The Good, the Bad, or the Ugly? The Choice of Legal Basis in EU Digital Finance

Table of Contents: 1. Introduction. – 2. The Good – Article 114 TFEU by default. – 2.1. The EU’s legislative package in digital finance. – 2.2. (Un-)challenged by the Courts. – 3. The Bad – unfit to regulate. – 3.1. The EU’s competences under the economic and monetary policy. – 3.2. The ultra viresclaim. – 4. The Ugly – mind the digital gap. – 4.1. The missing digital competence in the Treaties. – 4.2. A revival of the forgotten legal basis in Article 352 TFEU. – 5. Concluding remarks.

Abstract: This article analyses the choice of legal basis for measures under the EU’s digital finance strategy. In this area, a new regulation has recently been introduced concerning markets in crypto-assets (MiCA). The package for a digital finance strategy also includes a Digital Operational Resilience Act (DORA) as well as a regulation on distributed ledger technology (DLT). All these measures are adopted on Article 114 TFEU as a single legal base, despite having a clear finance-related angle. Potential alternatives to Article 114 TFEU could be found in either the economic or the monetary policy area. Even more so, a digital competence is entirely missing from the treaties, and thus from EU competences. This article analyses the procedural and structural advantages of some provisions over others, which render them more suitable as legal basis in the Digital Single Market. In particular, the quasi-monopolistic role of Article 114 TFEU due to institutional preferences and the resulting pre-emption of other competences has to be criticised. The article suggests a revival of Article 352 TFEU as legal base in order to fill the digital gap in EU competences.

Keywords: EU digital finance – choice of legal basis – Article 114 TFEU – economic policy – monetary policy – Article 352 TFEU.

1.   Introduction

The choice of legal basis is of constitutional relevance, indicating institutional preference as well as procedural and structural limitations placed on the EU legislator. In this, both national and European legal frameworks are the same. EU law differs, however, from the national perspective to the extent that there is no ‘genuine’ or ‘inherent’ European competence. Rather, according to the principle of conferral in Article 5 of the Treaty on European Union (TEU), Member States have given up some of their sovereign powers and have conferred them onto the EU; the Union may act within the limits of these competences in order to attain the objectives set out in the treaties. Any competences not conferred on the Union remain in the hands of national legislators.[1]

This is significant, particularly so with regard to the new regulatory approach in the Digital Single Market.[2] Indeed, the digital era poses new challenges for the EU legislator, particularly concerning the application and enforcement of fundamental rights in digitalisation,[3] having created a legislative gap in urgent need to be addressed.[4] Despite this urgency, however, the quest for the correct choice of legal basis cannot be neglected as it fulfils a vital role in ensuring legitimacy, legal certainty, and the maintenance of the institutional balance via the prescribed legislative procedure.[5] Nevertheless, many of the newly introduced legislative acts are now being adopted on the basis of Article 114 of the Treaty on the Functioning of the European Union (TFEU); prominent examples include the Digital Markets Act (DMA),[6] the Digital Services Act (DSA),[7] the Artificial Intelligence Act,[8] and the Markets in Crypto-Assets Regulation (MiCA).[9] The latter is part of the EU’s strategy in digital finance,[10] which serves as case study for this article due to its position at the crossroads between economic and monetary policies and the tensions resulting therefrom.

This article will be analysing the recently introduced legislative measures in the area of digital finance and challenge the choice of legal basis for their adoption. As such, Article 114 TFEU features the ‘Good’, the easy option which is workable and rarely ever seriously contested by the courts. But is it good enough? And should it be used as the default legal basis for legislation in digitalisation, such as the EU package in digital finance? It will be argued that, irrespective of certain practical advantages, Article 114 TFEU should not be considered the default legal basis due to its residual nature in the absence of more special legal bases in the treaties.

