o
economics ha adds alue o a law- only pe spec i e on EU law. By ex ending he
hypo he ical homo economicus o he ‘s a e economicus’, a ional choice is a ui ul
ool o he s udy o EU law. Whe he economics is he ‘queen o he social sciences’
o whe he i jus ‘colonized o he disciplines by seeming o poin he way owa d
unde s anding he a ional basis o human beha io ’1— i ce ainly o e s mul iple
app oaches o s udy he legal amewo k in a way ha legal schola ship as a no m
science ails (and is no in ended) o unco e .
1 Li an Eina and Leea Ya i , ‘Wha ’s in a Su name? The E ec s o Su name Ini ials on Academic
Success’ (2006) 20 Jou nal o Economic Pe spec i es 175.
xi De aileD con en s
12. Non- consensual EU law 125
a) EU T ea y op - ou 126
b) Di e en ia ing in eg a ion 131
13. Legisla i e choices 139
a) Di ec i es e sus egula ions 140
b) Mu ual ecogni ion 143
c) Ha moniza ion 145
14. En o cemen 149
PART IV. WHO COOPERATES UNDER EU LAW
15. The Eu opean Council and Council o Minis e s 159
16. The Eu opean Pa liamen 165
17. The Eu opean Cou o Jus ice 169
18. The Eu opean Cen al Bank 179
19. The Eu opean Commission 183
20. Adjudica ion 187
a) Why in e na ional cou s a all? 187
b) E icien b eaches o EU law 190
c) Judicial au ho i y: leeway and cons ain s 193
PART V. WHAT TO COOPERATE ON IN THE EU
21. Eu opean Public Goods 201
a) Dealing wi h ade- o s 203
b) Iden i ica ion o Eu opean public goods 206
c) Legal op ions o deli e Eu opean public goods 210
Adjus ing he scope o compe ence ans e om Membe
S a es o he EU 211
Calib a ing decision- making majo i y in he Council 212
Va iable pa icipa ion in in eg a ion: ‘club p o ision’
o public goods 214
Cen aliza ion e sus decen aliza ion o unding
decisions and deli e y o public goods 215
Compensa ion o mi iga e p e e ence he e ogenei y 217
d) Financing Eu opean public goods 218
22. In e nal ma ke : economic in eg a ion 223
a) F ee mo emen o goods 225
b) F eedom o p o ide se ices 227
c) F ee mo emen o wo ke s and eedom o es ablishmen 229

De aileD con en s x
23. Economic and mone a y union 233
a) Fiscal policy coo dina ion and s a e o ganiza ion p inciples 236
S a e deb in ede al s a es 237
S a e deb in union s a es 239
Incen i es o deb consolida ion in ede al and union s a es 241
b) Deb limi a ion in he eu ozone 245
c) No bailou and mone a y s a e inancing 248
Bibliog aphy 251
Index 271
newgenp epd
PART I
BASICS
In oduc ion o Pa I
The use ulness o s udying Eu opean Union (EU) law based on he ca ego ies
o why, how, who, and wha is no inhe en ly sel - e iden . Coope a ion be ween
s a es has been examined om a ange o discipline- speci ic pe spec i es. By way
o example: schola s o in e na ional ela ions ha e explo ed ‘coope a ion p ob-
lems’ and ‘cha ac e is ics o he s a es’, using he o me e m o accoun o how he
in e es s and cons ain s ha go e n he ac ions o coope a ing pa ies can explain
ce ain design ea u es o in e na ional ag eemen s.1 Lawye s, and especially EU
lawye s, s uc u e hei analysis wi h ecou se o posi i e legal ex s and wha hey
de ine in e ms o ele an ins i u ions, sou ces o law, and policy ins umen s.2
Schola s o law and economics, by con as , ha e o en ocused on public in e -
na ional law and in e na ional law compliance.3
Taking posi i e EU law— ha is, p ima y and seconda y law, as well as he asso-
cia ed ins i u ional and p ocedu al amewo ks— as a poin o analy ical depa u e,
inqui y in o he why, how, who, and wha o coope a ion pa es he way o he in-
eg a ion o a ious disciplina y pe spec i es. Some o he ‘coope a ion p oblems’
desc ibed in he in e na ional ela ions li e a u e, such as he en o cemen o com-
mi men p oblem, a e ela ed o how s a es use EU law o coope a e: ins i u ional
and legal a angemen s a e ools ha ep esen ‘how’ he bene i s o coope a ion
a e ob ained. En o cemen issues a e also o in e es o lawye s and o schola s
o law and economics, bu hey should be dis inguished om he unde lying mo-
i es as o why coope a i e ela ions a e es ablished (o eschewed) in he i s place.
Schola s o in e na ional ela ions in e es ed in how ela ions a e ‘designed’ ha e
ocused on i e b oad dimensions o in e na ional o ganiza ions (such as he EU).
1 Ba ba a Ko emenos, The Con inen o In e na ional Law: Explaining Ag eemen Design
(Camb idge Uni e si y P ess 2016).
2 C aig de Bú ca, EU Law: Tex , Cases, and Ma e ials (Ox o d Uni e si y P ess 2020).
3 And ew Guzman, How In e na ional Law Wo ks (Ox o d Uni e si y P ess 2008) 22, 33, 71, 119,
183; Jack L Goldsmi h and E ic A Posne , The Limi s o In e na ional Law (Ox o d Uni e si y P ess
2006) 23, 83; Joel P T ach man, The Economic S uc u e o In e na ional Law (Ha a d Uni e si y
P ess 2008) 72, 119, 208.
2 a min s einBach
T ea ing s a es as a ional ac o s ha shape an in e na ional o ganiza ion ( he in-
dependen a iable), hey iden i y a ange o dependen a iables, including mem-
be ship ules; he ange o issues add essed; he cen aliza ion o esponsibili ies;
ules o con olling he ins i u ion; and he lexibili y o a angemen s.4 Ce ain
ea u es— namely, lexibili y and cen aliza ion— a e o essen ial impo ance om
an economic pe spec i e, and o ele ance o he EU (how and why), while o he s
may be be e unde s ood om an ac o - cen ic pe spec i e ha conside s incen-
i e s uc u es and associa ed aspec s o game heo y, including he iew ha EU
ins i u ions a e ‘agen s’ ac ing on behal o Membe S a es as ‘p incipals’ (who).
Wi h a iew o ‘cen aliza ion’, we ind in e dependencies be ween o m and
subs ance, o ‘cen aliza ion’ no only e e s o he empowe men o sup ana ional
au ho i ies o moni o , media e, and sanc ion, bu also o he dis ibu ion o sub-
s an i e compe encies be ween EU- le el ins i u ions and Membe S a es. Thus,
ou why cap u es mo e undamen ally he co e mo i a ional d i e s o EU mem-
be s o en e in o binding EU law and subjec hemsel es o a cons aining ins i u-
ional amewo k in he i s place. By con as , he how inqui ies in o he speci ic
ins i u ional and p ocedu al design o he EU— ha is, he way i cen alizes e-
sponsibili ies, main ains lexibili y, and legisla es and en o ces EU law; he who is
ac o - o ien ed and ocuses on he economic unde pinning o Union ins i u ions
ac ing as adminis a o s, legisla o s, and adjudica o s o EU law, each o hem
guided by indi idual incen i e s uc u es h ough (mo e o less) legally de ined
con ol and sanc ion egimes. Fu he mo e, he wha inqui ies in o he speci ic
policy ields and compe encies o he EU om an economic pe spec i e.
EU lawye s ypically s uggle wi h he why. EU public lawye s ask ques ions e-
ga ding unde lying mo i a ions only in e y limi ed cases (eg o de e mine he
ele an legal basis o public policies); hey exhibi almos no in e es in he a-
ionale o c ea ing EU p ima y law in he i s place o o c a ing he peculia EU
ins i u ional amewo k. By con as , asking why is a key esea ch ques ion posed
by schola s o in e na ional ela ions and economics. And i is p ecisely his pe -
spec i e ha we seek o ende ui ul o legal analysis. One p ospec i e bene i
o such an app oach is o u nish economically in o med me ics o assessing how
compe ences be ween he Union and Membe S a es should be alloca ed. Such an
app oach, which clea ly goes beyond posi i is conside a ions o how compe en-
cies a e alloca ed in he T ea ies, p omises o appeal in pa icula o legal schola s,
gi en he impo ance hey a ach o sys ema ic de ini ions and doc inal consis -
ency. By he same oken, legal analysis o he ins umen s se o h by he T ea ies
can be expanded by asking why and when hese ins umen s should be used.
In e na ional lawye s adi ionally ask ques ions o who is bound by law o who
can in oke ce ain igh s: While he Wes phalian legal o de om which mode n
4 Ko emenos (n 1) 42.
Basics 3
in e na ional law eme ged was ied o he s a e- only app oach, he eme gence o
in e na ional o ganiza ions and indi iduals in he in e na ional law a ena has
gi en ise o an a ay o new legal issues.5 In e na ional ela ions schola s ha e
also sough o accoun o he shi in ocus om s a es o non- s a e ac o s, ecog-
nizing he non- s a e ac o s as ac i e agen s ha make and change ules in global
go e nance.6 Unlike lawye s, who gene ally conside s a es o be he sole sou ce
o au ho i y (e en going so a as o conside domes ic a ai s i ele an o in e -
na ional public law7), in e na ional ela ions and economic schola s endea ou o
add g anula i y o he who in in e na ional law by b eaking up he ‘billia d ball’
and looking inside he s a e— o example, by applying a poli ical economy pe -
spec i e ha explains he ac ions o domes ic s a e ac o s, a pe spec i e ele an o
he mul ile el and mul i- ins i u ional amewo k o he EU. Likewise, wi h me h-
odological and no ma i e indi idualism as an ope a ional benchma k, economics
speaks o he pe ennial legal issue o who is he subjec o legi imacy in he EU, ha
is, in whose in e es he EU should ac . P incipal– agen conside a ions en e he
analy ical sphe e o who ac s, which is alien o a legal assessmen ha de e mines
he who wi h sole e e ence o he compe ences, igh s, and obliga ions ensh ined
in he T ea ies.
5 Robe o Vi zo and I an Ing a allo, E olu ions in he Law o In e na ional O ganiza ions (B ill/
Nijho 2015).
6 Debo ah D A an , Ma ha Finnemo e, and Susan K Sell, Who Go e ns he Globe? (Camb idge
S udies in In e na ional Rela ions, Se ies Numbe 114) (Camb idge Uni e si y P ess 2010).
7 A icle 27 o he Vienna Con en ion on he Law o T ea ies 1969.

EU Law and Economics. A min S einbach, Ox o d Uni e si y P ess. © Ox o d Uni e si y P ess 2025.
DOI: 10.1093/ 9780198920915.003.0001
1
Meande ing be ween a ional
choice, ealism, cons uc i ism, and
ins i u ionalism
A ew wo ds o explana ion ega ding he me hodological a senal o his wo k a e
necessa y, ha is whe e i si s on he spec um be ween ealism and cons uc -
i ism, be ween a ional choice and beha iou al economic scep icism. Building on
mains eam economic heo y and In e na ional Rela ions li e a u e, his wo k ha -
nesses a ional choice heo y as i s dominan analy ical app oach, gi en i s powe
o accoun o he beha iou o a ious ac o s, whe he indi iduals, i ms, non-
go e nmen al o ganiza ions (NGOs), o s a es. The a ional choice model p e-
sumes ha ac o s seek o maximize hei in e es s in decision si ua ions ma ked
by cons ain s. This pe spec i e akes EU Membe S a es as he analy ical poin
o depa u e and sugges s ha he design o EU ins i u ions, including co e legal
p inciples (eg con e al o subsidia i y), a e delibe a e a chi ec u al choices made
by Membe S a es as he ‘mas e s o he T ea ies’. O e ime, his pe spec i e has
p o en excessi ely na ow, as he EU as an o ganiza ion has e ol ed o become
an ac o i sel when ac ing h ough i s ins i u ions— o ins ance, when i adop s
seconda y law, when judges o he ECJ pe o m hei judicia y unc ion, o when
Union ins i u ions a e in ol ed in T ea y amendmen s, as is pe haps mos isible
h ough he sup ana ional cha ac e and sup emacy o EU law o e na ional law.
This makes he EU di e en om o he in e na ional o ganiza ions which ha e,
om a a ional choice pe spec i e, la gely been iewed as a de i a i e unc ion o
Membe S a e in e es s.1 While T ea y changes we e ul ima ely decided and a i-
ied by he EU membe s, hese changes ha e con ibu ed o he eme gence o he
EU as an au onomous ac o .
I is he sup ana ional cha ac e o he EU ha has emancipa ed i om ypical
analy ical pe spec i es in in e na ional law, and wi h his in mind, we mus econ-
side ou assessmen o he EU om he s andpoin o law and economics, o he
EU canno be s udied solely as he exp ession o Membe S a e will; a he , he
EU has been emancipa ed om being a ‘dependen a iable’ o assume he s a us
1 Ba ba a Ko emenos, Cha les Lipson, and Duncan Snidal, ‘The Ra ional Design o In e na ional
Ins i u ions’ (2001) 55 In e na ional O ganiza ion 761; E ic Posne and Alan O Sykes, Economic
Founda ions o In e na ional Law (Ha a d Uni e si y P ess 2013) 84.
6 a min s einBach
o an ‘independen a iable’. This is a me hodological ex ension ha may be dis-
up i e o adi ional legal pe spec i es ounded on he Kompe enz- Kompe enz o
Membe S a es as ‘mas e s o he T ea ies’. To be su e, ins i u ional de elopmen
in he EU is no solely d i en by he delibe a e choices o Membe S a es, bu also
by he au onomous beha iou o EU- le el ins i u ions. To ake his ins i u ional
au onomy in o accoun is essen ial, and i equi es us o look beyond he EU as a
blind agen o Membe S a e will. One impo an and g oundb eaking example o
EU au onomy is he legal inno a ion in oduced by he ECJ’s ulings conce ning
he di ec e ec and sup emacy o EU law, which ha e been he d i e o legal and
ins i u ional in e en ion o he EU in o Membe S a es’ legal o de s.
We will discuss he a ious a ionales ha unde pin EU coope a ion om a
a ional choice pe spec i e— a pe spec i e ha inhe en ly ea s he EU as a ‘de-
penden a iable’— bu we will also look a he a ious EU ins i u ions ha ac as
a ional choice ac o s— o example, by examining in e ac ions be ween EU in-
s i u ions in ol ed in policy o mula ion o adjudica ion om he pe spec i e o
game heo y. I may be plausible o iew he EU as a ‘dependen a iable’ du ing he
ini ial de elopmen o he EU T ea ies. This is less he case when T ea y amend-
men s occu , because Membe S a es a e he pi o al ac o s unde he T ea y e i-
sion p ocedu e (A icle 48 T ea y on Eu opean Union (TEU)). By con as , wi h
a iew o he adop ion o EU seconda y law, i is plausible o assume ha he ou -
comes depend on he ac ions and in e es s o Union ins i u ions, gi en hei indis-
pensable consen o he law- making p ocess.
The p edominan assump ion unde pinning a a ional choice assessmen is ha
s a e p e e ences a e exogenous, as domes ic policy is mos ly no aken in o ac-
coun in he law and economics li e a u e, no in in e na ional ela ions schola -
ship.2 Howe e , he no ion o e ol ing p e e ences ha has been posi ed by he
cons uc i is iew ep esen s a de ia ion om he a ional choice pos ula e. In
essence, cons uc i is app oaches ocus on he social cons uc ion o iden i y
be ween ac o s in in e na ional ela ions.3 Acco dingly, in e na ional no ms, in-
cluding in e na ional and EU law, ha e a cons i u i e unc ion in he sense ha
hey help o gi e o m o he wishes and p e e ences o s a es.4 Ye i is no only
2 Ko emenos (n 1) 12.
3 In line wi h c i ical heo is s o a de ailed discussion, see Alexande Wend , ‘Cons uc ing
In e na ional Poli ics’ (1995) 20 In e na ional Secu i y 71, 71 .: ‘C i ical IR “ heo y”, howe e , is no
a single heo y. I is a amily o heo ies ha includes pos mode nis s (Ashley, Walke ), cons uc i -
is s (Adle , K a ochwil, Ruggie, and now Ka zens ein), neo- Ma xis s (Cox, Gill), eminis s (Pe e son,
Syl es e ), and o he s. Wha uni es hem is a conce n wi h how wo ld poli ics is “socially cons uc ed”,
which in ol es wo basic claims: ha he undamen al s uc u es o in e na ional poli ics a e social
a he han s ic ly ma e ial (a claim ha opposes ma e ialism), and ha hese s uc u es shape ac o s’
iden i ies and in e es s, a he han jus hei beha iou (a claim ha opposes a ionalism).’
4 c also Ma ha Finnemo e, Na ional In e es s in In e na ional Socie y (Co nell Uni e si y P ess
1996) 128: ‘The ac ha we li e in an in e na ional socie y means ha wha we wan and, in some ways,
who we a e shaped by he social no ms, ules, unde s andings, and ela ionships we ha e wi h o he s.
These social eali ies a e as in luen ial as ma e ial eali ies in de e mining beha iou . Indeed, hey a e
meanDe ing Be ween a ional choice 7
cons uc i is s who poin o he changeable p e e ences o s a es. Public choice
o e s a simila unde s anding by conside ing in e ac ions wi h domes ic con-
s i uencies.5 No ably, s a e p e e ences may change as a esul o changes in do-
mes ic poli ics. In he case o he EU, he si ua ion is u he complica ed by he
mul ile el go e nance s uc u e ha in ol es se e al ac o s in e ac ing wi h each
o he in decision- making, bo h ho izon ally be ween Union ins i u ions, bu also
e ically be ween he EU and Membe S a es, adding complexi y and addi ional
s a egic aspec s o he analysis. Unde hese ci cums ances, we mus abandon he
assump ion ha s a es a e anima ed by s able p e e ences and ins ead pu sue posi-
i e analysis o he con ex in ques ion, a he han employing gene al models.6
The mo e public choice conside a ions add complexi y o ou unde s anding and
p edic ion o s a e in e es s— ha is, he mo e we cons uc s a e p e e ences as a
unc ion o domes ic policy issues— he less we can d aw gene al p edic ions abou
he conduc o EU s a es. This is p oblema ic o an economic analysis ha seeks
o achie e gene alizable esul s. A he same ime, assuming ha s a es a e uni a y
ac o s would p eclude such conside a ions al oge he . I hus would appea plaus-
ible o adop bo h pe spec i es— ha is, o iew s a es as uni a y ac o s anima ed
by conce n o na ional wel a e while elaxing his assump ion when wa an ed by
con ex ual ac o s.
Cons uc i is s acknowledge ha ideas and belie s— and no jus ma e ial
in e es s— de e mine he beha iou o s a es, and a e he e o e ele an in p o-
mo ing compliance wi h law.7 In hei seminal discussion o cons uc i is heo y,
Finnemo e and Sikkink asse ha ‘no m cascades’ can unc ion as causal chains
ha induce compliance wi h in e na ional law no ms.8 In hei iew, no ms a ise
when ‘no m en ep eneu s’ y o con ince s a es o accep new no ms. In a second
phase, a c i ical mass o s a es accep s he no ms, and hey ‘cascade’ down o he
emaining s a es. In he inal phase, he no ms a e accep ed and in e nalized, hus
gi ing ise o a p e e ence o no m compliance. Howe e , a ionalis s ca ego ic-
ally ejec his desc ip ion o he p e e ence o ma ion p ocess. One can use he
cons uc i is logic o explain he sequen ial sp ead o EU law in o Membe S a e
domes ic law. Once he ECJ had uled ha EU law had di ec e ec o sup emacy
o e na ional law (a judicial inno a ion no di ec ly de i able om he T ea ies), i
wha endow ma e ial eali ies wi h meaning and pu pose. In poli ical e ms, i is hese social eali ies
ha p o ide us wi h ends o which powe and weal h can be used.’
5 And ew Guzman, How In e na ional Law Wo ks (Ox o d Uni e si y P ess 2008) 128.
6 S e en P C oley, ‘Theo ies o Regula ion: Inco po a ing he Adminis a i e P ocess’ (1998) 98
Columbia Law Re iew 1.
7 Alexande Wend , ‘Cons uc ing In e na ional Poli ics’ (1995) 20 In e na ional Secu i y 71; Je ey
T Checkel, ‘Why Comply? Social Lea ning and Eu opean Iden i y Change’ (2001) 55 In e na ional
O ganiza ion 565.
8 Ma ha Finnemo e and Ka h yn Sikkink, ‘In e na ional No m Dynamics and Poli ical Change’
(1998) 52 In e na ional O ganiza ion 887.
14 a min s einBach
maximize he abili y o ci izens o in luence ac ual decision- making.5 In his ein,
iscal ede alism heo y gene ally a ou s local go e nance as a de aul posi ion o
enhancing democ a ic pa icipa ion and accoun ing o local p e e ences.
Closely ela ed o public goods analysis is he concep o ansac ion cos s, which
cap u es a ious dimensions o cos s associa ed wi h coope a ion.6 T ansac ion
cos s analysis may o e a plausible explana ion as o why coope a ion wi hin he
EU akes place o why i does no .7 T ansac ion cos s can be mul idimensional.
By way o example, so e eign y cos s a e incu ed whene e s a es canno choose
hei na ional p e oga i es and su ende compe encies. In ligh o he ans e
o compe ences o B ussels, some cons i u ional cou s ha e a gued ha speci ic
aspec s o s a e so e eign y should emain unde na ional con ol. Simila ly, ne-
go ia ion cos s occu i EU s a es mus engage in leng hy deba e o ind unanimi y
in he Council; con ac ing cos s occu i he complexi y o an issue is high; im-
plemen a ion cos s occu when he e is a bu den o complying wi h EU di ec -
i es and egula ions; and moni o ing cos s occu when an ins i u ional s uc u e
is es ablished o adminis e an ag eemen o e iew compliance wi h EU law (eg
he Eu opean S abili y Mechanism, o ESM, es ablished du ing he so e eign deb
c isis). The use o ansac ion cos s analysis pa es he way o cos - bene i analysis
ha s udies he beha iou o EU membe s seeking a ious o ms o coope a ion
(eg di e en ia ed a he han ull in eg a ion). T ansac ion cos s a y depending
on a ange o ac o s, including he numbe o EU s a es in ol ed, he subs ance o
he issue a hand, he deg ee o o mali y, and he ins i u ional en i onmen o he
ag eemen .
The EU is based on in e na ional ea ies, which a e he main sou ce o EU law,
making con ac heo y a e ile analy ical ool, as i is commonly applied o he
assessmen o in e na ional law.8 The EU is an in e na ional o ganiza ion buil on
many con ac s in he sense ha he EU T ea ies co e a wide scope o subs an-
i e law, p ocedu al ules, and ins i u ional a angemen s. Accession o he EU is
p edica ed on he assump ion ha aking on he igh s and obliga ions associa ed
wi h membe ship will gene a e a posi i e ne payo . EU Membe S a es delega e
5 Albe Weale and Michael Nen wich, Poli ical Theo y and he Eu opean Union: Legi imacy,
Cons i u ional Choice and Ci izenship (Rou ledge 1998); Ma eike Kleine, Ja ie A egui, and Robe
Thomson, ‘The Impac o Na ional Democ a ic Rep esen a ion on Decision- Making in he Eu opean
Union’ (2022) 29 Jou nal o Eu opean Public Policy 1.
6 Building on seminal wo k, Ronald H Coase, ‘The P oblem o Social Cos ’ (1960) 3 Jou nal o
Law and Economics 1; Ronald H Coase, ‘The Ins i u ional S uc u e o P oduc ion’ (1992) Uni e si y
o Chicago Law Occasional Pape ; Oli e E Williamson, ‘The Economics o O ganiza ion: The
T ansac ion Cos App oach’ (1981) 87 Ame ican Jou nal o Sociology 548.
7 A min S einbach, ‘The T end owa ds Non- Consensualism in Public In e na ional
Law: A (Beha iou al) Law and Economics Pe spec i e’ (2016) 27 Eu opean Jou nal o In e na ional
Law 643, 646.
8 Robe E Sco and Paul B S ephan, The Limi s o Le ia han (Camb idge Uni e si y P ess 2006);
Joel P T ach man, The Fu u e o In e na ional Law: Global Go e nmen (Camb idge Uni e si y P ess
2013) 318.

a cu so y e iew o economic me hoDs 15
au ho i y o e a pa icula a ea o conce n o he EU in exchange o coope a i e
gains (such as ecip ocal commi men s by he o he Membe S a es) o o he
coo dina ion gains achie ed h ough cen aliza ion (such as ha monizing s and-
a ds). The mul iplici y o con ac s o which Membe S a es mus accede is a dis in-
guishing ea u e o he EU compa ed o o he in e na ional o ganiza ions because
i widens he numbe o ag eeable solu ions h ough c oss- policy compensa ion,
wi h asymme ic concessions on one con ac (eg in ag icul u al policy) being
compensa ed by asymme y in o he con ex (eg ma ke eedoms). While subcon-
ac s p oduce di e gen bene i s and cos s o Membe S a es, he complemen-
a i y o policy ields allows g ea e posi i e ne payo s han in na owly designed
in e na ional o ganiza ions.
The ques ions su ounding op imal T ea y design is a highly salien issue o
con ac ing pa ies. A con ac should be op imal om an ex- an e pe spec i e, ha
is, i should incen i ize he pa ies o in es in he con ac ual ela ionship in o de
o maximize an icipa ed mu ual bene i s. A he same ime, howe e , he pa ies
wan o c a a con ac ha is also op imal ex pos , ha is, one ha maximizes
he bene i s o pa ies e en a e possible unce ain ies ha e a isen. These pa -
ially con lic ing goals c ea e ension, because each pa y wan s o secu e he o he
pa y’s commi men , bu ex- pos in lexible commi men s can comp omise he goal
o maximizing sha ed bene i s. Speci ically, un o eseen ci cums ances may cause
he compliance cos o one pa y o exceed he bene i s ha i expec ed o gene a e
om he con ac .9 T ea y speci ica ion and ex- pos adjudica ion o he Eu opean
Cou o Jus ice (ECJ) a e hus key o main aining con ac ual gains unde condi-
ions o unce ain y.
Simila conside a ions apply o expec ed compliance wi h EU T ea ies. EU
membe s en e in o a con ac behind a ‘ eil o igno ance’, ha is, hey do no know
who migh b eak he con ac . In his si ua ion, hey a e obliged o make a dis inc-
ion be ween, on he one hand, ‘in a- con ac ual lexibili y’, which applies o ce -
ain beha iou ha is due o un o eseen ex e nal e en s and ha is no an amoun
o a b each o con ac ; and, on he o he hand, ‘ex a- con ac ual lexibili y’, which
e e s o a b each o con ac due o oppo unis ic beha iou , and which should
igge co esponding legal consequences. An op imally designed con ac pe mi s
lexibili y in he i s case and p o ides o ‘ha d’ law in he second case. While
‘ha d’ law punishes hose who iola e he con ac , ex a- con ac ual lexibili y
punishes he pa y who abides by he con ac . Pa ies can he e o e exp ess hei
con ac s in a he ague p o isions and delega e he in e p e a ion o hi d pa ies
(ie EU Commission adminis a ion, and ECJ adjudica ion) in o de o ensu e he
necessa y lexibili y ex pos , a he p ice o aising he unce ain y ega ding he
ne payo om coope a ion ex an e. This in e p e a i e amewo k allows us o
9 Sco and S ephan (n 8) 61.
16 a min s einBach
s udy he op imal deg ee o speci ici y ha con ac s should con ain, and he unc-
ionali y o ‘ ules’ and ‘s anda ds’ unde condi ions o unce ain y10— pa ame e s
which, in he EU con ex , a e ul illed by ‘ egula ions’ and ‘di ec i es’. This has a
di ec connec ion o economic a gumen s o ‘e icien b eaches’ o con ac , a
e m ha e e s o olun a y b eaches o con ac when adhe ence would lead o
e en g ea e economic losses.11 While such a pe spec i e is incompa ible wi h he
binding pac a sun se anda ule, b eaches o EU obliga ions may be he e icien
esponse when EU T ea ies do no o e su icien lexibili y o when o he con ac-
ual pa ne s p e en an e icien adap ion o he EU T ea ies as a sel ish holdou
s a egy.12
The in e ac ions be ween EU s a es can also be likened o he decisions made by
playe s in a game. Indeed, economic analysis has made ex ensi e use o he ech-
niques u nished by non- coope a i e game heo y. One limi a ion o game heo y is
ha i p ecludes conside a ion o exogenously binding con ac s.13 Hence, o in e -
na ional law o be e ec i e, he con ac ual a angemen s mus be sel - en o cing,
because, unlike na ional law, in e na ional law lacks exogenous en o cemen ools.
In his way, he ules hemsel es mus o e su icien endogenous incen i es o
compliance. Compliance is assu ed because adhe ence is in he indi idual in e es s
o he pa ies o he ag eemen . Wi h a iew o he EU, he coope a ion li e a u e
shows ha coope a ion is possible in epea ed games.14 The in e dependencies
ha exis be ween Eu opean s a es, including he Union- wide scope o many pol-
icies, en ail epea ed in e ac ion o a coope a i e na u e. Incen i e compa ibili y
does no equi e posi i e ne payo s o all s a es and compliance on all occasions
and unde all con ingencies, p o ided he long un bene i s o adhe ing o a spe-
ci ic ins i u ional se up a e posi i e. Sanc ion mechanisms help o sus ain de ined
ins i u ional a angemen s and also p omo e compliance, bu his equi es he ac-
ual imposi ion o sanc ions when hey a e wa an ed. A key p oblem in his ega d
is ha wi hin in e na ional o ganiza ions, sanc ions a e endogenous, hus c ea ing
a second- o de public good dilemma. As a consequence, sanc ions a e unde u il-
ized in he in e na ional law a ena (see below Chap e 14). The EU, which has a
sup ana ional cha ac e , ep esen s a hyb id case. Compliance wi h EU law es s
on he gene a ion o payo s in a epea ed game as well as e alia ion in he e en o
10 Louis Kaplow, ‘Gene al Cha ac e is ics o Rules’ in Encyclopedia o Law and Economics (Na ional
Bu eau o Economic Resea ch 1997); Cass R Suns ein, ‘P oblems wi h Rules’ (1995) 83 Cali o nia Law
Re iew 953.
11 Wenqing Liao, The Applica ion o he Theo y o E icien B each in Con ac Law: A Compa a i e
Law and Economics Pe spec i e (In e sen ia L d 2015); Mel in A Eisenbe g, Founda ional P inciples o
Con ac Law (Ox o d Uni e si y P ess 2018).
12 E ic Posne and Alan O Sykes, Economic Founda ions o In e na ional Law (Ha a d Uni e si y
P ess 2013) 25.
13 T ach man (n 8) 516.
14 James W F iedman, ‘A Non- Coope a i e Equilib ium o Supe games’ (1971) 38 Re iew o
Economic S udies 1; D ew Fudenbe g and E ic Maskin, ‘The Folk Theo em in Repea ed Games wi h
Discoun ing o wi h Incomple e In o ma ion’ (1986) 54 Econome ica 533.
a cu so y e iew o economic me hoDs 17
misconduc by a hi d pa y (EU Commission and ECJ), a he han by he pa ies
o he ag eemen , which can esol e he second- o de public goods dilemma. The
EU has inc easingly buil up an a senal o sanc ion mechanisms, which a e la gely
unde he con ol o he Commission as a hi d pa y o Membe S a es (along-
side quali ied majo i y o ing on he Council). Non- compliance wi h EU law hus
leads o conside able exogenous en o cemen which esol es he second- o de col-
lec i e ac ion dilemma, ep esen ing a poin o con as o public in e na ional law.
As he EU add esses many policy a eas and encompasses mul iple sec o -
speci ic commi men s (subcon ac s), one could easonably p esume ha a ious
games a e unde way in pa allel.15 F om a game heo y pe spec i e, one could say
ha playe s a e bound o each o he in mul iple ways, including h ough he links
be ween games.16 Suppose, o example, ha Membe S a es in e ac wi h each
o he and wi h he Commission in a game o iscal supe ision in which Membe
S a es ha e o decide whe he o comply o de ec . This game may be in luenced by
beha iou al spillo e s om a pa allel game aking place on a mo e gene al le el
as pa o in e - s a e ela ionships (eg wi hin he Eu opean Council, in he in e -
ac ions be ween heads o s a e). In his way, he s a e o play in an in e - s a e ela-
ionship o he likelihood o Membe S a e coali ions (agains he Commission)
migh impac he iscal- sc u iny game and de e mine i s payo s uc u e. Mo e
gene ally, EU Membe S a es and EU ins i u ions in e ac in a a ie y o con ex s,
wi h each Membe S a e aking on di e en oles in each ci cums ance. In a ‘ ule-
o - law game’ a coun y migh ake a ha sh s ance is- à- is po en ial de ec o s o
he EU ule o law while, a he same ime, a ‘ iscal- supe ision game’ migh be
unde way in which ha same EU membe is much less conce ned wi h he igid
applica ion o EU ules, and hese games could be linked.
This po en ial o in e ac ion be ween games is a odds wi h an es ablished legal
doc ine: in e na ional ag eemen s a e conside ed o be sel - con ained egimes
ha a e su icien un o hemsel es o se ling disag eemen s, and hey also claim
p imacy o e mo e gene al law. Acco dingly, an issue occu ing unde he EU iscal
su eillance egime should be deal wi h exclusi ely unde he applicable EU iscal
ules— howe e , in a legal and poli ical union, in which mo e han one game is
going on a he same ime, he iscal dispu e is unlikely o be esol ed solely based
on he applica ion o iscal ules. The addi ional disc e ion ha he Commission
and Council enjoy is likely o be de e mined by o he games. Wha is legally de-
signed as a sel - con ained egime is in luenced in p ac ice by o he ac o s— which
is good news o he compliance eco d unde EU law, as he in e ela ionships
be ween games may induce compliance in a way ha makes he la ge ela ionship
be ween Membe S a es sel - en o cing.17
15 T ach man (n 8).
16 Timo hy N Cason, Anya C Sa ikhin, and Roman M She eme a, ‘Beha io al Spillo e s in
Coo dina ion Games’ (2012) 56 Eu opean Economic Re iew 233.
17 T ach man (n 8) 516.
18 a min s einBach
Likewise, game heo y may u nish an explana ion o he ins i u ional design
o he EU. Conside o ins ance he judicial independence g an ed o ECJ judges.
We can hink o judges as pa icipa ing in a powe compe i ion game wi h o he
o icials. In con as o he assump ions o posi i is lawye s, o whom he T ea y’s
s ipula ion o independence is unques ioned, judges ypically ha e hei own p e -
e ences ega ding he poli ical o de .18 The cou has a ange o possible in e -
p e a ions ha can be b ough o a legal ex , and judges can sa is y hei poli ical
p e e ences by exe cising hei powe o in e p e s a u es. Howe e , hey mus ea
legisla o s o e uling a cou ’s judgmen and, in he case o he EU, ha na ional
cou s may no ollow ECJ decisions, as domes ic cou s a e obliged o apply EU
law as in e p e ed by he ECJ.19 F om his, i s ands o eason ha ha he ECJ will
mo e agg essi ely apply i s judicial disc e ion when he isk o legisla i e epeal o
con lic wi h domes ic cou s is small (see below Chap e 20 c).
The EU is based on T ea ies ha a e quasi- cons i u ional in na u e. In his way,
cons i u ional economics o e s a ui ul lens o examining EU law. This school
o hough , ini ia ed by Nobel p ize winne James Buchanan, seeks o abandon
he p e ailing ocus on wel a e economics (wi h i s neoclassical ‘maximiza ion
pa adigm’) as well as he a ional choice heo y ha unde gi ds ealis app oaches
o in e na ional ela ions.20 By con as , cons i u ional economics hinges on he
p emise o ‘cons i u ional con ac / exchange pa adigms’.21 Indi idual and col-
lec i e gains a e enabled by cons i u ional coope a ion ha imp o es he ‘laws
and ins i u ions’ o he economic and poli ical o de and p o ec s he democ a ic
exp ession o in o med p e e ences. Cons i u ional economics edi ec s he ocus
o economic analysis away om indi idual u ili y maximiza ion owa ds he de-
sign o ma ke s and poli ical a enas such ha ‘consume so e eign y’ in ma ke s
and ‘ci izen so e eign y’ in poli ical domains o m he analy ical and no ma i e
benchma k.22 No ma i e cons i u ional economics calls o legal sa egua ds o en-
su e ha he ‘compe i i e o de ’ (based on ‘pe o mance compe i ion’ and p ice
mechanisms) emains embedded in a mu ually cohe en mone a y o de ( ha
p o ec s p ice s abili y and ensu es iscal discipline); democ a ic cons i u ion-
alism ( ha holds ‘Eu opean ne wo k go e nance’ accoun able h ough mul ile el
compe i ion, mone a y, and o he egula o y agencies); and social o de ( ha
18 Je ey J Rachlinski and And ew J Wis ich, ‘Judging he Judicia y by he Numbe s: Empi ical
Resea ch on Judges’ (2017) 13 Annual Re iew o Law and Social Science 203; Cass R Suns ein, A e
Judges Poli ical? An Empi ical Analysis o he Fede al Judicia y (B ookings Ins i u ion P ess 2006).
19 S e an Voig , ‘Iudex Calcula : The ECJ’s Ques o Powe ’ (2003) 22 Jah buch ü Neue Poli ische
Ökonomie.
20 Geo ey B ennan and James M Buchanan, The Reason o Rules: Cons i u ional Poli ical Economy
(Camb idge Uni e si y P ess 1985); James M Buchanan, ‘The Domain o Cons i u ional Economics’
(1990) 1 Cons i u ional Poli ical Economy 1.
21 A min S einbach, ‘Cons i u ional Economics and T ansna ional Go e nance Failu es’,
Cons i u ionalism and T ansna ional Go e nance Failu es (B ill/ Nijho 2024) 77.
22 Vik o J Vanbe g, ‘Ma ke and S a e: The Pe spec i e o Cons i u ional Poli ical Economy’ (2005)
1 Jou nal o Ins i u ional Economics 23, 27.
a cu so y e iew o economic me hoDs 19
p o ec s labou ma ke s, wel a e s a es, social jus ice, and judicial emedies).23
No ma i e cons i u ional economics c i icizes a ious aspec s o neoclassical eco-
nomics, including i s ocus on u ili y maximiza ion and a ional en - seeking and
he assump ion o ‘pe ec ma ke compe i ion’ wi hou ansac ion cos s. G oss
domes ic p oduc as a wel a e me ic is also a acked gi en i s ailu e o accoun
o o he impo an measu es o human well- being, including he uni e sal sa is-
ac ion o he populace’s basic needs, he enhancemen o ‘human capaci ies’ (AK
Sen), and he p o ec ion o cons i u ional igh s. The EU Cha e o Fundamen al
Righ s (EUCFR) gua an ees ci il, poli ical, economic, social, and ‘Eu opean ci i-
zenship igh s’, and hus does no only p o ec ‘nega i e eedoms’ (eg cons aining
abuses o public and p i a e powe ). A icles 2 and 8 o he Eu opean Con en ion
on Human Righ s (ECHR) ha e p omp ed e e - g ea e numbe o cou s o ule
ha en i onmen al pollu ion and clima e change in inge on human igh s, hus
u nishing a legal basis o add essing ma ke ailu es. Comba ing clima e change,
p omo ing sus ainable de elopmen in coope a ion wi h hi d s a es, and p in-
ciples o ‘en i onmen al cons i u ionalism’ (including he p inciples o p ecau ion,
p e en ion, and ec i ying pollu ion a i s sou ce, as well as he ‘pollu e pays’ p in-
ciple) a e included in he EU T ea y p o isions on EU en i onmen al policies (eg
T ea y on he Func ioning o he Eu opean Union (TFEU) A s 11, 191– 193).24
In he a ena o in e na ional law, T ach man posi s ha he alloca ion o ju is-
dic ional powe cons i u es an assignmen o p ope y igh s.25 Acco dingly, a wide
ange o ac i i ies by Membe S a es can be concei ed as an assignmen o p ope y
igh s, including he ag eemen on speci ic ules go e ning he legali y o s a e con-
duc , he de e mina ion o s a e obliga ions and indi idual igh s, and he delinea-
ion o compe ences be ween s a es (Union e sus Membe S a es) and be ween
ins i u ions (Council e sus Commission). S a es seek o de ine p ope y igh s in
o de o acili a e coo dina ion and o s abilize expec a ions. A p ima y unc ion
o p ope y igh s acco ding o he li e a u e is o guide incen i es o achie ing a
g ea e in e naliza ion o ex e nal cos s. Acco dingly, a p ima y unc ion o ju is-
dic ional ules is ha o shaping incen i es o achie e a g ea e in e naliza ion o
ex e nal cos s among poli ical uni s. A he same ime, Membe S a es, as he ini ial
‘owne ’ o ju isdic ional powe , engage in p ope y alloca ion based on whe he
his allows hem o achie e gains. By iewing ju isdic ional powe as p ope y, we
can hus inqui e in o he op imal alloca ion o p esc ip i e ju isdic ion in he EU—
ha is, how o alloca e compe ences o au ho ize he use o public policies. An in-
e es ing conund um a ises in connec ion wi h he ha moniza ion o ules wi hin
23 E ns - Ul ich Pe e smann and A min S einbach, ‘Neo- Libe alism, S a e- Capi alism and O do-
Libe alism: “Ins i u ional Economics” and “Cons i u ional Choices” in Mul ile el T ade Regula ion’
(2021) 22 Jou nal o Wo ld In es men & T ade 1, 20.
24 E ns - Ul ich Pe e smann, ‘Cons i u ional Plu alism, Regula o y Compe i ion and T ansna ional
Go e nance Failu es’ in Cons i u ionalism and T ansna ional Go e nance Failu es (B ill/ Nijho 2024).
25 T ach man (n 8) 10, 26.

