I. Introduction

The challenging balance between unity and diversity manifests clearly in the area of (economic) free movement law on the basis of which economic actors have a right to access markets while Member States’ policy choices may often restrict that access to some extent on the basis of their own nationally embedded socio-economic regulations. In varietate concordia (united in diversity) is and has been the official motto of the European Union since 2000. Moving away from the persistent idea that Europe is in need of one identity, the motto gives credence to the enduring compromise that underlies European integration. However, maintaining a dual commitment to unity and diversity poses many challenges to the European project. In particular, increasing asymmetric economic burdens, challenges and interests amongst the Member States of the European Union threaten its unity and pose profound challenges to the stability of the integration project. Nevertheless, the European Commission now claims social-economic diversity to be a strength:

Europeans are united in working together for peace and prosperity and the many different cultures traditions and languages in Europe are a positive asset for the continent.

Diversity is an asset and a strength, yet ‘united we stand, divided we fall’.

The Treaty on the Functioning of the European Union (TFEU) incorporates an explicit concern for reconciling freedom of (economic) movement with the social structures of Member States. It does so, specifically, by integrating a dual commitment within its legal infrastructure: that is, although there is a commitment to intra-European free trade within open markets that accommodate the free movement of goods, capital, services and workers, Member States retain control over domestic social interests that are able to override these market integration objectives. Most restrictions on market access, however, must be justified and here the European Court of Justice (hereafter ECJ or the Court) is confronted with an important question: which restrictive Member States policy choices should be allowed and on what basis? Closely connected to this is the question of how, in the face of Member State diversity, the ECJ is able to maintain a form of unity within European law. In maintaining unity in the face of diversity, the Court is constantly performing a balancing act. The challenge is that demanding too much unity may leave Member States too little margin for socio-economic policy choices that are embedded within their own cultural, historical and political backgrounds. Indeed, this is a pertinent issue and one that political opportunists across Europe may prey on when advancing an anti-EU agenda. On the other hand, allowing too many restrictions on trade based on social diversity may allow too much divergence and cause legal fragmentation across the Union. Where exactly the balance should fall and how it should be achieved remains salient, therefore, and represents a continuing challenge that lies at the core of European market integration. The President of the Court of Justice of the European Union, Koen Lenearts, describes this challenge as follows:

…beyond a core nucleus of shared values where the ECJ must ensure uniformity, EU law cannot disregard the cultural, historical and social heritage that is part and parcel of national constitutional traditions. Beyond that core nucleus, the ECJ welcomes ‘value diversity’.¹

However, where exactly this dividing line is, remains the subject of much contentious case law and debate. How can the diversity of Member States’ ‘social-economic systems’ be unified within one internal market? This question can be considered from many angles and areas of European law. One could for example consider the use of different types of legal instruments to achieve different levels of harmonisation in market regulation or how the debt crisis has given the European Commission new means to pursue a one size fits all strategy on the basis of the European Semester and other legislative instruments, which challenges the social diversity of the Member States.

In this contribution, however, I revisit the intricate balance between unity and diversity in the case law of the Court and ask whether we can unveil any consistent adjudicative methods with respect to the balancing act that is performed by the Court. To do so, I will revisit some long-standing adjudicative techniques of the Court as a means to achieve unity of European integration. I will analyse strands of case law developed in the area of economic free movement to distill ideal type forms of reason by the Court.² First, in section III, I will discuss how the Court developed the principle of market access, essentially, as a tool to maintain unity in the internal market and as a prima facie means to initiate a dialogue with the Member States on their policy choices. It is an exceedingly controversial method of the Court because it has essentially subjected all Member State policy that can be qualified as imposing cross-border trade burdens to judicial approval.

Concomitantly, the Court has developed a proportionality assessment that is able to accommodate, in the second stage of the legal assessment, a plethora of Member State policy choices that can justify the restrictions on cross-border trade. It is through this approach, which captures most restrictive rules within the Member States in the ‘market access net’ but then allows many forms of restrictions as potential justifications that the Court is maintaining unity in diversity within the internal market. The unity is eventually achieved by prescribing how Member States pursue objectives that are restrictive of inter-state trade. In particular, by introducing requirements of transparency, coherence and consistency for the local governance contexts in which these restrictive objectives are pursued.

The Court has developed this model in a seemingly incoherent fashion. I will discuss in section IV that the proportionality rationales that the Court employs to adjudicate in the area of economic free movement law can be categorised in three ideal types. Trade restrictive Member State rules are assessed on the basis of the principles of substantive efficiency, a margin of appreciation or procedural good governance standards. The Court has not provided an immediately visible operational rationale as to when a certain principle will be adopted to evaluate a restrictive Member State scheme. However, recent case law suggests that in fields where Member States have been accorded wide discretion,³ the Court is mostly concerned with the overarching objective of maintaining a dialogue with the Member States. Through this dialogue a perspective of European unity is enforced with respect to the way that Member States develop and embed policy in their wider governance context.