Therefore, this article will present alternatives which could help to unlock the constitutional conundrum in the interest of the division of competences as codified by the Treaty of Lisbon. The ‘Bad’, representing the EU’s competences under the economic and monetary policies, caught in constitutional stalemate due to their inherent structural and procedural disadvantages, which unfortunately render them unworkable in conjunction and even harder to delimit in the light of divergent institutional interests.

Last but not least, the article turns to the ‘Ugly’ in the form of Article 352 TFEU, which might not be everybody’s darling, mainly due to its procedural requirements. However, Article 352 TFEU can apply where no other suitable competence is found in the treaties. As will be argued, such a competence is especially needed in order to fill the digital gap in EU law and thus a revival of this provision could be seen as the key to unlock the conundrum caused by the other options.

Hence, this article will first address ‘The Good’ in section 2, followed by ‘The Bad’ in section 3, and finally ‘The Ugly’ in section 4. Some concluding remarks will be provided in section 5.

2.   The Good – Article 114 TFEU by default

Article 114 TFEU constitutes one of the horizontal competences in the Treaties – the other one being Article 352 TFEU – which grants a rather broad power to the EU to approximate laws in the area of the internal market. With the internal market being construed widely, the EU has thus been able to adopt a variety of measures throughout the decades on the basis of Article 114 TFEU, particularly under the new regulatory approach in digitalisation.[11] However, the scope of this provision is delimited by the existence of more special legal bases available in the treaties for a proposed measure, as is evident from the opening sentence of Article 114(1) TFEU starting with ‘Save where otherwise provided in the Treaties (…)’. This should constitute the determining factor for the choice of Article 114 TFEU for a proposed measure as well as for judicial review.

2.1.  The EU’s legislative package in digital finance

The main piece of legislation of the EU’s package in digital finance is the new regulation on crypto currencies (MiCA),[12] which entered into force in June 2023 and shall apply in its entirety from 30 December 2024.[13] It applies to ‘natural and legal persons and certain other undertakings that are engaged in the issuance, offer to the public and admission to trading of crypto-assets or that provide services related to crypto-assets in the Union’.[14] The regulation is adopted on the single legal basis of Article 114 TFEU. The legislator indicates in recitals 5 and 6 of the regulation the reasons for this choice of legal basis, a creeping fragmentation of rules between Member States, thus hindering growth and innovation in the internal market.

Indeed, analysis of such fragmentation was central to the Impact Assessment during the proposal stage of the MiCA regulation, which also considered Article 53(1) TFEU as an alternative legal basis. However, this provision under the free movement of establishment would have not allowed for the same level of harmonisation across the Union in the form of a regulation.[15]According to Article 1, MiCA provides harmonisation for the following non-exhaustive list

‘a) transparency and disclosure requirements for the issuance, offer to the public and admission of crypto-assets to trading on a trading platform for crypto-assets (‘admission to trading’);

b) requirements for the authorisation and supervision of crypto-asset service providers, issuers of asset-referenced tokens and issuers of e-money tokens, as well as for their operation, organisation and governance;

c) requirements for the protection of holders of crypto-assets in the issuance, offer to the public and admission to trading of crypto-assets;

d) requirements for the protection of clients of crypto-asset service providers; 

e) measures to prevent insider dealing, unlawful disclosure of inside information and market manipulation related to crypto-assets, in order to ensure the integrity of markets in crypto-assets’.

The EU’s package in digital finance also includes a Digital Operational Resilience Act (DORA),[16] laying down ‘uniform requirements concerning the security of network and information systems supporting the business processes of financial entities’,[17]and a regulation on distributed ledger technology (DLT).[18] Both measures are equally adopted on Article 114 TFEU as a single legal base. Similar to MiCA, disparities between the national legal frameworks in the EU and the subsequent creation of obstacles to the proper functioning of the internal market are cited in justification for Article 114 TFEU as a legal base.[19] However, this cannot hide the fact that these regulations have a clear finance-related angle, which, as the lex specialis in this case, should in fact derogate from the application of Article 114 TFEU.[20]

So, to which extent can these measures really be said to fall within the objective of ‘the establishment and functioning of the internal market’ according to Article 114 TFEU rather than any more finance-specific objectives within other policy areas? Evidence may come from the degree of judicial scrutiny in this area.

