The study of European Union Law from the perspective of Law and Political Economy (LPE) offers valuable insights from two perspectives. As we shall see, on the one hand, LPE as a scholarly movement provides a critical framework for analysing fundamental legal aspects of the EU’s political economy and brings to the debate a much-needed renewal of the importance of the critique of the political economy. On the other hand, investigating the EU from a perspective sensitive to LPE analysis is also a potentially enriching challenge for the scholarly movement itself. To illustrate this latter point, this intervention will first draw a parallel between LPE in the U.S. and in the European context. This comparison will shed light on the specificity of an LPE approach to EU law. In brief, an LPE focus forces the scholarly movement to investigate the legal design of the political economy from a perspective that does take the existence of a single sovereign and unitary power for granted. To demonstrate this point, the analysis will focus on the main thesis – the constitutive thesis – as expounded by LPE scholars in both jurisdictions. The final section will briefly touch on the limits of a strict interpretation of the constitutive thesis of the design of the single currency.
The constitutive thesis and the role of the State
As known, the development of an LPE movement originated within US law schools. LPE in the US has set the framework for an LPE analysis, but it has done so against a certain intellectual and historical background. The differences between contexts (not only with Europe, but one could imagine with other regions as well) are certainly generative of useful insights and, at the same time, potential misunderstandings. The theoretical background against which LPE in the US has reacted is a case in point. First, Law & Economics has never enjoyed, in European legal academia, the same influence that it has exerted in the US, especially among public and EU lawyers. Second, the main legal intellectual antecedent upon which North American LPE is being expounded (though certainly not the only one) is a re-interpretation of American Legal Realism that sidesteps its previous appropriation by Critical Legal Studies. None of this was really present in the intellectual background that marked the inception and development of European integration (for more recent reflections see here).
But an even more relevant difference concerns the political history and organisation of the two regions. A key distinction between the US and European versions of LPE lies indeed in their underlying assumptions about the state or the relevant form of political unity. In much of U.S. LPE scholarship, law’s capacity of organising the political economy is often taken for granted in light of the economic and political power of an imperial juridical form. In other words, what makes the law an effective device for structuring the political economy is ultimately an enormous concentration of political power. There seems to be an unthematized assumption – in LPE scholarship – that the State is at least partially autonomous (and external) from the political economy, and it is endowed with enough capacity for generating unmatched stocks of public power through the process of legal coding. This autonomous capacity would provide the main force behind the design of fundamental aspects and institutions of the political economy.
LPE and the political form of the EU
The EU’s institutional structure presents a unique challenge to the LPE’s conceptual framework. Unlike the U.S. federal system, EU integration has not resulted in the consolidation of a centralized, semi-autonomous political power. Instead, legal integration has often been driven by judicial mechanisms rather than legislative or executive authority. This recalls the “Integration through Law” movement, which rested on the idea that in the absence of political unity, integration could proceed through legal – and especially judicial – means. However, unlike LPE, that movement did not pay much attention to the political economy of European integration. As a result, it theorized legal institutions as the main drivers of integration, without considering the broader economic and political structures in which they were operating. For LPE scholars, this raises a crucial question: How can law effectively constitute the fundamental aspects of the political economy in the absence of a unitary and powerful political and legal authority backing it?
Strong or existential constitutive thesis?
Perhaps, part of the problem lies in the ambiguity of what it means for law to be “constitutive”. While the constitutive thesis is central to LPE, the nature of the relationship between law and political economy remains contested. Does law cause economic structures to emerge, or does it explain their existence? The strong version of the constitutive thesis holds that law actively shapes and transforms the political economy. In this version, institutions are first legal constructs than anything else (contract, for example, would be primarily a legal and only secondarily an economic institution). Hence, law necessarily plays an essential role in transforming foundational aspects of the political economy, up to the point where value or even social relations can be legally generated. This perspective underlies also the idea of a ‘transformative law’.