There exists a broadly shared consensus in many of the social critiques on the European project that the Court’s concept of unity is essentially reflective of a neoliberal project which subordinates social policy within the Member States to market access. Particularly striking and often referred to examples are the Scottish minimum alcohol pricing case,⁴ where Scotland was asked to reconsider its policy to restrict alcohol consumption, taking into account the fundamental principle of free price formation which should not be disrupted, and also the infamous Viking case,⁵ where the right to strike of workers was arguably made conditional on it causing no uneven disruption of cross-border services. In section V, I will challenge this neoliberal consensus (to some extent) and point towards the emerging model in the socially salient AGET Iraklis case, which suggests that the Court is willing to accommodate socio-economic diversity that restricts cross-border trade, provided that Member States conform to a set of good governance standards: that is, these States must adopt systematic policy choices that conform to a certain level of transparency, accountability and coherent logic.

Although the introduction of good governance standards could be seen as an elegant method to achieve procedural unity whilst allowing for diversity in socio-economic (substantive) outcomes, I conclude in section VI by addressing the question whether imposing this set of governance standards will not eventually covertly influence the substance of Member States’ policy choices. It may very well be that market-centered policy is simply easier to administer and also to defend in Court.

II. One Internal Market in the Face of Normative Plurality: the Challenge for the Court

The supranational market rationale that EU free movement rules purport in its most simplistic form is concerned with an area without internal frontiers, in which the free movement of goods, persons and capital are ensured in accordance with the provisions of the Treaties (Art. 26 TFEU). Free movement rights are granted to ensure market access and can be utilised to challenge obstacles to trade within the Member States. However, the EU Treaties and the Court have always allowed national measures to take precedence over free movement rights when they serve important public interests recognized by the Union, including national identity. In addition, the Court has developed a range of mandatory requirements (Cassis de Dijon)⁶ as ‘public interest requirements’ or ‘objective justifications’. Free movement law recognizes explicitly that in the absence of EU harmonization and insofar as there are no national measures producing a protectionist effect, Member States enjoy leeway in safeguarding certain objectives, which are deemed fundamental to their identity.⁷

This builds on the idea that the social diversity of preferences and orientations in the EU is the product of specific historical experiences, political contestation, societal learning and continuous political decision-making.⁸ As such, despite globalizing trends, Member States vary deeply in terms of institutional preferences and structural policy differences, resulting in a variety of social spheres.⁹ As said, beyond the “core nucleus of shared values”, the Court “welcomes value diversity”.¹⁰ However, controversy arises as to where the line is between these shared values and diversity,¹¹ and it is up to the Court to establish this dividing line.

Critiques on the case law of the Court tend to identify a structural bias in favour of market access and deregulation. In most cases before the Court, it is said, where there is found a restriction on free movement pursuant to the pursuit of a regulatory objective, the conflict is decided in favour of EU free movement. Such claims are substantiated on the basis of controversial free movement cases, such as Centros, Überseering and Inspire Art,¹² that are critiqued for allowing companies to circumvent national codetermination procedures in Germany by establishing themselves in the UK or the Cadburry Schweppes type cases¹³ that would allow tax-avoidance practices by companies, and perhaps most prominently in the socially salient cases of Laval, Viking, Ruffert, Luxemburg, Occupational pensions, Herron, and most recently AGET Iraklis,¹⁴ which have resulted in a strong belief that fundamental social interests are structurally framed as being subordinate to rights to free movement.¹⁵

This concern is in essence related to the recently introduced ‘mode of reasoning’ adopted by the Court when resolving conflicts, particularly so-called diagonal conflicts.¹⁶ Diagonal conflicts are the constitutionally most salient type of conflict constellation in European market integration. Diagonal conflicts involve on the one hand economic freedoms and on the other hand collective goods closely related to national competences, such as social policies. For example, a system of solidarity within a Member State may fundamentally conflict with the market integration objective of full and effective competition. In contrast to vertical conflicts that can be resolved by referring to the supremacy of EU law because they take place within the ‘core nucleus’ of internal market law, diagonal conflicts are reflective of conflicts which cannot be so easily solved, as they do not only pit levels of government against each other—supranational versus national—but because the norm in conflict pursue radically different ends, far from easy to reduce to one single scale. Thus, diagonal conflicts represent the constitutionally most challenging type of conflict. In such cases, adjudicating on the basis of the supremacy of EU law would be unpersuasive.