2.2.  (Un-)challenged by the Courts

In UK v Parliament,[21] which was brought in relation to Regulation (EU) No 236/2012 on short selling and certain aspects of credit swaps,[22] a measure within the EU’s legislative package to address the financial crisis and launch a system of supervision and crisis management within the EU financial system,[23] Article 114 TFEU was challenged as the sole legal basis for Article 28 of that Regulation. In particular, the applicants questioned the legality of the conferral of some decision-making powers on the European Securities and Markets Authority (ESMA) on this basis and specifically argue that it is ‘ultra vires’ Article 114 TFEU in that it ‘does not empower the EU legislature to take individual decisions that are not of general application or to delegate to the Commission or a Union agency the power to adopt such decisions’.[24] Instead, the applicants submit that such decisions should be adopted as regulatory rather than harmonising measures.

Opposed to the UK’s plea, the three main EU institutions speak with one voice in endorsing the use of Article 114 TFEU as legal basis for the contested regulation. All three are united in their contention of the concept of harmonisation to encompass, if necessary, the adoption of individual measures as the one at hand. As was put by the Council, Article 114 TFEU confers on the Union ‘discretion as regards the most appropriate method of harmonisation for achieving the desired result, especially in fields with complex technical features’.[25] The Commission further pointed out that the ESMA Regulation,[26] upon which ESMA was established and which was referred to in the contested regulation in this case, was equally adopted on the basis of Article 114 TFEU and therefore cannot be considered ultra vires.

It is worth pointing out that Advocate General Jääskinen in his Opinion provided an opposing view, explicating that ‘conferral of decision making powers under that article on ESMA, in substitution for the assessments of the competent national authorities, cannot be considered to be a measure ‘for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market’ within the meaning of Article 114 TFEU’,[27] suggesting that the Court should annul Article 28 of Regulation No 236/2012 due to lack of competence.[28]

In its analysis, the Court largely agreed with the assessment of the scope of Article 114 TFEU as outlined by the EU institutions, thus rejecting the UK’s ultra vires claim as unsubstantiated. In addition, the Court acknowledged the Union’s lack of a common regulatory framework for monitoring short selling due to divergent emergency measures adopted at national level during the financial crisis and thus the need for a more harmonised approach at EU level. With regard to the actual objectives of the measure, however, the Court merely took account of the wording of the legislation, which was carefully drafted to refer in its recital 2 to the proper functioning of the internal market, including the financial markets, as its main purpose. The Court thus concluded that ‘the harmonisation of the rules governing such transactions is intended to prevent the creation of obstacles to the proper functioning of the internal market and the continuing application of divergent measures by Member States’[29] and therefore upheld Article 114 TFEU as the correct choice of legal basis for the contested measure.

As could be argued, this rather light judicial scrutiny of Article 114 TFEU in legal basis litigation does not come as a surprise. Indeed, the court has a long history of accepting such phrasing of the intended purpose in the respective legislation as justification for its adoption on the internal market legal basis. This practice goes as far back as Tobacco Advertising[30] and the infamous claim that this outlier of a judgment in delimiting the outer boundaries of Article 114 TFEU as a legal base has provided the legislator with a ‘drafting guide’ for future legislation to fit within the objectives of the preferred legal base and thus withstand potential judicial scrutiny.[31] When scrutinised against those objectives, rather than the actual effects of a measure, and in applying the ‘centre of gravity’ theory,[32] the result will inevitably confirm the choice of Article 114 TFEU.

