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Let Law Rule:
Ordoliberalism and Europe’s
Economic Constitution
TIMO MIETTINEN, PH.D
THE NETWORK FOR EUROPEAN STUDIES,
UNIVERSITY OF HELSINKI
EURO CRISIS:
NEW INTERESTS
• Euro crisis: new interest in the theoretical, ideological, and historical
foundations of the European economic model
• Analysis of what went wrong rests on diverging economic and political
premises
• Differences in competitiveness vs. structural flaws
• While the “euro crisis” itself has been constructed primarily as an
economic problem, it has had wide repercussions to our ideas of
democracy, state sovereignty, and social rights
ECONOMIC CONSTITUTION
• In the research literature, questions concerning the European economic
model are often discussed under the title of “economic constitution”.
• Here, the concept of constitution refers not only to a basic legal
framework but ideological and institutional solutions
• In the case of the EMU, the concept answers the basic question as in
what ways should economy be regulated on the European level, and to
what extent should individual states give away their economic and
political sovereignty.
TWO TRADITIONS OF
ECONOMIC CONSTITUTION
1. The French tradition, often referred to as gouvernance économique
(“economic governance”) or dirigisme, is most often defined in terms
of active macroeconomic coordination: 1) institutionalization of fiscal
coordination, the role of the state; 2) countercyclical policies; 3)
regulation of the financial sector; 4) democratization of economic
policy
2. The German tradition of ordoliberalism or Ordnungspolitik that
focuses on law and executive institutions: 1) rule-based
macroeconomic coordination; 2) strong executive institutions; 3) price
stability; 4) central bank independence
EMU AND
ORDOLIBERALISM
• In the context of the EMU, the influence of ordoliberalism is present in at
least three central components:
(i)The Stability and Growth Pact (SGP) that focuses on fiscal discipline
(ii)The rejection of joint liability in the Treaties (e.g., Art. 123 & 125 TFEU –
“no bail-out”)
(iii)The mandate of the European Central Bank that focuses on price
stability
TRIUMPH OF
ORDOLIBERAL IDEAS?
• Crisis strenghtens ordoliberalism?
• Executive institutions such as the European Commission and the
European Central Bank have gained new competences and
responsibilities
• E.g., the so-called fiscal compact has strengthened the control and
implementation of budget rules, and there has been little effort for the
promotion of EU wide investment policies
• European Semester as a new mechanism of control
• German narrative: Common rules were broken – thus, the legal
framework must be strengthened.
“For governments, this [question on how to act in a situation of crisis] is a
very sensitive aspect of the “political economy” of decisions aiming at
prevention in times of looming crisis. (…) As regards central banks, I
would insist on the fact that their independence from governments and
from political authorities – as well as from any pressure groups – is, in
such circumstances, absolutely key to permitting them to take the
appropriate preventive decisions. In sum, what I would call the apolitical
economy of central banks’ decisions in these demanding times is more
important than ever.”
- Jean-Claude Trichet: “Central banking in uncertain times: conviction and
responsibility” Macroeconomic challenges: the decade ahead, Jackson
Hole, Wyoming, 27 August 2010
ORDOLIBERALISM AS THE
DOMINANT FRAMEWORK
• Basic argument: Economic constitution of the EMU reflects the ordoliberal
idea that emphasizes pre-established rules over ad hoc deliberation and
coordination
• Depolitization of economic policy in the European Union
• Habermas: ”executive federalism”
• This can be explained partially through historical reasons
• Germany as the historical model for EMU (SGP & ECB)
• Rule-based framework and price stability benefits economies that are
grounded on export-led growth
• Ordoliberalism reflects a deeper vision which is highly cynical of politics itself
and presents itself as a scientific, exact theory of ideal forms
ORDOLIBERALISM AND SOCIAL
MARKET ECONOMY
• Maastricht Treaty (1992): EU as ”an open market economy with free
competition” (Article 3.)
• Lisbon Treaty (2007): EU as “highly competitive social market
economy” (Article 3.)
• “Social market economy” (Soziale Marktwirtschaft) the dominant German
model (promoted by Adenauer from 1949 onwards), coined by Alfred
Müller-Armack in 1946.
• Opposed to both socialism and laissez-faire capitalism
• Background in the German tradition of ordoliberalism promoted by the so
called Freiburg School of Economics (Walter Eucken, Franz Böhm, Hans
Grossmann-Doerth, Leonhard Miksch)
NEOLIBERALISM?
• Although ordoliberals were one of the first to use the concept of
neoliberalism or “new liberalism”, their views differed from the more
laissez-faire oriented versions of Austrian or (later) Chicago-based
neoliberalism.
• Free market economy, according to ordoliberals, could only function
within a competitive environment that is sustained by a strong and
effective legal framework – what both Eucken and Böhm called an
“economic constitution” (Wirtschaftsverfassung).
• Against Fascism, Socialism and Keynesianism: No central planning!
• ”Total decision” (Gesamtentscheidung) as the fundamental,
existential choice for market economy
ORDER AS THE
FUNDAMENTAL PROBLEM
• Market economy is not a natural phenomenon
• Order (Ordnung) central for the establishment of market economy.
• Economic order (Wirtschaftsordnung) refers to the overall institutional,
legal and spiritual aspects of a particular economic system.
• “Economic lifeworld” that is always given to its subjects in concrete
experience.
• Echoing the Medieval concept of ordo, an economic order is
experienced by its subjects as normatively demanding
• The task of scientific observation, however, was to grasp the question
of economic order as a “universal problem”: what are “rules of the
game” (Spielregeln).
“The problem will not solve itself simply by our letting economic systems
grow up spontaneously. The history of the century has shown this plainly
enough. The economic system has to be consciously shaped. The
detailed problems of economic policy, trade policy, credit, monopoly, or
tax policy, or of company or bankruptcy law, are part of the great problem
of how the whole economy, national and international, and its rules, are
to be shaped.”
- Eucken: Foundations of Economics
IDEAL TYPE: EXCHANGE
ECONOMY
• All economic systems variations of two basic forms: centrally directed
economy / exchange economy
• EXCHANGE ECONOMY: Strong state which promotes and creates free
competition in different areas of the society (against politics of interest
groups)
• Stable money, independent central bank, constancy of economic policy
• Dismantling of monopolies
• The openness of the market
• Freedom of contract, respect for private property
• Personal liability and responsibility of economic actors.
“The state should influence the forms of economy,
but not itself direct the economic process. (...) State
planning of forms: Yes! State planning and control
of the economic process: No!”
- Eucken: This Unsuccessful Age (1952)
ORDOLIBERAL VIEW OF
POLITICS
• Freedom is restricted by two instances:
1) Private power of producers;
2) Collective of the society  Power of the state
• Cynical view of politics: Politics as an arena for different rent-seeking
groups
• Ordoliberal vision: politics without politics, favoring ”common rules”
instead of collective decisions
• Pre-established framework instead of ad hoc decisions
THREE POINTS ON
ORDOLIBERALISM
1) Economic system must be anchored in a strong political and legal
basis (law and political institutions as rule-based instruments)
2) Free market economy as an ideal type: the normative model of best
possible economic order as unchangeable and static
3) Ultimately, the sphere of economy as independent of politics and
morality
“A lot of people have criticized countries like Finland
or Germany or the Netherlands for being too tough.
For me, as an avid pro-European it’s all about
rules.”
- Alexander Stubb: Interview for Wall Street Journal (August 14, 2015)
Thank you!
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