20 a min s einBach
he EU. Speci ically, he assignmen o p ope y igh s o he EU by Membe S a es
could be iewed as a means o collusion, as an an i- compe i i e use o p ope y
igh s. Indeed, his assignmen can be in e p e ed as an inapp op ia e es ain
on in e ju isdic ional compe i ion— o example, when he EU se s educa ional
s anda ds o lawye s o doc o s, o es ablishes e ec i eness s anda ds o pha ma-
ceu icals. Acco dingly, he an i- compe i i e impac s o collusion in he domain o
ju isdic ion assignmen mus hus be aken in o accoun ; his is a conce n ha also
a ises in iscal ede alism heo y (see Chap e 10 a).
As a mul ile el go e nance o de , he EU is also amenable o p incipal– agen
analysis, a pe spec i e ha p omises o shed ligh on he consequences o au-
ho i y delega ion a a ious le els o go e nmen . He e, a collec i e p incipal ( he
Membe S a es) ac ing on behal o ano he p incipal (na ional ci izens) delega es
au ho i y o an agen ( he EU) and ins i u ional sub- agen s (EU ins i u ions) in
o de o accomplish pa icula pu poses. Special a en ion can be de o ed o each
elemen in his mul i- s age p incipal– agen chain. In his connec ion, con o e sy
has been igge ed by he delega ion o au ho i y o non- majo i a ian ins i u ions.
Such delega ion is ypically mo i a ed by one o wo a ionales: he i s is he need
o echnical expe ise (p incipals delega e ce ain unc ions o agen s who pos-
sess equi ed compe encies, bu also impose con ol mechanisms);26 he second
a ionale is in o med by he ques o c edible commi men s (in his connec ion,
p incipals delibe a ely p o ide a conside able eedom o ac ion o he agen so
ha his agen can adop policy o which he p incipals hemsel es could no
c edibly commi ).27 Non- majo i a ian ins i u ions such as he Commission, he
Eu opean Cen al Bank (ECB), and he ECJ ha e he ollowing ea u es: hey dele-
ga e au ho i y o go e n speci ic domains o ac i i y; hey a e no di ec ly elec ed;
and hey enjoy conside able independence.28 Fo economis s, independence in
his con ex means leeway o agen s o ac au onomously om p essu es na i e
o he poli ical economy, in conjunc ion wi h he inhe en isk ha agen s will
pu sue objec i es ha do no align wi h he p e e ences o he p incipal; associ-
a ed shi king o sel - dealing gene a es ‘agency cos s’.29 Poli ical scien is s and law-
ye s ha e aised legi imacy as a co e conce n associa ed wi h he non- majo i a ian
cha ac e o EU ins i u ions.30 Measu es designed o educe legi imacy conce ns
26 Giandomenico Majone, ‘Nonmajo i a ian Ins i u ions and he Limi s o Democ a ic Go e nance:
A Poli ical T ansac ion- Cos App oach’ (2001) 157 Jou nal o Ins i u ional and Theo e ical Economics
57; Giandomenico Majone, ‘Two Logics o Delega ion’ (2001) 2 Eu opean Union Poli ics 103.
27 Ma k A Pollack, The Engines o Eu opean In eg a ion (Ox o d Uni e si y P ess 2003).
28 Ma k Tha che , Alec S one Swee , and Be na do Rangoni, ‘Re e sing Delega ion? Poli iciza ion,
De‐delega ion, and Non‐majo i a ian Ins i u ions’ (2023) 36 Go e nance 5.
29 E ic W O s, ‘Shi king and Sha king: A Legal Theo y o he Fi m’ (1998) 16 Yale Law & Policy
Re iew 265; Susan P Shapi o, ‘Agency Theo y’ (2005) 31 Annual Re iew o Sociology 263.
30 Ben C um and Dei d e Cu in, ‘The Challenge o Making Eu opean Union Execu i e Powe
Accoun able’ in Simona Pia oni (ed) The Eu opean Union (Ox o d Uni e si y P ess 2015); Dei d e
Cu in, ‘Challenging Execu i e Dominance in Eu opean Democ acy’ (2014) 77 Mode n Law Re iew 1.
a cu so y e iew o economic me hoDs 21
by limi ing shi king and sel - dealing gene ally es ablish supe iso y a ange-
men s. In his connec ion, i is necessa y o s ike an app op ia e balance be ween
ex- an e and ex- pos accoun abili y.31 Ye ano he ecommended means o sho ing
up legi imacy is o ensu e a su icien ly speci ied manda e. In his way, some pol-
i ical scien is s ha e econcei ed he p incipal– agen p oblem in e ms o ‘inpu
legi imacy’ and ‘ou pu legi imacy’.32
The bold no ma i e claims ad anced by economis s a e a leas pa ially o
blame o he esis ance ha has a isen o he p oli e a ion o economic hinking
in neighbou ing disciplines.33 Acco dingly, adequa ely dis inguishing be ween
posi i is and no ma i e me ics in economic analysis is a om inconsequen ial.
The posi i is concep ion s a s om he p emise ha economics is p ima ily an
epis emology, no a me hodology. The economic oolbox hos s mul iple me hods,
and all o hem may be deployed o a ional social scien i ic analysis.34 P ope ly
applied, economic me hodologies simply gene a e ela ional desc ip ions. Good
economics helps o iden i y he ela ionships be ween law, ins i u ions, and pol-
icies and he ou comes ha hey gene a e. US P esiden Ha y T uman is widely
c edi ed wi h saying ‘Gi e me a one- handed economis ! All my economis s say “on
he one hand . . . [and hen] on he o he ” ’. He e, T uman was exp essing his de-
si e o s aigh o wa d economic counsel, a he han an ambi alen discussion
o ade- o s and oppo uni y cos s. In his adi ion, economics is a consequen-
ialis and sel - conscious ool o analysing social li e and he p ospec i e e ec s
o implemen ing policy measu es, one ha accep s ha no ma i e policy goals
should be de e mined by alues ou side o he economics discipline.35 Economics
is mos help ul o law when i o e s complemen a y insigh and ools— by s udying
empi ical e ec s; by e ealing he incen i es ha ules c ea e o s a es and indi-
iduals; by highligh ing wel a e di e ences be ween wo s a es o socie y; and by
disclosing he s abili y o he legal equilib ium ha binds wo o mo e s a es. By
con as , he no ma i e mode o he economic app oach o law seeks o assess he
desi abili y o ce ain objec i es, ypically e iciency. Ye i should be elega ed o
cons i u ions and law- make s o de e mine wha no ma i e goals socie y should
pu sue. E iciency is no ensh ined in cons i u ional documen s, and legisla o s
a ely pu sue e iciency as a p ima y objec i e o policy. Employing e iciency
as no ma i e benchma k should hus been seen as a scien i ic exe cise, one ha
31 Rosa M Las a and Ch is ina P Skinne , ‘Sus ainable Cen al Banking’ (2023) 63 Vi ginia Jou nal
o In e na ional Law 397, 436.
32 F i z W Scha p , ‘Economic In eg a ion, Democ acy and he Wel a e S a e’ (1997) 4 Jou nal o
Eu opean Public Policy 18; Vi ien A Schmid , Eu ope’s C isis o Legi imacy: Go e ning by Rules and
Ruling by Numbe s in he Eu ozone (Ox o d Uni e si y P ess 2020).
33 Li an Eina and Leea Ya i , ‘Wha ’s in a Su name? The E ec s o Su name Ini ials on Academic
Success’ (2006) 20 Jou nal o Economic Pe spec i es 175.
34 T ach man (n 8) 1.
35 ibid 2.
22 a min s einBach
allows us o iden i y i s - bes choices in e ms o e iciency while also acknow-
ledging second- bes choices, gi en he p imacy o o he objec i es.
Desc ip i e and no ma i e o ms o economic analysis in e sec when EU law
is in es iga ed using in e oga i e p onouns (eg who, wha , why, how). O e he
cou se o his book, a ious pe spec i es a e adop ed. When we discuss why EU
membe s coope a e h ough EU law (and when hey should), e iciency helps o
iden i y a ionales o add essing ma ke ailu es; o ackling ex e nali ies; o
unlocking economies o scale; and o educing ( ansac ion) cos s. The how o
coope a ion is amenable o desc ip i e economic analysis— i can e eal he eco-
nomic a ionale o lexibili y clauses in he EU T ea ies; explain when T ea ies a e
incomple e o o e comple e in speci ying legal p o isions; and explo e he incen-
i es a ising om EU law en o cemen . By con as , he how may also en ail eco-
nomic no ma i i y— o example, how he subsidia i y es should be applied om
an economic pe spec i e; when ‘di e en ia ed in eg a ion’ should be he p e e ed
cou se o in eg a ion; and how legisla i e choices be ween di ec i es and egula-
ions should be guided. Ou discussion o he who o EU coope a ion d aws on
desc ip i e analysis o public choice heo y and p incipal– agen analysis o discuss
he in e ac ions among EU ins i u ions. Howe e , he analysis may be ounded
on he no ma i i y o e iciency when explo ing whe he b eaches o EU law mo-
i a ed by e iciency conside a ions should be pe mi ed in a depa u e om he
pac a sun se anda p inciple.
Economics is agnos ic wi h ega d o he s a e o he law— i in o ms he lex
e enda: economics ad ises how EU T ea ies should be amended, how seconda y
law should be c a ed, and how o edesign EU compe ences in he p o ision o
Eu opean public goods.36 De lege e enda economic ad ice mus be assessed in iew
o he legal ba ie s posed by he equi emen s o T ea y amendmen . Bu eco-
nomics is also help ul de lege la a when i in o ms how law should be in e p e ed—
ha is, he economic meaning ha can be gi en o legal e ms (eg subsidia i y). De
lege la a, economic insigh mus be aligned wi h he legal canon o in e p e a ion
modes, in o de o be ans e able o he law. The hu dle o in oducing economic
analysis o he law is he lowes when he law explici ly inco po a es economic con-
cep s and benchma ks, such as in EU compe i ion law (eg de ining ma ke s) o
ade ules (eg de e mining ‘like’ p oduc s). Finally, he wha o EU law coope -
a ion add esses policy ields and legal a eas ha ha e been neglec ed in he law
and economics li e a u e. Inqui ing in o Eu opean public goods implies he de el-
opmen o a concep ual amewo k as o how he unde p o ision o public goods
should be add essed— ha is, wha hei economic case is, and wha go e nance
op ions he EU law menu o e s o a oid a go e nance a chi ec u e à la ‘one- size-
i s- all’ o Eu opean public goods. Wi h he economic eedoms a he co e o he
36 Claeys and S einbach (n 3).
a cu so y e iew o economic me hoDs 23
EU in eg a ion p ojec , he ela ionship be ween indi idual eedom and public
policy in e en ion is one whe e e iciency conce ns mili a e agains p e e ence
he e ogenei y. Finally, he Economic and Mone a y Union is he ield o law in
which lawye s and economis s ha e spilled mos ink o e he pas decade, o i
aises he undamen al ques ion o how s a e o ganiza ion p inciples in e ac wi h
deb dynamics and ins umen s o con ain deb .

EU Law and Economics. A min S einbach, Ox o d Uni e si y P ess. © Ox o d Uni e si y P ess 2025.
DOI: 10.1093/ 9780198920915.003.0003
3
Wha s a es and EU ins i u ions ca e abou
Explo ing why EU membe s coope a e h ough legal sel - commi men equi es
us o cla i y wha s a es ca e abou . Whose in e es s do hey pu sue when seeking
coope a ion? A plausible de aul assump ion in line wi h a ional choice is ha
EU Membe S a es ha e (well- beha ed) p e e ences o e a ious goals; he main-
s eam iew in he economic analysis o in e na ional law posi s ha na ions end
o pu sue hei na ional economic in e es s while neglec ing he in e es s o o eign
s a es and ac o s.1 This is a plausible de aul assump ion, one ha ex ends mic o-
economic modelling o indi iduals as u ili y maximize s o he le el o collec i e
decision- make s.2 I is also a p agma ic iew in he sense ha , i espec i e o he
ob ious ac ha e en i law is no a di ec mani es a ion o p i a e p e e ences,
indi idual p e e ences a e also mani es ed h ough he mechanism o he s a e, as
s a e p e e ences.3
Side s eams o economic esea ch ha e e ined he sel ish s a e p e e ence,
by adding ansna ional public goods conce ns (beyond a me ely na ional pe -
spec i e) in o he mo i a ion o c ea e a mo e global wel a e pe spec i e;4 o by
adop ing a pe spec i e ha emphasizes powe - monge ing and ins i u ional bias,
one ha ques ions bene olen pu poses in seeking EU in eg a ion.5 Indeed, s a e
leade s may push Eu opean in eg a ion in pu sui o eli is s goals, de ying i s p e-
sumed unbiased connec ion wi h ci izens’ p e e ences. In his ein, i is possible
ha he EU decision- making s uc u e enhances he abili y o ce ain poli ical
eli es o in e es g oups o achie e hei p e e ed policies a he expense o he
b oade populace.6 Speci ically, he public choice li e a u e on in e na ional o -
ganiza ions sugges s ha domes ic policy pu sues ac ion h ough he EU when i
1 And ew Mo a csik, ‘Taking P e e ences Se iously: A Libe al Theo y o In e na ional Poli ics’
(1997) 51 In e na ional O ganiza ion 513, 481; Kenne h W Abbo , ‘T us bu Ve i y: The P oduc ion
o In o ma ion in A ms Con ol T ea ies and O he In e na ional Ag eemen s’ (1993) 26 Co nell
In e na ional Law Jou nal 1.
2 And ew Guzman, How In e na ional Law Wo ks (Ox o d Uni e si y P ess 2008) 17.
3 Joel P T ach man, The Economic S uc u e o In e na ional Law (Ha a d Uni e si y P ess
2008) 37.
4 E ns - Ul ich Pe e smann and A min S einbach, ‘Neo- Libe alism, S a e- Capi alism and O do-
Libe alism: “Ins i u ional Economics” and “Cons i u ional Choices” in Mul ile el T ade Regula ion’
(2021) 22 Jou nal o Wo ld In es men & T ade 1.
5 Roland Vaubel, ‘The Public Choice Analysis o Eu opean In eg a ion: A Su ey’ (1994) 10
Eu opean Jou nal o Poli ical Economy 227, 232.
6 Joel P T ach man, ‘Economics o In e na ional O ganiza ions’ in F ancesco Pa isi (ed), The Ox o d
Handbook o Law and Economics: Volume 3: Public Law and Legal Ins i u ions (Ox o d Uni e si y
P ess 2017) 506.
32 a min s einBach
belie es i will achie e i s domes ic policy goals mo e e ec i ely, o does so in o de
o blame he EU o an unpopula domes ic policy. Fa om being he ‘bene olen
dic a o ’ ha some economic models belie e he s a e o be,7 delega ion o com-
pe ences om he s a e o he EU migh allow go e nmen s o hide hei ac ions
o o he wise a oid accoun abili y o hei ac ions.8 This ac ion may allow s a es
o escape desi able in e - s a e compe i ion in he supply o public goods. A ha -
monized minimum wage, o example, may se e o main ain compe i i eness o
some EU membe s by p e en ing unde cu ing om lowe wages elsewhe e. Thus,
while a ealis iew on s a e p e e ences would emphasize i s inclina ion o powe
and egula o y cap u e in de iance o ci izens’ p e e ences, he idealis iew o s a e
p e e ences being a pu e ex ension o unbiased agg ega ed indi idual p e e ences
does no squa e well wi h he a ionale o public policy— wel a e economics jus i-
ies public in e en ion whe e ma ke s do no p oduce e icien esul s, hence in
cases whe e he ou come o p i a e ma ke decisions a e sub- op imal. The e y
jus i ica ion o public in e en ion is ha p i a e p e e ences (o hose ha med by
he ine icien ma ke ou come) a e insu icien ly accoun ed o .9
As an analy ical s a ing poin , we acknowledge ha he peculia design o EU
law is abo e all he esul o delibe a e choices o Membe S a es. In ocusing on
how sel - in e es ed s a es could coope a e, i is logical o ask wha ole legal com-
mi men s could play. Legal commi men s, i espec i e whe he as subs an i e obli-
ga ions, p ocedu al ames, o ins i u ionalized bodies, could be econcep ualized
and heo ized as a angemen s ha make coope a ion mo e easible and du able.
Ou a gumen is ha he EU ins i u ional design, he choice o i s co e legal p in-
ciples (such as he p inciples o con e al o subsidia i y), he compe ence alloca-
ion o i s ins i u ions, o he choice o sou ces o law e lec delibe a e choices by
hose ha ing an ins i u ional and legal choice in he EU— which a e, a leas in he
his o ically ea ly s age o he EU, o emos he ounding Membe S a es. The e olu-
ion o he EU in ol ed many T ea y amendmen s, wi h each amendmen building
on he p e- es ablished ins i u ional se up a he han o e hauling he EU’s a chi-
ec u e. Wi h his pa h- dependen deg ee o con inui y in he EU’s e olu ion, he e
emains an ins i u ional lea ning cu e ha led h ough T ea y amendmen s o
delibe a e shi s in close in eg a ion. La e and hanks o i s sup ana ional guise,
he EU i sel , h ough i s a ious ins i u ions and endowed wi h exclusi e com-
pe ences in some ields, became an au onomous ac o , o ins ance when ac ing
h ough i s ins i u ions by adop ing seconda y law o h ough he ECJ as i s ju -
isp uden ial o gan. The EU hence e ol ed om a ‘dependen ’ a iable in which i
7 Randall G Holcombe, ‘Make Economics Policy Rele an Depose he Omniscien Bene olen
Dic a o ’ (2012) 17 The Independen Re iew 165.
8 T ach man (n 3) 506.
9 Howe e , his applies o nega i e impac on p e e ences due o alloca i e ine iciency. Public policy
decisions leading o dis ibu ional e ec s ha a e disliked by some ci izens (and hus misaligned wi h
hei p e e ences) a e by na u e no aligned wi h all indi idual p e e ences.
wha s a es anD eu ins i u ions ca e aBou 33
was me ely he ou come o in e - s a e delibe a e choice, o an ‘independen ’ a i-
able by being a s a e- like ac o ha exe s au onomous in luence on o he s a e
ac o s. This makes he EU di e en om in e na ional o ganiza ions which, om
a a ional choice pe spec i e, a e la gely iewed only as a iables dependen on he
in e es s o Membe S a es.10 The claim ha EU law is he p oduc o he delibe a e
choice o Membe S a es e en holds when one acknowledges ha pa h depend-
ency limi s and de e mines he ins i u ional e olu ion o he EU.
A dis inc ques ion is whose p e e ences should guide he c ea ion o EU law.
The insigh o e ed by A ow’s impossibili y heo em11 sugges s ha o ganiza ions
ha e no a ionali y o hei own and ha he p ocess o collec i e decision- making
is no ma i ely ambiguous and uns able. EU law and go e nance es ablishes se e al
ac o s on he EU landscape, each o hem bound by di e en ins i u ional in e -
es s and es ain s and he e o e se o pu sue di e en in e es s. Clea ly, a he
han assigning he EU as a homogenous a ional ac o , accoun mus be gi en o
he a ious Membe S a e and Union ac o s. Genuine EU ins i u ions ha embody
EU common in e es s, such as he Commission and he Pa liamen , pu sue di -
e en objec i es om he Council ha channels Membe S a e conce ns. The EU
Membe S a es a e e e ed o as he ‘mas e s o he T ea ies’, p opaga ing a legal
so e eign y no ion ha assigns all powe o make ag eemen s and c ea e in e -
na ional o ganiza ions, a p oposi ion ha conside s Eu opean coun ies as he ul-
ima e sou ce o au ho i y.
Howe e , he ou come o coope a ion be ween non- iden ical p e e ences
o Membe S a es does no simply e lec he p e e ences o he indi idual s a e
ac o s, bu a he ep esen s hei join e o s and comp omises among hei
p e e ed ou comes o imp o e hei equilib ium ou come gi en he s a egic
ci cums ances hey ace. The e a e di e en le els o coope a ion a which in e -
ac ion be ween s a es and ins i u ions lead o ce ain ou comes. A he mos basic
le el, Membe S a es ag ee in in e go e nmen al con e ences on T ea y commi -
men s; in he Council, s a e ep esen a i es in e ac and s ike comp omises when
c a ing EU seconda y law; in he EU Commission, in e ac ion be ween indi idual
Commissione s and di ec o a es p oduce ou comes; in e - ins i u ional ansac-
ions occu be ween he Council, Pa liamen , and he Commission. Each o hese
ac o s may ha e speci ic objec i es, and he pu sui o hose goals is led by hei
belie s abou each o he ’s p e e ences and he ela i e cos s and bene i s o di e en
ou comes.
10 Ba ba a Ko emenos, Cha les Lipson and Duncan Snidal, ‘The Ra ional Design o In e na ional
Ins i u ions’ (2001) 55 In e na ional O ganiza ion 761.
11 Kenne h J A ow, Kenne h A ow, Social Choice and Indi idual Values (Yale Uni e si y P ess 2012).
EU Law and Economics. A min S einbach, Ox o d Uni e si y P ess. © Ox o d Uni e si y P ess 2025.
DOI: 10.1093/ 9780198920915.003.0004
4
The logic o ba e ade: Ra ional choice
and cons i u ional economics
In e ac ion and ansac ion a e a he cen e o economics. Ra ional choice in o ms
us ha social and economic in e ac ions a e ansac ions o exchange h ough
which he pa ies seek coope a ion gains.1 T ansposed o s a e le el, a s a e co-
ope a es o he ex en i achie es gains h ough ading commi men s. S a es do
no engage in ba e ade on one single ma ke . Ra he , se e al ma ke s a e used
o di e en aspec s o coope a ion. The equi alen o he ma ke is simply he
o um whe e s a es and EU ins i u ions in e ac — be i in he Council, a summi s
o head o s a es, o in he T ilogue in ol ing he Council, Pa liamen , and he
Commission— o coope a e on pa icula issues in o de o maximize hei bas-
ke s o p e e ences. A di e en way o exp ess his ade is o unde s and coope -
a ion be ween EU s a es as a ma ke o ading ju isdic ion, wi h his ade being
equi alen o assigning p ope y igh s (see below Chap e 10). Goods o se ices
a e no he asse s aded on hese ma ke s, bu a he ‘ju isdic ion’, de ined as he
alloca ion o au ho i y, o he ins i u ionalized exe cise o powe . Ma ke ou comes
o in e na ional s a es, o Eu opean s a es on a egional ma ke o ju isdic ion, a e
hus ju isdic ion o p esc ibe, o adjudica e, and o en o ce.2
The ading o ju isdic ion occu s on a ious ma ke s. Fi s , he e is an ‘in isible’
and aci ma ke o ce ain conduc be ween s a es ha does no explici ly appea
in he black le e s o EU T ea ies bu emains wi hin he ealm o aci ag eemen s.
One example would be he T ea ies’ silence o ce ain basic ules o in e - s a e con-
duc , which a e laid down in he UN Cha e , bu no explici ly men ioned in he
EU T ea ies. Take as an example he p inciples o non- in e en ion, he absence o
iolence in in e - s a e ela ions, which ank salien in he UN Cha e , bu which
a e no explici ly s ipula ed in he EU T ea ies.3 The alidi y o hese p inciples
may seem ob ious in he EU (and aci ly and ecip ocally exchanged), due o he
g ea e homogenei y among i s membe s compa ed o s a es a a global le el.4
1 Joel P T ach man, The Economic S uc u e o In e na ional Law (Ha a d Uni e si y P ess 2008) 10.
2 ibid.
3 The e a e ague e e ences o he Cha e o he Uni ed Na ions in he EU T ea ies bu mainly o
commi he EU in ela ion o hi d coun ies.
4 One may a gue ha EU T ea ies do implici ly inco po a e hese undamen al ules o in e na ional
ela ions because he UN Cha e is binding o EU s a es as subjec s o in e na ional law. In e ms o
no m hie a chy, howe e , he UN Cha e enjoys in many ju isdic ions no p imacy o e domes ic con-
s i u ions, while he EU T ea ies ank abo e na ional cons i u ions.

36 a min s einBach
In se ing he needs o s a es, Eu opean law is no di e en om in e na ional
law in ha i can be unde s ood as an a emp o o ches a e coope a ion in he
ace o po en ial in e na ional ex e nali ies.5 Fo ins ance, he s i e o sa e y plays
ou in economic bene icial e ms in in e na ional coope a ion mo e gene ally, de-
ined as a di e sion o ana chy in he in e - s a e ela ionships in which each s a e
mus ea hos ili ies by i s neighbou s, o ming ce ainly a key d i e a he ime
when he Eu opean Communi y was bo n. Secu i y es ablished h ough a legal
o de s abilizes expec a ions and allows s a es o use sca ce esou ces o mo e p o-
duc i e pu poses han main aining cos ly secu i y in as uc u e. A basic legal in-
as uc u e inc easing secu i y p o ides hen he basis o mo e coope a i e gains,
as secu i y p oduces posi i e spillo e s o many a eas o coope a ion ha would
no be a ainable i s able expec a ions we e no ensu ed. Wha eme ged his o -
ically as in e na ional law building on he ‘Wes phalian sys em’ in e ms o s a e
so e eign y, equali y o s a es, and he p ohibi ion o in e en ion and agg ession
has been u he ex ended in he EU h ough i s sup ana ional s uc u e, he su-
p emacy o EU law o e na ional laws, and a legal and ins i u ional a chi ec u e
which os e ed a le el o economic in e wining ha s abilizes he ela ionship
u he . Th ough sup ana ionali y, he de elopmen o an au onomous legal o de
claiming p e alence in i s Membe S a es’ legal o de s, he EU has s abilized ex-
pec a ions on a highe le el and educed he p obabili y o un o eseen hos ili ies
mo e han on an in e na ional law le el. In ha pe spec i e, coope a ion a ionales
unde EU law do no di e undamen ally om in e na ional law.
Second, and mo e ele an o his book, he e is an in e - s a e ma ke in which
commi men s a e exchanged h ough explici and o mal (as well as in o mal)
cons i u ional ules, which ul ima ely shape he EU as an in e na ional o ganiza-
ion. EU s a es as sel - ega ding uni s and many s a es in e ac ing in pu sui o sel -
in e es c ea e a ma ke whe e ansac ions ega ding he exe cise o enuncia ion
o au ho i y a e aded. As an ou come o his ade, s a es elinquish au onomy in
some a eas (and c a co esponding au ho i y by EU ins i u ions) in o de o ob-
ain ce ain expec ed bene i s in e u n.6 Thi d, ollowing T ea y a i ica ion, he e
a e subsequen ma ke s o sub- ma ke s c ea ed by he EU T ea ies hemsel es. EU
cons i u ional ules p o ide ules abou how subsequen and subo dina e ules,
speci ically EU seconda y law, will be made. On he ma ke s o EU seconda y law,
ins i u ions, poli icians, pa ies, and e en coun ies compe e o poli ical esou ces
o powe , ul ima ely speci ying addi ional commi men s wi hin he bounda ies
o he p e- de ined T ea ies. Poli ical ins i u ions ( he Commission, he Council,
he Pa liamen ) in e ac , each o hem pu suing di e en p e e ences and objec -
i es. Fou h, and on a le el no leading o he adop ion o EU law, wi hin he EU
5 E ic Posne and Alan O Sykes, Economic Founda ions o In e na ional Law (Ha a d Uni e si y
P ess 2013) 20.
6 T ach man (n 1) 10.
he logic o Ba e aDe 37
ins i u ions, he e a e sub- ma ke s wi h indi idual s a e ep esen a i es in e ac ing
wi h each o he o c a ag eemen s ha secu e indi idual bene i s o he pa ies
conce ned.
As a ional choice ac o s, s a es employ cos - bene i analysis.7 Fo ins ance,
he p inciple o ecip ocal and ‘mu ual ecogni ion’ unde EU law (see below
Chap e 13 b) allows p oduc s ha a e law ully ma ke ed in one Membe S a e
o be sold in o he Membe S a es ega dless o whe he hey comply wi h he na-
ional echnical ules o hose Membe S a es.8 Likewise, Membe S a es may e-
cip ocally consen o emo ing domes ic obs acles o he in e nal ma ke h ough
legisla i e ha moniza ion (A icle 114 TFEU). This kind o ins i u ionalized ex-
change o concessions demons a es ha ecip ocal commi men s lead o o e all
wel a e gains.9 In an ideal wo ld in which he s a e leade ship pu sues o e all wel-
a e in e es s, coope a ion ul ima ely leads o wel a e gains. This does no neces-
sa ily en ail s ic Pa e o imp o emen s on he domes ic le el, as in e na ional
coope a ion ypically implies dis ibu ional e ec s leading o disad an ages o
some ( hink o ins ance o p o ec ed indus ies ha su e om ade libe alizing).
Wel a e economics le s weak Pa e o imp o emen s su ice, allowing o he hypo-
he ical compensa ion o lose s o a ansac ion by hose who gain.
Howe e , he u ili y- inc easing ade o ecip ocal s a e concessions do no
en i ely cap u e why EU membe s commi hemsel es o a sup ana ional design
unde which each membe may expe ience si ua ions o in e io ba gains. S a es
isk being umped by majo i y o es in he Council o o egoing he adop ion o
unila e al measu es in cases whe e domes ic p e e ences would ask o such meas-
u es, o example whe e a me ge be ween companies would be desi able om
a domes ic pe spec i e bu impossible o a ain due o exclusi e compe ence o
he EU Commission. Coope a ion in he EU does no sa egua d gains in each in-
di idual ansac ion— EU policy- making, as well as judicial ac s o he ECJ, may
con lic wi h na ional in e es s. Losses may e en be mo e equen han gains.
Cons i u ional economics may make sense o his sel - es aining and occasionally
sel - ha ming design o ules. De eloped by James Buchanan, cons i u ional eco-
nomics claims ha a undamen al inconsis ency exis s be ween he me hodological
indi idualism as he classic adema k o he economic app oach o social phe-
nomena and he whole concep o a social wel a e unc ion. While he adi ional
ocus o economics lies on olun a y ma ke exchanges, cons i u ional economics
ex ends he ‘mu ual gains om ade’ no ion o olun a y coope a ion mo e gene -
ally unde s ood, including a angemen s o collec i e ac ion, p i a e and public.10
7 Ba ba a Ko emenos, The Con inen o In e na ional Law: Explaining Ag eemen Design
(Camb idge Uni e si y P ess 2016) 29.
8 Case C- 8/ 74 Dasson ille (1974) EU:C:1974:82 837.
9 Kyle Bagwell and Robe W S aige , The Economics o he Wo ld T ading Sys em (The MIT
P ess 2004).
10 James M Buchanan and H Geo ey B ennan, Wha Should Economis s Do? (Libe y Fund Inc
1979) 27.
38 a min s einBach
I ocuses on he ques ion o how people may ealize mu ual gains by hei olun-
a y join commi men o ules, ha is, om join ly accep ing sui able cons ain s
on hei beha iou al choices.11 The di e ence be ween wel a e economics and
cons i u ional economics pe spec i es on coope a ion is ha , unde he la e , he
bene i s ha pa icipan s can expec om such cons i u ional commi men s a e
no de i ed om speci ic an icipa ed ou comes, bu a e he o e all bene i s ha e-
sul o e ime om ha ing he con inuing p ocess o in e ac ion and coope a ion
bound by sui able cons ain s.12 We can speak o ‘enabling cons i u ionaliza ion’ in
e e ence o ules, which alloca e au ho i y o p oduce ules (like he EU T ea ies),
bu do no o esee he ou comes. The e is a eil o unce ain y as o he dis ibu i e
ou come, because he dis ibu i e consequences a e unknown in ad ance.13
The cons i u ional economic pe spec i e hus illumina es he peculia de-
sign o he EU’s sup ana ional ins i u ionaliza ion. On he ma ke o he ade
o ju isdic ion, EU membe s ha e enounced he exe cise o hei so e eign y in
a numbe o ields, and he ensuing legisla ion p oduced by Union ins i u ions
does no gua an ee a a ou able ou come o any indi idual EU membe . Powe
has been ansmi ed o he Commission ac ing in he Unions’ in e es s, which in
many cases con lic s wi h na ional in e es s, and e en i EU membe s e ain legis-
la i e powe h ough he Council, go e nmen s ha e su ende ed he pa adigm
o he Wes phalian in e na ional legal o de ha had mean o pu sue coope -
a ion s ic ly in line wi h na ional in e es s. Unde he EU sup ana ional design,
he e is by no means a mechanism o Membe S a es o ensu e gains in e e y case.
Ins i u ionally salien is his h ough majo i y o ing in he Council, wi h deci-
sions po en ially aken agains a coun y’s will. And e en whe e unanimi y is he
p edominan decision mode, EU membe s depend on he Commission o a le-
gisla i e ac o be ini ia ed, hey ely on he Commission and he ECJ o en o ce
mu ually ag eed obliga ions a he han e e ing o unila e al en o cemen , and
hey may ea Union ins i u ions in e p e ing o applying EU law in a ashion ha
con a enes na ional in e es s.
We should hus be wa y o ea ing s a es like indi iduals as homo oeconomii. In
line wi h Buchanan’s diagnosis, non- ma ke collec i e choices in poli ical a enas
canno be de e mined om he le el o indi idual human ac ion. Socie y canno
be ea ed as i i we e a choosing en i y he same way as indi iduals decide on
ma ke s— a he , i should be seen wi h i s own alue scale, he eby abandoning
he indi idualism o he classic economic pa adigm.14 I emains o be de e mined
in whose name cons i u ional economics equi es EU cons i u ional a angemen s
11 James M Buchanan, The Economics and E hics o Cons i u ional O de (Uni e si y o Michigan
P ess 1991) 81.
12 Vik o J Vanbe g, ‘Ma ke and S a e: The Pe spec i e o Cons i u ional Poli ical Economy’ (2005)
1 Jou nal o Ins i u ional Economics 23, 27.
13 T ach man (n 1) 256.
14 James M Buchanan, F eedom in Cons i u ional Con ac (Texas A&M Uni e si y P ess 1977) 235.
he logic o Ba e aDe 39
o be made. Fo social a angemen s o be ‘socially bene icial’, Buchanan- ype
cons i u ional economics pe spec i es equi e he a angemen s o be mu ually
bene icial, ha is, bene icial o all pa ies in ol ed. Buchanan insis s ha wha
may coun as ‘be e ’ in social ma e s can ul ima ely only be judged by he pe -
sons in ol ed hemsel es and ha , he e o e, he ele an es o wha quali ies
as a ‘good ule’ mus be seen in he olun a y ag eemen o he pa ies in ol ed.15
To he ex en ha cons i u ional economics emphasizes he accep abili y o he
p ocess ha leads o a decision a he han he ou come, i connec s o he social
psychology li e a u e ha poin s o p ocedu al ai ness as wha ma e s o he in-
di idual mo e han he speci ic ou come.16 Wi h Buchanan emaining ai h ul o
no ma i e indi idualism o he de e mina ion o wha should be conside ed as
‘mu ually bene icial’, i was Vanbe g who ex ended his concep o be an amoun
o ‘ci izen so e eign y’. I cap u es ha he poli ical p ocess should be ins i u ion-
ally go e ned by he common in e es o ci izens. Ci izen so e eign y hus en ails
ha ‘p oduce s o poli ics’, poli icians and go e nmen bu eauc a s, a e esponsi e
o ci izens’ common in e es s. This con as s wi h he legal Wes phalian iew ha
emphasizes s a e so e eign y and s a e will as e e ence poin s o in e na ional
law,17 as well as wi h he li e a u e ha equa es s a e ac ion wi h he co po a e p e -
e ences o he s a es.18 Fo cons i u ional economics i is no he s a e bu a he
he ci izens’ and consume s’ p e e ences ha o m he benchma k o assessing he
e iciency o ou comes.
The cons i u ional economic emphasis on ci izens’ p e e ences easily aligns
wi h he adi ional legi imacy p oposi ion o cons i u ional lawye s ha aces
public au ho i y nea ly back o ci izens’ o es, albei wi h he impo an di e ence
ha Buchanan’s concep does no ie public decision o na ional ci izens bu o
Eu opean ci izens. Na ional cons i u ional law pu s he na ional ci izen a he co e
o democ a ic analysis, as i is he na ional ci izen who holds domes ic poli icians
accoun able.19 Assessing Eu opean in eg a ion h ough he lens o na ional cons i-
u ional law hus ends o emphasize he in e es s o he a he homogenous g oup
o na ional ci izens, a iew ha is also a he co e o he economic heo y o ede -
alism, which emphasizes he alignmen o homogenous p e e ences and he supply
o public goods (see below Chap e 10 a).20 Cons i u ional economics de ies bo h
he na ow na ional pe spec i e as well as he legal homogenei y p oposi ion
15 James M Buchanan, Fiscal Theo y and Poli ical Economy: Selec ed Essays (Uni e si y o No h
Ca olina P ess 1954) 122.
16 Li a Fu by and o he s, ‘Public Pe cep ions o Elec ic Powe T ansmission Lines’ (1988) 8 Jou nal
o En i onmen al Psychology 19; Thomay P ies ley and Ga y W E ans, ‘Residen Pe cep ions o a
Nea by Elec ic T ansmission- Line’ (1996) 16 Jou nal o En i onmen al Psychology 65.
17 Clai e Cu le , ‘C i ical Re lec ions on he Wes phalian Assump ions o In e na ional Law and
O ganiza ion: A C isis o Legi imacy’ (2001) 27 Re iew o In e na ional S udies 133.
18 T ach man (n 1) 37.
19 And eas Voßkuhle, Eu opa, Demok a ie, Ve assungsge ich e (Suh kamp 2021) 50, 58.
20 Posne and Sykes (n 5) 15.
46 a min s einBach
comply wi h i . In a p isone ’s dilemma, s a es ha e di e en p e e ed ou comes
and an incen i e o de ec . Whe e he dis ibu ional implica ions o an ag eemen
a e small, ba gaining cos s will also be ela i ely small. In si ua ions whe e he dis-
ibu ional implica ions a e la ge— hink o he design o he EU ag icul u al policy
o , om an ins i u ional pe spec i e, he se up o o ing weigh s in he Council—
ba gaining cos s will likely o be high.17
In wo con ex s, nego ia ions cos s a e pa icula ly sizeable. Fi s , s a egic be-
ha iou is na u al conduc in EU ela ionships. In economic e ms, his means
one pa y has incomple e in o ma ion ega ding o he coun ies’ p e e ences,
as s a egic beha iou may induce pa ies no o e eal hei p e e ences. Fo ex-
ample, nego ia ions among eu ozone membe s on iscal ules may be d i en by
di e en mo i a ions. Coun y A may ask o lenien ules, bu Coun y B does no
know whe he Coun y A wan s o engage in unp oduc i e iscal expendi u es o
whe he i seeks o e ain leeway o easonable in es men s o policy space o s a-
biliza ion pu poses in imes o c isis. Simila ly, when EU membe s ag ee o in o-
duce a ca bon- bo de adjus men mechanism le ying non- Eu opean impo ed
goods, EU coun ies may no e eal whe he his ool se es o p o ec i s domes ic
indus y o is o genuine clima e policy pu poses. Second, unce ain y ex ends
o he s a e o he wo ld.18 When EU membe s ag ee on in oducing a inancial
ansac ion ax, he e is a lack o p edic abili y ega ding he e ec o he ax on
a ious economic indica o s. Limi ed expe ience wi h simila ways o axa ion will
make i mo e cos ly o w i e comple e con ac s o deal wi h e e y con ingency.19
In oducing a inancial ansac ion ax wi h only ew EU membe s may ha e un-
desi able side- e ec s due o capi al mo emen s be ween pa icipa ing and non-
pa icipa ing coun ies. In all hese ins ances, coun ies may wan o in es bo h
esou ces and ime in imp o ing hei knowledge pe aining o o he pa ies’ p e -
e ences o o educe he deg ee o unce ain y abou he u u e s a e o he wo ld.20
En o cemen p oblems may occu in a ious guises and cause en o cemen
cos s. EU law is, like all law p oduced by in e na ional o ganiza ions ha lack
na ion- like en o cemen s uc u es, unde isk o no being complied wi h by EU
membe s. This in oduces di e en pe spec i es om en o cemen o manage ial
heo ies, which d aw on di e en easons o why s a es comply wi h o dis ega d
ules in in e na ional o ganiza ions. Manage ial heo ies e e o a na ion’s cap-
aci y o inabili y o comply.21 Ba ie s o en o cemen may be echnical in na u e
and e e o di icul ies owing o he complexi y o he subs ance and challenges in
17 James D Fea on, ‘Ba gaining, En o cemen , and In e na ional Coope a ion’ (1998) 52
In e na ional O ganiza ion 269.
18 Ko emenos (n 3) 39.
19 Joel P T ach man, The Economic S uc u e o In e na ional Law (Ha a d Uni e si y P ess
2008) 174.
20 Ko emenos, Lipson, and Snidal (n 3) 782.
21 Ab am Chayes and An onia H Chayes, ‘On Compliance’ (1993) 47 In e na ional O ganiza ion 175.

