Robert Cauneau

Article 123 of the Treaty on the Functioning of the European Union : the triumph of an ideology

A dive into the currents of thought that have chained the states of the Eurozone.

by

Robert Cauneau

16 June 2025

Introduction

Article 123 of the Treaty on the Functioning of the European Union (TFEU),1 formerly Article 104 of the Maastricht Treaty, constitutes a legal provision of considerable scope. It formally prohibits the European Central Bank (ECB) and national central banks (NCBs) from granting overdrafts or any other type of credit facility to public institutions and administrations of the eurozone Member States,2 as well as the direct acquisition by them of their debt instruments. This dual prohibition, while seemingly technical, has profoundly structured the architecture of the Economic and Monetary Union (EMU), entrenching the idea that states must « finance » their expenditures through taxes or borrowing on the financial markets. The consequences of this approach have been significant, influencing national fiscal policies, the response to economic crises, and the public debate on debt and deficits (see, for example, Mitchell, 2015).

Beyond its legal framework, Article 123 is much more than a simple method of managing public finances. It is the symptom and vector of a set of beliefs and representations about the role of the state, money, and markets that were hegemonic at the time of its creation. The objective of this article is precisely to uncover and analyze the ideological foundations that led to the inclusion of such a constraint at the heart of the European Monetary Pact. We will seek to demonstrate that Article 123 is not the product of technical necessity or universal economic wisdom, but rather the expression of a specific political and economic paradigm—neoliberalism and ordoliberalism—which dominated political thought and action at the end of the 20th century.

This perspective, often obscured by technical justifications or appeals to « credibility, » is essential to understanding not only why Article 123 was adopted, but also why its challenge or even critical discussion arouses such resistance. Indeed, as heterodox approaches have emphasized, notably Modern Monetary Theory (MMT) initiated by the work of Warren Mosler (1995), a state that creates its own currency under a floating exchange rate regime is not intrinsically constrained by imperatives to « finance » its own currency. The persistence of rules such as Article 123, despite the « shell games »3 that mitigate their practical impact (see Cesaratto, 2016; Ehnts, 2016a), testifies to the power of ideological frameworks in the construction of institutions.

This article will therefore explore the roots of this provision in four stages. The first part will examine the intellectual and historical context of the 1970s to 1990s, marked by the critique of Keynesianism, the rise of monetarism, and the influence of the German stability model, which collectively prepared the ground for a rigorous vision of monetary and fiscal policy. The second part will examine the more specific ideological foundations underlying Article 123, such as the valorization of central bank independence, the fear of « fiscal domination, » the belief in « market discipline, » and the conception of the state as an agent that should finance itself like a private actor. The third part will analyze how these ideological underpinnings translated into policy objectives and compromises during the negotiations of the Maastricht Treaty, highlighting in particular the dynamics between member states. Finally, the fourth part will briefly discuss the consequences and critiques of a rule so deeply rooted in a particular ideological vision, paving the way for a reflection on possible alternatives.

1. The Intellectual and Historical Context: The Rise of a Paradigm

The adoption of Article 104 of the Maastricht Treaty (now Article 123 of the TFEU) and, more broadly, of the monetary and fiscal architecture of the Economic and Monetary Union (EMU), cannot be understood without an analysis of the intellectual and historical context in which these decisions were made. The 1970s, 1980s, and early 1990s were marked by a profound reconfiguration of dominant economic ideas and political balances, creating fertile ground for the emergence of a paradigm favoring price stability, fiscal discipline, and a heightened distrust of discretionary state interventionism. This paradigm exerted a decisive influence on the designers of the single currency.

1.1 The End of the Thirty Glorious Years and the Critique of Keynesianism

The post-war period of strong growth and near-full employment, often referred to as the « Thirty Glorious Years » and largely inspired by Keynesian demand management policies, ended in the 1970s. This decade was marked by an unprecedented combination of economic stagnation and high inflation—stagflation—exacerbated by the oil shocks (1973, 1979). This phenomenon profoundly undermined confidence in traditional Keynesian precepts, which struggled to explain and counter this new economic configuration.

This crisis of Keynesianism paved the way for a radical critique of state interventionism, primarily from the monetarist and neoliberal movements that would become dominant. At the same time, and more confidentially at the time, alternative analyses were beginning to emerge, laying the foundations for what would become Modern Monetary Theory. Warren Mosler (1995), for example, already proposed a reinterpretation of the functioning of modern fiat currencies that challenged the very notion of financing constraints for a sovereign state.