Although it can be, and has been argued that such policies should remain ‘protected’ on the basis of the principle of enumerated competences, the Court has decided that such Member State measures may still conflict—diagonally—with economic freedoms, so the policies need to be justified. Indeed, such conflicts arise abundantly and potentially endlessly, after economic freedoms have been interpreted by the Court as constituting the ‘positive standard of constitutionality’ because virtually all national social policy objectives can be framed as restrictions of economic freedoms that require justification. It is indeed from this moment onwards that many conflicts have become salient in policy substantive terms.¹⁷ The argument is made that, as a result of this asymmetry, there exists a structural preference in favour of deregulation that is targeted against specific, or perhaps better described as claims to, social organizational forms at the Member State level, which challenge the legitimacy of the EU internal market project.¹⁸ There is, therefore, absolute merit in the contention that ECJ case law tends to favour outcomes that are asymmetrically beneficial for economic movement. It has been argued for example, that the Court has ‘restyled’ EU law and introduced a form of hierarchical balancing, which no longer reflects the constitutive features and division of competences that are inherent to the embedded liberalism compromise.¹⁹ It is interesting, however, to take a closer look at the exact adjudicative techniques employed by the Court in free movement cases, which can be explained on the basis of what appears as the Court’s strong wish to maintain an idea of unity which is not necessarily reflective of a neoliberal bias.

III. Market Access as the Adjudicative Technique to Maintain ‘Unity’

There is a certain inherent and continuing structure in the free movement case law of the Court that follows partly from the structure of the Treaty and partly from precedent based case law.²⁰ The adjudicative template of the Court of Justice consists of three separate steps: (i) is there a restriction on a free movement right?; (ii) is there a legitimate justification for the restriction?; (iii) can the restriction be considered proportionate with regard to its legitimate objectives? Importantly, as has been discussed, the starting point of the adjudicative model developed by the Court is to apply a broad and unqualified market access test for all free movement rights,²¹ which imposes jurisdiction over most Member State regulatory choices that can be considered restrictive to economic activities, and subsequently, in a second stage, resolve conflicts in the course of a proportionality exercise. As such, within a market access approach, all restrictions are potentially in breach of EU free movement law. Some commentators have qualified this as a way for the Court to constrain national self-expression, “so as to mitigate what are regarded as its potential excesses: the exclusion of certain interests from the political process, and its capacity for sovereign violence in limiting permissible behaviour”.²² This is also known as the argument from containment, which conceptualises the intentions of the EU internal market not necessarily as ‘pro trade’ but as a means to engage in a dialogue with Member States on how their national systems can and need to be adjusted in order to accommodate the out of nation state interests that are to be made part of national processes of governing or governance structures. As such, this view is informed by, seemingly, the most obvious empirical facts that characterise the European Union today: the diversity of socio-economic constellations of the Member States and the increasing asymmetry of interests amongst the Member States.²³ Such diversity results in a need for communication and internalisation of their extraterritorial effects. However, and this point has been made most forcefully by Alexander Somek, it matters on the basis of what terms the dialogue is enacted:

In fact, this is clearly revealed in how its focus on transnational effects is mediated by the equal distrust of national regimes burdening, in one way or another, international economic mobility. Anchoring the mitigation of transnational effects in the facilitation of market access modifies the focus of the argument. It is thereby made subservient to an altogether different aim, namely, economic due process.²⁴

The potential out of state interest that finds insufficient access within another Member State is identified, solely, on the basis of market access. This has led Somek, in his seminal discussions on the wider importance of the argument of containment for European integration, to pose a fundamental question: “what might be done to prevent the argument … from slipping into a freewheeling rampage of economic due process?”.²⁵ “Economic due process” originates from the United States as the idea that substantive due process protects some rights from deprivation. In simple terms, this means that government may not hamper the exercise of certain ‘rights’, even where due processes have been adopted. In the famous Supreme Court decision Lochner v. New York, New York state law that regulated the hours and working conditions of bakery employees was held to intrude too far into the “fundamental right for an employee and an employer to freely contract”. This “fundamental right” to contract freely could not be limited, even by fair legislative processes, and came to be known as having established “economic” substantive due process.²⁶ Somek’s point here is that despite the clear merit in the legitimising idea of EU internal market law as removing traditional, out-dated, unrepresentative manifestations of national defected forms of decision making, the grammar and language of this debate may contain inherent limits. It has been persuasively argued that the Court has adopted a model of ‘hierarchical proportionality’, which structurally subordinates social policy objectives to a market enabling rationale.²⁷