eDucing ansac ion cos s 47
implemen a ion ac oss legal, echnical, o ins i u ional dimensions. Lack o bu -
eauc a ic ins i u ions o cumbe some legal equi emen s a e examples o en o ce-
men p oblems. Mo e compe en bu eauc acies a e mo e likely o implemen EU
di ec i es wi hou delay, bu he domes ic s uc u e o decision- making— namely
e o playe s a bo h he na ional le els and he sub- na ional le els— a e equally
impo an p edic o s o delay.22 En o cemen heo ies, in line wi h a ionalis
and ealis app oaches, cen e on na ions’ ma e ial incen i es o comply wi h o
shi k om in e na ional law implemen a ion. En o cemen cos s depend on he
s eng h o indi idual ac o s’ incen i es o chea on he ag eed ules.23 One EU
membe may p e e no o adhe e o i because i can do be e indi idually by
de ec ing om he ag eed ules. The en o cemen p oblem a ises when ac o s
ind unila e al non- coope a ion so en icing ha hey sac i ice long- e m coope -
a ion. Take, o example, Hunga y’s pe sis en iola ions and non- obse ance o
he ule o law p inciple, he ensuing pe sis en back- and- o h in add essing he
EU Commission’s eques , and he con inua ion o hese iola ions despi e he i-
nancial sanc ions imposed by wi hholding unds. The gains o non- coope a ion
may be mul i old. When hey occu as poli ical gains in he domes ic policy a ena
helping he incumben go e nmen o imp o e i s e- elec ion chances (while ac-
cep ing o e all wel a e losses), i is pa icula ly di icul o he EU o in luence
such gains because sanc ions may ha e a ha m ul e ec no only on he go e n-
men bu also on ci izens (eg by wi hholding unding o EU egions in need as
p ac iced unde he budge p o ec ion ool24).
Closely ela ed a e moni o ing cos s occu ing when compliance wi h EU law
mus be obse ed o when an ins i u ional s uc u e is es ablished o adminis e an
ag eemen . The EU Commission as ‘gua dian o he T ea ies’ has a genuine moni-
o ing unc ion o he ex en ha i sc u inizes compliance wi h EU law and e en-
ually may b ing an in ingemen p ocedu e be o e he ECJ. On o he occasions,
addi ional moni o ing bodies may be implemen ed ou side he exis ing Union
s uc u e, such as he EFSM es ablished du ing he eu o c isis o adminis e inan-
cial assis ance. The numbe o pa icipa ing coun ies may in luence moni o ing
cos s as well as he di e en moni o ing needs o o mal and in o mal o ma s o
coope a ion. Howe e , EU law can also be genuinely designed o in e p e ed (by
he ECJ) o educe moni o ing cos s. The mobiliza ion o he indi idual as an en-
o ce is a case in poin . Endowmen by he ECJ o in oke EU law di ec ly be o e
na ional cou s decen alizes he moni o ing o EU law adhe ence— indi iduals
de ec and ackle na ional measu es incompa ible wi h EU law, which signi ican ly
educes moni o ing cos s a he EU Commission le el. Likewise, inno a ions o
22 Ka e ina Linos, ‘How can In e na ional O ganiza ions Shape Na ional Wel a e S a es? E idence
om Compliance wi h Eu opean Union Di ec i es’ (2007) 40 Compa a i e Poli ical S udies 547.
23 Ko emenos, Lipson, and Snidal (n 3) 776.
24 An onia Ba aggia and Ma eo Bonelli, ‘Linking Money o Values: The New Rule o Law
Condi ionali y Regula ion and I s Cons i u ional Challenges’ (2022) 23 Ge man Law Jou nal 131.
48 a min s einBach
he ECJ, such as liabili y o EU Membe S a es o incompliance wi h EU law ( he
F anco ich doc ine25), u he s eng hens he decen alized and cos - educing
moni o ing.
Modi ica ion cos s a e highly ele an wi h ega d o adap ing cu en p ima y
o seconda y law o new ( ac ual, legal, o poli ical) ci cums ances, and may a y
depending on he binding na u e o he ag eemen (eg by ans o ming in e -
go e nmen al EFSM law in o Union law h ough he modi ica ion o A icle 136
TFEU). Membe S a es canno w i e comple e ea ies due o a lack o knowledge
and puni i e ba gaining cos s. Ye , modi ica ion o ea ies h ough i s cumbe some
p ocedu e o T ea y amendmen s is likewise cos ly. A ully ledged ea y change
equi es a con en ion in ol ing na ional pa liamen s (A icle 48(2)– (5) TEU),
while A icle 48(6) TEU o e s a simpli ied modi ica ion lea ing he decision o
he Eu opean Council. EU membe s may he e o e wan o ins all a ans o ma i e
clause below he le el o T ea y amendmen , which allows he EU o eac lexibly
o new challenges o when i unco e s any gaps in he EU T ea y. A icle 352 TFEU
is an example o a ule ha mi iga es he modi ica ion cos s by o e ing al e na-
i es o o mal ea y changes. Modi ica ion may occu h ough di e en p oced-
u al and ins i u ional s eps ha in ol e di e en ac o s, wi h he gene al ule ha
he mo e undamen al he modi ica ions a e he mo e EU and na ional ac o s mus
gi e hei consen in o de o secu e legi imacy.
25 Joined cases C- 6/ 90 and C- 9/ 90 F anco ich, Boni aci and o he s I alian Republic (1991)
EU:C:1991:428 l05357.
EU Law and Economics. A min S einbach, Ox o d Uni e si y P ess. © Ox o d Uni e si y P ess 2025.
DOI: 10.1093/ 9780198920915.003.0006
6
Supplying public goods and add essing
ex e nal e ec s
One could concei e o a wo ld wi hou he EU, possibly e en wi hou in e -
na ional law. In such wo ld o au a ky, goods and se ices would be p oduced and
consumed by people in he same s a e, and no s a e would ake ac ions a ec ing
o he s a es’ ci izens. Likewise, poli ical decisions would be limi ed o inwa d-
looking e ec s ha do no a ec o he coun ies. In such a con ex , Eu opean s a es
would ha e no incen i e o engage in coope a ion, less so h ough binding sel -
commi men . Howe e , in p ac ice he e a e mul iple ela ions and in e ac ions
be ween s a es, companies, and ci izens, and he na u e o hese ela ionships
o e s a a ionale o coope a ion h ough EU law. In a wo ld o inc easing eco-
nomic, cul u al, and social in e connec edness, wha we e concei ed as na ional
public goods ha e u ned in o ansna ional public goods, lea ing na ional s a es
s uggling o e ec i ely supply hem.1 EU law hen se es he unc ion o ensu ing
su icien supply o EU public goods, add essing ex e nali ies, and p omo ing a
le el o conduc and commi men ha se es o achie e coope a ion gains om an
o e all Eu opean pe spec i e. The inc ease in Eu opean su plus can hen be di -
ided among pa icipa ing s a es o make hem all be e o .2
The logic o public goods is well known: wi h non- i al y and non- excludabili y
as cha ac e is ics o public goods, collec i e goods such as a clean en i onmen
o secu i y a e su e ing om collec i e ac ion p oblems. F ee- iding on he cli-
ma e commi men s o o he s is he a ionale behind binding en i onmen al ag ee-
men s, sol ing he p oblem o unde - p o ision o clima e e o s. These e o s
culmina e in EU law and in e na ional law, wi h EU law being he mo e speci ic
and mo e binding educ ion commi men han he in e na ional law clima e ob-
liga ions unde he Pa is Ag eemen . Howe e , o he pu pose o unde s anding
coope a ion on public goods wi hin he EU, we conside he adi ional de ini ion
o public goods o be oo es ic i e, as he e a e o he coo dina ion ailu es ha
can lead o he unde - p o ision o goods compa ed o i s op imal le el ha migh
equi e public in e en ion. We adop a sligh ly b oade de ini ion: a public good
1 E ns - Ul ich Pe e smann and A min S einbach, ‘Neo- Libe alism, S a e- Capi alism and O do-
Libe alism: “Ins i u ional Economics” and “Cons i u ional Choices” in Mul ile el T ade Regula ion’
(2021) 22 Jou nal o Wo ld In es men & T ade 1, 1.
2 E ic Posne and Alan O Sykes, Economic Founda ions o In e na ional Law (Ha a d Uni e si y
P ess 2013) 13.
50 a min s einBach
is simply de ined as a good ha is no supplied a an adequa e le el wi hou public
in e en ion (which could ake a ious o ms including di ec p o ision, go e n-
men expendi u e, o egula ion) due o coo dina ion p oblems (no only non-
exclusion o non- i al y, bu also, eg, ne wo k e ec s). This b oade de ini ion
cap u es u he incidences o public good coope a ion which do no all unde
he na ow de ini ion o public goods: ‘pecunia y’ ex e nali ies (ie ex e nali ies
ha un h ough p ices and do no cons i u e ma ke ailu es) can o e a a ionale
o EU coope a ion. Public in es men in an EU membe p oducing c oss- bo de
spillo e s a e el in o he EU Membe S a es as well and may equi e coo din-
a ion o op imize hei e ec s om an o e all EU pe spec i e. Also, we conside
‘club goods’ o be o ele ance (which do no i he adi ional de ini ion because
hey a e no non- exclusiona y). Conside he Eu opean Economic and Mone a y
Union (EMU) as a ‘club’ public good. P ice s abili y in he eu ozone and iscal s a-
bili y a e public goods o which all coun ies should con ibu e, while, howe e ,
lea ing incen i es o ee- ide on he o he coun ies’ e o s o iscal p udence— a
dilemma ha he EU seeks o esol e by iscal ules and c edible no- bailou clauses.
Hence, e en hough club public goods would allow o he exclusion o ce ain
membe s om he club good ( ecall he deba e on ‘G exi ’), his may, howe e ,
no be a iable economic and poli ical op ion. E icien club goods hus equi e
incen i izing club membe s o con ibu e o he supply o public goods, wi h he
p i a iza ion o he bene i s o he club acc uing o club membe s o e ing a s ong
incen i e o join he club. Again, he eu o is an example. Clea ly, sha ing a common
cu ency on he in e nal ma ke o e s economic bene i s. Limi ing access o hese
bene i s by equi ing ha p ospec i e membe s con e ge hei economies owa ds
iable economic le els e eals a logic o incen i iza ion ha ensu es he e ec i e
supply o public goods.
Sup ana ional coope a ion, such as ha o he EU, may su e om being insu i-
cien ly coope a i e whe e a ‘weakes - link public good’ is conce ned. Weakes - link
coope a ion can be aced o Oli e Williamson’s ansac ion heo y.3 He sees e -
ical in eg a ion as a go e nance esponse o high asse speci ici y. In ou con ex ,
high asse speci ici y occu s when a Membe S a e makes in es men s in a good
whose alue depends on he coope a ion o o he s a es. Hence, o a weakes -
link public good o gene a e bene i s, all membe s mus in es in he supply o he
good— i his does no happen, any s a e’s in es men is was ed. In hese cases, he e
is no compensa ion possible in he sense o a coun y making addi ional e o s o
compensa e o ano he s a e’s educed e o s. Take policy a eas as di e se as he
igh agains e o ism in he EU, he iscal conduc o s a es in he eu o cu ency
zone, o he bo de con ol o Eu opean s a es igh ing illici ade. In hese cases,
he T ea y e o le el and he numbe o EU membe s a e complemen a y in he
3 Oli e E Williamson, The Economic Ins i u ions o Capi alism: Fi ms, Ma ke s, Rela ional
Con ac ing (The F ee P ess 1985).
suPPlying PuBlic gooDs anD aDD essing ex e nal e ec s 51
sense ha bo h commi men a he T ea y le el and commi men o en o cemen
posi i ely inc ease he alue o he good conce ned. Rega ding he igh agains
e o ism, o ins ance, in an in e connec ed EU (wi hou in e nal bo de s), he
lack o compliance o only one EU membe may unde mine he alue o secu i y
o all o he membe s. Likewise, in iscal policy, he economic misconduc o only
one coun y may des abilize he en i e eu o a ea i espec i e o he pe o mance
o o he coun ies; inadequa e measu es in he a ea o banking egula ion may
unde mine inancial s abili y h ough con agious e ec s on inancial ma ke s; and
i EU bo de con ol is lax in only one Membe S a e, illici ade may occu o he
de imen o o he EU s a es. In all hese cases he supply o he public good su e s,
o o he EU coun ies canno compensa e o he unde pe o ming s a e, hence
c ea ing a ‘weakes - link’ public good.
Wi h weakes - link public goods being se ious conce ns, he alue o he ea ly
ECJ ju isp udence on p imacy o EU law o e Membe S a es law becomes
e iden — i ensu es consis en applica ion o EU law in all Membe S a es, and i
p ecludes Membe S a es om applying laws ha a e po en ially ha m ul o he
Eu opean public good p o ision. The e is hus an ambi alence om an economic
pe spec i e: on one hand, EU law p imacy ensu es consis en p o ec ion o EU
public goods p e en ing Membe S a es om de ec ing om hei commi men s.
On he o he hand, uni o m applica ion o EU law o e ides di e gen Membe
S a es’ ules, which can be c i icized o igno ing di e se p e e ences by se ing
ules indis inc i ely a a cen al le el, hence causing a misma ch be ween ules and
p e e ences (see Chap e 10 a)).
Unlike ‘weakes - link public goods’, ‘subs i u e public goods’ allow s a es o com-
pensa e o he insu icien e o s o o he Eu opean s a es. I Eu opean coun y
A lowe s i s clima e ambi ion and emi s mo e CO2 han i is pe mi ed o unde
CO2- educ ion pa hs o EU clima e law, coun y B could inc ease i s e o s o
compensa e o i , as i does no ma e om he pe spec i e o clima e p o ec ion
who educes he CO2 emission. Ye , he co e challenge also emains wi h subs i u e
goods, whe e a coun y may ha e an incen i e o in es oo li le and hus ee ide
on he e o s o o he coun ies. In addi ion, he equal commi men o coun ies
A and B may be ine icien i he cos s o a oiding CO2 emission is cheape in one
coun y han in he o he (hence a ou ing a cos - o ien ed app oach o CO2 e-
duc ion as implemen ed h ough he Emissions T ading Scheme).
Closely ela ed o he p o ision o public goods, ex e nali ies o e a s aigh o -
wa d case o en e ing in o binding EU law commi men s. In an in e connec ed
and globalized Eu ope, he ac ions in o by one s a e ha e implica ions o he well-
being o ci izens in o he s a es. In such se ings, an in e na ional ex e nali y oc-
cu s. In economic pa lance, many o hese ex e nali ies a e non- pecunia y, in ha
hey do no a el h ough he p ice sys em. The ini ial mo i a ion o es ablishing
he Eu opean Communi y is p obably he mos ob ious example o nega i e non-
pecunia y ex e nali ies mo i a ing he o ming o he T ea ies o Rome. Fea s o

52 a min s einBach
e i o ial expansion, ( ade) wa s, poli ical h ea s, and unchecked poli ical powe
mo i a ed he EU ounding membe s o submi o sel - commi men h ough he
EU T ea ies.
O he ex e nali ies a e pecunia y, meaning ha he e ec s on o he s a e el
h ough changes in p ice. In ha ega d, he EMU is a ield o mul iple pecunia y
ex e nali ies. Soon a e he incep ion o he Eu opean Communi ies, membe s
iden i ied decen alized mone a y policies as a sou ce o ins abili y o o he EU
membe s, channelled as pecunia y e ec s h ough he p ice sys em, which led o
he es ablishmen o he Eu opean Cen al Bank (ECB): he e ec s o Ge many
(o o he la ge EU membe s) pu suing expansiona y iscal impulses (posi i e pe-
cunia y ex e nali y) el in neighbou ing coun ies; domes ic s a e aid dis o ing
compe i ion on he in e nal ma ke and ha ming compe i o s om o he coun-
ies; na ional banking egula ion a ec ing domes ic banks’ ope a ions, which in
u n eeds h ough EU capi al ma ke s in o o he coun ies; and low wage de el-
opmen unde cu ing he compe i i eness o o he Eu opean coun ies (nega i e
pecunia y ex e nali y), pe cei ed as a ‘begga - hy- neighbo ’ policy. Mo e ecen ly,
he EU deb c isis e ealed ano he o m o ‘begga - hy- neighbou ’ policy ha e-
sul ed om Membe S a es in lic ing inancial ins abili y on o he eu o membe s
h ough iscally unsound ac ions.
The EU has adop ed a ious legal ins umen s o deal wi h ex e nali ies. No
only has ex e nali y been mi iga ed h ough ea ies and seconda y law by way o
implemen ing di ec i es and egula ions— o example, p ohibi ion on in lic ing
ha m on o he coun ies; s a e aid ules p ecluding nega i e e ec s on o eign com-
pe i o s; egula ions cu ailing ee- iding on o he membe s’ e o s in he pu sui
o clima e goals; and iscal ules disincen i izing EU membe s om ee- iding on
he iscal solidi y o o he s a es. A he le el o ju isp udence, he ECJ also engaged
in he emo al o ex e nali ies by uling ha no only a e disc imina o y measu es
o bidden (which ob iously ollows om EU law) bu also any measu es ha could
po en ially hinde he ee ade o goods and se ices ( he so- called Dasson ille
o mula4). By e adica ing e en non- disc imina o y ba ie s o in e - s a e com-
me ce, he Cou abolishes (pecunia y) ex e nali ies ha egula o y measu es im-
pose on o he EU membe s. In o he wo ds, he idea o an in e nal ma ke wi hou
ba ie s inco po a es he elimina ion o ex e nali ies o domes ic egula ion on
o he s a es (eg heal h).
F om he pe spec i e o Eu opean in eg a ion, ex e nali ies ha e been ad-
d essed in a he a non- uni o m manne . While mi iga ing he nega i e ex e nal
e ec s om company ma ke powe o he dis o i e e ec s o s a e aid has been
b ough a he ea ly unde he EU legal umb ella in he in eg a ion p ocess, ad-
d essing ex e nali ies and ee- iding in iscal a ai s became imminen when
4 Case C- 8/ 74 Dasson ille (1974) EU:C:1974:82 837.
suPPlying PuBlic gooDs anD aDD essing ex e nal e ec s 53
c ea ing he EMU. O he ex e nali y- p one policy ields such as secu i y and de-
ence policies emain in Membe S a es’ con ol and hus a e sou ces o po en ial
ex e nali ies (e en hough coope a ion and loyal y equi emen s apply in hese
domains). Wi h A icle 42(7) TEU obliging i s membe s o ac in solida i y when
mili a y h ea s om ex e nal ac o s occu , domes ic mili a y expendi u e c ea es
posi i e ex e nali ies. A membe in es ing in de ence and mili a y capaci ies in-
c eases he o e all secu i y o all EU membe s. In social policies, ye ano he a ea
o emaining Membe S a e compe ences, ex e nali ies may esul om di e en
policy designs, which may c ea e incen i es o wo ke s o mig a e be ween EU
Membe S a es. Jus as wi h wage policies, social policies can be designed in ways
ha a e pe cei ed as ‘begga - hy- neighbou ’ policies by o he s a es.
Wi h posi i e ex e nali ies jus as ele an o EU egula ion as nega i e ex e -
nali ies, he EU in e nal ma ke o e s an example o ne wo k ex e nali ies a wo k.
Adop ing new echnological and egula o y s anda ds, mo e coope a ion and pa -
icipa ion in he s anda ds inc ease he alue o he s anda ds o all pa icipa ing
coun ies. By de ini ion, ne wo k ex e nali ies occu when bene i s o all membe s
inc ease when new membe s join. In e na ional o ganiza ions a e buil on he con-
cep o ne wo k ex e nali ies. This may be, o example, he case o ade o dis-
pu e se lemen .5 The mo e membe s ha join he EU cus oms union and he EU
in e nal ma ke , he mo e e iciency gains a e possible. No only do incumben
EU membe s bene i om he sp ead o he ne wo k, bu ne wo k ex e nali ies
also c ea e incen i es o he pa icipa ion o non- EU s a es, he eby inc easing he
po en ial bene i s o bo h new (and exis ing) EU membe s joining he s anda d
(and i ul ima ely lowe s new membe s’ cos s o inco po a e he g owing acquis
communau ai e as a p econdi ion o accession o he EU). The la ge he ma ke
and he g ea e he pa icipa ion in he EU’s s anda ds, he highe he EU’s global
weigh in s anda d se ing. Hence, Membe S a es ha e an incen i e o expand
s anda d se ing exe cises in he EU.
En o cemen cos s o goods cha ac e ized by ne wo k ex e nali ies a e ai ly
low, as he isk o de ec ion o Membe S a es o hi d s a es by de ia ing om he
ag eed s anda d is unlikely. This is because we a e in a coo dina ion game (no in
a p isone dilemma si ua ion), o e ing an endogenous incen i e o comply wi h
s anda ds. The ne wo k ex e nali y e ec may no only p omo e ade be ween
EU inside s, i may also inc ease he EU’s weigh geopoli ically, hence s eng h-
ening he EU in in e na ional o ganiza ions and in he in e na ional a ena mo e
gene ally. Clea ly, he ad an ages o acceding mus be weighed agains he cos s.
T ans e ing ade policy compe ence o he EU c ea es posi i e ne wo k e ec s
o membe s, bu he e a e so e eign y cos s associa ed wi h Membe S a es
5 Da id Eps ein and Sha yn O’Hallo an, ‘So e eign y and Delega ion in In e na ional
O ganiza ions’ (2008) 71 Law and Con empo a y P oblems 89; Joel P T ach man, The Fu u e o
In e na ional Law: Global Go e nmen (Camb idge Uni e si y P ess 2013) 28.
54 a min s einBach
losing hei au onomous ep esen a ion a he Wo ld T ade O ganiza ion (WTO).
Dilu ion o so e eign ep esen a ion in in e na ional o ganiza ions (when he
EU ep esen s i s membe s) o loss o domes ic egula ion o s anda d- se ing
au onomy add o so e eign y cos s. Also, while o e all e iciency gains exis wi h
new membe s joining public goods wi h ne wo k e ec s, dis ibu ion o bene i s
may a y and a ec ce ain g oups o socie y mo e han o he s, which gi es ise
o in e nal domes ic esis ance. Mo e impo an ly, he EU comp ises coope a ion
ac oss many policy sec o s and goods. Some may p oduce ne wo k ex e nali ies
( ade o inancial egula ion), while o he s exhibi weakes - link public goods (eg
secu i y, mig a ion). This inconsis ency ac oss goods may gi e ise o di e se pa -
e ns o coope a ion and o di e en ia ed in eg a ion— he Schengen Ag eemen
and eu o membe ship a e examples. T ea y op - ou s and op - ins as well as en-
hanced coope a ion (A icle 20 TEU) a e go e nance op ions unde EU law o ac-
coun o di e en public goods ensh ined in he EU (see below Chap e 12).
EU Law and Economics. A min S einbach, Ox o d Uni e si y P ess. © Ox o d Uni e si y P ess 2025.
DOI: 10.1093/ 9780198920915.003.0007
7
Le e aging economies o scale
Wi h he EU Membe S a es shi ing he le el o public powe om he na ional o
he sup ana ional le el, economics examines he bene i s o sup ana ionaliza ion.
Economies o scale o e a no ma i e benchma k— es ed and widely applied in
economic schola ship o ede al s a es1— o assess he bene i s o alloca ing policy
esponsibili ies a he cen alized le el. These bene i s mus be held agains he
cos s o ha moniza ion ha acc ue mainly whe e one- size- i s- all egula ion is
adop ed despi e he e ogenei y o p e e ences ac oss he egions.2 Balancing he
bene i s om economies o scale wi h he a ying p e e ences o he ci izen y, he
op imal deg ee o cen aliza ion should ollow one logic: all unc ions whe e econ-
omies o scale o e compelling bene i s should be held a he cen al le el, whe eas
all unc ions wi h high he e ogenei y o p e e ences should be kep a he local
le el.3
Economies o scale a e he pa adigma ic economic ool o e ed o assess he
subsidia i y p inciple— he co e T ea y p inciple laid down in A icle 5(3) TEU
go e ning he compe ence alloca ion be ween Union and Membe S a es whe e
sha ed compe ences a e conce ned (unlike exclusi e EU compe ence, whe e he
subsidia i y p inciple does no apply). The legal subsidia i y p inciple has been
no o iously c i icized by legal schola ship o no being based on consis en logic,
as well as o he pe cep ion ha Union ins i u ions— he Commission and he
ECJ— ha e in e p e ed subsidia i y in a ashion ha a ou s cen aliza ion.4 This
c i icism in legal schola ship has been echoed in he poli ical domain, posi ing ha
he alleged lack o subsidia i y is an amoun o an in usi e EU enc oaching on
Membe S a es’ compe ences.
1 Go don Tullock, ‘Fede alism: P oblems o Scale’ (1969) 6 Public Choice 19; Jacques LeBoeu , ‘The
Economics o Fede alism and he P ope Scope o he Fede al Comme ce Powe ’ (1994) 31 San Diego
Law Re iew 555, 565.
2 S ephen Wea he ill, ‘Why Ha monise?’ in Takis T idimas and Paolo Nebbia (eds), Eu opean Union
Law o he Twen y- Fi s Cen u y: Re hinking he New Legal O de (Ha Publishing 2003) 11, 13.
3 F ancesco Pa isi and Vincy Fon, The Economics o Lawmaking (Ox o d Uni e si y P ess 2008) 52.
4 Ca he ine Ba na d, ‘Wha he Keck? Balancing he Needs o he Single Ma ke wi h S a e Regula o y
Au onomy’ (2012) Eu opean Jou nal o Consume Law 201; S ephen Wea he ill, ‘The Limi s o
Legisla i e Ha moniza ion Ten Yea s a e Tobacco Ad e ising: How he Cou ’s Case Law has become
a “D a ing Guide” ’ (2011) 12 Ge man Law Jou nal 827; Die e G imm, Cons i u ionalism: Pas —
P esen — Fu u e (Ox o d Uni e si y P ess 2006) 303; Ga e h Da ies, ‘Subsidia i y: The W ong Idea,
in he W ong Place, a he W ong Time’ (2006) 43 Common Ma ke Law Re iew 63, 64; Nicholas W
Ba be , ‘Subsidia i y in he D a Cons i u ion’ (2005) 11 Eu opean Public Law 197; Pe e M Hube ,
‘Das Koope a ions e häl nis zwischen BVe G und EuGH in G und ech s agen’ (1997) Eu opäische
Zei sch i ü Wi scha s ech 517.
62 a min s einBach
He e ogenei y in p e e ences, bene i s, and cos s make EU accession ounds in-
c easingly challenging, because each accession o new EU membe s make Pa e o
imp o emen s mo e di icul o achie e. On one hand, wha en ices incumben
(as well as acceding) membe s a e he bene i s om an enla ged a ea o common
ules, in e nal ma ke , and geopoli ical weigh . In addi ion, some legal ins umen s
a e in place ha make new EU accessions su icien ly a ac i e o coun ies ha
ex end he club ad an ages o EU membe ship o o he s a es. Mos ele an , by
shi ing he bu den o adap a ion on o he shoulde s o he acceding s a es who
mus adop he en i e acquis communau ai e, incumben membe s a e less likely o
lose on he exis ing le el o in eg a ion. On he o he hand, he dilu iona y e ec o
EU expansion and he he e ogenei y e ec coun as cos s o incumben membe s.
They mus accep a dilu ion o o ing igh s in he Council as he numbe o mem-
be s inc eases. Mo e gene ally, wi h he e ogenei y inc easing h ough di e ging
p e e ences, i becomes ha de o ag ee be ween s a es. As long as he e we e i e
ounding membe s o he Eu opean Communi y wi h mo e o less simila , o a
leas complemen a y in e es s, membe s we e able o ag ee in subs ance in he
limi ed ields in which Membe S a es ini ially deal wi h coope a i ely. Ye , as he
numbe o membe s inc eased, he he e ogenei y wi hin he g oup also ose. New
membe s a e quali a i ely di e en o a ious easons, be i cul u ally, econom-
ically, o socially. While he e ogenei y limi s coope a ion, issue linkages may gen-
e a e new oppo uni ies o mu ually bene icial a angemen s. The EU expanded
bo h in i s numbe o membe s and in scope and dep h o in eg a ion, which a-
cili a ed ag eemen s because side- deals and compensa ion in un ela ed ields be-
came possible. The e is, howe e , a limi o simply expanding he scope o issue
a eas, as inc eased scope comes a highe (ba gaining) cos s. S a egic beha iou
may lead some ac o s o ‘hold up’ he ag eemen o gain addi ional bene i s. The
isk o un a elling, whe eby ailu e in one issue may lead o ailu e in all linked
issues, is hen g ea e .10 Accessions a e hus a mixed endea ou : an EU g owing
in membe ship inc eases ne wo k and coo dina ion bene i s ac oss policy ields
o all pa icipa ing s a es (incumben and acceding s a es), bu i also exace ba es
di e si y and hence makes he landing zone in e ms o T ea y ules ha sa is y all
s a es’ p e e ences smalle .
High en o cemen cos s can be an obs acle o coope a ion whe e compliance
wi h EU law is weak. In p inciple, one o he ea u es dis inguishing he EU om
in e na ional o ganiza ions is i s e ec i e en o cemen s uc u e wi h in inge-
men p ocedu es and he ole o he Commission and he ECJ as en o ce s (see
below Chap e 14). Howe e , in o he a eas, en o cemen mechanisms a e weak
and hus in i e de ec ion and ule b eaches. In he EMU, his has been a pe en-
nial issue.11 The EU deb c isis was (a leas pa ially) caused and exace ba ed by a
10 Ko emenos, Lipson, and Snidal (n 1) 786.
11 A min S einbach, Economic Policy Coo dina ion in he Eu o A ea (Taylo & F ancis L d 2014).

