Law and the Financial Crisis: Searching for Europe's New Gold Standard

The role of law in the governance of the Eurozone confronts divergent economic and political perspectives which are reminiscent of the gold standard era. The Maastricht model sought to use to law to create a sound currency. In practice, fixed exchange rates caused large trade imbalances and risky cross‐border investments resulting in a Eurozone‐wide crisis of first private, and then later, public insolvency. In the face of continued political unwillingness to either pool fiscal resources or impose massive austerity and structural reform, the European Central Bank ECB has been forced to become lender of last resort to sovereigns to maintain the single currency. Ordo‐liberal critics argue that the ECB has created a transfer union in breach of the Maastricht agreement. Keynesians, by contrast, argue that, just as under the gold standard, using ‘constitutionalised’ austerity to rebalance trade is neither just nor credible. The Eurozone's reliance on law and markets above developed political institutions has failed, but no democratically legitimate process has replaced it.