The sheer breadth of applicability of Article 114 TFEU and its harmonising and pre-emptive effects have established it as an effective tool and thus often the preferred choice of legal basis for the adoption of a wide variety of legislative acts to the detriment of other competence areas. The latter in turn have suffered from slow but steady erosion.[33] According to Article 2(2) TFEU, shared competences between the Member States and the Union, such as the case with the internal market,[34] are subject to pre-emption of national powers since priority is given to action at EU level. This development is further exacerbated in the advent of the digital era and the EU’s new regulatory rush to harmonise laws for the internet. As a result, Article 114 TFEU is now serving as (sole) legal basis for a large proportion of the newly adopted and proposed legislation in the Digital Single Market, the EU’s package in digital finance being just one example.[35]

The question thus arises when exactly the competences available under the economic and monetary policy area have started to be employed less as legal bases by the EU legislator and for what reason, i.e. is there an actual structural or procedural disadvantage inherent in the provisions which renders them less suitable when compared to Article 114 TFEU?

3.   The Bad – unfit to regulate

As mentioned above, if other more special legal bases are available in the treaties, which could derogate from the use of Article 114 TFEU as legal base for a proposed measure, the former should be used – either as single legal basis or in combination with Article 114 TFEU, depending on the exact setup of the measure in question. In the area of digital finance, two potential policy areas are available, which could provide the necessary competence.

3.1.  The EU’s competences under the economic and monetary policy

The EU’s competences on finance-related matters are found in several different provisions in the treaties. While they are all under the same Title VIII on economic and monetary policy, only Article 119 TFEU is common to both economic and monetary policies. The EU’s economic policy is then regulated under chapter 1, including Articles 120-126 TFEU, before chapter 2 sets out the EU’s monetary policy within Articles 127-133 TFEU. This does not constitute a problem per se, however, the competences conferred upon the Union under these two policy areas differ significantly in scope. On the one hand, according to Article 3(1)(c) TFEU, the monetary policy area falls within the EU’s exclusive competences in relation to those Member States which have adopted the common currency, the Euro.[36] Under the economic policy on the other hand, the Union has coordinating powers only, as provided for by Article 5(1) TFEU.[37]

Particularly with regard to the rather limited competences the Union thus has for economic policies, any broader harmonising measures cannot be achieved at EU level and would in any case be dependent on Member States’ willingness to coordinate their actions. In addition, certain aspects of monetary financing are specifically prohibited under this policy area. According to Article 123 TFEU

‘Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (…) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments’.

Article 125 TFEU, or the so-called ‘no bailout clause’, imposes further limitations on the exercise of the EU competences in this area.

Considering these differences between the EU’s exclusive and coordinating competences for the two policy areas concerned, their delimitation becomes even more crucial. Failure to do so would result in an infringement of rights of the respective legislative actors involved, i.e., either the Union or the Member States. However, the treaties offer little guidance only in this regard and to a large extent remain vague in what are supposed to be the delimitating factors on the substance. Article 119 TFEU provides that the maintenance of price stability is the primary objective of the Union’s monetary policy, while the purpose of economic policies is based on Member States’ close coordination, the internal market, and the definition of common objectives, in accordance with the principle of an open market economy.

During the Great Crisis of 2007–2008 the famous ‘Six-Pack’ Regulations,[38] consisting of 5 regulations[39] and a directive,[40]and the following ‘Two-Pack’ Regulations,[41] were adopted on the basis of either Articles 121 or 126 TFEU alone or in combination with Article 136 TFEU, in case the measure in question concerned a regulatory instrument, designed specifically for the Euro Member States. These provisions, however, do not provide plausible legal bases for the regulation of financial services in the Union. 