1.2 Neoliberal and Monetarist Hegemony of the 1980s

The 1980s saw the triumph of neoliberal and monetarist ideas on the political and intellectual scene. The policies pursued by Margaret Thatcher in the United Kingdom (from 1979) and Ronald Reagan in the United States (from 1981) embodied this turning point, with programs of deregulation, privatization, strict control of the money supply, and a reduction in the influence of trade unions.

On the theoretical level, Milton Friedman and the Chicago School exerted considerable influence, arguing that inflation was « always and everywhere a monetary phenomenon » resulting from excessive growth in the money supply relative to the growth of output. The recommended solution was a strict monetary policy, conducted by an independent central bank, aimed at controlling the quantity of money or, later, directly targeting inflation. New Classical Economics, with its assumptions of rational expectations, took the criticism of the ineffectiveness of discretionary policies even further.

This « Washington Consensus, » advocating fiscal discipline, market liberalization, and a minimal state, spread far beyond Anglo-Saxon countries, influencing international institutions (IMF, World Bank) and many European governments. Distrust of public deficits and state financing through money creation became a leitmotif.

1.3 The « German Model » and Inflation Phobia

In the European context, West Germany played a pivotal economic and monetary role. Its post-war economic success was accompanied by remarkable monetary stability, embodied by the Deutsche Bundesbank. This institution enjoyed considerable independence and unwavering credibility in its fight against inflation, a national obsession deeply rooted in the trauma of the Weimar Republic’s hyperinflation in 1923.

German economic thought was (and remains, in part) dominated by ordoliberalism. This movement, born in the interwar period (Freiburg School), advocates a strong state to establish and guarantee a competitive framework (« Ordnungspolitik ») and ensure currency stability. However, he distrusts discretionary state intervention in the economy and is particularly hostile to central bank financing of public deficits, perceived as a source of instability and inflation.

With the Deutsche Mark as the anchor currency of the European Monetary System (EMS), Germany and its Bundesbank exerted a dominant influence on the preparatory discussions for the Maastricht Treaty. Imposing an independent European central bank model, modeled on the Bundesbank and focused on price stability, and combining this with strict rules of budgetary discipline.

It was therefore in this triple context—the crisis of Keynesianism and stagflation, the intellectual hegemony of neoliberalism and monetarism, and the decisive influence of the German stability model—that the negotiations for the Maastricht Treaty took place. Article 123, prohibiting direct monetary financing of states, thus appears less as a technical innovation than as the logical and almost inevitable enshrinement of the dominant ideas of the time, aimed at chaining states to a strict monetary and budgetary orthodoxy.

2. The Ideological Foundations of Article 123

While the intellectual and historical context of the 1970s and 1990s created an environment favorable to austerity policies, the inclusion of Article 123 at the heart of the Maastricht Treaty (which became the TFEU) rests on a set of more specific ideological foundations. The latter, largely derived from the neoliberal and ordoliberal paradigms, have shaped a particular vision of the role of the state, money, and markets, in which the strict separation between monetary and fiscal authorities, and the latter’s submission to external discipline, are considered cardinal virtues.

2.1 The « Virtue » of Central Bank Independence: A Bulwark Against Political Arbitrariness

At the heart of the justification for Article 123 lies the dogma of central bank independence. Influenced by the apparent successes of the Bundesbank and fueled by an influential body of theory, the idea has emerged that to ensure price stability, monetary policy must be removed from the direct influence of elected governments. The theory of « time inconsistency » in economic policies, popularized by Kydland and Prescott, played a key role: politicians, subject to electoral cycles, would be tempted to use monetary policy to stimulate the economy in the short term, even at the cost of higher future inflation. An independent central bank, with a clear price stability mandate and insulated from political pressures, would be more credible and therefore more effective in anchoring inflation expectations.

Article 123 is the logical corollary of this vision: while the central bank must be independent in pursuing its price stability objective, it cannot be required to finance government deficits, as this would directly subject it to the imperatives of fiscal policy. The prohibition of direct monetary financing is thus presented as the ultimate guarantee of this independence. The underlying ideology is clear: a fundamental distrust in the ability of democratic processes and politicians to manage money « responsibly, » and a trust in « expert » and supposedly neutral technocrats.