why cooPe a ion ails 63
lack o compliance wi h p e- ag eed iscal ules and led many ex e nal obse e s o
ques ion he cha ac e o he EU as a sup ana ional ole model o o he egions.12
The climax o he so e eign deb c isis led he EU o in oduce condi ionali y as a
p e equisi e o c isis suppo in o de o imp o e en o cemen . Hence, in cases o
iscal ans e and wi h a iew o mi iga ing mo al haza d conce ns, he EU has e-
e ed o condi ional inancial assis ance on he deli e y o s uc u al and iscal e-
o ms as an ins umen o sa egua d he long- e m bene i s o EMU membe ship,
which would be a isk i indi idual EMU membe s could des abilize he common
good by oppo unis ic beha iou . The ensuing discussion on he b eak- up o he
eu o a ea and ‘G exi ’ illus a es how coope a ion may collapse o e insu icien
compliance wi h wha is equi ed by law. Pu di e en ly, by gi ing he EU weak
en o cemen ins i u ions in EMU a ai s, EU membe s decided o accep high
en o cemen cos s in o de o minimize so e eign y cos s ( h ough s ic iscal
su eillance). Mo e han once h oughou he his o y o he EMU, poli ical con-
side a ions umped legal (and economic) ules— he ini ial en y equi emen s
o s a es o join he eu o we e in e p e ed lenien ly, and he S abili y and G ow h
Pac was no igo ously en o ced. On a concep ual le el, as each EU membe de e -
mines he payo o non- coope a ion as a unc ion o he c edibili y o sanc ions
a ached o non- compliance, he e is a public good dilemma whe e en o cemen
cos s may be de e mined by he s eng h o indi idual ac o s’ incen i es o chea
on ag eed ules.13 Manage ial heo ies o compliance look a i di e en ly.14 Take
he G eek lag an non- compliance wi h EU iscal ules when s a is ical miscal-
cula ions we e hiding ha ac ual budge de ici s we e much highe han publicly
epo ed.15 Manage ial heo ies would liken da a mis epo ing and ins i u ional
sho comings o he lack o bu eauc a ic capaci y. In any case, as membe s o he
EMU, all coun ies bene i om a s able cu ency as club public goods and ac ual
isk- sha ing smoo hing bonds sp ead, bu o his posi i e spillo e o ma e ialize
equi es in es men in ma ke s’ us h ough iscal p udence. In he pas , ules
ailed o cons ain disincen i es o con ibu ing o he common good o a s able
cu ency.16
Despi e a es aining se o EU ules, Membe S a es con inue o ha e an incen-
i e o ee- ide on he policy e o s o o he s a es. I a Membe S a e is ce ain
ha a desi ed collec i e ac ion will happen anyway, e en wi hou hei pa icula
con ibu ion (eg inancial s abili y in he eu o a ea, secu i y e o s in he EU), hey
ha e an incen i e o lea e i o o he s o deli e he common good. Besides he
12 Cha les Wyplosz, ‘Eu ope’s Ques o Fiscal Discipline’ (2013) Eu opean Economy— Economic
Pape s 2008– 2015 No 498.
13 Ko emenos, Lipson, and Snidal (n 10) 776.
14 Ka e ina Linos, ‘How Can In e na ional O ganiza ions Shape Na ional Wel a e S a es? E idence
om Compliance wi h Eu opean Union Di ec i es’ (2007) 40 Compa a i e Poli ical S udies 547.
15 Benny Ande sen, ‘The C isis in G eece: Miss eps and Miscalcula ions, Eu opean S abili y
Mechanism’ (2020) Discussion Pape Se ies No 9.
16 S einbach (n 11).
64 a min s einBach
EMU, o eign policy o e s ano he example. Small Membe S a es may be pa -
icula ly p one o ee- iding. While hey pa icipa e in decision- making on in e -
na ional de elopmen s, hey assume ba ely any esponsibili y o conc e e ac ion,
wi h hei socie ies unp epa ed o bea he cos s and isks o ope a ional engage-
men . This conduc has been obse ed in ela ion o es ablishing a common i-
nancial base o EU mili a y ope a ions. In case o secu i y challenges, o ins ance
in No h A ica, i has been le o bigge coun ies wi h egional ies o he e-
gion o deal wi h secu i y challenges, while many o he s a es ha e ended o ee-
ide on hese e o s, con ibu ing li le owa ds se ing up an e ec i e EU unding
mechanism.17
While he unanimi y equi emen has been a pe ennial p oblem o he adop-
ion o EU seconda y law, he ex ended in oduc ion o quali ied majo i y o ing
has allowed he Union o mo e om Pa e o imp o emen s (unanimi y o ing) o
weake Pa e o and Kaldo - Hicks solu ions (quali ied majo i y o ing). Depending
on he indi idual case, hose coun ies ha a e o e uled in he Council may ace
signi ican cos s ou weighing he bene i s acc uing o o he EU membe s, bu he
le el o h esholds o quali ied majo i y o ing (55 pe cen o Membe S a es o e
in a ou and suppo by Membe S a es ep esen ing a leas 65 pe cen o he
o al EU popula ion) educes he ins ances in which an EU ac ails o o e any
kind o wel a e imp o emen . The wo o ing h esholds end o secu e ha , om
an EU- wide pe spec i e, he e is a leas a possibili y ha he gains esul ing om
he enac ed seconda y law exceed he cos s. Howe e , he EU in eg a ion p ocess
is cha ac e ized by making majo i y o ing mo e equen , which on one hand
is desi able because i makes he impac o na ional egula o y cap u e o biased
decision- making less a eaching compa ed o unanimi y. On he o he hand,
howe e , ex ending quali ied o ing educes he willingness o incumben EU
membe s o accep new membe s. Wi h each new membe , majo i y h esholds a e
ha de o achie e and blocking oppo uni ies a e educed, hus c ea ing p oblems
ha would no exis unde he unanimi y equi emen .
A complica ing ac o is ha when nego ia ing T ea y amendmen s o adop ing
EU seconda y law, each EU coun y is acing di e en es ain s on he EU le el
han hey a e on he domes ic le el. We ecall Pu nam’s wo- le el games o make
coope a ion wo k.18 A he EU le el, na ional go e nmen s seek o maximize
hei own abili y o sa is y domes ic p essu es, while minimizing he ad e se
consequences o o eign de elopmen s. When nego ia ing EU T ea ies be ween
17 S e an Lehne, ‘Is The e Hope o EU Fo eign Policy?’ (Ca negie Endowmen o In e na ional
Peace 2017).
18 Robe D Pu nam, ‘Diplomacy and Domes ic Poli ics: The Logic o Two- Le el Games’ (1988)
42 In e na ional O ganiza ion 427, 434; Joel P T ach man, The Fu u e o In e na ional Law: Global
Go e nmen (Camb idge Uni e si y P ess 2013) 43.
why cooPe a ion ails 65
s a e ep esen a i es on he in e - s a e le el, ba gaining cos s ma e o inding
an ag eemen ha is ag eeable o all s a e leade s. A he na ional le el, domes ic
g oups weigh hei in e es s by p essu ing he go e nmen o adop a ou able
policies, and poli icians seek powe by c a ing alliances wi h hose g oups, while
complying wi h domes ic legal equi emen s. So e eign y cos s and implemen a-
ion cos s a e a unc ion o he domes ic policy cons ain .19 Membe S a es can
concede o EU pa ne s only wha is domes ically easible, ha is, he poli ical cos s
o implemen ing he EU deal a home mus no be oo high. The nego ia o s o EU
law hus need o add ess he conce ns o domes ic in e es g oups and, a he same
ime, each an ag eemen ha is accep able o o he EU membe s. In ce ain ci -
cums ances, g ea e domes ic policy cons ain s can lead o mo e ba gaining ad-
an ages in in e na ional nego ia ions in B ussels. A pu ely wel a is pe spec i e
emphasizes an equilib ium whe e wel a e inc easing policies o na ional s a es
o e lap. In a wo ld wi hou public choice, s a es ind comp omises and accep
second- bes solu ions ( om na ional pe spec i es) which may lead o a coope a-
i e equilib ium (e en i his is in e io o he op imum as long as i is supe io
o non- coope a ion). Howe e , domes ic poli ics cons ain s de e mine possible
equilib ia.20 In ha sense, g ea e domes ic policy cons ain s s eng hen he pos-
i ion in nego ia ions on Eu opean coope a ion because an EU membe canno be
expec ed o iola e he domes ic policy cons ain .21
Coope a ion is hus p one o ailu e when domes ic poli ical wel a e (based on
he public choice app oach) de ia es om ac ual wel a e. The s a e is a dynamic
agg ega o wi h pa ies, social classes, in e es g oups, and public opinion as de-
e minan s o domes ic policy cons ain s.22 To app aise he ele ance o he do-
mes ic policy es ain s one should acknowledge ha EU Membe S a es may, as
posi ed by a ional choice, pu sue a wel a is pe spec i e (maximizing na ional
wel a e), bu a he same ime pu sue domes ic policy wel a e. The la e builds
on he libe al heo y o in e na ional ela ions, which p io i izes he demands o
indi iduals and socie al g oups o e poli ics.23 A s a e’s p e e ences a e hus no ne-
cessa ily a ional in hei pu sui o maximizing objec i e wel a e, bu simply he
agg ega ion o indi idual p e e ences by he s a e’s poli ical mechanisms.24 Wi h
domes ic policy cons ain s in mind, coope a ion h ough EU law is gene a ed (by
19 Ka e ina Linos, ‘A Theo y o Di usion Th ough Democ a ic Mechanisms’, in Ka e ina Linos (ed),
The Democ a ic Founda ions o Policy Di usion: How Heal h, Family, and Employmen Laws Sp ead
Ac oss Coun ies (Ox o d Uni e si y P ess 2013).
20 Anne an Aaken and Joel P T ach man, ‘Poli ical Economy o In e na ional Law: Towa ds
a Holis ic Model o S a e Beha io ’ in Albe a Fab ico i (ed), Poli ical Economy o In e na ional
Law: A Eu opean Pe spec i e (Edwa d Elga 2016) 9.
21 T ach man (n 18) 46.
22 Pu nam (n 18) 432.
23 And ew Mo a csik, ‘Taking P e e ences Se iously: A Libe al Theo y o In e na ional Poli ics’
(1997) 51 In e na ional O ganiza ion 513, 516.
24 T ach man (n 18) 42.
66 a min s einBach
c a ing EU T ea ies o making EU seconda y law)— in line wi h Pu nam— when
he e is su icien o e lap be ween equilib ia in B ussels and hose in membe s’
capi als. Mo eo e , one should conside he in e ac ion be ween he wel a is ( a-
ional choice) a ionale o coope a ion and he domes ic policy a ionale. The
e y unc ion o coope a ion on he EU le el is o c ea e ou comes ha enhance
domes ic wel a e— ei he by inc easing domes ic objec i e wel a e o imp o ing
domes ic policy ou comes. In o he wo ds, coope a ion on he EU le el widens he
scope o possible domes ic equilib ia ha a e supe io o hose a ailable in he ab-
sence o EU law. While inc eases in objec i e wel a e (based on he coope a ion a-
ionales discussed abo e) a e desi able, public choice in o ms us ha go e nmen s
may also make EU laws o he sole pu pose o gene a ing domes ic policy wel-
a e (e en when going agains a wel a is benchma k). EU law may be p oduced
in o de o sa is y domes ic poli ical p e e ences s abilizing he posi ion o he
ac ing go e nmen in he domes ic con ex , i espec i e o ac ual wel a e. EU law
is e ec i e om ha pe spec i e i i changes domes ic poli ics (by s abilizing he
incumben posi ion). An impo an ac o coun e ailing solu ions a ou ing do-
mes ic policy wel a e o e objec i e wel a e is he use o quali ied majo i y o ing
as he p edominan decision mode in he Council. This decision mode educes he
numbe o coun ies and occasions in which domes ic policy wel a e umps he
objec i e wel a e unc ion o EU law.
In many cases, his wo- le el equi emen does no play ou in a p ohibi i e
manne : a go e nmen may ag ee o concessions on he EU le el when he adop ion
o an EU di ec i e o egula ion is a s ake. Despi e domes ic policy esis ance, he
go e nmen may conside o he ypes o bene i s o be su icien ly high in he in e es
o o e all wel a e gains. Wha weighs in is ha domes ic policy cos s o en ma e ialize
wi h ce ain ime- lags, as EU egula ions ake e ec a e a delay, o example when
EU di ec i es equi e Membe S a es o ake implemen ing measu es. The e ec o
such ime- lags is ha go e nmen s may blu hei accoun abili y o an EU decision
o which hey ag eed in he Council. The ime- lag be ween a Membe S a e’s espon-
sible ac ion (eg he adop ion o a di ec i e in he Council) and he ma e ializa ion
o poli ical cos s (domes ic implemen a ion) allows na ional poli icians o ex e nalize
some o he cos s ha would o he wise hinde he ag eemen on an EU le el— his
somehow elaxes he cons ain unde Pu nam’s wo- le el game. In o he cases, how-
e e , he domes ic policy le el may be an insu moun able equi emen o he wo-
le el game. Take EU T ea y amendmen s unde A icle 48 TEU equi ing no only an
acco d be ween EU go e nmen s bu also a i ica ion, wi h he nega i e e e enda in
F ance and The Ne he lands o e ing a case in poin . Go e nmen s we e able o come
o an acco d on he Eu opean le el (hence on one o Pu nam’s wo le els), bu he so-
lu ion ound a EU le el did no o e lap wi h he ange o accep able solu ions unde
he domes ic policy cons ain . Since he e e enda we e indispensable o he EU
T ea y amendmen s o en e in o o ce, he domes ic policy cons ain was p ohibi i e
and ul ima ely hinde ed he en e ing in o o ce o he EU Cons i u ional T ea y.
why cooPe a ion ails 67
The e is e idence o sugges ha in o ma ion p o ided o o dina y pe sons ha
a policy is equi ed by in e na ional law shi s opinion in a ou o ha policy.25
Membe S a es can hus acili a e he implemen a ion o EU di ec i es by ad-
equa ely communica ing o hei cons i uen s ha compliance wi h EU law is
equi ed. A di e en logic wi h simila e ec un olds when go e nmen s use he
delega ion o go e nance asks o hi d pa ies in o de o a oid blame once pol-
icies become con es ed.26 Membe S a es’ go e nmen s can bene i by a ibu ing
unpopula decisions o EU equi emen s. Legisla ing unpopula domes ic laws
ha implemen binding EU di ec i es can lead o a blame game a he expense o
he EU, while p o ing highly use ul o enabling na ional poli icians o keep poli -
ical cos s wi h EU compliance low.
Domes ic policy cons ain may in e ac wi h a wel a is pe spec i e in he pa -
icula case o ex e nali ies, which as discussed abo e p o ide a s ong a ionale o
(Eu opean) coope a ion. Howe e , he domes ic policy si ua ion may be such ha
o e s ha e an in e es in ex e nalizing cos s by imposing hem on o he coun ies.
This may lead o an equilib ium in which he desi abili y o coope a ion is inde-
penden o he magni ude o spillo e s. The a ionale— as modelled by Loepe —
is ha c oss- bo de coope a ion (in he EU) equi es he policy- make s o one
Membe S a e o p o ide mo e public goods— and hus i s o e s o pay highe
axes. The e o e, he highe he ex e nali y, he highe he cos s o coope a ion on
he o e s o ha pa icula Membe S a e. This pu s e- elec ion a isk because
o e s will p e e lowe axes in combina ion wi h highe ex e nali ies unde -
mining he coope a i e egime.27
Unce ain y may hinde coope a ion, no only whe e bene i s o cos s a e ha d
o p edic bu also whe e EU membe s a e eluc an o disclose in o ma ion ha
could make hem mo e ulne able. Unce ain y is educed h ough ins i u ions,
no ably he EU Commission and he ECJ ac ing as bodies ha disclose in o ma-
ion om Membe S a es (see below Chap e 20 a)). In ol ing neu al b oke s
ep esen ing Communi y in e es s (o a neu al Membe S a e’s in e es like he
P esiden o he Council) can enhance ce ain y and acili a e in o ma ion- sha ing.
The e may also be beha iou al economic ac o s a wo k ha unde mine scope
o coope a ion. Psychologis s and economis s ha e cons an ly in es iga ed he
sys ema ic heu is ics and biases con adic ing he a ionali y assump ion, in o de
o es ablish a mo e ealis ic model o human beha iou .28 While Eu opean law has
25 Adam Chil on and Ka e ina Linos, ‘P e e ences and Compliance wi h In e na ional Law’
(2021) 22 Theo e ical Inqui ies in Law 247.
26 Tim Heinkelmann- Wild and o he s, ‘Blame Shi ing and Blame Ob usca ion: The Blame
A oidance E ec s o Delega ion in he Eu opean Union’ (2023) 62 Eu opean Jou nal o Poli ical
Resea ch 221.
27 An oine Loepe , ‘C oss- Bo de Ex e nali ies and Coope a ion among Rep esen a i e
Democ acies’ (2017) 91 Eu opean Economic Re iew 180.
28 See, in pa icula , Daniel Kahneman and Amos T e sky, ‘P ospec Theo y: An Analysis o Decision
unde Risk’ (1979) 47 Econome ica 263; Ge d Gige enze and Daniel G Golds ein, ‘Reasoning he
Fas and F ugal Way: Models o Bounded Ra ionali y’ (1996) 103 Psychological Re iew 650.

68 a min s einBach
ye o be sys ema ically analysed ia beha iou al economics,29 some beha iou al
economic insigh may be in ui i e, in pa icula whe e i may impede coope a ion.
Loss a e sion may play a ole whe e EU coope a ion is associa ed wi h isks and
losses a he han wi h po en ial and oppo uni ies.30 Risks can become salien ,
c ea ing sen imen s o losses. I a coun y’s s a e leade s a e subjec o heu is ics,
his may bias an objec i e cos - bene i analysis, and pe cei ed losses may lead
hem o ejec an ag eemen ha would inc ease o e all wel a e.31 As discussed,
so e eign y cos s a e c ucial o a a ional coun y o decide whe he i ag ees o
su ende compe ences o he EU o no . I a coun y su e s om a s ong bias by
o e emphasizing he loss, his will compound so e eign y cos s and hence en ail a
educed willingness o he coun y o en e in o he ag eemen . Loss a e sion may
well be used as a ool o poli ical manipula ion. As ‘ aming’ plays an impo an
ole in poli ical communica ion, poli icians may y o gene a e loss a e sion in
hei cons i uency in he pu sui o hei poli ical agenda, a p opagandis ic ech-
nique ha populis pa ies equen ly employ. Fo ins ance, os e ing ea o losing
one’s own cu ency o igge esis ance o opposing he Schengen Ag eemen
in o de no o lose con ol o e bo de s a e among he issues ha can easily be
amed o igge beha iou al economic insigh . F aming may also play ou in he
in e nal ma ke con ex , wi h egula ion p omo ing libe aliza ion o ade wi hin
he Communi y o wi h ex e nal s a es as an example. Conside he impac o ade
concessions, whe e libe aliza ion can be amed ei he o impac ‘employees’ o
‘consume s’. While he employee ame would illumina e he isks such as loss o
employmen due o inc easing compe i ion, he consume pe spec i e highligh s
he bene i s o consume s h ough lowe p ices and a g ea e a ie y o p oduc s.32
Ye , loss a e sion may also lead o excessi e weigh being placed on he loss o
ans e ing compe ences o he EU. Conce ns may be mul i old: will esou ces
be squande ed in bu eauc a ic excess by he Commission? A e EU ins i u ions
likely o ansg ess hei compe ences, hence unde mining he p inciple o con-
e al? S a es iew cen aliza ion wa ily, and o he same easons s a es a e also
conce ned wi h main aining igh con ol o e ins i u ional a angemen s so as o
minimize agency cos s, which, howe e , is di icul o ensu e. The e is no mech-
anism h ough which indi idual membe s could easily ackle a compe ence b each
by he Commission. While he annulmen p ocedu e unde A icle 263 TFEU
allows Membe S a es o e iew EU legisla i e ac s, his possibili y uns oid
i he ECJ is biased owa ds in eg a ion i sel (see below Chap e 17). The e is a
29 Fo in e na ional law, see G ego y Sha e and Tom Ginsbu g, ‘The Empi ical Tu n in
In e na ional Legal Schola ship’ (2012) 106 Ame ican Jou nal o In e na ional Law 1.
30 Su eys show ha public opinion does no ypically align wi h a coun y’s op imum wel a e
s a egy, see ‘Ame icans on Globaliza ion: A S udy o US Public A i udes’ (2000).
31 Russell B Ko obkin and Ch is P Gu h ie, ‘Heu is ics and Biases a he Ba gaining Table’ (2004) 87
Ma que e Law Re iew 795.
32 Anne an Aaken, ‘Beha io al In e na ional Law and Economics’ (2014) 55 Ha a d In e na ional
Law 421, 457.
why cooPe a ion ails 69
mass o li e a u e elabo a ing on he es ained sc u iny o he ECJ o e he EU
Commission.33 F om a public choice pe spec i e, bo h he EU Commission and
he ECJ ha e aligned in e es s as hei impo ance inc eases wi h he scope o EU
law. Limi ed moni o ing capaci ies on he pa o Membe S a es and he lack o
sanc ions o he agen ’s sel ish ac ions weigh as cos s o cu en EU membe s and
p ospec i e losses o u u e EU membe s.
O en, s a es o e alue he cos s o hei ade concessions signi ican ly, o he
ex en ha ealizing an ag eemen becomes impossible.34 Meanwhile, he ac o s
o en o e es ima e he alue o hei own concessions and unde es ima e he
alue o hei ad e sa y’s commi men du ing a nego ia ion. This si ua ion makes
ba gaining mo e di icul and can lead o an impasse.35 I is compa a i ely mo e
di icul o achie e an ag eemen when ba gaining o e he alloca ion o losses
compa ed o ba gaining o e he dis ibu ion o gains. This o en mani es s in a
pe manen s uggle o e EU T ea y e o ms, whe e he ans e o au ho i y o he
EU and pe cei ed losses o so e eign y amoun o a ba gain o e losses, which a e
clea ly iden i iable and immedia e, while he co esponding gains h ough in e-
g a ion a e ague and unce ain in e ms o hei ac ual ma e ializa ion in he u-
u e (eg h ough u u e seconda y law). Hence, om a beha iou al pe spec i e a
g ea deal o in o ma ion depends on he ‘ aming’ o an ag eemen . Policy- make s
a e inclined o be mo e eluc an when s a es pe cei e an ag eemen a he as loss
(eg domes ic indus ies ‘losing’ ma ke sha es), despi e o e all wel a e gains (eg
h ough highe consume en s). Meanwhile, policy- make s migh end o ag ee
when pe cep ion is domina ed by p o i (eg when accession o EU T ea ies is dom-
ina ed by a na a i e o gaining access o EU ins i u ions and ma ke s). D awing on
beha iou al economic insigh , EU T ea y e o ms a e mo e likely o be achie ed
when he bene i s o consume s and expo e s a e he dominan na a i e in
public pe cep ion in luencing he go e nmen ’s choice a chi ec u e, as hey a e
among he g oups ha ypically bene i om deepe (economic) in eg a ion. In
u n, go e nmen s whose ocus is he p o ec ion o he wo king class ( a he han
he business sec o ) may be inclined o unde sco e he impac on wo ke s in he
impo ing o p o ec ed indus ies.36
Fu he , a s a us quo bias migh also play ou . Fo indi idual s a es, con-
sen a oids wel a e losses. Consequen ly, ambi ious T ea y e o ms— such as he
Cons i u ional T ea y in 2004— which aim o make p o ound changes o he s uc-
u e o he EU may no be concluded because o a bias o he s a us quo.37 The
33 Wol Sau e , ‘P opo ionali y in EU Law: A Balancing Ac ?’ (2013) 15 Camb idge Yea book o
Eu opean Legal S udies 439, 450.
34 an Aaken (n 32) 468.
35 Jack S Le y, ‘P ospec Theo y and In e na ional Rela ions: Theo e ical Applica ions and
Analy ical P oblems’ (1992) 13 Poli ical Psychology 283, 290.
36 B uce E Moon, Dilemmas o In e na ional T ade (Rou ledge 2018) 29.
37 an Aaken (n 32) 457.
70 a min s einBach
s a us quo bias may be pa icula ly ele an whe e po en ial bene i s a e unce -
ain gi ing ise o ambigui y a e sion. While adi ional ields o EU T ea y e o ms
(eg enhancing in e nal ma ke s and emo ing ba ie s o ade) allow ex- an e
quan i ica ion o cos s and bene i s, u u e e ec s in o he a eas a e a less ce -
ain (eg social policy coo dina ion, ins i u ional changes o decision- making ule
in Council, and li ing he EU T ea ies o become a ‘Cons i u ion’). Majo T ea y
changes implying ins i u ional changes aiming o o e haul he cu en p ac ice
and engende unp eceden ed subs an i e obliga ions and e en h ea en na ional
cul u al oo s by in oducing an EU lag o an hem a e p one o ailu e due o am-
bigui y and loss a e sion. Howe e , he e ec s o a e sion can be diminished by
a oiding salien e e ence poin s. Conside he di e ences be ween he ailed EU
Cons i u ional T ea y and he success ul Lisbon T ea y. The la e a oided being
conside ed a cons i u ion and hence emo ed all cons i u ion- like ea u es om
he e o m agenda (eg explici sup emacy o EU o e na ional law; EU symbols
such as a lag o an hem; elabelling EU ‘ egula ions’ as ‘laws’). Howe e , in sub-
s ance he Lisbon T ea y main ained many o he co e ideas o he Cons i u ional
T ea y, in pa icula he ins i u ional (eg e ised decision- making in he Council;
a pe manen Eu opean Council p esiden ) as well as subs an i e changes (eg
abolishing he EU’s so- called h ee- pilla s uc u e). The EU’s e olu ion om a
ailed cons i u ion o he accep ed Lisbon T ea y was hence e ec i e in esponding
o pa e ns o loss and ambigui y a e sion.
PART III
HOW TO COOPERATE
UNDER EU LAW
In oduc ion o Pa III
The e a e many legal a ia ions o coope a ion ac oss EU membe s, wi h a di e ing
scope o pa icipa ion, a iable bindingness o commi men s, and cus omized de-
g ee o cen aliza ion. The T ea ies o esee, o example, enhanced coope a ion
and mul ispeed in eg a ion; hey p o ide o op - ou s in T ea y commi men s;
in some a eas, he EU e e s o so law a he han ha d law; some EU compe-
ences a e alloca ed o B ussels as exclusi e compe ences, while o he s a e subjec
o a subsidia i y es o which he economic analysis o e s in e p e a i e guidance.
Wi h his a iabili y and di e si y in o m, pa icipa ion, and scope o commi -
men s unde EU law, he ocus o his chap e lies on he design o EU law. Ha ing
es ablished he co e a ionales o why EU membe s seek o commi o binding law,
we may u he explo e how coope a ion unde EU law may un old.
We may d aw om he a senal o economic me hods in oduced in he
In oduc ion and om he basic a ionales o en e ing in o EU coope a ion, as
discussed in Chap e 1, o explo e di e en design ea u es o EU law. Fo example,
ede alism heo y inspi es he legal p inciple o con e al, wi h ci izens’ p e e -
ences and economies o scale as analy ical benchma ks; public good heo y unde -
pins he subsidia i y p inciple; con ac heo y iden i ies whe e EU law p o ides
o excep ion and escape clauses; ansac ion cos s analysis in o ms phenomena o
ha d law and so law unde EU law; game heo y makes p edic ions abou compli-
ance wi h EU law and in o ms he en o cemen ins i u ions wi h he oles o he EU
Commission and he ECJ. Likewise, we will bene i om he analysis o Chap e 1
on he a ionales o coope a ion, in o de o unde s and why EU membe s choose
a speci ic T ea y design he way hey do in ligh o hei indi idual go e nmen ob-
jec i es and payo unc ion, he spillo e s o policy ac ions.
Gi en he ocus o his Pa on he gene al a angemen s ailo ed in EU law, ha
is, he basic p inciples s ipula ing he legal amewo k o EU T ea ies, we should
ecall ha he EU is a sel - conscious p oduc o i s Membe S a es— illus a ed by
he ac ha EU membe s a e he ‘Mas e s o he T ea ies’, e en i he p oduc ion
o EU seconda y law is a p oduc o mul iple ac o s combining EU ins i u ions and
78 a min s einBach
Fon ha e shown ha when a T ea y is le open (ie when i is p edica ed on u u e
accessions o new membe s), he ini ial ea y con en is se op imally on he basis
o he incumben s a es’ expec a ion o T ea y enla gemen .7 Hence, d a ing semi-
open T ea y sec ions would ha e o an icipa e a g owing (and po en ially mo e
he e ogenous) membe ship. The a ional T ea y designe an icipa es g owing
he e ogenei y o p e e ences be ween pa icipa ing s a es and hus designs ules
in a way ha minimizes nega i e epe cussions. Looking a he eu o membe -
ship as an example, incumben eu o membe s would be well ad ised o speci y
up on in he ini ial T ea y he p ecise condi ions unde which accession o he
eu o o new membe s is possible. I is s aigh o wa d ha eu o membe s ha e a
s ong economic in e es in p ede e mining hese condi ions, as he eu ozone has
weakes - link public good cha ac e (see abo e Chap e 6) and hus bea s he isk
o ee- iding and nega i e spillo e s. Consequen ly and unsu p isingly, he pa h
o eu o adop ion is well- de ined, wi h A icle 140 TFEU enume a ing he ‘high de-
g ee o sus ainable con e gence by e e ence o he ul ilmen o c i e ia’, which a e
u he speci ied in P o ocol 13 o he TFEU, wi h e en pe missible in la ion and
budge de ici h eshold nume ically de ined.8 The high deg ee o up- on and
T ea y- based speci ica ion o en y equi emen s is in line wi h he abo e men-
ioned logic— in a semi- open T ea y, he pa icipa ing coun ies should an icipa e
u u e accessions by choosing a T ea y design ha ensu es he alignmen o u u e
T ea y pa icipan s wi h he p inciples and goals o he T ea y ounde s. By con-
as , he closed sec ions o EU T ea ies do no make such high speci ica ion neces-
sa y, as he e o p inciple allows incumben membe s o decide ad- hoc whe he
hey conside accession bene icial. Acco dingly, accession equi emen s o he EU
a e only aguely e e ed o unde A icle 49 TEU, by men ioning he necessa y e-
spec o he alues e e ed o in A icle 2 TEU.9
(EU) T ea y o ma ion and amendmen u he depend on he payo s uc u e
o incumben and acceding membe s. In gene al, om he pe spec i e o he in-
cumben EU membe s, accession o new membe s causes a di e en kind o po en-
ial cos s which incumben s seek o minimize. G an ing condi ional access o he
EU is in line wi h a ional choice sugges ing ha es ic i e membe ship is neces-
sa y due o unce ain y abou he acceding membe ’s p e e ences.10 The nego i-
a ion p ocess o accession wi h new membe s can be unde s ood as a p ocedu e o
e ealing p i a e in o ma ion abou he applican ’s p e e ences. The incumben
EU membe s do no wan new membe s who ee- ide on public goods p o ided
7 Pa isi and Fon (n 3).
8 The iscal su eillance p ocedu e as well as economic policy coo dina ion go e nance, which a e
explici ly men ioned in A icle 139(2)(a) and (b) TFEU will kick in once a new membe en e s he
common cu ency a ea.
9 The admission c i e ia we e also absen in ea lie T ea y e sions and we e hen laid down a he
June 1993 Eu opean Council in Copenhagen.
10 Ba ba a Ko emenos, The Con inen o In e na ional Law: Explaining Ag eemen Design
(Camb idge Uni e si y P ess 2016).

memBe shiP o eu ea ies 79
ac oss he Union (eg legal s abili y, solida i y, secu i y), bu ins ead hey seek o
ake on membe s who con ibu e o he public goods and comply wi h he acquis
communau ai e. Adop ion o he acquis communau ai e is a cos ly signal ensu ing
an equilib ium whe e only hose who sha e ce ain cha ac e is ics a e included.11
By o cing acceding EU membe s o unde ake concessions and bea signi ican
adjus men cos s, hey inc ease he likelihood ha he applican will be a complian
and coope a i e EU membe . While his se es o educe one sou ce o cos s o in-
cumben s a es associa ed wi h new accessions, he e a e signi ican ins i u ional
cos s due o he dilu ion o o ing powe and in luence on policy ou comes. Each
ound o accession equi es nego ia ions abou he edesigning o he ins i u ional
ep esen a ion in o de o balance he in luence o cu en and new EU membe s.
Hence, po en ial bene i s o inc eased EU T ea y pa icipa ion and deepe T ea y
con en mus be balanced, om he pe spec i e o he EU incumben , agains he
cos s o dilu ed powe . Wi h each accession, much depends on he ma ginal bene-
i s and cos s— whe he gains om inc eased pa icipa ion ou weigh dilu ion o in-
luence. Connec ed o dilu ion o o ing powe , u u e adop ion o seconda y law
h ough EU ins i u ions may come a a highe p ice wi h ex ended membe ship—
he isk o being o e uled in he Council inc eases so e eign y cos s, and he e -
ogenous p e e ences aise nego ia ion cos s, all o which mus be ac o ed in by a
a ional incumben be o e gi ing app o al o new membe s.12
Impo an ly, oppo uni y cos s o coun ies a y. Va iable oppo uni y cos s sig-
ni y ha coun ies may be able o pu sue gains om coope a ion ou side he EU
o di e en deg ees. Va iable oppo uni y cos s in i e he insigh o dis ibu i e a-
ionalis app oaches, which a gue ha wha ma e s is ha some s a es ha e be e
ou side op ions han o he s.13 Acco ding o his logic, s a es wi h a g ea e abili y
o achie e hei p e e ed ou comes wi hou coope a ion can le e age he h ea
o ac unila e ally o shape mul ila e al ins i u ional ules; on he in e na ional
le el, he Uni ed S a es has used bo h i s in o mal and o mal powe o design and
con ol in e na ional (economic) ins i u ions. This would sugges ha on he EU
le el, powe ul s a es skew o ing ules in hei a ou . Howe e , he Lisbon T ea y
ules modi ying quali ied majo i y o ing led o a dec ease in he o al powe o
la ge coun ies, while he o al powe o smalle s a es inc eased, which suppo s
he exis ing phenomenon o smalle coun ies being o e ep esen ed in EU in-
s i u ions.14 A leas ega ding he o ing s uc u e o he EU, la ge incumben
11 Ko emenos, Lipson, and Snidal (n 2) 784.
12 Ma eike Kleine, In o mal Go e nance in he Eu opean Union: How Go e nmen s Make
In e na ional O ganiza ions Wo k (Co nell Uni e si y P ess 2013) 54.
13 Lloyd G ube , Ruling he Wo ld: Powe Poli ics and he Rise o Sup ana ional Ins i u ions
(P ince on Uni e si y P ess 2000); Phillip Y Lipscy, ‘Explaining Ins i u ional Change: Policy A eas,
Ou side Op ions, and he B e on Woods Ins i u ions’ (2015) 59 Ame ican Jou nal o Poli ical
Science 341.
14 Alessand o Scopelli i, ‘The Poli ical Decision- Making P ocess in he Council o he Eu opean
Union Unde he New De ini ion o a Quali ied Majo i y’ (2008) 73 Il Poli ico 180.
80 a min s einBach
coun ies ha e no ansla ed hei compa a i e low oppo uni y cos s in o ela i e
ad an ages o e smalle acceding s a es.
EU enla gemen happens when bene i s o incumben and acceding mem-
be s a e signi ican , whe e he gene al a ionales o coope a ion apply (Pa II).
Enla gemen may be pa icula ly plausible whe e policy a eas a e cha ac e ized
by coo dina ion games and ne wo k e ec s, ha is, in si ua ions whe e bene i s
inc ease o all membe s as he numbe o pa icipan s g ows (eg join p oduc
s anda ds on he EU in e nal ma ke ).15 Also, admi ing a new EU membe may
c ea e addi ional alue- enhancing oppo uni ies o all s a es, o example h ough
s imula ing economic g ow h o s abilizing ex e nal ela ionships.16 In u n, wi h
weakes - link public goods he si ua ion is mo e ambi alen . In p inciple, coope -
a ion in weakes - link public goods declines wi h he numbe o s a es, as he cos o
moni o ing inc eases and he p obabili y o a weakes link ises. I new EU mem-
be s unde ake insu icien e o s o comba illici ade o o secu e bo de p o ec-
ion, his lowe s he payo o all o he membe s. In hese cases, ei he coope a ion
ails, o al e na i ely, he e is plausibili y o cen aliza ion o he weakes - link good
in o de o ensu e minimum en o cemen , p o ided ha he EU is su icien ly p e-
pa ed o ensu e a consis en le el o p o ec ion o hese goods. One example is he
EU Schengen Ag eemen : as bo de p o ec ion is a weakes - link public good, se -
e al Eas e n Eu opean coun ies ha e no been able o join his elemen o he EU
T ea ies. Incumben coun ies eques a high le el o bo de p o ec ion o ensu e
ha he bene i s o emo ing in e nal bo de con ols a e no unde mined by some
membe s. Eu o membe ship is ano he illus a i e example: new membe s mus
subjec hemsel es o con e gence c i e ia and EU iscal ules equi ing solidi y o
na ional budge s. A common cu ency has ea u es o a weakes - link public good,
as a c i ically uns able coun y may cause epe cussions o all o he membe s.
15 Sébas ien Dupuch, Hugues Jennequin, and El Mouhoud Mouhoub, ‘EU Enla gemen : Wha Does
i Change o he Eu opean Economic Geog aphy?’ (2004) 91 Re ue de l’OFCE, P esses de Sciences-
Po 241; Paolo Cecchini, The Eu opean Challenge 1992: The Bene i s o a Single Ma ke : Eu opean
Challenge— Bene i s o a Single Communi y (Gowe Publishing L d 1998).
16 A jan M Lejou , Vladimi Solanic, and Paul JG Tang, ‘EU Accession and Income G ow h: An
Empi ical App oach’ (2009) 16 T ansi ion S udies Re iew 127.
EU Law and Economics. A min S einbach, Ox o d Uni e si y P ess. © Ox o d Uni e si y P ess 2025.
DOI: 10.1093/ 9780198920915.003.0010
10
Cen aliza ion
The objec i es o pu suing coope a ion wi hin he EU, laid ou in Pa I, e e
o he mo i a ion o in e ju isdic ional e iciency.1 In e ju isdic ional e iciency
seeks o de e mine he bes alloca ion o esou ces among di e en ju isdic-
ions. In e ju isdic ional e iciency is achie ed when he public policies o e ed
by he go e nmen sa is y he collec i e demands o ci izens a he lowes cos .2
In e ju isdic ional e iciency add esses he ounda ional p oblem and a ionale o
he EU— i acknowledges he legal Wes phalian sys em o ela ionships be ween
Eu opean so e eign s a es. The e a e mul iple mo i es o coope a ion as a esul o
in e ju isdic ional (in)e iciencies, such as ex e nali ies ei he be ween indi iduals
in one s a e and indi iduals in ano he o be ween public policies. These ex e nal-
i ies can ei he be channelled h ough p ices (and amoun o ma ke ailu e) o , i
e lec ed in p ices, hey can be el as spillo e s in neighbou ing s a es (and amoun
o ‘begga - hy- neighbou ’ policies).3 Hence, in e ju isdic ional ine iciencies a ise
i Membe S a es p oduce decen alized spillo e s which a e likely o igno e he
o e all economic cos s o bene i s which will lead hem o o e - o unde p o ide
he ac i i y.
In his chap e , we a e conce ned wi h in aju isdic ional e iciency. In heo y,
i conce ns he choice o public policy sa is ying he collec i e demand wi hin a
gi en ju isdic ion in a way ha ensu es ci izens’ willingness o pay o hose ac i -
i ies. In aju isdic ional e iciency add esses he ques ion whe he public ac i i ies
a e pu sued ei he a he EU le el o a Membe S a e le el. In gene al e ms, he
EU should se he public policy i he bene i s- o- cos a io is mo e a ou able com-
pa ed o when Membe S a es pu sue he policy indi idually. In aju isdic ional
e iciency s a egies may aim a educing ba gaining and ansac ion cos s o es-
ablish ins i u ions o e eal and dissemina e in o ma ion ha would no be a ail-
able in a se ing o bila e al in e ac ion be ween EU Membe S a es, such as he EU
Commission and he ECJ. Likewise, cen aliza ion can acili a e he en o cemen
1 F ank H Eas e b ook, ‘Fede alism and Eu opean Business Law’ (1994) 14 In e na ional Re iew
o Law and Economics 125, 129; Alan O Sykes, ‘Ex e nali ies in Open Economy An i us and
Thei Implica ions o In e na ional Compe i ion Policy Compe i ion, F ee Ma ke s, and he Law-
Symposium on Law and Public Policy- 1999’ (1999) 23 Ha a d Jou nal o Law and Public Policy 89.
2 Robe P Inman and Daniel L Rubin eld, ‘Re hinking Fede alism’ (1997) 11 Jou nal o Economic
Pe spec i es 43; Cha les M Tiebou , ‘A Pu e Theo y o Local Expendi u es’ (1956) 64 Jou nal o
Poli ical Economy 416.
3 Hend ik Sp uy , ‘Ins i u ional Selec ion in In e na ional Rela ions: S a e Ana chy as O de ’ (1994)
48 In e na ional O ganiza ion 527.
82 a min s einBach
o ag eemen s: when bila e al o egional coope a ion elies on decen alized en-
o cemen , he e is a pe ennial isk o unde compliance because he cos s o en-
o cemen de e he en o cing pa y, unlike wi h a neu al en o ce (such as he EU
Commission and he ECJ) who mu ualizes he cos s o en o cemen , gi ing ise o
a second- o de collec i e ac ion p oblem (see below Chap e 14).
The in aju isdic ional ques ion o whe he and how o cen alize wi hin he EU
e ol es a ound wo co e legal p o isions in he EU T ea y— he p inciple o con-
e al and he p inciple o subsidia i y. While he p inciple o con e al go e ns he
limi s o EU compe ences, he use o hose compe ences is go e ned by he p in-
ciple o subsidia i y. The p inciple o con e al embodies he deep Wes phalian
in e na ional law idea ha he EU’s compe ences a e olun a ily con e ed on i
by i s Membe S a es and ha he EU mus emain wi hin hese bo de s— he EU
is ea ed as a ‘dependen a iable’, c a ed in line wi h he p e e ences o Membe
S a es as ‘mas e s o he T ea ies’ o as ‘independen a iables’.
The legal EU ja gon o ‘compe ences’ is a key e m which encapsula es he de-
g ee o which Union ins i u ions o Membe S a es can exe cise au ho i y in a
gi en policy a ea. Wi h compe ences being no hing mo e han au ho i y, we may
le e age T ach man’s p ope y igh analogy applied o in e na ional law. In his
ein, Eu opean law may be unde s ood in e ms o ecip ocal es ain s on s a e
au onomy, and he e o e as ansac ions ega ding he exe cise o ju isdic ion. This
lends i sel o he a gumen ha ju isdic ion is analogous o p ope y in a p i a e
con ex . Ju isdic ion gi es s a es he powe o ule on ac i i ies and asse s, while
p ope y gi es indi iduals he igh o con ol ce ain asse s.4 Bo h ju isdic ion and
p ope y igh s a e cons uc ed by law o encompass ce ain igh s, and bo h ju is-
dic ion and p ope y igh s a e ans e able.
The p ope y igh s heo y o e s insigh s in o he EU’s na u e as an in e -
na ional o ganiza ion o which membe s ha e su ende ed ce ain so e eign unc-
ions (ie hei powe o exe cise ju isdic ion). One may inqui e whe he and o
wha ex en cen aliza ion— a ans e o ju isdic ion— should occu . The heo y
o p ope y igh s sugges s an ini ial es ing o igh s in a ou o hose who a e
likely o alue hem mos , in o de o minimize ansac ion cos s.5 Le ’s assume
wo s a es, one which pu sues domes ic egula ion o domes ic policy easons, bu
which c ea es a nega i e e ec on ano he coun y. The p ope y igh s s a egy
would ask om a no ma i e pe spec i e which coun y would alue he igh o
egula e mos , and o his coun y sole au ho i y should be gi en. Speaking o a
ju isdic ion ha ing a alue is alien o legal ja gon, bu i connec s o an economic
e ec o ien a ion. Socie ies posi i ely alue he pu sui o public alues, bu hey
nega i ely alue being ad e sely a ec ed (eg h ough nega i e policy spillo e s.)
4 Joel P T ach man, The Economic S uc u e o In e na ional Law (Ha a d Uni e si y P ess
2008) 72, 31.
5 Richa d A Posne , The Economics o Jus ice (Ha a d Uni e si y P ess 1983).
cen aliza ion 83
Hence, he alue a go e nmen a aches o ju isdic ion is p opo iona e o he
bene i s i can ob ain h ough egula ion, o h ough a oidance o he applica ion
o ano he s a e’s egula ion.6
In such si ua ions, he p ope y igh s heo y would sugges ha ju isdic ion
should be alloca ed o he coun y ha would be chosen in nego ia ion be ween
coun ies in he absence o any ansac ion cos s. An ine icien alloca ion would
be one whe e all nega i e o posi i e e ec s o a coun y’s egula ion would ma e i-
alize in ano he coun y. In u n, i mixed e ec s occu (o i he egula ing coun y
alues he domes ic policy posi i ely while he a ec ed coun y nega i ely), he
dispe sion o ju isdic ion among all a ec ed ju isdic ions would be he op imal
solu ion.7 In his case, he app op ia e en i y o exe cising p esc ip i e ju isdic-
ion may no be a na ional go e nmen bu an in e na ional o ganiza ion— such
as he EU.
In p ac ice, i is clea ly di icul o de e mine how much a coun y alues he
igh o egula e o how i pe cei es o eign policies as cos s. This sugges s ha he
au ho i y o alloca e p ope y igh s should be gi en o he en i y who is able o
analyse cos s and bene i s, and o ini ia e app op ia e e- alloca i e ansac ions.8
F om his pe spec i e, in he con ex o mul iple coun ies such as in he EU, a neu-
al en i y is posi ioned o ac as b oke and agen o collec in o ma ion and o as-
sess c oss- bo de compa isons o cos s and bene i s. This logic is indeed ensh ined
in he EU’s sha ed compe ence p inciple (A icle 5(3) TEU) — i pa es he way o
wo al e na i e alloca ions o ju isdic ion. Ei he Membe S a es emain compe-
en in cases whe e he ac ing s a e pu sues a policy (one o which i a aches posi-
i e alue). As long as he s a e manages o achie e he policy objec i e by ac ing
alone, he ju isdic ion emains wi h he Membe S a e. O , he single s a e does no
achie e he policy objec i e e ec i ely— ei he because i causes ha m o ano he
s a e (nega i e ex e nali y), o because i emains insu icien ly implemen ed. In
hese cases, he EU moni o s he o e all e ec s wi hin he EU and assumes compe-
ence o ac .
a) P incipal o con e al: which ole o he
EU and Membe S a es?
Inqui ing in o he p inciple o con e al laid down in A icle 5(1) TEU om an eco-
nomic pe spec i e can un old in wo dimensions. Fi s , he p inciple o con e al
can be unde s ood as an alloca ion de ice in he sense ha i s abilizes a ce ain
compe ence dis ibu ion be ween he EU and Membe S a es— his dis ibu ion
6 T ach man (n 4) 41.
7 ibid 42.
8 Guido Calab esi, The Cos s o Acciden s: Legal and Economic Analysis (Yale Uni e si y P ess 1970).