To further understand this line of argument, it is useful to take a closer look at the exact reasoning the Court employs. Whilst originating from the area of goods, the Dassonville formula, that “all trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-community trade”,²⁸ applies to all other freedoms as well.²⁹ The so-called Keck exception, which provided for regulatory rules to fall outside of the reach of the free movement rules, in case they qualified as ‘certain’ non-discriminatory ‘selling arrangements’ and did not completely prevent market access, has largely been left behind by the Court,³⁰ and all freedoms now appear to be converging towards a rather unqualified market access test.³¹ This move has been frequently critiqued³² and the contributions seem to agree that the Court has now ‘refined’ its approach in Keck in favour of a market access test, although it seems to utilise some of the Keck rationale in free movement of goods cases.³³

It may be argued that the Court provides for some qualifications to market access.³⁴ Indeed, it is arguable that the Court, to some degree, has focused on the directness of market access hindrance, as confirmed, for example, in the field of services and workers.³⁵ For example, in Bosman the Court considered that a football transfer fee system qualified as a restriction by making a reference to the direct impact of a player’s access to the employment markets of other Member States.³⁶ In Apline Investments the Court of Justice evaluated the legality of a Dutch measure preventing financial service providers from cold calling potential clients.³⁷ The regulation was defended on the basis of its non-discriminatory nature and that it could consequently be qualified as a selling arrangement. The Court disagreed, describing the measure as directly affecting access to the market in services in the other Member States. AG Tizzano agreed with this approach in Caixa Bank where he argued that the freedom of establishment is violated only if a measure either discriminates or directly affects market access. Therefore, importantly, this reasoning would imply that it is insufficient if a measure’s only effect is to reduce profit margins and the attractiveness of the pursuit of an activity.³⁸ That is because the latter could be seen to mean that the market access test provides for unlimited economic freedom. Similarly, AG Tesauro argued in the Hünermund case that “Article 34 does not provide for a general freedom to trade or the right to the unhindered pursuit of commercial activities, but is aimed at restrictions on imports”.³⁹ AG Maduro built on this by arguing in Alfa Vita that market access should be restricted in the sense that differences between regulatory regimes as such cannot lead to restrictions that trigger the free movement rules unless they lead to cross border situations being treated less favourably than the national situation.⁴⁰ However, recent case law demonstrates that when pressed, the notion is still likely to collapse into a wide economic freedom assertion, much like the original Dassonville formula.⁴¹ A recent application in the case DKV Belgium explicitly illustrates the workings of the market access test in this respect.⁴²

The case concerned a Belgian authorisation requirement for certain insurance premiums. According to Belgian law, insurers could only alter the premium annually on the basis of the consumer price index. If they required higher premium increases, this could only be done after authorisation from the banking, finance and insurance commission. These rules were aimed at protecting consumers, particularly with a view to preventing them from being faced with sharp, unexpected increases in insurance premium rates.⁴³ DKV Belgium was denied an increase of its premium and challenged the system, alleging that it disproportionately infringed the free movement of services. The Court repeated the mantra that “the term ‘restriction’ within the meaning of Articles 49 TFEU and 56 TFEU covers all measures which prohibit, impede or render less attractive the freedom of establishment or the freedom to provide services”.⁴⁴

However, the Court then considered that:

…a measure applicable without distinction, such as the system of premium rate increases at issue in the main proceedings, may come within that concept, it should be borne in mind that rules of a Member State do not constitute a restriction within the meaning of the FEU Treaty solely by virtue of the fact that other Member States apply less strict, or more commercially favourable, rules to providers of similar services established in their territory….

The logical step would have been for the Court, at this point, to qualify the market access test. However, the Court simply considered that “the concept of restriction covers measures taken by a Member State which, although applicable without distinction, affect access to the market for undertakings from other Member States and thereby hinder intra-Community trade”.⁴⁵

The Court’s current approach to market access seems to have been inspired mostly by the reasoning of AG Jacobs, who argued in his opinion in the case Leclerc/Siplec, that the central concern of the treaty provisions on free movement is “to prevent unjustified obstacles to trade between Member States… if an obstacle to interstate trade exists, it cannot cease to exist simply because an identical obstacle affects domestic trade”.⁴⁶ AG Jacobs held that “restrictions on trade should not be tested against local conditions, which happen to prevail in each Member State, but against the aim of access to the entire Community market”.⁴⁷ This idea seems to have been the decisive one for the Court when it held that ‘insurance undertakings entering the market of a Member State which has introduced a system of premium rate increases such as that at issue in the main proceedings are obliged, if they want to be able to access that market under conditions which comply with the legislation of that Member State, to re-think their business policy and strategy […]’.⁴⁸ (emphasis added)