2.2 The Obsessive Fear of « Fiscal Domination »

Closely linked to the principle of independence, the fear of « fiscal domination » is another ideological pillar of Article 123. This concept describes a situation where a government’s fiscal policy (its spending and tax decisions) forces the central bank to pursue accommodative monetary policy (e.g., maintaining low interest rates or purchasing government debt) to facilitate deficit financing, even if this runs counter to its objective of price stability. « Fiscal domination » is thus seen as the ultimate path to uncontrolled inflation.

Article 123 explicitly aims to prevent this scenario by creating a strong institutional separation, a « Chinese Wall, » between the fiscal authorities (national governments) and the monetary authority (the ECB and the NCBs of the Eurosystem). By prohibiting direct debt purchases and credit facilities, the treaty seeks to render the central bank impervious to the financing needs of states, leaving it free to pursue its objective of price stability without interference. This vision largely ignores the possibility of virtuous coordination between monetary and fiscal policies, or the fact that the central bank, as a public institution, could have broader objectives than price stability alone, such as supporting full employment or financial stability.

2.3 Belief in « Market Discipline » as a Control Mechanism

If the central bank cannot finance the state directly, the latter must then find its resources on private financial markets by issuing securities. Article 123 is therefore inseparable from a deep belief in the effectiveness and virtue of « market discipline. » The idea is that private investors, by assessing the solvency and « good management » of a state’s public finances, will adjust the interest rates they charge to hold its debt. A state perceived as lax or spendthrift would see its borrowing costs increase, forcing it to return to « healthier » management (a view often advocated by institutions such as the IMF in its recommendations).

This « market discipline » is therefore established as an external and supposedly objective control mechanism for national fiscal policies, replacing internal political control or coordination within the monetary union. Article 123 is the instrument that makes this discipline possible and necessary. However, this view obscures the imperfections of financial markets, their propensity for mimetic behavior, bubbles, and panics, as well as the fact that the perception of sovereign risk is itself influenced by expectations of central bank behavior, as the eurozone crisis cruelly demonstrated before Draghi’s intervention.

2.4 The State Reduced to the Rank of an Ordinary Economic Actor: The Negation of Monetary Autonomy

Finally, and more fundamentally, Article 123 and the Maastricht architecture as a whole are based on a conception of the state that denies or minimizes its specificity as the creator of its own currency (or, in the case of the eurozone, as a member of a union whose central bank creates currency). By forcing it to finance itself as a private agent (through taxes or borrowing from third parties), it is implicitly placed in the position of a user of currency, not a creator (or an entity whose spending initiates monetary creation by the central bank).

An alternative perspective, initiated by the seminal work of Warren Mosler (1995) with his seminal book on MMT, Soft Currency Economics, suggests that a monetarily sovereign state creates currency when it spends, reversing the traditionally accepted causality.

The perspective imposed by Article 123 is therefore in direct contradiction with chartalist or MMT approaches, which emphasize that a state that creates its own currency, under a floating exchange rate regime, cannot be financially constrained in its own currency (see Wray, 1998, Understanding Modern Money). By imposing an external financing constraint, Article 123 seeks to simulate a situation of individual « monetary non-autonomy » for eurozone states, making them dependent on the markets and the goodwill of the ECB (whose primary mandate is not to facilitate state financing). This view ignores the nature of modern fiat money as a claim on the state (a « tax credit ») and the ability of the consolidated state (Treasury + Central Bank) to always ensure the liquidity of its own liabilities.

In conclusion, the ideological foundations of Article 123 are deeply rooted in a paradigm that values ​​technical independence over political deliberation, price stability over other macroeconomic objectives, market discipline over state coordination, and a view of the state as potentially irresponsible and in need of restraint. These ideological choices have had lasting consequences for the eurozone’s ability to respond to crises and pursue shared prosperity objectives.

3. Article 123 and the Construction of EMU: Political Objectives and Trade-Offs

While the ideological foundations described above provided fertile ground for Article 123, its final adoption in the Maastricht Treaty was also the product of a complex political process, marked by divergent national objectives, power struggles, and strategic compromises among the founding member states of the Economic and Monetary Union (EMU). The ban on direct monetary financing of states was not a mere technical clause, but a central element of a « grand bargain » aimed at making the single currency acceptable to all, particularly to its main architect and contributor, Germany.

