The Greek Debt Deal and Purposivism

By Mike Dorf

Last week I attended a lecture by Professor Hanno Kube  of Gutenberg University on the European Debt Crisis and the Rule of Law.  Professor Kube made a number of very interesting points about the origins of the crisis, the impact of the crisis and the response on democratic governance in the member states of the European Union, and the relation of the EU Treaty organization to other treaties signed by EU member states.  Here, however, I want to focus on a narrower argument that he also presented.  It went more or less like this: 1) Article 125 of the EU Treaty forbids the EU or its member states from assuming the debts of any member states; 2) the bailout package for Greece is a de facto assumption of Greek debt; and 3) therefore the bailout package violates Article 125.  Here I want to focus primarily on move 3, and then I'll say something about what this argument might entail for U.S. statutory interpretation.

First, as the wording of move 2 concedes, the bailout package was not a literal violation of Article 125.  The latter provides:
The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.
Thus, Article 125 forbids liability for, or assumption of, the debts of a member state (or its subdivisions) by the EU or a member state.  However, the Greek bailout was structured as a complicated combination of debt swaps (with a haircut) by lenders, loans from the European Financial Stability Facility, commitments to austerity by the Greek government, and other provisions--none of which directly amounted to the EU or a member state assuming Greek debt.  It's true, of course, that the whole point of the bailout was for money coming ultimately from other EU member states to enable Greece to discharge (some of) its existing debt, and so the complete package was substantially equivalent to an assumption by the EU and its member states of (some) Greek debt.  But a textualist might say that Article 125 does not forbid the equivalent of debt assumption; it only forbids actual debt assumption.

Textualism of the sort championed by Justice Scalia has not had much influence in Europe, however, and Professor Kube is no exception.  Based on the "legislative" history of the EU treaty instruments and the objective purpose of Article 125, Professor Kube said it was common knowledge in Europe that Article 125 means "no bailouts."  Interestingly, he said that most of the people in Europe who have argued for the legality of the bailout have not made the argument based in the text of Article 125.  Instead, they have made one of two moves, each of which acknowledges a violation of Article 125.

The first move is to say that the bailout is illegal but that in a crisis, the laws are silent, a variant on the Latin principle, inter arma enim silent leges.  As a modern German, Kube was horrified by this principle, because for Germans it most clearly calls to mind the political philosophy of Carl Schmitt, which has been closely associated with Nazism. That's fair enough.  Schmitt in fact was a Nazi, and despite recent efforts by Eric Posner & Adrian Vermeule to domesticate Schmitt, his notion of necessity-makes-right is understandably still toxic in Europe.

The second move is what really interests me.  Some in Europe say that while it's true that Article 125 reflects a purpose to forbid bailouts, that purpose itself must be read in light of the still deeper purposes of the EU Treaty.  In particular, the opening provisions of the Treaty recite objectives that would be profoundly undermined by the prospect of one or more countries in the EU defaulting on their obligations and potentially plunging the whole continent into economic (and potentially political) chaos.  These background purposes include: European solidarity; democracy; "balanced economic growth and price stability"; and other principles.

When asked (by me) why these deeper purposes did not suffice to validate the bailout, Professor Kube responded with the familiar canon of construction that the specific trumps the general.  It's true, he said, that the EU Treaty sets forth general objectives, but they are to be pursued by the specific means set forth in the treaty.  And one of the specific means denied to the EU is bailouts.  My response was that in fact Article 125 does not literally deny the EU all means of making bailouts, so I wanted to know why Kube was willing to look to the general purposes of Article 125 but not to the broader purposes of the treaty as a whole in order to construe Article 125.  In follow-up discussion, he espoused a principle that more or less says that just as specific text trumps general text, so specific purpose trumps general purpose--and Article 125 manifests a specific purpose to forbid bailouts.

I'm not an expert in European law, so I won't take a position on whether Professor Kube is right about the application of the principle he was defending, but I think the principle is basically sound.  And I also think that the principle is not widely discussed in the American case law or academic literature on statutory interpretation.  That is, the debate between textualists (like Justice Scalia) and purposivists (like Justice Breyer and--long before him--Hart & Sacks) typically focuses on whether to give effect to a statutory provision's purpose.  But for purposivists there is a further question of how to discern a statutory provision's purpose.  Professor Kube's addendum strikes me as important: It says that purposivism is not so different from textualism in that both ought to give priority to the specific over the general.