The Court demonstrates here what unqualified market access entails and it is contradictory to the idea that regulatory differences as such do not entail, automatically, restrictions on freedom of movement as meant in the Treaty.⁴⁹ Thus, when applied, any rule preventing profit-maximizing behaviour that an undertaking wishes to engage in, is likely to reduce ‘profitability’, which the Court considers the benchmark of the market access test. The basic fact that an undertaking will have to determine a commercial strategy that is ‘specific to a Member State’ and takes account of the differing regulatory circumstances in that Member State is sufficient to constitute a restriction on the freedom of establishment and the freedom to provide services. It is, thereby, automatically unfavourable towards the out of state trader. Interpreted in this way, market access is an open concept that will encompass all rules, which have an effect on economic operators’ business policy and strategy. This is then introduced as the substantial criterion of market access in this case.⁵⁰ In other words, the economic operator not only has a right to access the market, “it has a right to access as wide and cheap a market as possible”.⁵¹ This reading of market access has been confirmed recently by AG Bot:

… a national measure may constitute an obstacle not only when, as a selling arrangement, it is discriminatory, in law or in fact, but also when, irrespective of its nature, it impedes access to the market of the Member State concerned. It follows that, where an obstacle to market access is found to exist, there is no need to undertake a comparative examination between the situation of the domestic products and that of the imported products in order to establish the existence of a difference in treatment between them.⁵² (emphasis added)

This approach can, of course, be critiqued, and it has been the subject of much commentary.⁵³ For example, Jukka Snell notes that since the term ‘market access’ lacks a clear content, “the court may use it freely either to approve or to condemn measures that it happens to like or dislike. Market access may simply provide a sophisticated sounding garb that conceals decisions based on intuition”.⁵⁴ From the perspective of responsiveness, the potential danger of this method of adjudication is that the instalment of expedient concepts will lead to the quick disapplication of conflicting social objectives.⁵⁵ As Catherine Barnard argues, “the moment collective action is found to be a ‘restriction’ …. The ‘social’ interests are on the back-foot, having to defend themselves from the economic”.⁵⁶ It follows from the market access test that the assessment of the proportionality of a restriction to a right of free movement is triggered almost instantly and without any form of qualification, as soon as access to potentially ‘embedded’ spaces of economic activities is restricted. This also appeared to be a concern of AG Trstenjak, who argued in Commission v. Germany (occupational pensions) that:⁵⁷

Such an analytical approach suggests, in fact, the existence of a hierarchical relationship between fundamental freedoms and fundamental rights in which fundamental rights are subordinated to fundamental freedoms and, consequently, may restrict fundamental freedoms only with the assistance of a written or unwritten ground of justification.

However, as Spaventa notes, whether this approach of the Court is truly problematic all depends on how the internal market is idealised: “The broadening of the scope of the Treaty could be seen as a contribution not so much to deregulation but rather to better regulation, through a process of continuous self-reflection and of continuous dialogue between regulators, traders and the Court”.⁵⁸ A broadening of the market access test thereby leads to a broadening of the dialogue and furthers the interests of European unity from that perspective. In this respect, as aptly pointed out by Nic Schuibhne, “the justification framework has evolved over time to become the prime space within which public interest arguments are aired. It is where the multifaceted construction of the internal market … is explored and contested”.⁵⁹ Indeed, the Treaty-permitted grounds for derogation from free movement rights⁶⁰ have for a long time been extended with a very expansive approach in the case law, which allows the propagation of most policy arguments as ‘imperative requirements’ or ‘overriding reason in the public interest’.⁶¹ Member States are only barred from adopting ‘economic’ justifications so as to highlight that only public interest objectives can override free movement rights.⁶² However, in practice, the ‘economic’ justifications have been interpreted mostly as ‘protectionist’ aims, which are, prima facie, not accepted as an overriding reason in the public interest.⁶³ Thus, the simultaneous increase of the reach and the potential justifications with regard to the free movement provisions can indeed be perceived as a tool to be able to impose a view of European Unity.⁶⁴ It may be argued that in this way, and on the basis of an unqualified market access standard, a constitutional settlement is advanced in which the validity of all democratically enacted Member State legislation and regulatory regimes that restrict a free movement right are contingent on judicial approval through a proportionality standard.

This may obviously lead to tensions with the Member States and the Court has over time established a long list of potential justifications. The point seems to be, however, that the Court wants to keep control and maintain an on-going dialogue with Member States. This is why the market access approach of the Court can be considered a means to preserve unity. By not excluding anything from the potential reach of the scrutiny of the Court, internal market law becomes a constant overarching presence that makes all restrictive forms of social-economic regulation subject to the conditionality of judicial approval. The important question that next arises is how the Court has formulated the exceptions. In other words, how does the CJEU manage to accommodate (or not) the socio-economic diversity of the Member States within this imposing adjudicative model?