3.1 Ensuring the Credibility of the Euro by Importing the German « Stability Culture »

One of the major political objectives of constructing EMU was to create a stable and credible currency on the international stage, capable of competing with the US dollar. To achieve this, it seemed essential to import the « stability culture » and anti-inflationary credibility of the Deutsche Bundesbank, considered at the time the most efficient central bank in Europe. Germany, haunted by the memory of the Weimar hyperinflation and proud of the strength of the Deutsche Mark, would only have agreed to abandon its national currency on the condition that the future single currency and its central bank be modeled on its own.

In this perspective, Article 123 was a key element. By prohibiting the future European Central Bank (ECB) from directly financing member states’ deficits, the aim was to guarantee its independence from national political pressures and guard against any temptation to monetary laxity. This rule, combined with a primary mandate of price stability for the ECB and strict fiscal convergence criteria for member states, aimed to reassure German public opinion and financial markets that the euro would be an « enlarged mark, » as solid and reliable as its predecessor. Article 123 was therefore a major concession to German demands, without which the single currency project would likely not have seen the light of day.

3.2 Preventing « Moral HAZARD » and « Free Riding » in a Heterogeneous Monetary Union

The creation of a single currency between countries with heterogeneous economic traditions, social structures, and political preferences raised a major fear: « moral hazard » and « free riding. » Some countries, particularly those in Northern Europe perceived as more « virtuous » fiscally, feared that more « lax » Member States (often those in the South) would take advantage of the credibility provided by the single currency to pursue irresponsible fiscal policies, knowing that the negative consequences (inflation, rising interest rates) would be spread throughout the entire zone, or that « serious » countries would ultimately be forced to bail them out to prevent the collapse of the Union.

Article 123, coupled with the « no bailout » clause (Article 125 of the TFEU, which stipulates that one Member State is not liable for the commitments of another), had the political objective of neutralizing this risk. By making each Member State nominally responsible for its own financing on the markets, without direct recourse to the central bank, it was hoped to internalize the costs of poor fiscal management and encourage discipline. The idea was that if a state pursued an unsustainable fiscal policy, the markets would punish it with higher interest rates, forcing it to correct its trajectory well before the situation became a problem for the entire region. Article 123 was therefore a key instrument in this system of individual accountability and moral hazard prevention, essential for overcoming mutual mistrust between states.

3.3 An Instrument of Convergence (or Constraint) Toward a Specific Economic Model

Beyond monetary stability and fiscal discipline, some EMU designers saw the Maastricht set of rules, including Article 123, as a powerful lever to encourage (or force) the convergence of European economies toward a specific economic model. This model, largely inspired by ordoliberal principles, emphasizes competitiveness, market flexibility (particularly labor), public spending control, and structural reforms aimed at strengthening the supply side.

By depriving states of the tool of competitive devaluation (with the single currency) and the instrument of direct monetary financing of their deficits (with Article 123), it was hoped to force them to improve their competitiveness through other means, notably wage moderation and structural reforms. EMU was thus perceived by some not only as a monetary project, but also as a project of economic and political transformation, in which external constraints would serve as a catalyst for necessary internal changes. Article 123, by limiting the state’s ability to cushion shocks through discretionary fiscal policy financed by currency, reinforced the pressure for adjustment through supply-side « fundamentals. »

3.4 The Political Dynamics and Inevitable Compromises of Maastricht

The creation of the Economic and Monetary Union (EMU) was, above all, a complex political process, shaped by the interests and visions of key member states, as well as by the influence of technical institutions. Jacques Delors, then President of the European Commission, undeniably played a key driving and coordinating role. A federalist with a social agenda, he operated in a field where the creation of the single currency involved significant compromises with the most influential nations, notably Germany and France, and faced with the reluctance of the United Kingdom.

The 1989 « Delors Report, » which effectively paved the way to Maastricht, was itself the result of a collective effort in which central bank governors exerted a preponderant influence, instilling the principles of monetary rigor and independence that would characterize the future ECB. In this context, the acceptance of constraints such as Article 123 can be understood not only as a concession on the part of visionaries like Delors, but also as a reflection of a broader consensus among the decision-making elites of the time, or at least as the result of a balance of power in which the proponents of « stability » prevailed.