84 a min s einBach
can be e icien o ine icien om an in aju isdic ional pe spec i e. The p inciple
o con e al is hus inex icably linked o he ques ion o whe he a compe ence
should be deal wi h a Membe S a e o EU le el. The p inciple o con e al en-
sh ines he no ion o Kompe enz- Kompe enz, posi ing ha i is Membe S a es who
decide on he scope o su ende ing compe ences o he EU.9 This posi i is - legal
app oach can be con as ed wi h an economic iew as o how he compe ence al-
loca ion be ween he cen e and he decen alized en i ies, ha is, be ween he EU
and Membe S a es, should be designed (i espec i e o i s posi i is alloca ion).
This ques ion leads us o ede alism heo y, which o e s insigh in o he ela ion-
ship be ween he EU and i s Membe S a es.10 In his con ex , ‘homogenei y’ has
been a e m widely used by lawye s, poli ical scien is s, and economis s in o de o
make in e ences on he op imal dis ibu ion o compe ences be ween he cen e
and i s membe s.11 Cul u al homogenei y has been discussed as a p e equisi e o
s a ehood and was seen as a ba ie o mo e EU cen aliza ion,12 while homogen-
ei y o p e e ences cap u es he economic ya ds ick o de e mine he op imal le el
o egula ion.13 Mo eo e , lawye s ake ecou se o ‘legi imacy’, and poli ical sci-
en is s ha e dis inguished be ween inpu and ou pu legi imacy o jus i y public
au ho i y, a dis inc ion ha one can cap u e wi h he ou come ocus o wel a e eco-
nomics e sus he p ocess o ien a ion o cons i u ional economics.14
While he i s ques ion conce ns he ole o he p inciple o con e al in making
he op imal dis ibu ion o powe s, we can also ask a second ques ion— whe he
he p inciple o con e al is e ec i ely applied and espec ed wi hin he exis ing al-
loca ion o compe ences in he EU. This second pe spec i e accoun s o he judi-
cial inno a ions c a ed by he ECJ, p opelling a dynamic ushe ing o EU law in o
doc inal in en ions such as ‘implied powe s’ o e e u ile which can be unde s ood
as legal echniques unde mining he p inciple o con e al.15 The i s ques ion
9 E in Delaney, ‘Managing in a Fede al Sys em wi hou an “Ul ima e A bi e ”: Kompe enz in he EU
and he An e- Bellum Uni ed S a es’ (2005) 15 Regional & Fede al S udies 225.
10 Wallace E Oa es, ‘On he E olu ion o Fiscal Fede alism: Theo y and Ins i u ions’ (2008) 61
Na ional Tax Jou nal 313.
11 Ma hias Mahlmann, ‘Cons i u ional Iden i y and he Poli ics o Homogenei y’ (2005) 6 Ge man
Law Jou nal 307; Oli e Made , ‘En o cemen o EU Values as a Poli ical Endea ou : Cons i u ional
Plu alism and Value Homogenei y in Times o Pe sis en Challenges o he Rule o Law’ (2019) 11
Hague Jou nal on he Rule o Law 133.
12 S ephen Wea he ill, ‘Why Ha monise?’ in Takis T idimas and Paolo Nebbia (eds), Eu opean
Union Law o he Twen y- Fi s Cen u y: Re hinking he New Legal O de (Ha Publishing 2003) 11, 13;
S elio Mangiameli, ‘The Eu opean Union and he Iden i y o Membe S a es’ (2013) No 369 L’Eu ope
en Fo ma ion 151.
13 Wallace E Oa es, Fiscal Fede alism (Ha cou B ace Jo ano ich 1972).
14 Vik o J Vanbe g, ‘Ma ke and S a e: The Pe spec i e o Cons i u ional Poli ical Economy’ (2005)
1 Jou nal o Ins i u ional Economics 23, 28.
15 Ca l Lebeck, ‘Implied Powe s beyond Func ional In eg a ion— The Flexibili y Clause in he
Re ised EU T ea ies’ (2007) 17 Jou nal o T ansna ional Law & Policy 303; Elio Macia iello, ‘EU
Agencies and he Issue o Delega ion: Con e al, Implied Powe s and he S a e o Excep ion’ (2019) 4
Eu opean Pape s 723; U ška Šadl, ‘The Role o E e U ile in P ese ing he Con inui y and Au ho i y
o Eu opean Union Law : E idence om he Ci a ion Web o he P e- Accession Case Law o he Cou
o Jus ice o he EU’ (2015) 8 Eu opean Jou nal o Legal S udies 18.
cen aliza ion 85
can be boiled down o asking whe he public policy ac ion is be e placed a he
EU le el o a he decen alized Membe S a es le el. The second ques ion asks
whe he and how he p inciple o con e al should be adhe ed o— h ough a s ic
o lexible in e p e a ion.
Fede alism heo y: decen aliza ion as he op imal solu ion?
The p inciple o con e al can be explo ed by asking whe he he e should be
many indi idual EU membe s ac ing sepa a ely ins ead o one single EU en i y.
The heo y o sys em compe i ion ancho ed in ins i u ional economics o e s an
answe . Cha les Tiebou o e ed a model desc ibing iscal compe i ion be ween
many independen local go e nmen s.16 The Tiebou model is an ex ension o he
pu ely compe i i e ma ke model wi h comple e in o ma ion. Go e nmen al o
in e ju isdic ional compe i ion ollows he logic o e icien p i a e ma ke compe-
i ion and builds on simila ly s ong assump ions, bu he basic insigh om he-
o ies o ede alism is ha ju isdic ion o e a p oblem should be alloca ed o he
lowes le el o go e nmen capable o in e nalizing he ele an ex e nali ies.17 A
he cen e o his is he idea ha s a es compe e o ci izens as mobile esou ces.
The a ionale o decen alized indi idual o membe s a es is ha hey can be e
accommoda e he speci ic p e e ences o hei ci izens and hus p o ide be e
public se ice o e s (‘ ace o he bes i ’).18 I easons ha he s a e supplies public
goods a speci ic ax p ices and uses his ‘p oduc ’ o compe e wi h o he s a es o
ci izens.
Wi h he ocus on indi iduals’ p e e ences, om he Tiebou pe spec i e, he
wo ld o compe i i e go e nmen s will allow o he analogy o a ma ke place in
which indi iduals mo e among local ju isdic ions o selec he public goods and
public se ices combina ion ha hey mos desi e. By de ini ion, ci izens can
choose hei p e e ed legal egime in he same way consume s choose among
compe ing p oduc s. Unde ce ain assump ions— such as ic ionless legal com-
pe i ion, ins i u ional ules such as mu ual ecogni ion— he e will be a compe i-
i e legal equilib ium maximizing agg ega e wel a e.
F om a poli ical economic pe spec i e, compe i ion is in ended o os e legal
di e si y in o de o be an e ec i e cons ain on public policy- make s who a e
no inclined o ac in bene olen ways. Jus as compe i ion on he supply side e-
duces he ma gin and p omo es quali y, he compe i i e en i onmen in ju is-
dic ional ma ke s disciplines he law- make ’s disc e ion. In o de o maximize
16 Tiebou (n 2).
17 Inman and Rubin eld (n 2).
18 Da id Ch is oph Ehmke, Ins i u ional Cong uence he Riddle o Le ia han and Hyd a, ol 16
(Nomos Ve lagsgesellscha 2018) 38.
86 a min s einBach
p o- compe i i e p essu e, ansac ion cos s should be minimized in o de o acili-
a e ci izens’ choices. The esul ing hypo hesis is ha law gi es s a es an incen i e
o compe e by p o iding e icien legal ules.19 I ollows om his poli ical eco-
nomic logic ha decen alized solu ions ha lea e compe ences a Membe S a e
le el, a e all he mo e app op ia e he mo e he e ogeneous egional p e e ences
a e.20 Since indi idual needs a e di e en due o cul u e, e hnici y, his o y, and
he s a e o he economy, decen alized solu ions can be e design sui able public
goods, ha is, ailo ing hei supply o indi idual p e e ences.21
The mo e di e se he p e e ences be ween egions and he mo e homoge-
neously hey a e dis ibu ed wi hin egions, he mo e ad an ageous he compe-
i ion be ween EU membe s is, and he mo e disad an ageous Eu opeaniza ion
is.22 Howe e , his heo y does no a e well in he p ac ical eali ies o he EU. The
Tiebou amewo k posi s a numbe o s ong assump ions, one o which is mo-
bili y o households among ju isdic ions a no cos , o ha businesses can easily
choose he ju isdic ion ha o e s he ax- expendi u e- egula ion package ha i
mos p e e s.23 Ye mobili y cos s emain high in he EU, despi e he ee mo emen
o pe sons and employees s imula ing mobili y.24 The eu o c isis igge ed some,
hough limi ed, sou h– no h mig a ion, ye conside able ba ie s o he ‘exi ’ e-
main (eg language, ecogni ion o p o essional quali ica ion). Also, a ( oo) s ong
assump ion o he Tiebou model is he pe ec ly elas ic supply o public goods in
EU Membe S a es, one ha assumes each s a e o be capable o eplica ing all o
he a ac i e economic ea u es o i s compe i o s. The idea o ‘ine icien poli i-
cians’ being d i en ou o he ma ke h ough elec ion igno es he eali ies o pol-
i ical economics. In addi ion, in o ma ion p esuming households, ci izens, and
businesses o be ully in o med abou he iscal and egula o y policies o each ju -
isdic ion, appea s an o e ly ambi ious heo ical assump ion. Households and busi-
nesses a e o en ill- in o med— i is di icul o hem o asce ain he implica ions
o egula ions, ax ules, and public ac i i ies, le alone o make a compa ison wi h
o he EU Membe S a es gi en egula o y idiosync asies in EU Membe S a es.
19 F ancesco Pa isi and Vincy Fon, The Economics o Lawmaking (Ox o d Uni e si y P ess
2008) 52, 7.
20 S ephen Wea he ill, ‘P o ec ing he In e nal Ma ke om he Cha e ’ in Sybe de V ies, Ul Be ni z,
and S ephen Wea he ill (eds), The EU Cha e o Fundamen al Righ s as a Binding Ins umen : Fi e
Yea s Old and G owing (Ha Publishing 2016) 151.
21 Robin Boadway and Anwa Shah, Fiscal Fede alism: P inciples and P ac ice o Mul io de
Go e nance (Camb idge Uni e si y P ess 2009) 35.
22 Cha les B Blanka , Föde alismus in Deu schland und in Eu opa (Nomos Ve lagsgesellscha
2007) 59.
23 Tiebou (n 2); William W B a on and Joseph A McCahe y, ‘The New Economics o Ju isdic ional
Compe i ion: De olu iona y he New Economics o Ju isdic ional Compe i ion: De olu iona y
Fede alism in a Second- Bes Wo ld Fede alism in a Second- Bes Wo ld’ (1997) 86 Geo ge own Law
Jou nal 201.
24 In he US, mo ing be ween s a es is mos ly job mo i a ed and no due o a mo e a ac i e public
se ice en i onmen , F ank H Eas e b ook, ‘An i us and he Economics o Fede alism’ (1983) 26
Jou nal o Law and Economics 23.
cen aliza ion 87
Indi iduals and businesses ace high cos s in esol ing his lack o compa abili y
and unde aking a cos - bene i calculus. Adding o his, while sys em compe i ion
may be e icien om an alloca ion pe spec i e, i has c oss- egional dis ibu ional
e ec s h ough ‘begga - hy- neighbo ’ policies. EU coun ies can y o en ice
in e na ional ma ke sha es away om o he EU membe s o hei indus ies by
educing wages and hus inc easing hei cu en accoun su plus, which impai s
he ela i e compe i i eness o o he coun ies.25 In he wo s case scena io, his
may cause a ha m ul ‘ ace o he bo om’, when social and en i onmen al s anda ds
a e disman led.26 O e all, his can lead o subop imal compe i ion o socie y as a
whole.27
‘Homogenei y’ o wha : p e e ences o public space?
Bu e en i one acknowledges ede alism heo y’s plea o decen alized Membe
S a e compe ences, he heo y builds on a no ion o p e e ences o ien a ion ha
may be con es ed om legal and poli ical science pe spec i es. Economics, law,
and poli ical science con e ge a a pi o al junc u e o EU go e nance esea ch, ha
is, de e mining wha ju isdic ional le el— local, egional, na ional, o EU- wide—
public au ho i y should be exe cised. Homogenei y and he e ogenei y a e bo h
e ms ha ha e inspi ed economic, legal, and poli ical schola ship and hey may
en ail commonali ies, bu also di e gences.
Take he economic ele ance o he e ogenei y o p e e ences o he p o ision
o public goods. Unlike p i a e goods, public goods a e ha d o adjus o di e se
p e e ences. Since all public goods a e non- i al ous, ci izens mus accep he
same se o public good cha ac e is ics, whe he hey align wi h hei p e e ences
o no . Na u ally, when he EU egula es a he e ogeneous g oup o ci izens wi h
di e en no ms, alues, and habi s, we a e mo e likely o obse e he eme gence
o disag eemen s o e public goods and policies, such as how secu i y should be
supplied o wha he p e e ences o en i onmen al p o ec ion conce n.28 The
EU has no s ic ly ollowed his a ionale o aligning homogenei y (he e ogen-
ei y) o p e e ences wi h ha moniza ion (decen aliza ion) o laws: ha moniza ion
25 Palma Polyak, ‘The Silen Lose s o Ge many’s Expo Su pluses. How Cu en Accoun
Imbalances A e Exace ba ed by he Mis ep esen a ion o Thei Domes ic Cos s’ (2024) 22 Compa a i e
Eu opean Poli ics 31.
26 Ca he ine Ba na d, ‘Social Dumping Re isi ed: Lessons om Delawa e’ (2000) 25 Eu opean Law
Re iew 57 (a guing agains he ‘ ace o he bo om’ as a Eu opean p oblem a leas in he a ea o social
policies).
27 Albe B e on, ‘The Exis ence and S abili y o In e ju isdic ional Compe i ion’ in Daphne
A Kenyon and John Kincaid (eds), Compe i ion among S a es and Local Go e nmen s (The U ban
Ins i u e P ess 1991); Robe P Inman and Daniel L Rubin eld, ‘Economics o Fede alism’ in F ancesco
Pa isi (ed), Ox o d Handbook o Law and Economics (Ox o d Uni e si y P ess 2017) 90.
28 En ico Spolao e, ‘The Economic App oach o Poli ical Bo de s’ (2022) CESi o Wo king Pape
No 10165.
94 a min s einBach
di ec ly eed in o he composi ion o go e nmen s and s a e leade ship. The lack
o inpu legi imacy has widely been c i icized by lawye s and has led hem o e-
ques ha he EU should no u he expand i s compe ences.57 O he s ha e em-
phasized he poo pe o mance in e ms o ou pu legi imacy.58 The p ocess o
sup ana ionaliza ion led o a shi o go e nmen al powe om he poli ized na-
ional le el, which was deeply oo ed and connec ed o na ional ci izens, o he
echnoc a ic EU le el ha de ines i sel h ough echnoc a ic esolu ion o i s
compe ences.59 The me i o depoli iza ion was seen in i s abili y o ensu e be e
go e nance o he people wi hou signi ican e ec s on go e nance by and o he
people.60
Inpu legi imacy may ind i s economic co olla y in wha cons i u ional eco-
nomics has desc ibed as ci izens’ so e eign y. Cons i u ional economics sugges s
a no ma i e design o hese cons i u ions, as ini ially coined by William H. Hu 61
and elabo a ed by Vik o Vanbe g62: an economic cons i u ion ha enhances con-
sume so e eign y, and a poli ical cons i u ion ha enhances ci izen so e eign y.
While consume so e eign y builds on he p oposi ion ha non- disc imina o y
ma ke compe i ion and in e nalized ex e nali ies gene a e wel a e maximizing
ou comes, ci izen so e eign y looks a he collec i e a angemen s in he poli -
ical a enas, allowing o ma ion o poli ical will h ough ‘coope a i e en u es o
mu ual ad an age’.63 In a manne simila o consume so e eign y, ci izen so e -
eign y places he indi idual a he hea o a democ a ic poli y, in whose common
in e es s he poli y should be ope a ed. Acco dingly, he poli ical p ocess should be
ins i u ionally amed in a manne ha makes ci izens’ common in e es s i s p in-
cipal con olling o ce.64 In o he wo ds, ci izen so e eign y equi es ha poli ical
ins i u ions, domes ic poli icians, and bu eauc acies as well as in e na ional o gan-
iza ions a e made mos esponsi e o ci izens’ common in e es s— a equi emen
echoed by inpu legi imacy. Ins i u ions, decision- making p ocesses, undamen al
igh s p o ec ions, and adjudica ion mus be implemen ed and espec ed in ways
ha maximize he p ospec o he poli ical p ocess wo king o he mu ual ad an-
age o all ci izens.65
57 Simon Hix and And eas Follesdal, ‘Why is The e a Democ a ic De ici in he EU? A Response o
Majone and Mo a csik’ (2006) 44 Jou nal o Common Ma ke S udies 533; Die e G imm, Eu opa
ja - abe welches? Zu Ve assung de eu opäischen Demok a ie. (CH Beck 2016) 29.
58 Giandomenico Majone, Eu ope as he Would- Be Wo ld Powe : The EU a Fi y (Camb idge
Uni e si y P ess 2009) 10.
59 James Fe guson, The An i- Poli ics Machine: De elopmen , Depoli iciza ion, and Bu eauc a ic
Powe in Leso ho (Uni e si y o Minneso a P ess 1994).
60 Schmid (n 55) 69.
61 William H Hu , Plan o Recons uc ion: A P ojec o Vic o y in Wa and Peace (Kegan Paul
1943) 215.
62 Vanbe g (n 14) 37.
63 John Rawls, A Theo y o Jus ice (Ha a d Uni e si y P ess 1971) 84.
64 Vanbe g (n 14) 42.
65 ibid.

cen aliza ion 95
In u n, wel a e economics’ ocus on ou comes can be likened wi h ou pu le-
gi imacy. Assessing whe he policy decisions a e adop ed in line wi h ci izens
p e e ences is p edica ed on whe he he policy ou come ma ches wha ci izens
wan . Ou pu legi imacy ocuses on whe he public policies ac ually se e he
common good in line wi h he communi y no ms. Ou pu legi imacy is empi -
ically assessable: he ex en o which he ou comes o a go e ning au ho i y’s pol-
icies a e e ec i e in sol ing he poli y’s p oblems and objec i es.66 Some schola s
ha e a gued ha he EU’s lack o inpu legi imacy could be compensa ed by i s
pe o mance in ou pu legi imacy. While he EU’s policy- making h ough non-
majo i a ian ins i u ions was c i icized om an inpu legi imacy pe spec i e, hei
compa a i e posi i e eco d in p oducing e ec i e policies has been app ecia ed.67
O he s ha e emphasized he bene i s o he checks and balances in he EU’s mul-
iple e o sys em o ensu e app op ia e ou comes.68 The e is no empi ical p oo
ha EU decisions ac ually sa is y ci izens’ p e e ences. One could d aw on su eys
highligh ing he le el o sa is ac ion wi h EU policies o pa icipa ion in elec ions
o he EU pa liamen , o e e o he pe cep ion o indi idual e en s aking place
a he EU le el— such as p o es s in F ance and elsewhe e agains he Commission’s
ini ial se ices di ec i e o he p o es s o a me s on he s ee s o B ussels.69
In conclusion, he legal and poli ical science concep s e ol ing a ound homo-
genei y and legi imacy can be likened wi h economic concep s in di e en ways.
Some lawye s e e o homogenei y o ci izens as e e ence poin s o which and
how many compe ences can be shi ed o he EU le el— acco ding o some, only
i he e is a su icien Eu opean iden i y, a sense o ‘peoples- hood’, an iden i y
p edica ing on people’s sha ed sense o belonging o a poli ical communi y and
accep ance o Eu opean p ac ices. Economis s in u n ha e used homogenei y o
p e e ences as a concep o de e mining he scope o cen aliza ion e sus decen-
aliza ion. Economics also connec s o he long- s anding academic discou se on
cap u ing he EU’s iden i y by e e ence o inpu and ou pu legi imacy. The eco-
nomic pe spec i e may a y in his espec . On one hand, an ins i u ional eco-
nomic pe spec i e o p ocess- o ien a ion can be likened wi h inpu legi imacy
by ocusing on ci izens being able o a icula e hei p e e ences o public policy-
make s. On he o he hand, wel a e economics, unlike cons i u ional economics,
is conce ned wi h speci ic ou comes.70 To he ex en ha cons i u ional economics
emphasizes he accep abili y o he p ocess ha leads o a decision a he han he
66 Schmid (n 55) 32.
67 Giandomenico Majone, ‘Nonmajo i a ian Ins i u ions and he Limi s o Democ a ic
Go e nance: A Poli ical T ansac ion- Cos App oach’ (2001) 157 Jou nal o Ins i u ional and
Theo e ical Economics 57.
68 And ew Mo a csik, ‘In De ence o he Democ a ic De ici : Reassessing Legi imacy in he EU’
(2002) 40 Jou nal o Common Ma ke S udies 603.
69 Schmid (n 55) 61.
70 Vanbe g (n 14) 27.
96 a min s einBach
ou come, i connec s o inpu legi imacy, while s anda d wel a e economics wi h
i s ou come o ien a ion can be likened wi h ou pu legi imacy.
e e u ile and ‘implied powe s’
We can u he ask whe he he p inciple o con e al is e ec i ely applied and
espec ed wi hin he exis ing alloca ion o compe ences unde EU T ea ies. This
pe spec i e in i es an economic eye o he dynamic ensh ined in ju isdic ional
inno a ions de eloped by he ECJ such as ‘implied powe s’ o e e u ile, bo h o
which can be unde s ood as legal echniques inno a ed by he Cou wi hou ap-
p o al om he ‘mas e o he T ea ies’. Mo e gene ally, a compe ence shi in he
EU can be he esul o a c eeping e osion o compe ences.71 I is hen no he de-
libe a e a ional choice o EU membe s o ans e a se o public policies o he EU,
bu i is Union ins i u ions ha use he T ea y- based ans e ed compe ences o
expand hem in o mally h ough T ea y in e p e a ion, which p ac ically amoun s
o c eeping T ea y amendmen s ( hough wi hou complying wi h he subs an i e
equi emen s o amendmen s). In heo y, such an in e p e a ion would amoun o
a b each o he T ea y du y and iola e he p inciple o con e al, bu i ha b each
is condoned o e en commi ed by he ‘cus odians o he ea ies’ ( he Commission
and he ECJ), he Membe S a es ha e limi ed ecou se, pa icula ly i bo h he ex-
ecu i e and he judicia y o he EU ag ee on an ex ensi e in e p e a ion o EU law.
When i is easy o ci cum en he T ea y- based dis ibu ion o compe ences by way
o in e p e a ion and T ea y applica ion, he Kompe enz- Kompe enz as a s ong-
hold o na ional so e eign y loses i s unc ion o p o ec ing he so e eign y o he
Membe S a es.72
The implied powe s doc ine s a es ha a p incipal compe ence exp essly con-
e ed on he EU mus include hose powe s wi hou which he p incipal compe-
ency canno easonably and expedien ly be exe cised.73 This doc ine can ope a e
in a na ow o b oad manne , depending on whe he an au ho i y is deemed ‘ne-
cessa y’ o only ‘ easonably necessa y’ o he exe cise o he exp essly con e ed
powe s.74 Closely concep ually ela ed o his is he e e u ile in e p e a ion o
he ECJ, acco ding o which he T ea y- based compe ence should be in e p e ed
eleologically, wi h he aim o ully de eloping he meaning o he p o ision o o
achie ing i s ‘ ull e ec i eness’. The ECJ hus in e p e s he limi ed compe ence
71 S ephen Wea he ill, ‘P o ec ing he In e nal Ma ke om he Cha e ’ in Sybe de V ies, Ul Be ni z
and S Wea he ill (eds.), The EU Cha e o Fundamen al Righ s as a Binding Ins umen : Fi e Yea s Old
and G owing (Ha Publishing 2016), 133.
72 G imm (n 57) 112.
73 Pie Eeckhou , ‘The Doc ine o Implied Powe s’ in EU Ex e nal Rela ions Law (Ox o d Uni e si y
P ess 2011).
74 T e o C Ha ley, The Founda ions o Eu opean Communi y Law: An In oduc ion o he
Cons i u ional and Adminis a i e Law o he Eu opean Communi y (Cla endon P ess 1994) 110.
cen aliza ion 97
acco ding o he p inciple o e e u ile in such a way ha all concei able Union
powe s can be ully exploi ed.75
Typically, unde in e na ional law, cou s ha a e es ablished by Membe S a es
in e p e he ules ha we e designed by Membe S a es acco ding o he will o
Membe S a es. This co esponds wi h a a ional choice pe spec i e— Membe s
ha e no in e es in an in e na ional o ganiza ion u ning agains he will o he
ounde s. In e p e ing an ag eemen be ween s a es wi h e e ence o he his o ical
and ac ual will o Membe S a es ensu es ha in e na ional law is applied in line
wi h he p e e ences o hose who c a ed i . Some e en a gue ha only he o iginal
ag eemen o he cons i u ion ma e s.76
Ra ional choice sugges s ha s a es c ea ing an in e na ional ag eemen do so
on he p emise o e aining hei ull na ional so e eign y, e en i hey pa ially
bind hemsel es o decisions o he in e na ional o ganiza ions hey c ea e (eg ac-
cep ing compulso y WTO dispu e se lemen ulings). Likewise, and in line wi h
he Wes phalian logic o in e na ional law, con en ional legal in e p e a ion o-
cuses on he will o he s a e, i s agen s, in e p e ed by e e ence o, o example
documen s d a ed by go e nmen ep esen a i es.77 I he adjudica i e bodies de-
ia e om he ounding s a es’ in en ion, we speak o a p incipal agen issue, wi h
ba gaining cos s (p ede ining ules o limi de ia ion by adjudica i e bodies) o be
balanced wi h agency cos s (caused by de ia ion o he cou s as agen ). F om he
ea ly days o he Eu opean in eg a ion p ocess, he ECJ es ablished ha EU law
does no o m pa o egula in e na ional law, no is EU law dependen on na-
ional ac s. Ra he , he EU e ol ed independen ly om i s na ional o igins and an
au onomous legal o de eme ged, a sup ana ional cons uc ha s ands on i s own
ee , an ins i u ional o ganiza ion sui gene is.78 Consequen ly, he ECJ conside ed
i sel as no bound by con en ional ways o in e p e ing EU law ha would ha e
subjec ed he in e p e a ion o EU law o he will o he Membe S a es and, in pa -
icula , espec ing Membe S a es’ na ional so e eign y.
While a legal o iginalis in e p e a ion o law pa ne s wi h a a ional choice
pe spec i e, he na ow ocus on s a e pe spec i e con as s wi h a cons i u ional
economic pe spec i e, which is mo e conce ned wi h he impo ance o ongoing
ag eemen o ci izens wi h he legal a angemen a he han he issue o o iginal
ag eemen . We ecall ha cons i u ional economics posi s ‘ci izen so e eign y’ and
a p ocedu al esponsi eness o public policy choices o cu en membe s o so-
cie y.79 The cons i u ional economic ene s s a e ha i is he olun a y ag eemen
75 Michael Po acs, ‘E e u ile als Auslegungsg undsa z’ (2009) 44 Eu opa ech 465.
76 Ad ian Ve meule, Common Good Cons i u ionalism: Reco e ing he Classical Legal T adi ion
(Poli y 2022) 91.
77 G imm (n 57) 46.
78 William Phelan, ‘Wha is Sui Gene is abou he Eu opean Union? Cos ly In e na ional
Coope a ion in a Sel - Con ained Regime’ (2012) 14 In e na ional S udies Re iew 367.
79 Vanbe g (n 14).
98 a min s einBach
o all membe s o he cons i u ion ha p o ides legi imacy. I is conce ned wi h
he ongoing olun a y accep ance o membe s’ ci izens by i s cu en membe s.
Legi imacy o he cons i u ion is d awn om he consen o he cu en democ a ic
poli y, no om some o iginal ag eemen ha may o may no ha e exis ed a he
ounding o he poli y. Cons i u ional economics hence u ns he ‘o iginal in en ’
legal in e p e a ion upside down. Consequen ly, as Vi ien Schmid pu s i , ‘i a
cons i u ion is no longe gene ally accep ed by i s cu en membe s, i can su ely
no be conside ed mo e legi ima e han a cons i u ional a angemen ha may
ha e been imposed o iginally by ou side o ce o by dec ee, bu ha in i s cu en
ope a ion is me by gene al app o al wi hin he espec i e cons i uency’.80
Wi h cons i u ional economics mili a ing agains legal in e p e a ions a aching
alue o o iginali y in in e p e a ion and igidi y o T ea y applica ion, i may e en
aise doub s as o whe he he ‘p inciple o con e al’ e ec i ely p ese es he o i-
ginal alloca ion o compe ences. Cons i u ional economics looks a ou ably a
an ‘implied powe ’ legal in e p e a ion, one ha dynamically adap s o e ol ing
ci cums ances. To he ex en ha EU membe s conside a compe ence o be en-
sh ined in a compe ence o he EU T ea y, e en i no explici ly men ioned, hey
exp ess hei consen by p ac ice— a su icien indica ion o cons i u ional econo-
mis s o assume his cons i u es an a angemen o ‘mu ual gains’. Howe e , in p ac-
ice i has been Union ins i u ions— he Commission and he ECJ— who ha e been
in oking ex ensi e in e p e a ions o EU compe ences— no Membe S a es.81 One
should accep mu ual gains and consen wi h ex ensi e T ea y in e p e a ions only
i hey ha e been app o ed (unanimously) in he Council.
Clea ly, he suppo e s o li e al in e p e a ion and ‘o iginal in en ’ ha e a poin
when a guing ha he ini ial T ea y was subjec o (pa liamen a ian) app o al,
unlike he ‘implied powe ’ in e p e a ion. The claim ha cu en membe s o
socie y a e mo e ele an han he will o o iginal membe s lacks empi ical sup-
po because he e is no ac i e choice o cu en membe s, as no pa liamen a y
app o al no e e endum o e is exe cised in ela ion o ‘implied powe ’ in e p e -
a ion, while aci acknowledgmen o ECJ ju isp udence can ha dly be aken as
delibe a e app o al. Policy ac ions o speci ic EU policy decisions ha e ne e been
b ough o he ci izen’s choice. Ci izens’ choices o m he basic idea o ‘compe i-
i e ede alism’ (see abo e Chap e 4), ye T ea y amendmen s o implied powe s
a e limi ed o Membe S a es’ consen a icula ed h ough he Council a he han
di ec app o al by ci izens h ough elec ions o e e enda.
80 Schmid (n 55).
81 Au elien Po uese, ‘P inciple o P opo ionali y as P inciple o Economic E iciency’ (2013) 19
Eu opean Law Jou nal 612, 631; Ga e h Da ies, ‘Subsidia i y: The W ong Idea, in he W ong Place, a
he W ong Time’ (2006) 43 Common Ma ke Law Re iew 63, 64; Ma in Ne esheim, ‘G und ech liche
P ü ungsdich e du ch den EuGH’ (1995) Eu opäische Zei sch i ü Wi scha s ech 106.
cen aliza ion 99
b) Subsidia i y p inciple
A icle 5(1), sen ence 2 and (3) TEU ensh ines he p inciple o subsidia i y. F om
an economic pe spec i e he p inciple o subsidia i y is a co e elemen in a heo y
o sys em compe i ion o iscal ede alism. Taking iscal ede alism as a benchma k,
he subsidia i y p inciple can be economically ope a ionalized wi h e e ence o
ex e nali ies, economies o scale, and he e ogenei y o p e e ences. Legally, i is
a p inciple go e ning he exe cise o compe ences and as such p o ec s Membe
S a es om in usi e exe cise o Union powe . I p ecludes Union ac ion when a
ma e can be e ec i ely deal wi h by he Membe S a es a na ional, egional, o
local le el, and empowe s he Union o exe cise i s powe s when he objec i es o a
p oposed measu e a e no su icien ly sa is ied by he Membe S a es.82
The subsidia i y es unde EU law e ol es in wo s eps. Fi s , he policy ac ion
conce ned mus be one o sha ed compe ence be ween he Union and Membe
S a es. In he second s ep, he e ec i eness es applies inqui ing whe he he
policy ac ion ‘canno be su icien ly achie ed by he Membe S a es’. Conce ning
he na u e o he compe ence, when he EU holds exclusi e compe ences, o i
he compe ence, in line wi h he p inciple o con e al, emains wi h he Membe
S a es, he subsidia i y es does no apply. The exclusi e esponsibili ies o he EU
(A icle 3 TFEU) include cus oms policy, mone a y policy, compe i ion ules, and
he common ade policy. Sha ed compe ence (A icle 2(2) TFEU) includes, o
example, in e nal ma ke ules, ag icul u e, and en i onmen al policies.
The T ea y- based limi a ion o subsidia i y o sha ed (and no exclusi e) compe-
ence is no compelling om an economic pe spec i e, because he conside a ions
o e ed by he heo y o sys em compe i ion o iscal ede alism apply i espec i e
o he (a i icial) legal delinea ion. Su ely he compe ences acco ded exclusi ely
o he EU a e hose whe e economies o scale (cus oms adminis a ion), educed
ansac ion cos s (in e nal ma ke ), o a oidance o nega i e ex e nali ies (single
mone a y policy) a e a he in ui i e. Howe e , exclusi e compe ences a e ca ed
in o he T ea ies wi hou excep ion, which is no con incing o each and e e y
case. Take as an example how eu o membe s (exclusi e compe ence) would ha e
a ed h ough he eu o c isis wi h indi idual cu encies, allowing hem lexibili y
o de alue o app ecia e hei cu encies, and hus acili a e economic adjus men .
While hypo he ical in na u e, i is no ob ious ha a single cu ency in all ci cum-
s ances is he adequa e egime— T ea y- based exclusi e compe ence may no al-
ways mee he economic subsidia i y es .
82 On he economics o subsidia i y, see Roge an den Be gh, ‘The Subsidia i y P inciple in
Eu opean Communi y Law: Some Insigh s om Law and Economics’ (1994) 1 Maas ich Jou nal o
Eu opean and Compa a i e Law 337; on he legal con ou s o subsidia i y, seed Alan Dashwood, ‘The
Rela ionship be ween he Membe S a es and he Eu opean Union/ Eu opean Communi y’ (2004) 41
Common Ma ke Law Re iew 355, 356.