IV. Three Ideal Type Models to Regulate Diversity

The three stages of proportionality assessment are standardized and consist of an inquiry into (i) whether a measure was suitable to achieve the desired end (in the form of a rational connection between means an end); (ii) whether it was necessary to achieve the desired end (in the form of a test if there was a less restrictive measure available); and (iii) whether the measure imposed a burden on the individual that was excessive in relation to the objective sought to be achieved (proportionality stricto sensu). The third part of the test is often not applied by the Court and, as Paul Craig has noted, the Court will normally only consider part three when an applicant explicitly addresses an argument concerning this stage of the inquiry.⁶⁵ Otherwise, the Court tends to resolve the assessment on the basis of the first two stages of the proportionality assessment.

Recently, increasing reference has been made to two ‘separate’ versions of proportionality analysis that are applied by the Court.⁶⁶ One version is considered to be more substantively oriented, and the other oriented more towards assessing the procedural context in which the measures were taken.⁶⁷ The criterion that determines whether the Court emphasises the procedural context or substantive rationality is largely unclear, and accordingly, this determination is mostly arbitrarily applied without explicit consideration. Indeed, the Court will sometimes engage in a comparative review of solutions adopted in other Member States on the basis of the principle of mutual recognition.⁶⁸ Then again, it is also considered that “the fact that one Member State imposes less strict rules than another Member State does not mean that the latter’s rules are disproportionate”.⁶⁹ At times, the Court protects a space for differences between Member States by referring to “the circumstances of law and of fact, which characterize the situation in the Member State concerned”⁷⁰ and defers the proportionality assessment completely to the national court.⁷¹ However, when considering these seemingly incoherent techniques of the Court to adjudicate free movement conflicts it is possible to distil three ‘ideal type’ models.⁷²

V. The Accommodation of Socio-economic Diversity: Towards a Union of Good Governance?

Many academic commentators propose that the EU internal market instils regulatory competition between Member States with the effect that the overall standard will spiral downwards.¹¹³ This problématique is strengthened by the approaches of Member States to social, cultural and ecological objectives that are characterised by variety.¹¹⁴ Some, most prominently Fritz Scharpf, argue that due to a structural institutional incapacity, the EU will forever be inhibited from dealing with social issues.¹¹⁵ The view of many commentators, therefore, is that there will be a continuing institutional asymmetry between the Union’s trade and social objectives, which has been coined as the ‘social deficit’.¹¹⁶ As Höpner and Schäfer have noted, this continued asymmetry means in practice that proponents of the social have to direct their demands mainly to the national level, while proponents of liberalisation and free trade benefit from the supremacy of free market objectives.¹¹⁷ These developments have led to a plethora of critical analyses, which now constitute a virtual encyclopaedia of social commentary that, across the board, highlight how fundamental social interests, such as the right to strike, and collective negotiating/agreements, appear to have been subordinated to the economic objectives of market integration in the European Union. These critiques narrate a ‘new phase’ in the case law of the Court that is based on a renewed neoclassical economic theology of free markets, which at times has been considered as pure and unfettered neoliberalism that has sanctified ‘the Freedom of Enterprise and Liberty of Contract’ as fundamental (natural) European rights. It is considered within this narrative that the constitutional foundation of the European Union has converted economic power into a fundamental right and collective labour rights are today considered mostly as an obstructive power that have to be limited.¹¹⁸ As such, the spontaneous functioning of the market-order has to be protected from undue interferences like collective action and, more generally, discretionary social policies which are policed by the Court on the basis of a strict scrutiny test. By and large, it is considered by some that this has now culminated into a Hayekian dream of a near complete reversal of the constitutional social pacts underpinning the post-war Keynesian welfare states in Europe,¹¹⁹ in which constitutionalised market access and the pursuit of economic freedom are the overarching benchmarks of access to justice in the EU market-polity.¹²⁰ Critiques within this narrative consider that interests that are promoted on the basis of market integration displace what makes the traditional values of social life in Europe worthwhile.¹²¹ A reflection on two of the Court’s decisions provides some nuance with respect to these strong and entrenched narratives.