The idea of ​​a strategy of « small steps » or « the spiral »—where the single currency, once created, would automatically lead to greater political and fiscal integration—certainly motivated some of the project’s promoters. However, this second stage proved much more difficult and uncertain, leaving the EMU with an unbalanced architecture: a centralized and powerful monetary pillar facing fragmented and constrained national fiscal and political pillars. Article 123 is thus the product of a process in which the objective of creating the euro took precedence, requiring significant concessions on national economic policy instruments and the overall institutional balance of the Union.

In conclusion to this section, it appears that Article 123 is far from being a mere technical provision. It is the result of a complex interaction between dominant ideological currents, national political objectives (notably the quest for monetary credibility imported from the German model and the prevention of moral hazard), and the compromises essential to the success of an integration project as ambitious as the single currency. Understanding these political dynamics is essential to understanding why a rule, which critical institutional analyses show is functionally circumvented, could be so firmly enshrined at the heart of the European Monetary Pact.

4. The Consequences and Criticisms of an Ideologically Based Rule

The inclusion of Article 123 at the heart of the Maastricht Treaty, a product of the ideological currents and political compromises of its time, was not without profound consequences for the functioning of the Economic and Monetary Union (EMU) and the ability of Member States to respond to economic challenges. Far from ensuring virtuous discipline and unwavering stability, this rule, by attempting to deny the intrinsically political nature of money and the relationship between the state and its central bank, has generated complex circumvention mechanisms, exacerbated crises, and sparked fierce criticism regarding its adequacy and legitimacy.

4.1 The « Shell Game » as an Inevitable Consequence and a System of Opacity

The formal prohibition on direct monetary financing of states, enshrined in Article 123 of the TFEU, has a major and well-documented operational consequence: the institutionalization of a financial « shell game. » Indeed, detailed institutional analyses (e.g., for the EMU: Ehnts, 2016a; Cesaratto, 2016; as well as, for the USA: Armstrong, 2019, Bell, 1998, and Tymoigne, 2014) show that the central bank is inevitably involved in the process. Since the state must be able to carry out its expenditures—which inject central bank money into the economy—and since the primary public debt markets (through which the state is supposed to finance itself) require liquidity to function, the role of the central bank becomes essential, albeit indirect.

Instead of providing direct credit to the Treasury, the Eurosystem provides liquidity (central bank reserves) to commercial banks, particularly primary dealers (SVTs), through its monetary policy operations (refinancing operations, asset purchases). These banks then use this liquidity to purchase debt securities issued by governments on the primary market. The Treasury’s account is credited and can spend. The rule of Article 123 is formally respected, but the central bank was the key actor that made the operation possible. This indirect channel, while maintaining a facade of « market financing, » is complex, potentially more costly (due to banking intermediation margins), and, above all, it obscures the understanding of the true role of the central bank and the nature of government financing for the general public and even for many decision-makers. This opacity undermines the democratic debate on budgetary and monetary choices.

Added to this institutional arrangement is another equally revealing constraint: the Treasury’s account with its central bank—in France, the Single Treasury Account at the Banque de France—must imperatively show a positive balance at the end of each day. While regulations allow for debit balances during the day, these must be cleared before the end of the accounting session. In other words, the government cannot legally end the day with a deficit account, even if its payments have, in reality, injected reserves into the banking system.

This rule, rarely discussed in the public sphere, reinforces the performative nature of the « shell game »: by preventing the central bank from sustainably crediting the Treasury’s account, it obliges the government to « find » liquidity on private markets, which only the central bank can create, indirectly and under certain conditions. This is an operational extension of Article 123, designed to maintain the illusion of a strict separation between the central bank and the Treasury. In reality, this daily requirement for a « positive balance » is not based on any functional or technical necessity: it is merely an accounting ritual intended to reinforce the fiction of state financing through the market and to conceal the fundamental role played by the central bank in the fluidity of the entire system.

Thus, the « shell game » is not simply a tangle of financial circuits: it is an ideological device, aimed at rendering invisible what is nevertheless structurally indispensable: the permanent, albeit indirect, support of the central bank for public spending.