By contrast, a weaker, more “existential” version of the thesis suggests that law sustains and stabilizes economic institutions rather than fundamentally shaping them. In this view, the relation of constitution explains existence rather than causation. According to this version, fundamental aspects of the political economy partially depend, for their continued existence, on a legal framework. Legal coding secures the permanence of an institution as an economic object as well; however, the capacity for designing the contours of that object is more limited as there could be other causes, incentives, or imperatives, which could trigger (or prevent) a change. In the presence of this kind of existential relation it is less likely that legal intervention could truly transform institutions of the political economy as the content of the latter would be determined by economic or political, rather than legal, rationality. It is fair to say that an explanation of the constitutive thesis might move, according to the specific case at hand, within the bandwidth of strong and existential accounts.
Mindful of these two meanings of the constitutive thesis, it is possible to apply an LPE analysis to the political economy of a supranational entity like the EU. An LPE analysis cannot be but local and circumscribed because it does not claim to be a general theory of law. Yet, a disenchanted LPE approach can offer a nuanced reconstruction of how certain EU institutions are imbricated within a layered structure of different legal and economic regimes (such as the EU economic constitution). Especially (though not exclusively) in a supranational legal order, law operates within a layered framework of national, supranational, and international regimes. While EU law may derive part of its authority from state law, it also produces distinct legal and economic effects that can only simply be reduced to national legal traditions. Understanding these interactions is key to assessing the potential for legal intervention in the EU’s political economy.
Supranational currency and LPE
Take the significant case of the single currency and its legal organisation. As known, legal theories of money have tended to side either with the conception of money is traditionally divided between viewing money as credit (i.e., a state-backed instrument) and as a commodity (i.e., an asset with inherent value). In sovereign states such as the U.S. or China and the U.K., monetary sovereignty allows the state to exercise significant control over its currency. But in the EU, the legal and economic nature of the Euro is far more complex and deserves a more attentive legal analysis.
This is where an LPE focus might add a nuance to the analysis by avoiding the standard framing of the issue in terms of the alternative between money as credit or commodity. As Anna Chadwick has shown in a recent LPE-inspired study, the Euro cannot be deemed to be only a creature of the European Central Bank. Its circulation and regulation are also shaped by international and transnational law, and especially by financial instruments such as derivatives and repo markets. These mechanisms govern how the Euro functions not just as credit-money but also as a traded commodity.
This insight challenges conventional assumptions that undergird several debates around the Euro and its monetary constitution. Think, for example, of the assumption according to which the creation of a sovereign federation with fiscal power undergirding the single currency would allow the European Union to control the value of said currency (one could say: by creating sovereign money backed by fiscal capacity). At one level, the latter reading could be identified as a ‘vulgar’ rendition of the LPE constitutive thesis: the political economy of the single currency could be fully managed by the European legal infrastructure. However, an LPE analysis that appreciates the layered legal and political structure that makes up the international monetary regime would caution the reader against this monistic reading of the constitutive thesis. In fact, the dynamic of monetary valorisation unfolds within a hierarchical international monetary order whereby almost none of the State-based currencies (with, perhaps, the exception of the apex currency, the US dollar) can really enjoy the kind of autonomous sovereignty that sometimes advocates of the credit-based conception of money tend to support. Accordingly, this kind of analysis offers a sober assessment of the nature and functioning of the Euro, the power of the ECB, the role of forex markets, and it offers a compelling explanation of the legal regimes that drive many of the operations of EU institutions.
Conclusion
While an LPE perspective might open up the study of EU law to considerations of political economy which are not driven by neoclassical economic rationality, LPE itself can profitably adjust some of its main tenets through the study of EU law and in this way learn how to understand legal coding in the absence of a powerful and centralised State authority. On the first aspect, LPE provides EU lawyers with a set of analytical tools for the appreciation of how central the design of the political economy is in the project of European integration. On the second aspect, engaging with EU law might push LPE scholars to refine the central constitutive thesis in a way that does not reduce the relation of constitution between law and the political to one of pure causality.