The Viking case is well known as the quintessential case that illustrates the Court’s willingness to subordinate fundamental social rights to economic freedoms.¹²² The central question to address in Viking was how to balance the right of trade unions to initiate strikes with the right to reflag a ship for the purpose of acquiring lower wage employees. The judgment is slightly ambivalent because the Court emphasized, firstly, that the Union not only has an economic but also a social purpose and that the rights under free movement must be balanced against the objectives pursued by social policy.¹²³ The Court, however, did not reflect deeply on this balance and simply considered that the strike had “the effect of making less attractive, or even pointless, […], Viking’s exercise of its right to freedom of establishment”,¹²⁴ thus necessitating an assessment whether no less restrictive measure was available. This framing of the conflict, therefore, suggested the possibility of a substantive reconciliation of market access with the right to strike, looking for the least restrictive policy alternative. Paradoxically, in part of its analysis, the Court was concerned with a question of procedural good governance. In its referral, the Court indicated that the necessity of collective action was significantly hampered on the basis of the fact that the policy rules combating the use of flags were misconstrued. The design of the policy rules would, if triggered by one of its members, always lead to solidarity action against the owner of a vessel, irrespective of whether or not the flag owner’s exercise of its right of freedom would actually be liable in a specific circumstance to have a harmful effect on the work or conditions of employment of its employees.¹²⁵ In other words, the design of the system of collective action was flawed, which consequently made the broader regulatory context inappropriate as a genuine means of worker protection. Therefore, the Court, in part of its assessment applied a broader procedural review of the regulatory framework that led to the restriction. It is interesting in this respect to refer to a passage of the Laval judgment, which points in the same direction:

[…] collective action… cannot be justified in the light of the public interest objective […] where the negotiations on pay […] form part of a national context characterised by a lack of provisions […] which are sufficiently precise and accessible […] to determine the obligations with which it is required to comply […].¹²⁶ (emphasis added)

These considerations of the Court seem to imply that the balance in these cases might have turned out differently if the wider regulatory context within which the collective action was exercised would have been ‘more transparent’, in line with what can be considered as the previously highlighted good governance requirements.

Arguably, this is also the rationale put forward by the Court in the recent and important AGET Iraklis case.¹²⁷ AGET Iraklis wanted to reorganise its business and shut down one of its three cement plants. It sought ministerial authorisation to carry out collective redundancies as required under Greek law, which provided that the Minister of Labour could refuse to authorise some or all of the projected redundancies on the basis of ‘the conditions in the labour market’; ‘the situation of the undertaking’; and ‘the interests of the national economy’. With reference to the socio-economic crisis in Greece, the Minister of Labour refused to provide the requisite authorisation. In turn, AGET Iraklis argued that the national rule was inter alia not compatible with Articles 49 (freedom of establishment) and 63 (free movement of capital) of the TFEU. This case is interesting from many perspectives. The main point for the purpose of illustrating the good governance trend is that the Court (Grand Chamber) held that when pursuing social policy Member States are justified in considering the existence of a mechanism that imposes a framework to ensure enhanced levels of protection of workers provided that criteria are formulated in concrete and precise terms:

…it is clear that, in the absence of details of the particular circumstances in which the power in question may be exercised, the employers concerned do not know in what specific objective circumstances that power may be applied, as the situations allowing its exercise are potentially numerous, undetermined and indeterminable and leave the authority concerned a broad discretion that is difficult to review. Such criteria which are not precise and are not therefore founded on objective, verifiable conditions go beyond what is necessary in order to attain the objectives stated and cannot therefore satisfy the requirements of the principle of proportionality.¹²⁸

Although I have presented it in a simplified manner, the Court’s message is clear: Member States have the option to introduce socio-economic governance mechanisms that ensure high levels of workers protection and significantly restrict the freedom of establishment provided that a standard of good governance is met.

The Court has in different ways found means to value divergent social context by developing different rationales of valuation, going beyond a mere purposeful utilitarian standard. In applying the margins of discretion in areas that are considered sensitive or important, Member States are provided with a certain space they can determine regulatory objectives and ways to achieve this without infringing the internal market rules. This is completed with standards of procedural good governance through which the Court has progressively provided yardsticks that require integration-restrictive interests to be pursued on the basis of transparency, consistency and coherence.

VI. Conclusion

Striking a balance between the EU market integration requirements and respecting the ‘fundamental structures’ that exist in the Member States through the recognition of the diversity of regulatory options, is one of the structural challenges faced by the European Court of Justice. Indeed, this challenge is fundamental, as the perceived legitimacy of the internal market depends on the pursuit of a dual commitment to the simultaneous achievement of an integrating ‘open’ market and the recognition of legitimate socio-economic policy within nationally embedded structures of the Member States.