100 a min s einBach
The i s p ong o he subsidia i y es — does he issue conce ned all unde
sha ed compe ence?— is a pu ely legal explo a ion, one ha applies compe ence
delinea ion echniques based on T ea y- based compe ence alloca ion. EU lawye s
ypically assess he objec i e o he policy ins umen in o de o iden i y he co -
esponding compe ence.83 Wha ma e s o he ECJ in o de o de e mine which
compe ence is ele an is he objec i e pu sued by EU legisla o s which mo i a es
he use o a T ea y- based ins umen .84 The objec i e pu sued may be con o e sial
a imes— hink o he Ge man Bundes e assungsge ich ques ioning he ECB’s
objec i e o pu sue mone a y policy. The Bundes e assungsge ich conside ed
ECB bond pu chasing o be d i en by economic policy objec i es (Membe S a es’
compe ence), no mone a y policy (EU compe ence).85
The second and co e elemen o he es can be concep ualized as cos - bene i
analysis in o ming whe he he op imal le el o alloca ion o a gi en sha ed compe-
ence lies a he Membe S a e o EU le el.86 I hese condi ions a e me , he EU may
pu sue policies a he cen al le el. Lawye s end no o engage in a igid economic
assessmen o cos s and bene i s. Ra he hey apply common sense easoning by
aguely o e ing an accoun o how di e en conside a ions migh suppo ei-
he EU o Membe S a es compe ences.87 A mo e igid economic app oach is o
cha ac e ize he bene i s o cen aliza ion as he possibili y o exploi ing posi i e
ex e nali ies, a oiding nega i e ex e nali ies, o le e aging economies o scale in
he cen al alloca ion o policy esponsibili ies— on one side. On he o he side,
i would p incipally accoun o he cos s o ha moniza ion, as hose a e associ-
a ed wi h o e uling he e ogenei y o p e e ences. Balancing he bene i s wi h he
a ying p e e ences o he ci izen y, he op imal deg ee o cen aliza ion should
ensue: all unc ions whe e posi i e e ec s a e dominan should be held a he cen-
al le el, whe eas all unc ions whe e high he e ogenei y o p e e ences exceed he
bene i s should be kep a he local le el.88
83 Sionaidh Douglas- Sco , Cons i u ional Law o he Eu opean Union (Longman Pea son Publishe s
2002) 261; S ephen Wea he ill, ‘The Limi s o Legisla i e Ha moniza ion Ten Yea s a e Tobacco
Ad e ising: How he Cou ’s Case Law has become a “D a ing Guide” ’ (2011) 12 Ge man Law
Jou nal 827.
84 Case C- 370/ 12 P ingle (2012) EU:C:2012:756 [53]; Case C- 62/ 14 Gauweile and o he s
Deu sche Bundes ag (2015) EU:C:2015:400 [46].
85 BVe GE 154, 17, 119 PSPP (2020); ollowing Case C- 493/ 17 Hein ich Weiss and o he s (2018)
EU:C:2018:1000.
86 Jacques Pelkmans, ‘Tes ing o Subsidia i y’, B uges Eu opean Economic Policy (BEEP) B ie ing
13/ 2006 (2006).
87 G acia Va a A ibas, ‘Subsidia i y and EU Added Value: The Di icul y o E alua ing a Legal
P inciple in a P agma ic Way’ (2020) 3 Eu opean Cou o Audi o s Jou nal 30.
88 Pa isi and Fon (n 19); Wea he ill (n 12) 13.
cen aliza ion 101
(Dis- )economies o scale
Rele an economic ca ego ies o ope a ionalizing he subsidia i y p inciple a e
economies o scale, diseconomies o scales, and economies o scope. Economies o
scale a e disce nible om he logic o he Tiebou model, which s a es ha decen-
alized p o ision o public goods is p e e ed whe e ela i ely small popula ions
a e su icien o he e icien p o ision o he se ice. Bu ede alism heo y and i s
p e e ence o small go e nance uni s does no squa e well wi h o he go e nmen
se ices, whe e economies o scale allow o cos - e iciency when cen alizing he
p o ision o he public good. Examples include na ional de ence, elec ici y, and
elecommunica ion ne wo ks; ansna ional in as uc u e; mone a y policy; e-
sea ch; and pandemic heal h ac ion. Because o economies o scale (in addi ion o
ex e nali ies), hese goods and se ices can mo e e icien ly be p o ided o la ge
popula ions. Cen aliza ion may enhance e iciency.89
Howe e , some policy unc ions may be associa ed wi h diseconomies o scale
a he cen al le el. This concep cap u es he idea ha he e a e some hings ha
a e bes done a he Membe S a e le el. The e a e di e en kind o cos s ha oc-
casion he ans e o compe ences; no all a e genuinely economic in na u e.
Poli ical heo y poin s a alues o economic and p ocedu al ai ness, democ a ic
pa icipa ion, and he p o ec ion o pe sonal igh s and libe ies. Rega ding demo-
c a ic pa icipa ion, he e is ex ensi e li e a u e dealing wi h he ques ion o which
le el go e nmen ac i i ies should be placed in o de o maximize he impac o
cons i uen s on ac ual decision- making. Gi ing mo e local sel - go e nance in-
c eases pa icipa ion and hus inc eases chances ha public policies align wi h
local p e e ences, which is he ul ima e objec i e om an economic pe spec-
i e.90 I o e lapping ju isdic ions exis , people wi h con ol o e policy may adop
measu es ha a ec o he people who ha e no con ol o e policy, and his may
engende a ans e o weal h om he g oup wi h less con ol o he g oup in con-
ol.91 Fo example, ci izens in sub egion A may wish o be o e ed a di e en se
o public policies han in sub egion B. Thei needs on in as uc u e, secu i y, and
consume p o ec ion may di e ge. O e ing one- size- i s- bo h se ices lea es ci i-
zens in bo h egions pa ially unsa is ied, as hey ha e o bea cos s o se ices
o e ed o o he s.
Go e nmen ‘by he people’ is hus no only a co e idea o democ a ic go e n-
ance applicable o s a es in hei en i e y, bu also o e s an economic a ionale
o lowe - han- ede al- le el go e nance. This conce n is inhe en in he scep-
ical iews o legal and poli ical science schola ship ha lamen he lack o EU
89 Inman and Rubin eld (n 27) 88; Albe o Alesina, Ignazio Angeloni and Ludge Schuknech , ‘Wha
Does he Eu opean Union Do?’ (2005) 123 Public Choice 275, 53.
90 Robe Alan Dahl and Edwa d R Tu e, Size and Democ acy (S an o d Uni e si y P ess 1973).
91 Posne and Sykes (n 46) 15.
102 a min s einBach
democ a ic legi imacy.92 A ecu en a gumen is ha sup ana ional decision-
making in B ussels decouples decision- making and legi imacy, wi h he double
sou ce o legi imacy om Membe S a e ep esen a ion in he Council and he
ep esen a ion in he Eu opean Pa liamen as di ec ly elec ed body o e ing insu -
icien say o Eu opean ci izens. Concep ually, his a gumen builds on he idea o
ci izens as a na ionally de e mined g oup, as discussed abo e. A Eu opean ‘demos’
does no exis in ha pe spec i e, and as long as deba es in media and public dis-
cou se emain p edominan ly na ional, Eu opean decision- make s will emain
no o iously de icien in e ms o democ a ic legi imacy. This iew is p ominen ly
ep esen ed, as men ioned, in he Ge man Cons i u ional Cou and in pa s o
legal schola ship. I se es as a coun e a gumen opposing he ans e o compe-
ences ha a e pa icula ly elian on democ a ic inpu .93 This iew connec s easily
o emphasizing he alue o pa icipa ion a a sub- ede al le el.
Diseconomies o scale also p o oke he ollowing ques ion: which compe ences
a e non- amenable and should emain a Membe S a e le el? One could a gue ha
he p o ec ion o pe sonal igh s and libe ies should emain decen ally p o ec ed.
Isaiah Be lin e e s o ‘nega i e igh s’, such as physical in eg i y, which should be
secu ed well a local le el h ough local police and local ju isdic ion. The logic is
ha ce ain igh s a e bes p o ec ed by local ju isdic ions coupled wi h he ee
choice o ci izens as o hei place o esidence.94 A connec ed iew is he ‘ ans e
ba ie ’ ha he Ge man Cons i u ional Cou e ec ed as a ed line o gi ing up
na ional compe encies. In his logic, he ealiza ion o undamen al igh s, abo e
all as ega ds in ensi e enc oachmen s on undamen al igh s such as he dep i -
a ion o libe y in he adminis a ion o c iminal law, ouches co e democ a ic a -
ai s. As a gene al ule, in ensi e enc oachmen s on undamen al igh s ha e o
be based on na ional pa liamen a y decisions and should emain a p e oga i e o
na ional pa liamen s o which ci izens pa icipa e h ough elec ion. Simila ly, he
F ench Cons i u ional Council s a ed ha changes o he Eu opean T ea ies in he
sense o u he compe ence ans e s may be accep able p o ided ha hey do no
unde mine he essen ial condi ions o he exe cise o na ional so e eign y. Among
hese ‘essen ial condi ions’ a e he undamen al igh s and libe ies o na ionals.95
Wi h he sensi i i y o he ela ionship be ween legi imacy and undamen al igh s
being so high, decen alized pa icipa ion hus ensu es democ a ic sa egua ding o
undamen al igh s. While his is con incing o nega i e igh s, one may a gue he
con a y in ela ion o posi i e igh s such as equal access o educa ion, heal hca e,
92 G imm (n 57) 117; C um and Me lo (n 85).
93 Joseph HH Weile , ‘Does Eu ope Need a Cons i u ion? Demos, Telos and he Ge man Maas ich
Decision’ (1995) 1 Eu opean Law Jou nal 219.
94 Isaiah Be lin, Fou Essays on Libe y (Ox o d Uni e si y P ess 1969).
95 Pe e an Elsuwege, ‘The EU Cons i u ion, Na ional Cons i u ions and So e eign y: An
Assessmen o a “Eu opean Cons i u ional O de ” ’ (2004) 29 Eu opean Law Re iew 741, 746 wi h e -
e ence o he decision on 9 Ap il 1992, Conseil Cons i u ionnel, décision No 92- 308 DC.
cen aliza ion 103
and pe haps a sa e physical en i onmen . Equal access o achie e one’s ull po-
en ial will be bes p o ec ed wi hin democ a ic ede alism wi h esponsibili y as-
signed o a s ong cen al go e nmen .
F aming he legal conce ns wi hin ou economic amewo k, one could say ha
he e a e swi ching cos s associa ed wi h he ans e om Membe S a es o he
EU le el. These cos s, p ima ily poli ical and social, a y depending on he na u e
o he compe ence conce ned. Hence, Membe S a es canno igno e he ba ie s
e ec ed by cons i u ional cou s blocking he ans e o so e eign igh s. Pushing
in eg a ion u he may cause diseconomies o scale o he ex en ha he cos -
bene i assessmen unde he subsidia i y p inciple u ns nega i e.
Ano he sou ce o diseconomies o scale may esul om anishing ules com-
pe i ion. The inclusion o ules compe i ion as conside a ion o he subsidia i y
p inciple mili a es agains cen aliza ion. The logic is ha ule compe i ion (o
in e ju isdic ional compe i ion) se es as a disco e y ool o iden i y egula o y
pa hs o cos minimiza ion ha would emain un apped unde he ha moniza ion
o ules.96 Unlike cen aliza ion, ules compe i ion is no abou ha moniza ion
o ules, bu a he ules sha ing. Rules compe i ion leads ul ima ely o supe io
ules, because be e ules in one Membe S a e a e imi a ed in coun ies wi h in-
e io ules. Consequen ly, success ul and e ec i e ules employed in one Membe
S a e ha e a highe chance o being adop ed by o he Membe S a es by means o
legal ansplan a ion o by applica ion o choice- o - law ules. In hese cases, i is
no cen aliza ion, bu a he Membe S a es’ legisla ion ha p e ails. One may
hus iden i y an addi ional diseconomy o scale o ull cen aliza ion a he EU
le el gi en by he disappea ance o i uous ules compe i ion, which could p o-
ide ways o minimize he cos s o egula ion a he local le el bu also, by ex en-
sion, a he EU le el. Rules compe i ion hus makes i mo e di icul o a p oposed
cen aliza ion o pass he subsidia i y es . Applying a dynamic e iciency, ha is,
one ha inco po a es he cos ad an ages o ules compe i ion h ough dynamic
in e ac ion be ween Membe S a es, will add diseconomies o scale a cen al le el.
Inco po a ing he dynamic e ec o ules compe i ion in he subsidia i y es o e s
a ac o ha coun e balances he cen aliza ion push o he subsidia i y p inciple.
Economies o scope
While he a ionale behind (dis)economies o scale is in ui i e and well- esea ched,
economies o scope mus be aken in o accoun as well. Economies o scope e e
o he added alue o concen a ing he combina ion o wo o mo e policies a
he same le el o go e nmen ( ede al o sub ede al). This is because c ea ing and
96 Ge ha d Wagne , ‘The Economics o Ha monisa ion: The Case o Con ac Law’ (2002) 3 ERA
Fo um 77, 79; Wea he ill (n 12) 13.
110 a min s einBach
EU exclusi e compe ence ha es ic s he scope o ac ion o Membe S a es (eg in
ade issues); and using he eedoms g an ed unde in e na ional law ha su pass
he cons ain s o he EU communi y me hods (eg h ough in e go e nmen al
coope a ion1).
The deg ee o lexibili y ma ks a signi ican di e ence be ween in e na ional
law and Eu opean law. So law, agueness, and educed en o cemen a e ecu en
pa e ns o in e na ional law.2 In e na ional law dispu e esolu ion a ely binds
in he same ways as he sanc ion- based adjudica ion unde EU law, and a ‘quasi-
execu i e’ like he EU Commission is unpa alleled in in e na ional law. Finally,
T ea y ese a ions a e a lo mo e common in in e na ional law han unde EU
law.3 The legal li e a u e has add essed lexibili y o law h ough he lens o sys em-
ically analysing he con as o he mo e igid ypes o law in e ms o bindingness,
decision- making, and he sou ces o law employed.4 In u n, economic app oaches
o lexibili y ha e asked why s a es e ain lexibili y h ough T ea y design in ela-
ion o in e na ional law, e en i each s a e has an in e es ha all coun ies commi
o and comply wi h a ce ain subs an i e s anda d.5 One s aigh o wa d answe
is ha s a es seek o e ain scope o uncoope a i e and unila e al scopes o ac-
ion, e en i his lexibili y comes a he cos o o he T ea y membe s being lax
in hei commi men s oo, h ough ecip oci y o commi men s, which engende s
lowe ing he o e all gains om coope a ion. The ecip oci y p inciple go e ning
in e na ional law hus poses a ba ie o oo much lexibili y in he ag eemen .
Beyond his a he in ui i e case, pa ies may also p e e lexibili y when hey
an icipa e signi ican cos s associa ed wi h a b each ha a coun y is likely o
make in he u u e (eg o domes ic poli ical easons). Since hese iola ion cos s
could unde mine he coope a i e gains on a mo e pe manen basis, unde in e -
na ional law a coun y may choose a less igid commi men as a T ea y p o ision
in he i s place, e en i his means o egoing he bene i s o igid applica ion o
1 Sand ino Smee s, Alenka Jaschke, and De ek Beach, ‘The Role o he EU Ins i u ions in Es ablishing
he Eu opean S abili y Mechanism: Ins i u ional Leade ship unde a Veil o In e go e nmen alism’
(2019) 57 Jou nal o Common Ma ke S udies 675; Sand ino Smee s and De ek Beach, ‘ “I Takes Th ee
o Tango”: New In e - Ins i u ional Dynamics in Managing Majo C isis Re o m’ (2022) 29 Jou nal o
Eu opean Public Policy 1414.
2 Ch is B umme , ‘Why So Law Domina es In e na ional Finance— and No T ade’ (2010) 13
Jou nal o In e na ional Economic Law 623, 630; Michael Reisman, ‘The Concep and Func ions o
So Law in In e na ional Poli ics’ in Emmanuel G Bello and P ince Bola A Ajibola (eds), Essays in
Honou o Judge Taslim Olawale Elias (B ill 1992) 135.
3 And ew Guzman, How In e na ional Law Wo ks (Ox o d Uni e si y P ess 2008) 22, 33, 71, 119,
183; Howe e , Ko emenos’ empi ical accoun highligh s ha ese a ions a e a lo mo e common
in human igh s ag eemen s han in economics ag eemen s, Ba ba a Ko emenos, The Con inen o
In e na ional Law: Explaining Ag eemen Design (Camb idge Uni e si y P ess 2016) 3.
4 CM Chinkin, ‘The Challenge o So Law: De elopmen and Change in In e na ional Law’ (1989)
38 In e na ional and Compa a i e Law Qua e ly 850; Michael Hahn, ‘In e es ing Times: So Law in
In e na ional Economic Go e nance’ in Manjiao Chi, Ma c Bungenbe g, and And ea K Bjo klund
(eds), Asian Yea book o In e na ional Economic Law 2022 (Sp inge 2022).
5 Alan O Sykes, ‘The Economics o Public In e na ional Law’ (2004) John M Olin P og am in Law
and Economics Wo king Pape No 216.

lexiBili y 111
in e na ional law.6 This is likely o be di e en unde EU law, which has, hough
lexibili y exis s, commi ed o a compa a i ely s ic e egime wi h a mo e com-
pelling en o cemen mechanism in place. One ob ious di e ence jus i ying mo e
need o lexibili y a he in e na ional law le el han a he EU law le el is ha
p e e ences o EU membe s a e mo e homogenous han a he global le el which
makes excep ion and escape clauses less (o en) necessa y.7 Also, cos s o e ali-
a ion a e ele an : unde in e na ional law, he e is no cen alized sanc ioning
en i y ha would ei he bea o mu ualize he cos s o e alia ion be ween T ea y
membe s, bu sanc ions a e imposed la gely h ough bila e al ela ionships and
he e o e also impose cos s on he sanc ioning pa y (no only on he sanc ioned
pa y)— a ional sanc ioning pa ies may wan o a oid hese cos s and hus
choose mo e lexibili y in he T ea y design in he i s place.8 No e ha e en
unde he compa a i ely ad anced WTO dispu e se lemen mechanism, e ali-
a ion occu s bila e ally be ween he pa ies conce ned, no h ough cen alized
sanc ions. By con as , in he EU he e is an en o cemen mechanism (pu in place
by he Commission and he ECJ) ha assumes he cos s o e alia ion a he cen-
al le el, hence T ea y pa ies ace lowe cos s o en o cing igid T ea y p o isions
compa ed o he p edominan ly bila e al sanc ion s uc u e o in e na ional law.
a) Excep ions and escapes clauses
Focusing on speci ic o ms o lexibili y, T ea y designe s mus choose whe he
o c a ague T ea y language ha gi es leeway o disc e ion. Al e na i ely, he
T ea y may o esee explici lexibili y clauses. Depending on he need o lexi-
bili y, adap i e o ans o ma i e clauses can be in eg a ed in o he T ea ies.9
Adap i i y cap u es he no ion o allowing lexibili y wi hin he exis ing ag ee-
men in o de o allow o e icien non- applica ion o he ules. Adap i e clauses
exempli y lexibili y by allowing membe s o espond o unan icipa ed poli ical
e en s, economic shocks, and special domes ic ci cums ances while p ese ing
exis ing ins i u ional a angemen s. S icking s ic ly o he T ea y commi men
in his case would incu high compliance cos s i an e icien decision would be
non- compliance, while bla an ly b eaching he ules would incu iola ion cos s
associa ed wi h dis espec ing he binding ag eemen wi h de imen al long- e m
e ec s on he c edibili y o he ules.
6 Guzman (n 3) 135.
7 This is also in line wi h egional coope a ion being gene ally mo e likely o succeed han a he
global le el, A min S einbach, ‘The T end owa ds Non- Consensualism in Public In e na ional Law: A
(Beha iou al) Law and Economics Pe spec i e’ (2016) 27 Eu opean Jou nal o In e na ional Law 643.
8 Guzman (n 3) 140.
9 Ba ba a Ko emenos, Cha les Lipson, and Duncan Snidal, ‘The Ra ional Design o In e na ional
Ins i u ions’ (2001) 55 In e na ional O ganiza ion 761, 773.
112 a min s einBach
Unde hese ci cums ances, adap i e clauses hus educe he o e all le el o
compliance by allowing de ia ions om he desi ed commi men le el o ake
place in a law ul manne so as no o o ce a T ea y membe o iola e he ules.
Adap i e clauses educe he o al cos s incu ed in he e en o non- compliance
wi h he subs an i e T ea y commi men . In o he wo ds, i compliance cos s a e
so high ha pa ies would b each he T ea y ega dless o whe he an escape clause
exis s, ha ing an escape clause is be e han no ha ing one.10 Howe e , om an
economic pe spec i e, adap i e clauses should be ac i a ed only in cases whe e i is
e icien o a s a e o de ia e om hei obliga ions, and no , o example, gi e in o
lobbying p essu e by in e es ed pa ies.11
We can u he di e en ia e be ween ypes o adap i e clauses, speci ically be-
ween excep ion and escape clauses. Excep ion clauses in oduce lexibili y o allow
ha d- p essed s a es o a oid he ull bu den o hei T ea y obliga ions on a decen-
alized basis. Wi hin exis ing T ea y bounda ies, unila e al in oca ions o lexi-
bili y, such as excep ion clauses, can be cos ly bu necessa y o coun ies o e ain a
posi i e payo o commi men o EU ules. Si ua ions may a ise in which he bene-
i s o domes ic egula ion cu ailing EU law commi men s may be high. In such
si ua ions a go e nmen may wan o pu sue es ic i e measu es. To allow such
disc e ion, s a es may con e ge on accep ing ce ain mo i es ha e lec high- cos
domes ic conce ns ha could allow es ic i e measu es. To ha end, EU mem-
be s ag eed o accep measu es ha we e ‘jus i ied on g ounds o public mo ali y,
public policy o public secu i y’ (A icle 36 TFEU). This p o ision is an excep ion
clause allowing Membe S a es o de ia e om hei in e nal ma ke obliga ions. I
is sensible o allow hese excep ions (unde he es ic ions men ioned) as hey can
lead o e icien esul s. Take o example he impo o an unsa e p oduc — he e i-
ciency ques ion is whe he he o e all cos s o allowing he impo a e smalle han
he bene i s o an impo ban. The exclusion o such a p oduc would no mally be
wo h mo e o an impo ing s a e han he sale o an unsa e p oduc would be o an
expo ing s a e.12 Hence, he exis ence o his escape clause inc eases he alue o
he in e nal ma ke p o isions in he T ea y.
Likewise, ake he excep ion g ound o p o ec ‘o de and secu i y’— i isks
occu o li e and heal h, a nega i e ex e nali y would be a ached o he impo ed
good ha he bea e o he basic eedom in lic s on he socie y as a whole. In such
a case, he excep ion clause allows an e iciency assessmen , since he cos s o so-
cie y a e highe han he bene i s o he indi idual se ice p o ide . Fu he mo e,
A icle 36 TFEU equi es ha p ohibi ions based on he g ounds nume a ed in
his p o ision mus no be ‘a means o a bi a y disc imina ion o a disguised
10 Guzman (n 3) 152.
11 Alan O Sykes, ‘P o ec ionism as a Sa egua d: A Posi i e Analysis o he GATT Escape Clause wi h
No ma i e Specula ions’ (1991) 58 Uni e si y o Chicago Law School 255.
12 Guzman (n 3) 151.
lexiBili y 113
es ic ion on ade be ween Membe S a es’. These impe missible ade es ic-
ions would enhance he cos s by u he imposing unnecessa y cos s on ading
pa ne s. No e ha a c ucial ins i u ional de ice is ha he au ho i y o de e mine
wha cons i u es a jus i iable g ound o a T ea y excep ion mus no lie wi h he
s a e in oking he measu e. Gi ing oo much disc e ion o he s a e would in-
i e abuse and p o ec ionism13— in o de o allow o objec i e and neu al legal
assessmen (ideally coinciding wi h an economic e iciency analysis), he EU
Commission and he ECJ as ep esen a i es o Union in e es s mus speci y he
e ms and sc u inize s a es’ in e p e a ions o he legal excep ion. Pa icula ly, he
independen ECJ has a pi o al ole in de ining he condi ions, gi en ha public
choice li e a u e sugges s ha excep ion clauses a e p one o egula o y cap u e
wi h en - seeking e o s ocusing on in oking excep ion o dis ibu i e pu poses.
Excep ion clauses should be dis inguished om escape clauses, he la e being
a equen ins umen used by in e na ional o ganiza ions. Ac i a ion o escape
clauses may li obliga ions unde he in e na ional T ea y on a empo a y basis,
while excep ion clauses o e punc ual jus i ica ion o T ea y iola ions. Take in e -
na ional ade ag eemen s as an example. T ade ag eemen s inco po a e escape
clauses (known as ‘sa egua ds’14) allowing s a es o en e in o ag eemen s hey
migh no o he wise accep because o un o eseeable con ingencies. Escape clauses
indica e a lowe deg ee o homogenei y in p e e ences be ween T ea y pa ies han
is necessa y o excep ion clauses. No EU Membe S a e could empo a ily li he
eedom o mo emen in i s en i e y. While EU Membe S a es may escape he
T ea y commi men s al oge he by aking ecou se o A icle 50 TEU, pa ing he
way o exi ing he Union i he Union’s obliga ions a e pe cei ed as in inging on
so e eign y issues, EU Membe S a es ha e accep ed a highe le el o ecip ocal
commi men by no allowing gene al escape clauses compa able o in e na ional
law. While p e e ences may di e ge be ween EU membe s depending on he issue
a ea conce ned, hey do no all back behind a minimum le el o commi men .
EU Membe S a es ha e an incen i e o in oke his lexibili y in speci ic cases, bu
mos ake in o conside a ion he ecip ocal e ec meaning ha o he membe s
may in oke he excep ion as well.
b) T ans o ma i e clauses
While e en - based adap i i y clauses sepa a e he ou lying cases om he o -
dina y cou se o policy ac ion, he e a e ans o ma i e clauses ha allow he EU o
13 On he con o e sy on he igh o sel - de e mine secu i y conce ns unde WTO ules, see Roge P
Al o d, ‘The Sel - Judging WTO Secu i y Excep ion’ (2011) U ah Law Re iew 697.
14 K zysz o J Pelc, ‘Seeking Escape: The Use o Escape Clauses in In e na ional T ade Ag eemen s’
(2009) 53 In e na ional S udies Qua e ly 349.
114 a min s einBach
espond o new policy challenges. T ans o ma i e clauses appea in he EU T ea ies
in di e en guises, bu hey espond o he same need. EU s a es a e con on ed
wi h unce ain y abou he u u e s a e o he wo ld.15 This causes a dilemma when
en e ing in o EU T ea ies: becoming locked in o an ins i u ion may lead o un-
an icipa ed cos s o ad e se dis ibu ional consequences when he en i onmen
changes in he u u e. This dilemma may lead s a es o e ain om joining he EU
a all, i unce ain y is high and an icipa ed bene i s a e low. Risk- a e se s a es, in
pa icula , will a oid commi ing hemsel es o igid ins i u ions.16 Assuming ha
gains om coope a ion by commi ing o he EU T ea ies a e su icien ly high, how
would s a es ensu e ha he EU has su icien lexibili y o adap o changing con-
di ions, while main aining he will o EU membe s as he decisi e e e ence poin ?
One a enue is T ea y changes. O e ime, Membe s ha e adap ed o changing
ci cums ances h ough T ea y changes including hose made by he Maas ich ,
Ams e dam, Nice, and Lisbon T ea ies. T ea y amendmen s a e sui able when in-
e nal lexibili y o he T ea y is insu icien o deal wi h a changed en i onmen .
Fo example, he enla gemen o he EU by acceding new membe s o acqui ing
one single cu ency was no possible h ough in e nal lexibili y. Howe e , ex-
e nal lexibili y h ough T ea y amendmen s has a downside. Renego ia ion o
T ea y e ms is cos ly in e ms o nego ia ion expenses, and i also in i es s a egic
ba gaining whe e s a es may ‘hold up’ he coope a ion in an e o o inc ease hei
own gains om he enego ia ed T ea y e ms.
EU law o e s a numbe o ans o ma i e clauses. Take A icle 352 TFEU as an
example o a ans o ma i e clause— i allows he EU o ake app op ia e measu es,
i necessa y, o a ain one o he objec i es se ou in he T ea ies. I is ‘designed o
ill he gap whe e no speci ic p o isions o he T ea y con e on he Communi y
ins i u ions exp ess o implied powe s o ac , i such powe s appea none he less
o be necessa y o enable he Communi y o ca y ou i s unc ions wi h a iew o
a aining one o he objec i es laid down by he T ea y’.17 Whe e he EU holds com-
pe ence in one issue a ea, i should be lexible enough o ex end i s compe ence
o issues ha ha e su icien links o his co e compe ence. Take he EU’s compe-
ence o compe i ion law as one example. The T ea y no ms ini ially p o ided in-
su icien con ol o e conduc ha is incompa ible wi h undis o ed compe i ion
en isaged in he T ea y, and he e o e h ough A icle 352 TFEU, EU powe s o
ac ion we e ex ended wi h ega d o concen a ions.18 An economically sound ap-
p oach aking accoun o he ac ha c oss- bo de implica ions o me ge s should
no be deal wi h a he decen alized Membe S a es le el due o policy spillo e s.
15 Ko emenos (n 3) 39.
16 Ko emenos, Lipson, and Snidal (n 9) 793.
17 Opinion 2/ 94— Accession o he Communi y o he Eu opean Con en ion o he P o ec ion o
Human Righ s and Fundamen al F eedoms (1996) I– 01759 [29].
18 Council Regula ion (EC) No 139/ 2004 o 20 Janua y 2004 on he con ol o concen a ions be-
ween unde akings ( he EC Me ge Regula ion) [2004] OJ L24/ 1, pa a 7.
lexiBili y 115
Using ans o ma i e clauses may hus be aligned wi h alloca i e e iciency con-
side a ions unde he legal cons ain ha new EU asks emain wi hin he bound-
a ies o g an ed compe ences (complying wi h he p inciple o con e al).
The e a e mul iple o he p o isions in he EU T ea y ha allow Membe S a es
space o bypass he Union’s cons ain s in o de o de elop he EU in a ans o ma-
i e way. The solida i y clause in A icle 122 TFEU has played an impo an ole
in de eloping mac oeconomic ools ha p oduced wel a e gains o he en i e EU
h ough means ha we e no explici ly o eseen by he T ea ies. This legal p o i-
sion was employed o u nish inancial assis ance du ing he pandemic o es ablish
a isk- sha ing ins umen ha pe mi ed a coo dina ed mac oeconomic esponse
o he pandemic c isis (NGEU).19 The c isis- induced ans o ma i e cha ac e
o his p o ision has been c i icized o ansg essing he compe ences acco ded
o he EU. In addi ion, i is no only T ea y p o isions ha o e sui able clauses
g an ing space o excep ions and ans o ma ions o exis ing a angemen s. The
Commission and he Cou play an impo an ole oo, especially in ex ending
he scope o ans o ma i e EU compe ences. As men ioned be o e, e e u ile o
‘implied powe s’ a e doc inal inno a ions pushed by Union ins i u ions o en-
hance lexibili y wi hin exis ing ules, hence gi ing an in e p e a ion o EU law
ha ensu es he g ea es possible e ec o EU law in Membe S a es’ legal o de s
(see abo e Chap e 10 a)). Wi h in e es s be ween Union ins i u ions and Membe
S a es di e ging on he desi able ou each o EU law in o Membe S a es’ legal o -
de s, public choice insigh in o ms us ha lexibili y ensh ined in legal ules can be
subjec o misuse. No only do indi idual s a es ha e incen i es o ee- ide on an
ag eemen by sel - se ing in e p e a ions o lexibili y clauses, bu Union ins i u-
ions can do he same. D i en by Communi y in e es and he desi e o p es ige,
he EU Commission and he ECJ ha e equen ly been accused o being biased in
a ou o Communi y in e es s.20 F om ha pe spec i e, he ele ance and p ac-
ical use o lexibili y clauses and judicial doc ines unde EU law mus be iewed
om a public choice angle (see below Pa IV).
c) So law
The choice be ween ha d law and so law is one h ough which T ea y designe s
mus balance a ade- o be ween igidi y and lexibili y.21 The eme gence and
19 Council Regula ion (EU) 2020/ 2094 o 14 Decembe 2020 es ablishing a Eu opean Union
Reco e y Ins umen o suppo he eco e y in he a e ma h o he COVID- 19 c isis [2020] OJ LI433.
20 Ga e h Da ies, ‘Subsidia i y: The W ong Idea, in he W ong Place, a he W ong Time’ (2006)
43 Common Ma ke Law Re iew 63, 64; Nicholas W Ba be , ‘Subsidia i y in he D a Cons i u ion’
(2005) 11 Eu opean Public Law 197.
21 F ancis Snyde , ‘The E ec i eness o Eu opean Communi y Law: Ins i u ions, P ocesses, Tools
and Techniques’ (1993) 56 Mode n Law Re iew 19, 54.