This device merely transforms what could be a simple coordination between the state and its central bank into a complex exercise of « refinancing » through the market—a market itself supported by the central bank—to comply with a rule that, in the final analysis, merely creates a financial constraint that the state, as an entity capable of mobilizing the Eurosystem’s monetary creation, could functionally do without.

4.2 Procyclicality and the Absence of Sufficient Countercyclical Stabilizers at the Eurozone Level

A major criticism of Article 123 and the rigid Maastricht fiscal framework is their procyclical nature, particularly in times of economic crisis. By prohibiting direct monetary financing and subjecting states to the « discipline » of financial markets that are often themselves procyclical (euphoric during periods of growth, panicky during recessions), the EMU architecture has deprived member states of an essential lever for pursuing robust countercyclical fiscal policies (Terzi, 2016).

When a crisis hits and tax revenues fall while social spending increases (automatic stabilizers), deficits widen. If markets become suspicious and demand high risk premiums, the state, unable to count on direct support from its central bank (under Article 123), may be forced to implement austerity policies to « restore confidence. » These policies, by further depressing demand, worsen the recession, reduce tax revenues, and may even increase the debt-to-GDP ratio—a vicious circle clearly observed in several eurozone countries during the sovereign debt crisis. The absence of a substantial European federal budget and automatic transfer mechanisms has further amplified this problem, leaving states to cope with asymmetric shocks on their own.

4.3 The Eurozone Crisis (2010-2012) as a Revealer of Inherent Flaws

The sovereign debt crisis was a real-life test of the Maastricht architecture and brutally exposed the flaws induced by rules like Article 123, confirming the early warnings issued by economists like Warren Mosler and other MMT pioneers about the risks of fragmentation and insolvency for states deprived of their monetary autonomy within a union without a true federal budget or an explicit lender of last resort for public debts (Cullen Roche (2011)). The absence of an explicit lender of last resort for member states’ public debts allowed markets to speculate against certain countries, creating a self-fulfilling dynamic of rising interest rates and fears of default.

It was only with Mario Draghi’s statement in July 2012 (« whatever it takes ») and the (theoretical) establishment of Outright Monetary Transactions (OMT), the ECB signaled its willingness to act, de facto, as a bulwark against fragmentation, circumventing the spirit, if not the letter, of the treaties. This intervention calmed the markets, but also underscored that the survival of the euro depended on the ECB’s ability to free itself from its initial ideological constraints. The asset purchase programs (QE, then PEPP during the pandemic) subsequently confirmed this pragmatic role, with the ECB purchasing massive amounts of public debt on the secondary market, which is functionally very close to facilitating state financing, even if this is justified by monetary policy objectives.

4.4 A Global Framework Constraining the Response to Major Collective Challenges

If Article 123, by dictating the method of state financing, has created an opaque and complex system, it is in conjunction with the framework European budgetary frameworks, particularly the Stability and Growth Pact (SGP) and its limits on public deficits and debt, that Europe’s ability to mobilize massive and sustained public investment is hampered. Together, these two pillars of the Maastricht architecture—one prohibiting direct monetary financing (Article 123), the other limiting budget balances (SGP)—create a rigidity that remains a major concern in the face of 21st-century challenges: full employment, climate transition, technological sovereignty, and health resilience.

The focus on « fiscal discipline, » imposed by the SGP and reinforced by the fear of « market sanctions » (itself exacerbated by the lack of direct support from the ECB due to Article 123), can lead to chronic underutilization of public investment capacity. The fear of violating these rules, based on an ideological vision that perceives public debt as a burden and state financing as a constraint, Externally, this comes at the expense of the long-term well-being and competitiveness of the eurozone. Even though the SGP’s general escape clause was activated during the pandemic, demonstrating possible flexibility, pressure for a return to strict rules remains. The current debate on SGP reform is an implicit recognition of these shortcomings, but it remains to be seen whether future rules will truly break free from the paradigm that inspired Article 123 and the initial deficit constraints.

In conclusion to this analysis of the consequences, Article 123, by prohibiting simple and transparent coordination between the state and its central bank for expenditure management, has helped to legitimize and strengthen a budgetary framework that directly limits the volume of possible investments. Far from being a mere technical clause, this provision is therefore a key piece of an ideological construct that has had far-reaching consequences, creating an often dysfunctional system requiring ad hoc interventions from the ECB to prevent collapse. Criticism of this construct is not intended to advocate general laxity, but to plead for a more realistic understanding of financing mechanisms and for an economic governance framework that allows us to meet collective challenges without being paralyzed by outdated dogmas.