The wide market access test that is applied by the Court in free movement cases allows for a discussion of, theoretically, an unlimited range of Member State rules and regulatory schemes. I demonstrated that this approach of the Court can be seen as primarily functional. The conflict is structured by the Court so that legitimate rights and policies can be established from that moment. The prima facie structuring of EU free movement conflicts is indeed a crucial part of the adjudicative model of the Court. However, this model can only endure politically if eventually, the conflicts between rights and general public interest are resolved on the basis of an explicit responsiveness that accommodates a variety of social-economic policies.

I have discussed that there is a significant body of case law of the Court that imposes a limited market primacy ruled balancing framework on restrictive regulatory schemes within Member States. Based on certain lines of case law, one may credibly argue that the adjudicative model of the Court in free movement law is functional and under-socialised, threatening the social cohesions, solidarity and identity that a state pursues. It was confirmed by discussing a line of case law in which the valuation of social context was indeed mainly ‘purpose’ driven and regulatory choices were assessed within a model that can be termed consequentialist, based on utilitarian principles. As such, it was discussed that the substantive efficiency model of proportionality, implements a utilitarian approach. However, a liberal society, such as the EU itself claims to be, contains a diversity of social spheres. European adjudicators should, therefore, make space for different kinds of valuation and, although the adjudicative model of the Court in free movement cases carries the inherent risk of “slipping into a freewheeling rampage of economic due process”, the foregoing analysis also found that the Court has created different means to evaluate restrictive social contexts. As such, regulatory choices for a monopoly system in the gambling market, restricting the free movement of services and completely foreclosing access to the market, are allowed, provided that the wider public law infrastructure is transparent and coherently tuned towards a high level of consumer protection. The focus of good governance is on procedure and the coherence of the broader regulatory context, rather than on the rationality, efficiency or profitability of the outcome.

If we indeed accept the argument that social diversity is a value to which the EU internal market is committed, then market derived utilitarian standards, despite the overarching value of unity and ‘administrability’, are not appropriate means to adjudicate internal market conflicts, because they simply fail to capture and weigh the true social significance of some restrictive rules. However, it often is the case that many restrictive Member State regulations perish within the evaluative frameworks of the Court because Member States themselves do not understand the functions of their own laws. Such regulatory indeterminacy tends not to fulfil the evaluative standards of the Court.

I discussed the Court’s tendency to adopt good governance principles that focus on transparency and coherence of a governance process, instead of solely on the rationality and efficiency of its outcome. This implies that the idea of unity, which is pursued by the Court in this area of EU law, is mostly one where Member States pursue their policies systematically and opt for policies that are verifiable, coherent and transparent. With respect to the Viking and AGET Iraklis cases, the outcomes could have been fundamentally different if the concerned governance mechanisms were set up in part so as to conform to these principles. An interesting question for further contemplation is whether initiating a dialogue with the Member States on the basis of these standards still unveils a certain bias against different types of socio-economic policies or whether it is fully reflective of the fact that governance is increasingly decentralised and compartmentalised. One could argue that the conditions of good governance, as purported by the Court, are most conducive to neoliberal outcomes; however, this should be assessed on a case-by-case basis. What is clear is an emerging model to accommodate diversity in a context of transparent and coherent governance frameworks in the Member States. The Court has thereby adopted a strategy that is also long-practiced by the WTO appellate body,¹²⁹ developing a regulation-centered internal market regime that looks to the expectations of market actors and indicates the development of overarching European administrative law principles. At the same time, this trend is reflective of a compromise. It is the best the Court can achieve in the face of legitimate social economic diversity within and between the Member States: to offer a platform for constructive conflict resolution.

The Court’s trend to move away from substantive prescriptions of policy requires a coherent approach to avoid that social diversity turns into a carte blanche for communities that prefer their own values at the expense of other Member States. Indeed, one of the key points of the ‘good governance’ based case law of the Court is that a system of protection that a Member States installs has to be embedded by ex ante conditions justifying the Member State choices. If systems of protection are coherently and systematically part of an existing normative infrastructure that is tailored towards the level of protection that it seeks to protect, these systems of protection are provided with a definite margin of discretion and are unlikely to be struck down by EU law. In other words, the systems of protection adopted by Member States need to be transparent, systematic and internally coherent. However, if these conditions are taken into account, then the level of protection and the means through which this level of protection is sought, remains largely at the discretion of the Member States.

In a very real sense, the Court calls for better regulation by the Member States. However, better regulation is not necessarily regulation that represents the market perspective. The Court has demonstrated that it will respond to genuine regulatory choices and rationales in the pursuit of objectives that are legitimate and serve an important social commitment or normative orientation of a local economy. Accordingly, the normative ideal that the Court pursues for the internal market may be characterised as one of unity in diversity.