116 a min s einBach
cha ac e is ics o in o mal ins i u ions and so law- making in global go e nance—
as well as he p essu e hey exe on he adi ional modes o coope a ion— ha e
long been analysed wi h ega d o in e na ional law22 as well as EU law.23 So law
gene ally cap u es ules o conduc which, in p inciple, ha e no legally binding
o ce bu which ne e heless may ha e legal implica ions and compliance pull.24
On a heo e ical le el, he mos ex eme o m o so law coope a ion in e ms
o educed binding cha ac e and o mali y could be seen in he enouncing o an
explici ag eemen comple ely. Legal obliga ions may be sel - en o cing in he sense
ha pa ies may no conside i necessa y o ag ee on a o malized commi men .
Mo e gene ally, whe he an issue is deal wi h h ough so o ha d law, a w i en
o o al ag eemen , o ag eed a all, depends on he issue a s ake. In a coo dina ion
game, in which EU membe s sha e a common in e es in no pu suing ce ain con-
duc , hence in which he e a e only bene i s and no cos s, and whe e de ec ion is
no a ac i e, he e may be no need o speci y an obliga ion in o mal law, bu i
could be a anged aci ly o h ough so law. This may explain why ce ain un-
damen al obliga ions in in e - s a e conduc a e ound in public in e na ional law,
in which he in e na ional communi y is mo e he e ogenous and in e es s among
s a es a e less aligned han in he EU, bu no in EU law. The EU T ea ies a e less ex-
plici han in e na ional law on co e ules such as he non- in e en ion p inciple,
he p inciple o non- iola ion, and he equali y o so e eign s a es. Lawye s may
a gue echnically ha hese co e p inciples a e ensh ined in he EU T ea y h ough
A icle 3(5) TEU and o he p o isions, bu hei lack o salience and explici ness
may also be explained wi h e e ence o hese obliga ions being o such a sel -
en o cing and ob ious na u e ha EU membe s ha e no conside ed elabo a ing
hem in he T ea ies— hey a e aci ly p esumed o o m he basis o coope a ion.
O he compa a i e pa e ns o so law (and he co esponding absence o ha d
law) suppo he iew ha in e na ional law elies mo e hea ily on so law han
EU law does. In e na ional so clima e law con as s wi h Eu opean ha d clima e
law— unde in e na ional law, s a es ea he ee- iding o o he coun ies o an
ex en ha i unde mines accep ing binding ules o because coun ies ou side
Eu ope (especially de eloping coun ies) conside cos s o CO2 educ ion as oo
ha m ul o hei economies o en e in o an ambi ious educ ion pa h; unde EU
law, s a es accep binding educ ion commi men s because ee- iding wi hin he
EU is less p obable due o igid moni o ing, possibly also wi h a iew o eaping
i s - unne gains om echnological ad ances in clima e echnologies seizing
global ma ke sha es. Compe i ion law is ano he example o so in e na ional law
and ha d EU law: an i us ules a he in e na ional le el a e limi ed o in o mal
22 See, eg, Kenne h W Abbo and Duncan Snidal, ‘Ha d and So Law in In e na ional Go e nance’
(2000) 54 In e na ional O ganiza ion 421.
23 Ma eike Kleine, In o mal Go e nance in he Eu opean Union: How Go e nmen s Make
In e na ional O ganiza ions Wo k (Co nell Uni e si y P ess 2013) 54.
24 Snyde (n 21); Guzman (n 3) 142.
lexiBili y 117
exchanges be ween an i us au ho i ies sho o binding subs an i e and p oced-
u al ules and la gely decen alized.25 The e is no coope a ion al hough global
wel a e would be enhanced unde a uni o m s anda d o an i us go e nance en-
su ing a wo ldwide le el playing ield cu bing monopoly en s and compe i i e
biases. Howe e , se e al issues ela ed o ju isdic ional and so e eign y claims may
comp ise a undamen al eason no o su ende na ional compe ences. Mo eo e ,
he unce ain y su ounding he design o a uni e sal s anda d o an i us go e n-
ance and he scope o disc e iona y p ac ice o na ional au ho i ies o m ano he
ba ie . All hese ac o s ansla e in o signi ican so e eign y and moni o ing
cos s, hus ende ing ha d- law consensualism an una ac i e op ion.26 A he
EU le el, he con a y is he case— Membe S a es ha e ende ed hei an i us
compe ences and passed hem o he EU, mo i a ed by wel a e gains— e en i in
singula cases na ional champions and e en na ional wel a e may su e . Besides
g ea e homogenei y in na ional an i us p ac ices, i is he absence o a hege-
monic mode o ac ion which is embodied in he ex a e i o ial ac ion o an i us
agencies, leading in e na ional powe playe s such as he Uni ed S a es o be e-
luc an o elinquish hei hegemonic posi ion in economic go e nance, as losing
ex a e i o ial ou each o hei unila e al compe i ion policies would be cos ly.27
While less equen han unde in e na ional law, so law has ne e heless been
a popula mode o go e nance h oughou Eu opean in eg a ion. P o ided in
he T ea ies unde A icle 288(5) TFEU, he ad an ages o EU so law as being
as , lexible, easy o issue, and hus able o adap o apid e olu ions and changes
in policies, con as wi h impo an legi imacy d awbacks, as so law is ha dly
jus iciable, and i s legal e ec s a e blu ed.28 Since he 1990s, he e seems o be
a g owing p e e ence o p ocedu al amewo ks o e subs an i e p esc ip ions,
wi h di e en o ms o coo dina ion eme ging in ields such as social and eco-
nomic policy, employmen , he en i onmen , educa ion, and esea ch. The open
me hod o coo dina ion (OMC) has become a equen mode o coo dina ion
a ou ing new o ms o so go e nance.29
F om an economic pe spec i e, we a e in e es ed in iden i ying he condi ions
unde which go e nmen s p e e so laws o he o mal ha d ones, and ice e sa.30
I is ue ha om a a ional choice pe spec i e, a bina y dis inc ion be ween
25 S einbach (n 7).
26 Yane S e ie , ‘The Limi s o In o mal In e na ional Law: En o cemen , No m- Gene a ion and
Lea ning in he In e na ional Compe i ion Ne wo k’ in Joos Pauwelyn, Ramses Wessel, and Jan
Wou e s (eds), In o mal In e na ional Lawmaking (Ox o d Uni e si y P ess 2012).
27 Cha les P Kindlebe ge , ‘Dominance and Leade ship in he In e na ional Economy: Exploi a ion,
Public Goods, and F ee Rides’ (1981) 25 In e na ional S udies Qua e ly 242.
28 Snyde (n 21) 54.
29 Bu ka d Ebe lein and Die e Ke we , ‘Theo ising he New Modes o Eu opean Union Go e nance’
(2002) 6 Eu opean In eg a ion online Pape s.
30 F om he pe spec i e o in e na ional ela ions, see, eg, A min Scha e , ‘Resol ing Deadlock: Why
In e na ional O ganisa ions In oduce So Law’ (2006) 12 Eu opean Law Jou nal 194; F om an eco-
nomic pe spec i e, see S e an Voig , ‘The Economics o In o mal In e na ional Law— An Empi ical
118 a min s einBach
‘binding’ law and ‘non- binding’ law does no make sense, because bo h a e chosen
by s a es o acili a e coope a ion and bo h impose some cos s on a non- complian
pa y h ough he en o cemen modes o epu a ion, e alia ion, and ecip oci y.31
A g ea amoun o wo k has emphasized he unc ionali y o in o mali y, no ably
he lexibili y i o e s o pa ies implying lowe so e eign y cos s as well as i s abili y
o in eg a e a b oade ange o ac o s and s akeholde s han would be possible
unde o mal app oaches.32 Indeed, so law o en eme ges in a eas whe e so e -
eign y cos s a e high and se es o a oid (e en highe ) cos s implied in o mal and
binding coope a ion in hese issue a eas, which explains o ins ance he di e en
deg ee o so ness in compe i ion policy coope a ion unde in e na ional and EU
law men ioned abo e. Also, while in o mali y and so law a e concep ually di -
e en , hey o en coincide. Fo example, whe e domes ic poli ical cos s associa ed
wi h EU legisla ion a e high, Membe S a es may seek in o mal ways o decision-
making a he EU le el.33 By con as , ha d law is mo e es ic i e as i gene a es
eliance and o en exe s ( hough no always) a g ea e compliance pull.34 Hence,
o mal law es ains policy spaces mo e signi ican ly han in o mal conduc which
allows o a b oade ange o conduc and coope a ion mechanisms.35 I is no only
so e eign y cos s ha a e highe when ha d law en ails he coun ies’ accep ance o
an ex e nal au ho i y o e poli ical decisions (eg he Commission and he Council
sanc ioning an EU membe o non- compliance wi h iscal ules).36 So law also
incu s compa a i ely less nego ia ion cos s as i o e s lexibili y and speed bo h
in he conclusion and he endo semen o non- binding guidelines.37 Acco dingly,
lexibili y due o he changing na u e o ci cums ances may be a alid conce n
implying he desi e o low modi ica ion cos s.38
The e o e, i s a es p e e g ea e adap abili y in an ag eemen , hey may ake
ecou se o so e ms in o de o make igh s and obliga ions unde an ag eemen
mo e lexible. Fo example, coo dina ion o na ional economic policies on he basis
o B oad Economic Policy Guidelines (A icle 121 TFEU) o he p ac ice o EU
Assessmen ’ in Thomas Ege , S e an Oe e , and S e an Voig (eds), The Economics o In o mal
In e na ional Law (Moh Siebeck 2011) 33.
31 Guzman (n 3) 160.
32 Cha les Lipson, ‘Why A e Some In e na ional Ag eemen s In o mal?’ (1991) 45 In e na ional
O ganiza ion 495, 495.
33 Kleine (n 23).
34 Dinah L Shel on, ‘In oduc ion’ in Dinah L Shel on (ed), Commi men and Compliance: The
Role o Non- Binding No ms in Commi men and Compliance: The Role o Non- Binding No ms in he
In e na ional Legal Sys em (Ox o d Uni e si y P ess 2000) 8.
35 B umme (n 2) 632.
36 Michael C Do , ‘Dynamic Inco po a ion o Fo eign Law’ (2008) 157 Uni e si y o Pennsyl ania
Law Re iew 103, 133.
37 Jacob Ge sen and E ic A Posne , ‘So Law: Lessons om Cong essional P ac ice So Law: Lessons
om Cong essional P ac ice’ (2008) 61 S an o d Law Re iew 573, 589.
38 Jane Ko en Le i , ‘A Bo om- Up App oach o In e na ional Lawmaking: The Tale o Th ee T ade
Finance Ins umen s’ (2005) 30 Yale Jou nal o In e na ional Law 125, 179.
lexiBili y 119
employmen policy based on Commission guidelines (A icle 148(2) TFEU) lea e
Membe S a es wi h ample lexibili y and only equi e hem o ake hese guide-
lines in o accoun . The OMC is he dominan go e nance mode in hese a eas,
wi h accoun abili y being mo e ho izon al han e ical, meaning ha Membe
S a es a e equi ed o ake se iously, and o answe he p e e ences, objec ions, and
coun e - p oposals o o he go e nmen s.39 This kind o adap abili y is mos p ac-
ical whe e pa ies o an ag eemen a e aced no only wi h high so e eign y cos s
bu also wi h signi ican unce ain y o e ac ual u u e de elopmen s and whe e,
in economic e ms, he cos - bene i balance o he ag eemen emains o some ex-
en unp edic able. Membe S a es can iden i y he e ec s o ules and guidelines
in p ac ice by a oiding o mal legali y in assessing hei bene i s.40 In his e en ,
so law o e s s a egies o lea ning p ocesses, in which pa ies can e en ually e-
sol e hei p oblems.41
Tabe has poin ed a ins ances whe e EU ha d law has been so ened o gi e
mo e manoeu ing space o policy- make s. Some ins umen s o en i onmen al
policy ha e shi ed om he adi ional app oach based on he se ing o uni o m,
legally binding no ms o a less coe ci e and mo e lexible app oach.42 Fo ins ance,
he Di ec i e on In eg a i e Pollu ion P e en ion and Con ol, enac ed in 1996,
in oduced so , non- binding a ge s and a s ong p ocedu al componen h ough
he delega ion o policy o mula ion o pa icipa o y, co- egula o y ne wo ks, in
a ield whe e legally binding emission limi alues on ai , land, and wa e used o
be applied o se e al indus ial sec o s.43 Clea ly, in o mal law ypically p o ides
he execu i e b anch wi h mo e space.44 In pa icula , in o mal laws wi h a lowe
p o ile a e mo e s ic ly moni o ed by he go e nmen bu eauc acies ha nego ia e
and implemen he ag eemen s and a e less exposed o in usion by o he agen-
cies o pa liamen a y bodies. Hence, ecommenda ions, benchma king, and bes
p ac ices a e based on he desi e o pa icipan s o ag ee, h ough collec i e delib-
e a ion, on p ocedu al no ms, o ms o egula ion, and sha ed poli ical objec i es,
while p ese ing a di e si y o solu ions and local measu es.
Finally, he epu a ional cos s o in o mal law a e compa a i ely low.
Conside ha non- compliance wi h EU ha d law ypically igge s sc u iny
by he Commission and e en ually leads o in ingemen p ocedu es. Since
39 Fabien Te pan, ‘So Law in he Eu opean Union— he Changing Na u e o EU Law’ (2015) 21
Eu opean Law Jou nal 68, 81.
40 Abbo and Snidal (n 151) 442.
41 B umme (n 2) 633.
42 Ka ha ina Holzinge , Ch is oph Knill, and Ansga Schä e , ‘Rhe o ic and Reali y? “New
Go e nance” in EU En i onmen al Policy’ (2006) 12 Eu opean Law Jou nal 403.
43 Te pan (n 39) 90.
44 See also And ew T Guzman, ‘The Consen P oblem in In e na ional Law’ (2012) 52 Vi ginia
Jou nal o In e na ional Law 747, 763 (compa ing he in e na ional sphe e wi h he domes ic se ing in
which powe is sha ed be ween legisla ion and adminis a ion. Gi en ha he adminis a ion, no he
legisla o , domes ically deals wi h all issues, no all issues a he in e na ional le el can be managed wi h
in e na ional ag eemen s).
126 a min s einBach
wo k when s a es de e mine hei policy cou se, which is ele an o di e en ia ed
in eg a ion.
On a heo e ical le el, non- consensualism o ou pu poses cap u es he di e -
ence be ween he numbe o s a es and membe ship, in ou case be ween EU s a es
and hose who ac ually pa icipa e in in eg a ion while being EU membe s. As
Ke emone and o he s emphasize, he numbe o s a es e e s o he exogenous ea-
u e o he policy issue conce ned.5 The numbe o s a es e e s o he se o s a es
in e es ed in pa icipa ing in coope a ion. In many, no all, issue a eas, he na u al
de aul would be o conside coope a ion among all EU membe s. By being EU
membe s, he e is a p esump ion ha all membe s will pa icipa e in he ull in e-
g a ion p og amme o he T ea ies as well as in enhanced coope a ion. Howe e ,
we discuss a ious o ms o non- consensualism, ha is, whe e EU membe s do
no consen o he same pace o in eg a ion. This can be de e mined h ough EU
p ima y law by way o T ea y op - ou s; i can occu h ough T ea y- based a i-
abili y in in eg a ion, no ably h ough ‘enhanced coope a ion’ be ween a sub-
g oup o EU membe s as ‘a las eso ’ when coope a ion is no easible among
he EU as a whole (A icle 20 TEU); a iable pace can also be channelled h ough
in e - se ag eemen s sidelining EU law wi h EU membe s ac ing in hei adi ional
in e na ional law so e eign y ou side o he sup ana ional a chi ec u e; and di -
e en ia ion inally is a common ea u e du ing c ises, wi h he eu o c isis as an
illus a i e example o a iable o ms o coope a ion. Ou hypo hesis is ha non-
consensualism a ies acco ding o mul iple ac o s, mos ly due o in e es s, p e -
e ences, a iable gains associa ed wi h coope a ion, bu also due o ela i e powe
be ween EU membe s enabling powe ul coun ies o c a ag eemen s in hei a-
ou . These di e ences in e ms o p e e ences, implemen a ion, and powe imbal-
ances de e mine he deg ee o asymme y be ween pa ies, a ele an ac o in he
game- heo e ic analysis o pa ies o coope a ion.
a) EU T ea y op - ou
In he con ex o in e na ional ag eemen s, he p ac ice o T ea y ese a ions is
widesp ead unde in e na ional law.6 By con as , he ounding T ea y o Rome
o esaw ew special p o ocols and de oga ions o indi idual coun ies. I was only
he T ea y o Maas ich ha ga e di e en ia ed in eg a ion— ha is, he adop ion
o EU no ms ha do no bind all EU membe s— a T ea y basis. I in oduced he in-
no a ion o allowing some Membe S a es no o ully pa icipa e in he Economic
5 Ba ba a Ko emenos, Cha les Lipson and Duncan Snidal, ‘The Ra ional Design o In e na ional
Ins i u ions’ (2001) 55 In e na ional O ganiza ion 761, 777.
6 E ic Neumaye , ‘Quali ied Ra i ica ion: Explaining Rese a ions o In e na ional Human Righ s
T ea ies’ (2007) 36 Jou nal o Legal S udies 397; John King Gamble, ‘Rese a ions o Mul ila e al
T ea ies: A Mac oscopic View o S a e P ac ice’ (1980) 74 Ame ican Jou nal o In e na ional Law 372.

non-consensual eu law 127
and Mone a y Union. Op - ou s we e g an ed o he UK and Denma k, bu hese
we e in ended as only empo a y excep ions.7 Likewise, I eland and Denma k in-
oked excep ions in he domain o co e s a e powe s in Jus ice and Home A ai s,
eleasing hese s a es om he binding e ec o some bu no all EU policies, such
as he di ec i es de ining he igh s o asylum seeke s.8
O iginal signa o y s a es c a ing a new T ea y o en ace subs an ial cos s in he
p ocess o T ea y nego ia ion and d a ing whe eas he cos s o accession o an ex-
is ing T ea y can be ambiguous: accession o an exis ing T ea y may incu less ba -
gaining cos s (in he EU because he acquis communau ai e is no nego iable upon
accession), while he so e eign y cos s o he acceding s a e may be subs an ial due
o he indispensable equi emen o implemen ing he acquis communau ai e in o
domes ic law, ha is, inco po a ing he en i e body o EU law. Acceding s a es a e
no able o submi ese a ions o he as amoun o p e- es ablished w i en and
unw i en ules. Po en ially, ansi ional applica ions o he acquis communau ai e
h ough an ag eed ime able ha e been g an ed bu he gene al p inciple is ha no
disc imina o y membe ship in he EU is pe mi ed.
The ew special p o ocols and de oga ions o single coun ies in oduced wi h
he EEC T ea y no wi hs anding,9 op - ou s do exis bu a e sca ce. This con as s
wi h he p ac ice unde in e na ional law: A icle 21 o he Vienna Con en ion is
he in e na ional law me ic on how con en and pa icipa ion o T ea ies can de-
ia e om he p inciple o equal con en applicable o all signa o ies. Rese a ions
o a T ea y a he ime o accession o a i ica ion c ea e mul iple bila e al impli-
ca ions and ans o m he in e na ional ag eemen be ween he ese ing s a e
and non- ese ing s a es. The ese a ion educes he commi men le el o he
T ea y o he le el ag eed o by hese wo s a es. The economic pe spec i e on hese
lexibili y- inc easing T ea y elemen s is mixed. I has been a gued ha ese a-
ions, jus as exi clauses and escape clauses, inc ease s a es’ willingness o en e
in o ag eemen s.10 Howe e , an inc ease in one s a e’s willingness o en e an ag ee-
men co esponds o a dec ease in he alue o he ag eemen o he o he pa y ac-
cep ing he ese a ion, lowe ing ha pa y’s incen i e o join he ag eemen .
The law and economics li e a u e has de o ed a en ion o A icle 21 o he
Vienna Con en ion, and some o his analysis is o in e es o he EU. I was shown
ha A icle 21 il s he balance in a ou o high- cos and low- bene i s a es who
can ake ad an age o he ecip oci y mechanism. High- cos s e e o T ea y
7 Thomas Beuke s and Ma ijn an de Sluis, ‘Di e en ia ed In eg a ion om he Pe spec i e
o Non- Eu o A ea Membe S a es’ in Thomas Beuke s, B uno de Wi e, and Clai e Kilpa ick (eds),
Cons i u ional Change h ough Eu o- C isis Law (Camb idge Uni e si y P ess 2017) 14.
8 B uno de Wi e, ‘The Law as Tool and Cons ain o Di e en ia ed In eg a ion’, in Ma k Dawson
and Ma kus Jach en uchs (eds), Au onomy wi hou Collapse in a Be e Eu opean Union (Ox o d
Uni e si y P ess 2022).
9 Dominik Han , ‘Flexibili y Clauses in he Founding T ea ies, om Rome o Nice’ in B uno de Wi e,
Dominik Han , and Ellen Vos (eds), The Many Faces o Di e en ia ion in EU Law (In e sen ia 2001).
10 Lau ence R Hel e , ‘Exi ing T ea ies’ (2005) 91 Vi ginia Law Re iew 1579.
128 a min s einBach
implemen a ion and compliance cos s and low- bene i s o he gains om ul il-
men o he in e na ional obliga ions— poo e o de eloping s a es o en ace
a high- cos and low- bene i combina ion.11 In line wi h ha li e a u e, poo e
coun ies wi h high implemen a ion cos s ha e a compa a i ely s ong posi ion
in mul ila e al T ea y- se ing, because hey can ask o cos - educing side conces-
sions (p o ided ha powe imbalances a e no a play).12 The p ac ice o in e -
na ional T ea y law sugges s ha in e na ional ag eemen s accommoda e his
si ua ion by implemen ing a ious le els o T ea y obliga ions: o example, unde
WTO law, de eloping coun ies enjoy a p e e en ial scheme; unde clima e change
ag eemen s, de eloped coun ies mus unde ake g ea e clima e change mi iga-
ion e o s and o e side- paymen s o less de eloped coun ies; and unde he
Mon eal P o ocol on Ozone- Deple ing Subs ances, de eloped coun ies had o
subsidize he de eloping coun ies’ compliance cos s.
One plausible explana ion o he absence o ea y ese a ions as common ea-
u es unde EU law may be he highe homogenei y among membe s in he EU
compa ed o he le el o in e na ional ea y law. The heo y sugges s ha he mo e
symme ic coun ies a e in e ms o p e e ences, cos s, and implemen a ion, he
mo e simila a coun y’s payo unc ion o coope a ion is. As a esul , he e is less
need o ese a ions and hey a e mo e likely o align a he same le el o T ea y
obliga ions.13 In he game- heo e ic pe spec i e, op - ou s a egies unde EU law,
as well as ese a ions unde in e na ional T ea y law, imply he same s a egic be-
ha iou . Du ing T ea y nego ia ion, in gene al, a ional s a es an icipa e ha o he
s a es may po en ially d aw on A icle 21 o he Vienna Con en ion, and by doing
so lowe he con en le el o he T ea y. This p o ision leads o ma ching ese -
a ions h ough ecip oci y. The ecip oci y mechanism in T ea y ese a ions
disincen i izes s a egic unila e al ese a ions, because hey would engende mu-
ual losses o all s a es in ol ed, which is no a dominan s a egy gi en a coun y’s
payo unc ion. Wi h ecip oci y p e ailing, each s a e would only lowe hei
T ea y commi men leading o an o e all in e io ou come o all pa ies. Hence,
in he case o symme ic s a es wi h homogenous in e es s, ull T ea y commi men
becomes he equilib ium s a egy o bo h s a es.14 The ma ching e ec s o T ea y
ese a ions u he s le els o T ea y a i ica ion ha a e highe han hose ha
hey would o he wise adop in a Nash equilib ium.15
11 F ancesco Pa isi and Vincy Fon, The Economics o Lawmaking (Ox o d Uni e si y P ess
2008) 52, 268.
12 This con as s wi h bila e al T ea y se ings such as bila e al in es men ea ies, in which powe
imbalances be ween la ge and smalle s a es a e signi ican , see Debo ah L Swenson, ‘Why Do
De eloping Coun ies Sign BITs?’ in Ka l P Sau an and Lisa E Sachs (eds), The E ec o T ea ies on
Fo eign Di ec In es men (Ox o d Uni e si y P ess New Yo k 2009).
13 And ew T Guzman, ‘The Consen P oblem in In e na ional Law’ (2012) 52 Vi ginia Jou nal o
In e na ional Law 747; Pa isi and Fon (n 11) 246.
14 Jack L Goldsmi h and E ic A Posne , The Limi s o In e na ional Law (Ox o d Uni e si y P ess
2006) 23, 243.
15 Pa isi and Fon (n 11) 245.
non-consensual eu law 129
In u n, incen i es o eques T ea y ese a ions a e di e en when pa icipa ing
s a es a e di e en . The ecip oci y- based ma ching- ese a ion mechanism does
no wo k when s a es ace asymme ic incen i es. Asymme y— ha is, di e se
p e e ences, di e en implemen a ion cos s, signi ican powe imbalances—
in i es unila e al ese a ions. Asymme y implies he e ogenei y causing s a es o
ha e di e en cos - bene i a ios om T ea y implemen a ion. The di e ence in
T ea y ba gaining among symme ic s a es is ha asymme y o s a es leads o di -
e en payo unc ions which eeds in o a ying p e e ences o le els o T ea y
a i ica ion. The commi men le el unde he T ea y is de e mined by he ma -
ginal bene i unde ma ching ese a ions and he ma ginal cos a ull a i ica-
ion. He e ogenei y in payo unc ions may, o example, play ou in he EU when
some acceding Eas e n Eu opean membe s ind i di icul o comply wi h he
high ule- o - law s anda ds in he EU, which imply cos ly domes ic policy changes.
Asymme y may also be caused by powe imbalances, whe e powe ul coun ies
can mo e impose hei p e e ences, because hei ou side op ions a e simply wide ,
and hey can pu sue hei objec i es h ough unila e al ac ion o in e go e n-
men al ag eemen s ou side o EU law.
Impo an ly, asymme y causes a lowe T ea y con en le el, and i is he highes -
cos s a es, he ones o whom T ea y implemen a ion is pa icula ly cos ly, who
a e esponsible o his. Pa isi and Fon ha e shown ha he highes - cos s s a es,
unlike a e age- cos s a es, do no need o accep undesi ed ese a ions om o he
s a es. Th ough he ecip oci y logic o A icle 21 o he Vienna Con en ion, he
highes - cos s a es e ec i ely de e mine he T ea y commi men le el and a ain
hei op imal T ea y e ms in all bila e al T ea y ela ions wi h o he s a es.16 This
bea s consequences o he p e e ed mode o coope a ion. While some mul ila -
e al app oaches in oduce lexibili y h ough di e en ia ion (eg WTO ules), he
end owa ds egionaliza ion and bila e aliza ion highligh s ha T ea y membe -
ship is inc easingly sough among homogenous s a es. Non- mul ila e alism means
he downsizing o pa icipa ion owa ds g ea e homogenei y in payo unc ions
(and hus highe T ea y commi men le els). In u n, he ecip oci y mechanism
unde A icle 21 o he Vienna Con en ion ensu es he social op imum only in
cases whe e he membe s ace homogenous payo unc ions, o when all s a es
p e e ull a i ica ion.
Wha implica ions can we d aw om his li e a u e o he EU? The co e
‘Wes phalian’ legal p emises o ecip oci y and so e eign igh s o coope a e a e
he same p inciples unde gi ding bo h EU and in e na ional law. The logic o
A icle 21 o he Vienna Con en ion also applies o he EU, ye ese a ions a e
empi ically mo e widesp ead in in e na ional law. This di e ence appea s la gely
as a esul o asymme y— o example, di e se p e e ences o di e ences in cos s
16 ibid 265.
130 a min s einBach
o compliance wi h he ag eemen . Wi h g ea e homogenei y ac oss he EU in
e ms o economic pe o mance and cul u al p oximi y, he e is less likelihood o
op - ou s o occu . Howe e , cases exis whe e disc epancies a e insu moun able
and lead o op - ou s. The UK abs en ion om social policies, laid down in a social
p o ocol a ached o he TEU and p omp ed by he dogma ically pa isan iew o
he B i ish Conse a i e go e nmen e lec ed deeply di e gen iews on social
ma e s.17 Simila ly, cu ency ma e s conce n co e so e eign issues and he UK
and Danish op - ou can be in e p e ed as emphasizing he undamen al di ision
be ween he eu o- a ea and non- eu o- a ea Membe S a es as e lec ed in bo h he
ins i u ional and subs an i e no ms o EMU cons i u ional law. Likewise, Jus ice
and Home A ai s is widely iewed as he domain o co e s a e powe s.
A u he pa icula i y o he EU compa ed o he wide in e na ional com-
muni y is he EU’s abili y o b idge he e ogenei y in one T ea y a ea by c oss-
compensa ion. F om an economic pe spec i e, he e may be an e ec i e
side- paymen mechanism in place in he EU ha would no be a ailable o ield-
speci ic in e na ional ag eemen s. ‘Side- paymen s’ allow Membe S a es o accoun
o a c oss- subsidiza ion o ea ies by o e ing concessions o a eluc an s a e in an
a ea o he han he one om which he coun y wishes o op - ou . Compensa o y
side- paymen s may le el ou he e ogenous p e e ences o may compensa e high-
cos s a es. The a ailabili y o side- paymen s as an ins umen o le elling ou
a coun y’s di e en payo unc ion in ela ion o one a ea o coope a ion (eg
EU ag icul u al policy, in e nal ma ke obliga ions) highligh s a di e ence be-
ween EU law and in e na ional law: in e na ional ag eemen s a e in mos cases
made o speci ic subjec a eas (eg in e na ional ade, clima e mi iga ion, and
human igh s). Thei subjec - speci ici y limi s he scope o side- paymen s. Side-
paymen s may exis in some a eas— hink o he WTO ‘single unde aking’ ap-
p oach allowing c oss- sec o al side- paymen s— bu o in e na ional ag eemen s
hey a e ypically no only limi ed in subs ance bu also ins i u ionally, because
in e na ional o ganiza ions a ely de ia e om he one- coun y- one- o e p in-
ciple in e ms o o ing igh s o membe ep esen a ion. This is di e en in he
EU: he scope o policy ields in he EU is much la ge and gi es leeway o he coup-
ling o un ela ed concessions as side- paymen s. Fo example, a special p o ocol
a ached o I eland’s accession o he EU ensu es ha i will bene i om inan-
cial ans e s, while Finland was g an ed a ou able ea men unde he Eu opean
Regional De elopmen Fund in o de o p o ide suppo o i s A c ic ag icul u al
egion.18 In addi ion, he EU, as a sup ana ional cons uc , is buil on an ins i u-
ional a chi ec u e ha accommoda es s uc u al di e ences be ween EU mem-
be s. One ob ious example o ins i u ionally a ou ing high- cos smalle s a es
17 F ançoise de La Se e and Helen Wallace, ‘Flexibili y and Enhanced Coope a ion in he Eu opean
Union: Placebo Ra he han Panacea?’ (1997) Resea ch and Policy, Pape s No 2, 9.
18 Ibid.
non-consensual eu law 131
o e la ge s a es is he alloca ion o o ing igh s in he Council and he alloca-
ion o sea s in he Eu opean Pa liamen , which a e biased in a ou o smalle EU
membe s.19 High- cos coun ies can be en iced in o he EU, despi e he e ogenei y,
h ough s uc u al ad an ages in he decision- making a chi ec u e. Wha is sca ce
unde in e na ional T ea y law— he a ailabili y o side- paymen s as a mechanism
o smoo hing he he e ogenei y o p e e ences and le elling ou di e ences be-
ween high- cos and low- cos s a es— is plen y in a Eu opean Union ha allows
side deals and concessions ac oss a wide po olio o issue a eas.
F om a beha iou al economics pe spec i e, we can u he say ha ‘ambigui y
a e sion’ can be used o explain why op - ou s a e chosen, especially when a a-
ional choice analysis sugges s ha an equilib ium should a ou mul ila e al co-
ope a ion due o coope a ion gains. This is because ac o s a e ambigui y- a e se
when p obabili ies canno be easily p edic ed, hence hey p e e known ou comes
o e unknown ones. The deg ee o unce ain y in EMU ma e s du ing he c a ing
o he Maas ich T ea y was conside able, and he so e eign y cos s o he UK
we e high, as i was asked o abandon a s able cu ency. While op ing- ou om
he common cu ency upheld he e ogenei y and highe ansac ion cos s due o
cu ency exchanges, any subs an ial change (going beyond in o mal exchanges)
would c ea e unce ain y abou he applicable concep o p ice s abili y; hence, he
e ec o loss a e sion is exace ba ed. This loss a e sion may play ou di e en ly in
o he si ua ions. While Ge many ea ed he h ea o losing a s able and dominan
cu ency, side- paymen s in o he ields o EU in eg a ion (eg an ex ended in e nal
ma ke and iscal ules) a enua ed his e ec .
b) Di e en ia ing in eg a ion
T ea y op - ou s a e one o m o non- consensualism, bu wi h he Ams e dam,
Nice, and Lisbon con e ences, he p ospec o enla gemen wi h a la ge numbe o
new s a es engende ed a b oade deba e on di e en ia ed o ‘mul i- speed’ in eg a-
ion. A he end o he nine ies, a gene al con ic ion among EU membe s eme ged
ha he T ea y amewo k should be u he de eloped in o de o allow o ‘ins i-
u ional lexibili y’ o ‘close coope a ion’. The Nice T ea y ex allowed o wha
was now named ‘enhanced coope a ion’ o be launched by a quali ied majo i y
o e in he Council, excep in common o eign and secu i y policy. Howe e , i was
only wi h he adop ion o he Lisbon T ea y ha a o mal amewo k o a iable
geome y h ough he enhanced coope a ion mechanism was es ablished.20
19 Jona han Rodden, ‘S eng h in Numbe s?’ (2002) 3 Eu opean Union Poli ics 151.
20 Daniela A K oll and Di k Leu en, ‘Enhanced Coope a ion in P ac ice. An Analysis o
Di e en ia ed In eg a ion in EU Seconda y Law’ (2015) 22 Jou nal o Eu opean Public Policy 353.