4.5 The Opacity of the System as a Paradoxical Validation of MMT

This systematic recourse to indirect procedures, legal fictions, and complex accounting sequences is not a technical imperative, but rather a deliberate ideological choice. The logic of Article 123 and its operational extensions, such as the prohibition on long-term overdrafts in the Treasury account, is to erase all traces of the monetary role of the State and to simulate a financing need that does not fundamentally exist for a State creating its own currency, under a floating exchange rate regime.

Yet this is precisely what MMT demonstrates: in such a monetary framework, the State does not need to collect financial resources in advance in order to spend. It is its spending that injects the necessary currency into the economy, and not the other way around. What the institutional machinery of the Eurozone seeks to obscure is the performative and fundamental nature of public spending in a contemporary monetary system.

In this sense, the more opaque the system becomes, the more it validates the MMT diagnosis. The « shell game » is not an anomaly of the system: it is the system, as it was designed to hide the functional truth of the budgetary and monetary process. The illusion of « financing » is therefore a desired effect, not an unintended consequence, of a framework designed to discipline public action by subjecting it to accounting fictions.

Conclusion

A rigorous analysis of the foundations of Article 123 of the TFEU reveals a disturbing truth: far from being a simple technical measure of « good management, » this provision is the embodiment of an ideological choice that has deliberately chained the eurozone states to a supposed market discipline. This « triumph of an ideology »—that of a state that must submit to the markets, a depoliticized currency, and a distrust of democratic interventionism—has engendered a monetary architecture that is not only complex and opaque, but also deeply dysfunctional, as successive crises have amply demonstrated.

The institutionalized « shell game, » through which the European Central Bank inevitably facilitates state financing while preserving the fiction of its prohibition, is not a mere technical curiosity. This is a costly deception, a technocratic smokescreen that perpetuates harmful myths about public debt, justifies destructive austerity policies, and diverts public debate from the real issues at stake: the allocation of real resources and the pursuit of crucial societal objectives.

The crises have forced the ECB to act, to « do whatever it takes, » proving that the limits are not what they seem. It is time to translate this pragmatic realization into a fundamental reform of European economic governance. This requires more than a simple adjustment of the rules; it requires a break with the ideological paradigm that inspired Maastricht.

Openly recognizing the Eurosystem’s capacity to ensure the sustainability of necessary public spending is not a call for complacency, but a condition for an honest democratic debate on collective priorities—full employment, ecological transition, social justice. The challenge is to free public power from self-imposed ideological shackles and put it back at the service of citizens, by defining constraints where they really lie: in our productive capacities and our political will, and not in a supposed scarcity of currency that the Union can itself create. The future of Europe will depend on our ability to dismantle these fictions and rebuild a fiscal-monetary pact based on lucidity and democratic sovereignty.

Références

Notes

  1. While it is certainly at the center of the analysis carried out in this text, Article 123 cannot be read in isolation: it is part of a network of provisions that organize the marginalization of budgetary policies and the primacy of market discipline. Article 126 (discipline of deficits), Article 125 (prohibition of bailouts), Article 130 (independence of the ECB) together form the ideological basis of the European model inherited from the Treaty of Maastricht.
  2. The Maastricht Treaty applies not only to the Eurozone member states, but to all European Union member states. However, since the practical scope of the financial constraints imposed by the treaty is different and, in fact, much less restrictive outside the Eurozone, this article focuses only on the currency area member states.
  3. By « shell game, » we mean an institutional and accounting system that, while formally prohibiting the central bank from directly financing states (Article 123 TFEU), nevertheless recreates its effects through indirect mechanisms. The state begins by issuing debt securities that commercial banks subscribe to using reserves previously injected into the banking system by the central bank (via its refinancing operations or asset purchases). The money thus « previously collected » by the markets is in reality a publicly-sourced currency. The role of the central bank as the ultimate facilitator of financing is hidden behind a succession of financial operations presented as independent. The monetary circuit is therefore deliberately made opaque to preserve the fiction of market-imposed discipline, while public intervention is structural and indispensable. The term thus refers to a form of legal and accounting sleight of hand, comparable to that of a three-card card player manipulating cups to hide the real origin of the currency used by the State.

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