132 a min s einBach
Enhanced coope a ion has been implemen ed i e imes o da e; i is a e bu
easible. The i s ins ance conce ned he egula ion o ansna ional di o ces. The
second was he c ea ion o a new EU pa en sys em, ag eed ollowing a con o e sy
in which I aly and Spain opposed EU- wide pa icipa ion due o disag eemen o e
he language egime. The hi d ins ance conce ned he win egula ions on judi-
cial coope a ion in ma e s o ma imonial p ope y and egis e ed pa ne ship
p ope y. The ou h was he inancial ansac ion ax, which ob ained Council
app o al o enhanced coope a ion (bu was ne e pu in e ec ). The i h ins ance
saw wen y- wo Membe S a es suppo ing he c ea ion o he Eu opean Public
P osecu o s O ice.
While enhanced coope a ion akes place wi hin he EU legal o de , he e a e
ou side op ions a ailable o EU membe s by eso ing o in e na ional law ag ee-
men s sidelining he EU ins i u ional s uc u e. T adi ionally, legal schola ship has
looked wi h mis us on (bila e al) ea ies be ween Membe S a es, pe cei ing
hem as possible h ea s o he EU legal o de , a leas when hey add essed issues
ha o med pa o o we e ela ed o he EU legal o de , applied o some (no
all) Membe S a es (‘pa ial ag eemen s’), and did no use he EU ins i u ions.21
Howe e , Membe S a es eso ing o in e na ional ag eemen s ou side he EU
legal o de is in i sel no hing new.22 Pas in e se ag eemen s include ins umen s
such as he Schengen amewo k o he P üm Con en ion, in he a ea o jus ice and
home a ai s, and he Social Policy Ag eemen . In hese cases, a g oup o Membe
S a es decided o push in eg a ion u he h ough an ins umen o in e na ional
law.23 In a sense, one could say ha his o m o lexibili y has exis ed since he
ea ly days o he Eu opean in eg a ion p ocess. Hund eds o bila e al and mul i-
la e al in e na ional ea ies ha e been concluded be ween Membe S a es o he
Eu opean Union since he 1950s in a eas such as ax law, en i onmen al p o ec-
ion, de ence, cul u e, and educa ion. They ypically occu in a eas in which he
Eu opean Union has no law- making compe ence a all, bu also occu in a eas in
which he EU possesses sha ed law- making compe ences, whe e a se o Membe
S a es p e e o use hei ‘sha e’ o conclude an ag eemen among hemsel es a he
han ac ing wi hin he amewo k o he Eu opean Union.
These in e se ag eemen s become a ue al e na i e o m o a iable geom-
e y when hey se e he pu pose o allowing a g oup o Membe S a es o mo e
Eu opean in eg a ion o wa d in he ace o opposi ion om o he Membe
S a es. Mo e ecen ly, in e se ag eemen s be ween Membe S a es e lec a gen-
e al end o in e go e nmen alism, p opelled by he eu o c isis.24 While a numbe
21 S e e Pee s, ‘Towa ds a New Fo m o EU Law? The Use o EU Ins i u ions Ou side he EU Legal
F amewo k’ (2013) 9 Eu opean Cons i u ional Law Re iew 37, 40.
22 See also B uno de Wi e, ‘Using In e na ional Law in he Eu o C isis: Causes and Consequences’
(2013) A ena Wo king Pape No 4.
23 Alicia Hina ejos, The Eu o A ea C isis in Cons i u ional Pe spec i e (Ox o d Uni e si y P ess
2015) 90.
24 ibid 111; Kenne h A A ms ong, Go e ning Social Inclusion (Ox o d Uni e si y P ess 2010) 67.
non-consensual eu law 133
o e o ms o he a chi ec u e o EMU ha e been ca ied ou in he amewo k o
EU law, he Membe S a es ha e decided o ac o a la ge ex en ou side he EU
legal o de , igh ening budge a y cons ain s, es ablishing new mechanisms o i-
nancial s abili y, and se ing up a amewo k o economic adjus men o coun-
ies in iscal ouble. This has been done no ably h ough he T ea ies es ablishing
he Eu opean Financial S abili y Facili y (EFSF) and he Eu opean S abili y
Mechanism (ESM), bo h o which (like he s abili y T ea y) aim o supple-
men he EU law measu es on EMU.25 The e was con o e sy su ounding hese
‘pe iphe ical ag eemen s’, pa icula ly ega ding he ole o in e go e nmen alism
as he d i ing o ce behind hem.26 This s a egy is consis en wi h an in e go -
e nmen al model o he managemen o he eu o c isis, which has s essed he
cen ali y o na ional go e nmen s (in he Eu opean Council) and hei eedom
o ac h ough ag eemen s ou side EU law, a he han he cen ali y o he EU in-
s i u ional machine y and he po en ial o EU law o add ess he c isis.27 Howe e ,
he limi s o in e go e nmen alism in managing he eu o c isis e ec i ely and le-
gi ima ely ha e been epea edly emphasized.28
Ou inqui y aims o explain he use o di e en ia ed in eg a ion. Schola s in
he in e na ional ela ions29 and in e na ional law30 li e a u e ha e emphasized
ha educing complexi y is a a ionale o explain non- mul ila e alism in in e -
na ional ela ions. Simila conside a ions apply o di e en ia ed in eg a ion in
he Eu opean Union. F om an economic pe spec i e, he ac o abandoning ull
pa icipa ion o EU membe s in a ou o ‘enhanced coope a ion’ o e en ex a-
EU in e go e nmen al app oaches esponds o he s a e’s indi idual bene i s and
cos s in ol ed in he ba gaining p ocess. In o de o achie e wel a e gains h ough
coope a ion, a wel a e imp o emen equi es pa ies o nego ia e on how o com-
pensa e o losses by balancing ou he gains and losses incu ed by di e en pa -
ies. Wi h he inc easing numbe o pa icipa ing s a es, he ansac ion cos s on
de e mining a compensa ion solu ion inc ease, impeding compensa ion solu ions.
Exemp ing hose s a es who ha e a payo unc ion ha does no allow su icien
25 S e e Pee s, ‘Towa ds a New Fo m o EU Law? The Use o EU Ins i u ions Ou side he EU Legal
F amewo k’ (2013) 9 Eu opean Cons i u ional Law Re iew 37, 39; Fabian Am enb ink and Menelaos
Ma kakis, ‘Ne e Was e a Good C isis On he Eme gen EU Fiscal Capaci y’ in Alicia Hina ejos and
Robe Schü ze (eds), EU Fiscal Fede alism (Ox o d Uni e si y P ess 2023), 183.
26 B uno de Wi e, ‘Using In e na ional Law in he Eu o C isis: Causes and Consequences’ (2013)
A ena Wo king Pape No 4.
27 Fede ico Fabb ini, Economic Go e nance in Eu ope (Ox o d Uni e si y P ess 2016) 110. See also
Michele Messina, ‘S eng hening Economic Go e nance o he Eu opean Union h ough Enhanced
Coope a ion: A S ill Possible, bu Al eady Missed, Oppo uni y’ (2014) 39 Eu opean Law Re iew
404, 404.
28 Edoa do Chi i and Ped o Gus a o Teixei a, ‘The Cons i u ional Implica ions o he Eu opean
Responses o he Financial and Public Deb C isis’ (2013) 50 Common Ma ke Law Re iew 683, 683.
29 James A Capo aso, ‘In e na ional Rela ions Theo y and Mul ila e alism: The Sea ch o
Founda ions’ (1992) 46 In e na ional O ganiza ion 599, 611.
30 And ew Guzman and Be h A Simmons, ‘To Se le o Empanel? An Empi ical Analysis o Li iga ion
and Se lemen a he Wo ld T ade O ganiza ion’ (2002) 31 Jou nal o Legal S udies 205.
134 a min s einBach
ma ches wi h he g oup o s a es pu suing close in eg a ion acili a es an ag ee-
men . Acco dingly, ‘enhanced coope a ion’ allows o a ied membe ship enabling
like- minded s a es o wo k oge he sepa a ely om a mo e he e ogenous g oup.
Di e en ia ion can likewise be sui able o dealing wi h he sensi i i y o a
gi en policy subjec . The in eg a ion o co e s a e powe s— such as de ence, in-
e io , mone a y, and iscal policies— has led o du able di e en ia ed in eg a-
ion. Dis ibu ional and so e eign y conce ns ha e been pa icula ly salien
d i e s o a iable geome y in he EMU (eu o membe ship, ESM, and he Fiscal
Compac ).31 In his sense, di e en ia ion se es o o e come he incompa ibili y o
he e ogenei y o p e e ences and unanimi y in decision- making, as collec i e deci-
sions become in easible unless quali ied majo i y o ing p e ails.32 The Schengen
expe ience is s ill e e ed o as ano he model o e ing an example o bo h he
po en ial o such ag eemen s o o e come a blockage wi hin he Union’s decision-
making sys em, and he possibili y o hei la e e- in eg a ion wi hin he EU legal
sys em.
Wi h he pooling o homogenous p e e ences leading o mul ispeed in eg a ion,
nego ia ions and compensa ions can mo e easily be ba e ed in di e en ia ed se -
ings. As illus a ed abo e wi h T ea y op - ou s, asymme ic coun ies as pa ies
o he T ea y bea he isk o T ea y ese a ions, leading o a lowe commi men
le el o he T ea y con en . This suppo s he idea ha coun ies wi h mo e aligned
policy p e e ences a e likely o ag ee on mo e ambi ious T ea y commi men s. On
his basis, one may, hough wi h an elemen o specula ion, classi y pas ins ances
o di e en ia ed in eg a ion: ‘enhanced coope a ion’ in ansna ional di o ces was
only possible be ween eigh een EU membe s because some coun ies had con-
ce ns ha his law would lead o he ecogni ion o same- sex ma iages as well-
egis e ed pa ne ships, in coun ies whe e hey do no exis — clea ly a cul u ally
sensi i e issue in ol ing high poli ical cos s. Enhanced coope a ion on pa en s was
suppo ed by nea - o- ull membe ship o wen y- i e membe s, while coope a ion
on he Eu opean p osecu o conce ned he sensi i e issue o c iminal law, a co e
so e eign y issue. In u n, he in e se ag eemen s on EMU a ai s a e mo e illus a-
i e o he e y he e ogenous e ec s o he so e eign deb c isis on eu o membe s.
In any case, in all hese a eas, like- minded coun ies ha e ag eed o di e en ia ed
bu highe T ea y commi men s and we e hus able o achie e equilib ia ha we e
easie o a ain han a ull membe ship ag eemen . I is no su p ising ha , while
he ini ial EEC T ea y wi h six ounding membe s con ained some p o ocols, i
31 F ank Schimmel ennig and Thomas Winzen, E e Loose Union? (Ox o d Uni e si y P ess 2020);
Philipp Genschel, Ma kus Jach en uchs, and Ma a Miglio a i, ‘Di e en ia ed In eg a ion as Symbolic
Poli ics? Cons i u ional Di e en ia ion and Policy Rein eg a ion in Co e S a e Powe s’ (2023) 24
Eu opean Union Poli ics 81.
32 Philipp Genschel and Ma kus Jach en uchs, ‘In oduc ion: Beyond Ma ke Regula ion. Analysing
he Eu opean In eg a ion o Co e S a e Powe s’ in Philipp Genschel and Ma kus Jach en uchs (eds),
Beyond he Regula o y Poli y? (Ox o d Uni e si y P ess 2013).
non-consensual eu law 135
was only in he a e ma h o Maas ich and wi h ensuing ounds o accessions,
ha he e ogenei y in he EU aised ine i ably o a le el whe e enhanced coope -
a ion and in e se ag eemen s became mo e equen .
Di e en ia ion is o en also he ou come e en i o e all wel a e gains would
p opaga e an ag eemen wi h ull membe ship. As discussed abo e, ailu e o each
undi e en ia ed in eg a ion may be mul i old, e en i less p e alen in he EU
compa ed o in e na ional law. The posi i e co ela ion o ba gaining cos s and
numbe o pa icipan s is s aigh o wa d, as is he co ela ion be ween ba gaining
and leng h o an ag eemen ;33 he e ogenei y leads o di e gen p e e ences ha
engende di e en payo s uc u es, which may be ha d o econcile h ough com-
pensa ion in un ela ed policy ields (e en in he EU34); he complexi y o a ma e
may inc ease ba gaining cos s o a le el exceeding coope a ion gains;35 bu he
oppo uni y cos s o pu suing ‘enhanced coope a ion’ (compa ed o ull pa ici-
pa ion) a e no oo high as any non- pa icipa ing EU membe is able o join he co-
ope a ion a any s age (A icle 331 TFEU). Mo e gene ally, in o de o Eu opean
coope a ion o be success ul, he ou come o wo games mus o e lap— wi hin
he logic o Pu nam’s wo- le el game in ol ing complexi y. A he na ional le el,
domes ic g oups pu sue hei in e es s by p essu ing he go e nmen o adop a-
ou able policies, and poli icians seek powe by cons uc ing coali ions among
hose g oups. A he in e na ional le el, na ional go e nmen s seek o maximize
hei own abili y o sa is y domes ic p essu es, while minimizing he ad e se con-
sequences o o eign de elopmen s.36 The nego ia o s hus need o add ess he
conce ns o domes ic in e es g oups and, a he same ime, each an ag eemen
ha is accep able o he pa ies o he in e na ional T ea y. As e e y EU Membe
S a e go e nmen has o cope wi h a di e en domes ic policy si ua ion, he success
o ull pa icipa ion o all EU membe s is a om ob ious.
To his one may add beha iou al economic idiosync asies in domes ic policy
con ex s. Conside ha beha iou al economics adop s a pe spec i e emphasizing
ha ‘ aming’ o he policy decision is impo an . This means ha indi iduals may
exis in a amewo k as employees, no as consume s (as sugges ed by economis s
o cap u e consume en s); o as na ional ci izens wi h sel ish in e es s, no as
Eu opeans wi h a common in e es ; o as ‘ne paye s’, no iewing he posi i e spill-
o e s om EU ans e s o he EU as a whole. F amed acco dingly, loss a e sion
may play an impo an ole, gi en ha some g oups may lose om policy changes
while he bene i s a e dis ibu ed mo e b oadly. Loss a e sion plays ou o ce ully
33 James D Fea on, ‘Ba gaining, En o cemen , and In e na ional Coope a ion’ (1998) 52
In e na ional O ganiza ion 269.
34 Joel P T ach man, The Economic S uc u e o In e na ional Law (Ha a d Uni e si y P ess
2008) 72, 187.
35 E ic Posne and Alan O Sykes, Economic Founda ions o In e na ional Law (Ha a d Uni e si y
P ess 2013) 23.
36 Robe D Pu nam, ‘Diplomacy and Domes ic Poli ics: The Logic o Two- Le el Games’ (1988) 42
In e na ional O ganiza ion 427, 434.
238 a min s einBach
and axpaye s in e e y sub- ede al ju isdic ion and on e e y le el always pe ec ly
o e lapped. No one could li e a he expense o hei neighbou s o could be o ced
o suppo hei neighbou s. Today, he US is an example whe e simila incen i es
a e o e ed by a ede al s a e. Ins ead o sha ing liabili y as in a union s a e sys em,
he cen al go e nmen o e s no such sa e y ne .15 Ins ead, he e is a g ea deal o
unce ain y. Fo example, in 2010 Cali o nia’s eques o a bailou om he Uni ed
S a es go e nmen was ejec ed. This is s ill ue e en oday despi e he ex ensi e
deb aken o e (in ac o implici ly) by he Fede al Rese e and he US go e n-
men in he cou se o a ious bailou s h oughou he inancial c isis. While li-
abili y o s a e deb hus emains indi idualized limi ing sha ed liabili y, his does
no mean ha o he iscal policies a e in place ha implemen in e - s a e solida i y
wi h a s ong economic equaliza ion unc ion. In e egional o e ical iscal ans-
e s designed o smoo h mac oeconomic shocks (in line wi h OCA heo y) a e
o some ex en a subs i u e o sha ed liabili y, hough one ha is mo e e icien
because i engages in shock esponse wi hou biasing incen i es owa ds mo e
deb inclina ion. Fo example, he Uni ed S a es has signi ican iscal ans e s in
place o abso b asymme ical egional shocks, wi h unemploymen insu ance as a
channel o iscal ans e s. Abou 30 pe cen o he s a es’ expendi u es (including
Medicaid) consis o ede al g an s. 40 pe cen o local go e nmen e enues come
om he s a e go e nmen s (s a e g an s). The isk o a bailou is he eby signi i-
can ly mi iga ed by he exis ence o signi ican e ical inancial assis ance.
The eu ozone has no au oma ic s abilize in place ha would be esponsi e
o luc ua ions in business cycles. The es ablished EU ans e mechanisms seek
o p omo e economic suppo o he economically weakes egions in Eu ope
wi hou howe e ul illing an e ec i e unc ion ega ding he business cycle
(eg he S uc u al Fund and he Cohesion Fund).16 Only mo e ecen ly, ans e
schemes such as SURE and NGEU ha e no only ensu ed a mac oeconomic unc-
ion o smoo hing asymme ic shocks, speci ically o coun e he e ec s o he pan-
demic.17 The ans e schemes ha e also in oduced elemen s o union s a es by
allowing he EU o ake on deb ha is ul ima ely secu ed by i s Membe S a es and
which implied ans e s be ween EU membe s.18
15 The US expe ience o en o cing a no- bailou egime a he ede al le el is- à- is he US s a es
has been con o e sially discussed, wi h mo e ecen de elopmen s in US iscal ede alism being an
indica ion o his p o ision being elaxed. See Pe e Con i- B own and Da id A Skeel, When S a es
Go B oke: The O igins, Con ex , and Solu ions o he Ame ican S a es in Fiscal C isis (Camb idge
Uni e si y P ess 2012); Da id Schleiche , In a Bad S a e: Responding o S a e and Local Budge C ises
(Ox o d Uni e si y P ess 2023).
16 Be end Diekmann, Ch is oph Menzel, and Tobias Thomae, ‘Kon e genzen und Di e genzen im
“Wäh ungs aum USA” im Ve gleich zu Eu ozone’ (2012) 92 Wi scha sdiens 27; C is ina Fasone,
‘EU Budge and Spending Powe s’ in Alicia Hina ejos and Robe Schü ze (eds), EU Fiscal Fede alism
(Ox o d Uni e si y P ess 2023) 256.
17 Paul De mine and Ana Bobic, ‘O Winne s and Lose s: A Commen a y o he
Bundes e assungsge ich ORD Judgmen o 6 Decembe 2022’ (2024) 20 Eu opean Cons i u ional
Law Re iew 163, 175.
18 Clemens Fues , ‘The NGEU Economic Reco e y Fund’ (2021) 22 CESi o Fo um 3.

economic anD mone a y union 239
By con as , in he US, a ede al s a e, each s a e pays deb cos s in line wi h i s
indi idual le el o deb . To gua d agains deb cos s ising oo high, many s a es in
he US ha e on hei own ini ia i e amended hei cons i u ions o include deb
limi s o a ious kinds. The le els o go e nmen deb among he s a es in he US
illus a e he esul s. While balanced budge ules ha e no p e en ed s a es un-
ning high de ici s on a empo a y basis, he o e all deb o s a es has been con-
ained. S a e deb in 2009 was as low as 7.3 pe cen (Cali o nia) and 4.9 pe cen
(A izona).19 Tha s ands in s a k con as o Ge many, a union s a e, whe e he
le el o deb anged om abou 7 pe cen in Ba a ia o almos 70 pe cen o GDP
in Be lin.20
S a e deb in union s a es
By con as , he eu ozone, while legally concep ualized as a ede al en i y, as
S aa en e bund, which s ipula es economic ma ke accoun abili y o each o
i s Membe S a es, ac ually exhibi s he ea u es o a union s a e.21 By de ini ion,
Membe S a es o unions can ake on hei own deb s, and hose deb s emain i s
and o emos hei own liabili y. Bu as a gua an ee, hey can ely ei he on he
cen alized go e nmen o on o he s a es in he union s a e ha can be held liable
o each o he ’s deb s. Whe he his is channeled h ough o mal join and se e al
liabili y o only by implici liabili y o he s a e does no make a di e ence om an
economic pe spec i e (wha ma e s a e ma ke s’ belie s). Wha e e he go e n-
men s do, he e is some ce ain y ha hey can ely on o he union membe s o a
union s a e o s ep in and bail hem ou .
Con empo a y Ge many is an example o a union s a e. While o mally no join
liabili y o deb means exis s, in p ac ice he Bundeslände can coun on he ed-
e al go e nmen o s ep in i iscal ha dship occu s. While his bailou is subsidia y
only and ied o s ic condi ions, he mu ualizing e ec is e lec ed in he deb
cos s paid by he Bundeslände in Ge many’s union sys em, as hey emain la gely
independen o hei indi idual deb le els. Thei a ings ul ima ely depend on he
a ing o he ede al Bund.
In a union s a e, he liabili y egime is p o ec i e o lende s. While sha ed li-
abili y in union s a es incen i izes deb o s o ake on excessi e deb , he lende
is well p o ec ed because hei epaymen claims can ul ima ely be sa is ied
19 Randall Henning and Ma in Kessle , Fiscal Fede alism: US His o y o A chi ec s o Eu ope’s Fiscal
Union (B uegel 2012) 19.
20 Kai A Kon ad and o he s, ‘Wege aus de Eu opäischen S aa sschuldenk ise’ (2010) 90
Wi scha sdiens 783, 802.
21 A min S einbach, ‘Ma ke s as an Accoun abili y Mechanism in EU Economic Go e nance’ in
Ma k Dawson (ed), Subs an i e Accoun abili y in Eu ope’s New Economic Go e nance (Camb idge
Uni e si y P ess 2023).
240 a min s einBach
by se e al (indi ec and di ec ) deb o s, no only he indi idual di ec deb o .
Th ough implici join liabili y he c edi o ’s claims will be sa is ied h ough a cas-
cade o claims, s a ing wi h he p ima y deb o coun y bu e en ually ex ending
o o he membe s o he union o h ough ins i u ionalized agencies channeling
mu ualiza ion. The common deb assumed by he EU in he con ex o NGEU is
illus a i e: while he EU is he p ima y and di ec deb o en e ing in o con ac s
wi h c edi o s on capi al ma ke s, he epaymen is backed by he EU budge ( i-
nanced by Membe S a es’ con ibu ions), and i one Membe S a e ails o make
i s con ibu ion, addi ional con ibu ions can be d awn om o he Membe S a es
(on a p o a a basis).22
This con as s wi h a ede al s a e whe e each sub- ede al go e nmen akes
on deb s acco ding o i s indi idual deb demand cu e, because lende s se hei
lending condi ions based on each sub- ede al go e nmen ’s likelihood o honou
deb s. In a union s a e, a pooling o he demand cu es leads o a g ea e isk o
de aul ha may occu in sub- ede al go e nmen s.23 This is because in a union
s a e he egional go e nmen s a e expec ed o sha e hei isk, making he o al
demand o deb ac ually la ge han he sum o he sub- ede al go e nmen s’ de-
mand o deb .24 The incen i e o deb accumula ion is inc eased because he
inancing cos s a e lowe , a leas o many s a es wi hin he union s a e. This is
di e en o iscally sound coun ies who ace a de e io a ion o he inancing con-
di ions i ma ke s pe cei e hem as po en ially bailing ou o he membe s o he
union, because cos s a e de e mined by he sol ency isks o all s a e en i ies who
could possibly be held liable, no by he indi idual go e nmen deb le el. This
also makes iscal consolida ion e o s mo e unlikely, as due o he mu ualiza ion o
sol ency, each egional go e nmen ’s iscal con ibu ion o consolida ion has only
a limi ed e ec on imp o ing inancing cos s because he posi i e e ec s o con-
solida ion a e socialized ac oss all s a es. F ee- iding occu s— i may be a ional
om a membe ’s pe spec i e o wai o o he coun ies o con ibu e o inancial
s abili y in he union, hus ee- ide on hei commi men s by employing he add-
i ional deb space o e ed h ough o he membe s’ iscal e o s. In sum, sha ed
deb liabili y inc eases mo al haza d.25
Wha has been desc ibed co esponds o he si ua ion in Ge many (pa icula ly
be o e i in oduced sub- ede al cons i u ional deb b akes aiming a p e en ing
excess deb aking). Regional go e nmen s in Ge many ha e no isk in he case o
insol ency and can coun on a bailou om he cen al go e nmen . In 1992, he
Ge man Fede al Cons i u ional Cou decla ed ha he cen al go e nmen and
22 Sebas ian G und and A min S einbach, ‘Eu opean Union Deb Financing: Leeway and Ba ie s
om a Legal Pe spec i e’ (2023) Wo king Pape 15/ 2023, B uegel.
23 William Oa es, ‘On he E olu ion o Fiscal Fede alism: Theo y and Ins i u ions’ (2008) 62
Na ional Tax Jou nal 313, 324.
24 Blanka and Fas en (n 14) 45.
25 ibid.
economic anD mone a y union 241
he egional go e nmen s in Ge many a e bound by a kind o communi y soli-
da i y and a e obliga ed o suppo one ano he .26 As a esul , he Cou decided
ha he Bund and he Bundeslände mus help and o e inancial suppo when
any membe o he Ge man s a e communi y was acing an ex eme budge c isis.
A ha ime, he judgmen was c i icized o incen i izing egional go e nmen s
o delibe a ely p ecipi a e a budge c isis in o de o o ce o he membe s o pay
o hei iscal policy misconduc .27 The Cou ’s decision esul ed in he egional
s a e go e nmen s o he Bundeslände B emen and Saa land ecei ing ex ensi e
aid om 1994 o 2004. In 2004, B emen’s deb le el was s ill highe han ha o
any o he egional s a e go e nmen . In Saa land as well, budge cu s did no ha e
a long- las ing posi i e e ec . Bu he Fede al Cou ’s decision o 1992 had clea ly
es ablished ha he cen al go e nmen and egional go e nmen s we e join ly li-
able o each o he ’s deb s. The a ing agencies’ sco ing o he local s a e go e n-
men s shows ha sha ed liabili y decisi ely in luences he assessmen s o ma ke
pa icipan s. The Fede al Cons i u ional Cou con i med he liabili y o he ed-
e al s a e as ul ima a io in i s ‘Be lin decision’ in 2006. Howe e , he Cou sough
o s eng hen he egional s a e go e nmen s’ esponsibili y by equi ing a high
le el o budge a y eme gency and imposing budge a y consolida ion measu es
on he egional go e nmen as a p econdi ion o budge a y aid. No wi hs anding
he iscal condi ionali y as a p econdi ion o he solida i y p inciple o apply, he
a ing agencies main ained o bo h he cen al go e nmen and he egional s a e
go e nmen s hei highes a ing indica ing ha Bundeslände ul ima ely enjoy a
bailou - op ion. Since insol ency becomes less p obable when bailou s a e plaus-
ible op ions, e en s a es wi h ex emely high le els o deb (o non- so e eigns like
he EU) can e ain access o he c edi ma ke o e an ex ended pe iod. Unde his
condi ion, ma ke - based e inancing in e es a es do no accu a ely e lec a s a e’s
sol ency, no do ma ke s unc ion as a means o en o cing iscal discipline.28
Incen i es o deb consolida ion in ede al and union s a es
O ganizing s a es as ede al o as union s a es wi hin he cha ac e is ics discussed
abo e aises ques ions abou he ools a ailable o dealing wi h he public good
dilemma ha he EMU is acing— ha is, o incen i ize membe s o he common
cu ency o engage in minimizing nega i e spillo e s om iscal conduc and o
26 Fo he ollowing, see Kai A Kon ad and Holge Zschäpi z, Schulden Ohne Sühne? Wa um de
Abs u z de S aa s inanzen uns alle T i (CH Beck 2010) 186.
27 Kon ad and Zschäpi z (n 26) 187; Alexande Schulz and Gun am B Wol , ‘The Ge man Sub-
Na ional Go e nmen Bond Ma ke : S uc u e, De e minan s o Yield Sp eads and Be lin’s Fo gone
Bail- Ou ’ (2009) 229 Jah büche ü Na ionalökonomie und S a is ik 61.
28 Kon ad and o he s (n 26) 802; Fo a di e en iew see Blanka and Fas en (n 14) 51.
242 a min s einBach
con ibu e o inancial s abili y as a public good.29 A co e a ionale o iscal policy
coo dina ion is hus o mi iga e ex e nali ies on public goods o ‘club- goods’ (like
he s abili y o he eu o cu ency). Since he ‘pooling’ o demand cu es and de-
aul p obabili ies a e a ypical ea u e o ede al s a es (whe e no c edible no-
bailou exis ), all membe s o he cu ency a ea bea he cos s o high s a e deb and
aising in e es a es— he e ec s o iscal policy on he public good a e socialized.
We ocus on deb consolida ion, as his has been in he pas he majo sou ce o
inancial ins abili y, while i is admi ed ha a sole ocus on deb uns he isk o
dis ega ding he necessa y balancing wi h g ow h impulses and hus leeway o
deb - based iscal impulses. Wi h his incen i e- o ien ed ocus on managing iscal
incen i es, he e a e mul iple ways o managing deb such as ceilings on de ici
and deb , o me hodologies compu ing deb sus ainabili y— hese ins umen s
ely on a p e- de ined se o h esholds o c i e ia, which a e assessed and en o ced
by an (independen ) agency. Ra he han elying on he ma ke ’s ac ual esponse
o de ici and deb le els, his ules- based en o cemen s uc u e is implemen ed
by a non- ma ke - based en o cemen o ule- make s’ (disc e iona y) decisions.
S a u o y deb ceilings may y o e lec economically sus ainable deb le els, bu
hey a e de ini ely di e en om elying on he ma ke ’s e dic .30
A di e en app oach is o ei he c edibly exclude, by law, o a leas c ea e un-
ce ain y ha go e nmen s will be bailed ou , wi h he aim o inducing ma ke s
o base hei sol ency judgemen s solely on an indi idual coun y’s pe o mance,
hence using ma ke - de e mined in e es a es as disciplining ools.31 Thus, he i s
app oach is a disc e ion- based, non- ma ke en o cemen o iscal policy and he
la e elies on ma ke - based en o cemen , while bo h ely on he exis ence o a
c edible legal amewo k by de e mining he assessmen and en o cemen s uc-
u e. In he EU, bo h app oaches ha e been laid down in he EU T ea ies: a de ici
and deb ceiling app oach wi h a ules- based mechanism o en o cemen (A icle
126 TFEU), mo e ecen ly complemen ed by a egime de e mined by deb sus-
ainabili y analysis, as well as a ma ke - o ien ed no- bailou clause (A icle 125
TFEU). The i s app oach limi s egional go e nmen s’ abili y o ake on deb pu
in place h ough s a u o y egula ion and adminis a i e en o cemen (by he EU
Commission). This app oach does no necessa ily al e he deb o ’s p e e ence o
ake on deb ( a he han inc easing s a e e enue h ough axa ion), bu i limi s
he deb space h ough he decisions o an ex e nally en o ced limi a ion. In con-
as , he second app oach is aimed a educing he deb o go e nmen s’ p e e ence
29 Isabelle Jouma d and Ma his Kongs ud, ‘Fiscal Rela ions ac oss Go e nmen Le el’ (2003) OECD
Economics Depa men Wo king Pape s No 375, 29.
30 Daniel Kelemen and Te ence Teo, ‘Law, Focal Poin s, and Fiscal Discipline in he Uni ed S a es
and he Eu opean Union’ (2014) 108 Ame ican Poli ical Science Re iew 355, 363; Geo ey Woglom,
‘Do C edi Ma ke s Discipline So e eign Bo owe s? E idence om US S a es’ (1995) Jou nal o
Money and C edi , and Banking 1046.
31 Ma k Halle be g, ‘Fiscal Fede alism Re o ms in he Eu opean Union and he G eek C isis’ (2010)
12 Eu opean Union Poli ics 127, 130.
economic anD mone a y union 243
o deb by le e aging ma ke p ices (in e es a es) o in luence he lende ’s will-
ingness o loan.32 The la e is a ma ke - based s a egy ha uses he isk o insol -
ency o link he cos o c edi as closely as possible o he isk o de aul .
Consequen ially, he e ec i eness o ma ke - based no- bailou p o isions c i ic-
ally depends on unc ionali y o ma ke s and he ex en o which ma ke - based
in e es a es a e de e mined by undamen als o he coun y conce ned a he
han being in luenced by i a ional ma ke sen imen s. The his o y o he EMU
has shown ha eliance on a s a u o y no- bailou clause in A icle 125 TFEU is an
insu icien ool o cons ain deb incen i es: o e a decade since he beginning o
he eu o, ma ke s did no iew any di e gence be ween Membe S a es ha was
o ele ance o membe s’ sol ency, as bond sp eads we e la gely con e gen . This
ma ke igno ance engende ed unde es ima ing di e en deg ees o sol encies be-
ween EU membe s, and wi h he ou b eak o he c isis, he bond sp eads o e -
eac ed in a way ha was no jus i ied by he undamen al economic da a ( hus
d as ically o e es ima ing di e gences in sol ency).33 In u n, he e ec i eness o
en o cemen - based app oaches unde A icles 121 and 126 TFEU depends on how
exis ing ules deal wi h poli ical economy and s a egic beha iou , in pa icula
how en o cemen can be implemen ed e ec i ely. Since i s incep ion, he T ea y-
based en o cemen s uc u e, implemen ed h ough he S abili y and G ow h Pac ,
has been subjec o c i icism due o i s lack o e ec i eness.
Fiscal policy a angemen s
Ma ke -based ins umen s o
lowe de ici inclina ion
No-
bailou
ule
Insol -
ency
ules
SGP Deb
b akes
Union s a e (sha ed
liabili y is possible)
Fede al s a e (no
sha ed liabili y)
Non-ma ke based bu ixed
de ici /deb limi a ion
Fig 23.1 Fiscal policy a angemen s
Sou ce: A min S einbach, Economic Policy Coo dina ion in he Eu o A ea (Taylo &
F ancis L d 2014) 83.
32 Timo hy D. Lane, ‘Ma ke Discipline’ (1993) IMF S a Pape s No 53, 55; Fab izio Balassone,
Daniele F anco and Ra aela Gio dano, ‘Ma ke - Induced Fiscal Discipline: Is he e a Fall- Back Solu ion
o Rule Failu e?’, Public Deb (Banca d’I alia 2004), 410.
33 Paul de G auwe, Yuemei Ji, and A min S einbach, ‘The EU Deb C isis: Tes ing and Re isi ing
Con en ional Legal Doc ine’ (2017) 51 In e na ional Re iew o Law and Economics 29.

244 a min s einBach
Figu e 23.1 shows how di e en s a e o ganiza ion p inciples may ha e di e en
me hods o es ic ing so e eign deb accumula ion. S a e o ganiza ion p inciples
can be dis inguished by e e ence o sha ed liabili y as well as by e e ence o hei
ma ke o ien a ion. The sui abili y o each app oach depends on he o m o s a e
o ganiza ion ha is legally implemen ed. A c edible no- bailou p o ision and
s a e insol ency p ocedu e a e be e sui ed in a ede al s a e se ing building on a
ma ke - based sys em o con ain deb .
In ede al unions, deb is indi idualized and sha ed liabili y is p ecluded, and
he ma ke s assess only he sol ency o an indi idual s a e— a logic ha bes sui s
a bailou - clause and s a e insol ency amewo k, ha is, p ocedu e o es uc u e
deb .34 The Ame ican expe ience wi h Chap e 9 o he Ame ican Bank up cy
Code shows ha a o malized bank up cy p ocedu e can p o ide an incen-
i e o iscal consolida ion. Ce ainly, ma ke - based app oaches could also be
implemen ed in a union s a e, whe e sha ed liabili y de e mines he egional
go e nmen ’s abili y o ake on deb , and one may a gue ha he EU is p ecisely
such a case, as he T ea y- based bailou clause s ands nex o ins i u ions such as
he ESM, SURE, and NGEU, all o which ha e es ablished some kind o sha ed
liabili y. Bu ma ke - based app oaches a e less e ec i e in union s a es because
sha ed liabili y unde mines he ma ke signal, no allowing ma ke in e es a es
o be c edible e lec ions o an indi idual s a e’s sol ency isk. Again, he EU is
illus a i e in his ega d. Du ing he i s en yea s o he eu ozone, he s ong con-
e gence o so e eign bond in e es a es sugges ed ha ma ke s assumed join li-
abili y in he EU, as sp eads we e la gely unconnec ed om unde lying economic
da a. The ma ke ’s belie in some kind o sha ed liabili y— despi e he no- bailou
clause— may ha e been a wo k. In u n, in a union s a e, in which ma ke o ces
on an indi idual coun y’s budge a y conduc a e compa a i ely weak by design,
he e is a g ea e need o al e na i e deb con ainmen in o de o mi iga e ex e nal
e ec s. Wi hou he disciplining o ce o ma ke s ha sanc ions a s a e’s sol ency,
he e is a need o addi ional ins umen s con aining nega i e ex e nal and des a-
bilizing e ec s ha may esul om iscal conduc — he EU has implemen ed he
logic and es ablished iscal go e nance om he beginning o he eu o. Re enue
gene a ion h ough EU bonds ha a e backed by Membe S a es’ con ibu ions
and ul ima ely secu ed by o he membe s’ sol ency (as implemen ed in SURE and
NGEU) is alien o he sys em in a pu e ede al o ganiza ion due o he associa ed
mu ualiza ion e ec s— while bonds allowing sha ed liabili y may be implemen ed
o sound mac oeconomic easons o s abilize he cu ency a ea,35 his ins umen
34 Jona han P Thomas, ‘Bank up cy P oceedings o So e eign S a e Insol ency and Thei E ec on
Capi al Flows’ (2004) 13 In e na ional Re iew o Economics & Finance 341.
35 Gab iele Giudice and o he s, ‘A Eu opean Sa e Asse o Complemen Na ional Go e nmen
Bonds’ (2019) MPRA Pape No 95748.
economic anD mone a y union 245
weakens he ma ke - based p inciple es ablished h ough he no- bailou clause.
Join liabili y bonds engende a ‘pooling’ o demand cu es.36
In u n, o a union s a e, sha ed liabili y bonds a e he sui able ool o s abilize
he cha ac e as a union s a e, because sha ed liabili y expendi u e is an app o-
p ia e way o unding p ojec s ha add ess common conce ns such as ansna ional
public goods. The inancing o ansna ional public goods (o Eu opean public
goods, see abo e Chap e 21 d) is no ob ious in a ede al s a e wi h indi idual
liabili y. S ic ly speaking, membe s mus con ibu e o Eu opean public goods ac-
co ding o he bene i s hey de i e om hem ( iscal equi alence). Common deb
may acili a e inancing public goods.
b) Deb limi a ion in he eu ozone
The EU is no easily cha ac e ized as ei he a union o ede al s a e. The EU is no a
pu e ede al s a e, no a union s a e. F om a legal pe spec i e, he EU has been cha -
ac e ized by he Ge man Cons i u ional Cou as an associa ion o so e eign s a es
(S aa en e bund), which highligh s ha he EU is mo e han jus a loose g oup o
s a es ied oge he h ough an in e na ional law T ea y, bu is no a so e eign s a e
in i s own igh . Fo mally, he EU has es ablished a no- bailou p inciple (A icle
125 TFEU) as well as a ban on mone a y inancing (A icle 123 TFEU), bo h o
which inco po a e he idea o iscal esponsibili y o each indi idual Membe
S a e o he EU— he e is ag eemen in legal schola ship, bo h among schola s as
well as in ju isp udence (o he ECJ and he Ge man Cons i u ional Cou ), ha
he a ionale o hese co e p o isions o he EMU is o le ma ke p essu e be he
disciplining o ce on Membe S a es, hus emphasizing he EU’s cha ac e as a ed-
e al s a e in which all union membe s emain esponsible o hei own iscal a e.37
Expe ience has shown ha he an i- c isis measu es ha e pu in ques ion he
binding o ce o hese iscal- mone a y pilla s o sel - dependence. Financial u -
moil h ea ening he inancial s abili y o he eu ozone has been seen o lead o
de imen al e ec s ( o all membe s o he eu ozone) and injec ing conside able
lexibili y o he ules as he only way o econcile comp ehensi e inancial assis -
ance wi h s a u o y ules. Bo h a iscal no- bailou p o ision as well as a mone a y
ban on s a e inancing we e u ned away om a s ic in e p e a ion: a mo e ha
was mo i a ed o di e nega i e e ec s ha could esul om s a e insol ency
wi hin he eu o cu ency a ea. Hence, while a no- bailou clause builds he EU
on he p emise o a ede al s a e, he s a u o y ban has inc emen ally so ened o-
wa ds a union s a e implemen ing elemen s o sha ed liabili y cha ac e . This leads
36 B ady Go don, The Cons i u ional Bounda ies o Eu opean Fiscal Fede alism (Camb idge
Uni e si y P ess 2022) 350.
37 ibid 122– 130, 345.
246 a min s einBach
ma ke s o wo k only pa ially in cons aining iscal policy. The ins i u ionaliza-
ion o he c isis ins umen s in he EU T ea y, such as he legal basis o he ESM
(A icle 136 TFEU), ha e u he es ablished a pe manen mechanism o p o ide
inancial aid when inancial s abili y equi es i .38
Despi e weakening ma ke p essu e h ough hese c isis ins umen s, he EU
sough o o se he weakening o he bailou - clause by imposing iscal condi ion-
ali y as a quid p o quo o inancial assis ance. The consequence was a change
om ma ke accoun abili y owa ds poli ical accoun abili y. As long as A icle 125
TFEU was ully in ac , Membe S a es we e held by ma ke s accoun able o hei
policies ha a ec ed hei sol ency, wi h ma ke s sanc ioning membe s o un-
sound iscal policy.
The e m ‘economic accoun abili y’ cap u es he EU T ea ies’ choice o ee
ma ke ules ha subjec he inancing needs o p i a e ac o s and s a es o he
judgemen o ma ke s.39 Economic accoun abili y has been supplan ed by sub-
jec ing ecei ing Membe S a es o he judgemen o o he so e eigns’ demands,
wi h accoun abili y o ma ke s being inc emen ally eplaced by accoun abili y o
o he so e eigns o EU ins i u ions. C edi o Membe S a es, he EU Commission,
and he Eu opean Cen al Bank ac as p o ide s o inancial aid in e u n o con-
di ional s uc u al, economic, inancial, and social e o ms o be ca ied ou by
he deb o s a es. Wha has p e iously been p essu ed by ma ke s is now (unde
he ESM) subjec o poli ical disc e ion o non- majo i a ian ins i u ions as well as
om o he so e eigns. I is agains his backg ound ha a as body o li e a u e in
poli ical science eme ged ha ocused on he p oblema ic aspec s o his shi om
a legi imacy and accep ance pe spec i e.40 F om an economic pe spec i e, one can
be neu al ega ding who should be esponsible o con aining ex e nal e ec s— i
he goal is o p e en Membe s o ac in a iscally imp uden ashion (A icle 125
TFEU), a condi ionali y p og amme se up by non- majo i a ian ins i u ions is no
wo se han ma ke p essu e, p o ided ha i is equally e ec i e. A p econdi ion
o condi ionali y o be e ec i e is ha i is ca e ully calib a ed so ha i does no
c ea e bailou expec a ions.41
Taken oge he , he e is no ins umen in he EU ha su icien ly minimizes he
p opensi y o bo ow. Since he eu ozone was ounded, so e eign bond in e es
a es ha e ac o ed in he mu ual commi men among eu ozone coun ies, encou -
aging bo owing by o e ing ela i ely low a es. I was only du ing he so e eign
deb c isis ha a es eac ed wi h hype - sensi i ely, mo ing beyond he unde lying
38 Fabian Am enb ink and Menelaos Ma kakis, ‘Ne e Was e a Good C isis on he Eme gen EU
Fiscal Capaci y’ in Alicia Hina ejos and Robe Schü ze (eds), EU Fiscal Fede alism (Ox o d Uni e si y
P ess 2023) 197.
39 S einbach (n 21).
40 Ben C um and Dei d e Cu in, ‘The Challenge o Making Eu opean Union Execu i e Powe
Accoun able’ in Simona Pia oni (ed), The Eu opean Union (Ox o d Uni e si y P ess 2015) 63; Dei d e
Cu in, ‘Challenging Execu i e Dominance in Eu opean Democ acy’ (2014) 77 Mode n Law Re iew 1.
41 Go don (n 36) 354.
economic anD mone a y union 247
economic undamen als.42 In addi ion, he e is also no insol ency egime ha
would es uc u e deb and equi e a plan o e- sol ency.
I he EU wan s o s eng hen i s ede al elemen by educing i s Membe s’ p o-
pensi y o incu deb , a c edible no- bailou and he possibili y o insol ency o
s a es would be sui able o ms o coo dina ion ha aim a s eng hening p e en i e
ma ke incen i es. Insol ency p oceedings c ea e legal ce ain y o deb o s and
c edi o s. Ha ing an insol ency p ocedu e wi h es uc u ing equi emen s in
place would u he induce c edi o s o assess deb o s’ indi idual c edi wo hiness
a he han coun ing on sha ed liabili y o union membe s. The in oduc ion o
collec i e ac ion clauses (CAC) has been a majo de elopmen in his ega d. The
main pu pose o he eu o a ea model CAC is o in oduce a ‘single- limb’ o ing
mechanism. Res uc u ing decisions a e hus binding on all holde s o a se ies o
deb secu i ies agg ega ed in one o ing g oup i he p oposed modi ica ion is ap-
p o ed by holde s o a majo i y o all secu i ies agg ega ed in he o ing g oup.
Facili a ing deb es uc u ing no only speeds up insol ency p oceedings bu also
has a chilling e ec on lending p ac ices.
EU law has ne e elied exclusi ely on he bailou p ohibi ion. In he absence
o a c edible ban, EU law se s ou a comp ehensi e ne wo k o p ocedu al and
subs an i e iscal obliga ions, led by he o e a ching goal o ha e ‘sound public
inances and mone a y amewo k condi ions’ (A icle 119 TFEU). This objec i e
guides he iscal policy egula ions speci ied in A icle 126 TFEU, he S abili y and
G ow h Pac (SGP) speci ying he implemen a ion o nume ical de ici and deb
c i e ia, which was supplemen ed by he Fiscal Compac , an in e na ional T ea y
equi ing EU membe s o in oduce na ional deb b akes.43 Na ional deb b akes
ul il a simila unc ion o he SGP: hey do no use ma ke incen i es o budge
discipline, bu a he impose (mo e o less) a bi a y deb and de ici limi s se
and adminis e ed by au ho i ies. The SGP and he Membe S a e deb b akes a e
he e o e mo e sui able o a union s a e in which ma ke o ces a e concep u-
ally abandoned on s ic e ms. The same applies o sha ed liabili y bonds as im-
plemen ed unde he ESM, SURE, and NGEU. They amoun , a leas in pa , o
join liabili y, e en i — depending on hei design— hey mimic ma ke p essu e
h ough condi ionali y.
On an economic accoun , i is ques ionable o wha ex en EU iscal ules wi h
hei applica ion o he igid ‘one- size- i s- all’ app oach using nume ical bench-
ma ks will p omo e he sus ainabili y o i s membe s’ deb . E en i he dis inc ion
be ween ‘good deb ’ and ‘bad deb ’ is an unplausible ma ke de ini ion, he e a e
ins ances when deb can be used o g ow h- enhancing pu poses ( hus s abilizing
iscal sus ainabili y), and EU ules ha e shown ce ain lexibili y o expendi u es
42 Paul de G auwe and Yuemei Ji, ‘Sel - Ful illing C ises in he Eu ozone: An Empi ical Tes ’ (2012)
34 Jou nal o In e na ional Money and Finance 15.
43 S einbach (n 21) 84.
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