Special attention should be given to Article 122(2) TFEU, allowing the Union to grant financial assistance to the Member States under specific circumstances. During the Eurozone crisis its use was, however, limited to only one instrument, the European Financial Stabilisation Mechanism (EFSM).[42] This provision was later abandoned as an appropriate legal basis for financial assistance measures.[43] The COVID-19 pandemic provided an opportunity to utilise this provision without the previously experienced controversies, related to the presence of ‘exceptional occurrences beyond its [Member State’s] control’. It thus became a legal base for the creation of the European instrument for temporary support to mitigate unemployment risks (SURE)[44] and the European Union Recovery Instrument.[45]

Article 127 TFEU provided the legal basis for introducing certain monetary policy measures. These included the Security Markets Programme,[46] the Corporate Sector Purchase Programme,[47]  the Asset-backed Securities Purchase Programme,[48] the third Covered Bond Purchase Programme[49] and the Public Sector Purchase Programme.[50]  These were all adopted on the basis of Article 127(2) TFEU together with Article 12.1, 3.1 and 18.1 of the Statute of the European System of Central Banks (ESCB).

Unfortunately, this inherent material overlap places either policy area – economic or monetary – at a significant disadvantage when compared to, for example, Article 114 TFEU. Aside from the obviously much broader scope for regulation under the internal market, the rather artificial economic-monetary divide constitutes a real risk for legal basis conflicts,[51] which therefore does not render these two policy areas reliable legal bases for the adoption of legislative acts, particularly in times of crisis.

3.2.  The ultra vires claim

The apparent conflict between the economic and monetary policy area has previously caused judicial uproar, most prominently between the German Federal Constitutional Court and the European Court of Justice in the Weiss saga,[52] which may explain – but not justify – the use of Article 114 TFEU as an alternative in order to avoid further conflict and legal basis litigation.

In this case, the German Federal Constitutional Court (FCC) challenged the Public Sector Purchase Programme (PSPP),[53]which was launched by the European Central Bank (ECB) in the aftermath of the financial crisis. The measures adopted under this programme were designed for the recovery of the Eurozone and the previous market neutrality by allowing the ECB to purchase assets on the secondary markets via constituent national central banks in the Euro zone. The applicants criticised the adoption under the EU’s exclusive competences within the area of monetary policy, claiming that such measures as under the contested programme could only be adopted within the economic policy area where Member States have retained their competences to take action with the EU’s involvement limited to a coordinating function.

The Court’s response to the preliminary ruling sent by the German FCC, which upheld the contested decisions as compatible with EU law,[54] was not received favourably at the national court. Instead, the latter described the CJEU’s ruling as ‘incomprehensible’ and ‘ultra vires’,[55] thus rejecting the European court’s interpretation and going into open confrontation with it.[56] The conflict later culminated in an infringement procedure issued by the European Commission against Germany under the Article 258 TFEU procedure, accusing the German FCC for violation of the principle of primacy of EU law.[57] While the conflict was eventually settled at a political level,[58] the legal conflict re-emerged concerning the more recent Pandemic Emergency Purchase Programme (PEPP),[59] which was launched in order to alleviate the economic effects of the COVID-19 pandemic within the Eurozone. Again, the German FCC set the stage for the recurring ultra vires allegations.[60]

With the case still pending before the national court, it is clear that the constitutional conundrum between the economic and monetary policy areas will not cease to provoke competence conflicts between the Union and the Member States until it is resolved by treaty change. So, in the spirit of when two quarrel, the third rejoices, Article 114 TFEU unsurprisingly has evolved as the preferred choice of legal basis for legislation in digitalisation. What can thus be inferred from the above is that Article 114 holds a quasi-monopoly for the choice of legal basis in the Digital Single Market due to the successful pre-emption of other competences, specifically those under the economic and monetary policy areas. As such, the latter are being undermined as valid legal bases with the effect of being immersed within the wider internal market objective. This is justified by the proclaimed fragmentation caused by divergent national legislation in this area; such fragmentation being considered as hindrance to the four freedoms, thus creating obstacles to trade across national borders in the EU internal market.

Despite the lack of a real crisis in the digital era (thus far), measures adopted within this field are equally political and time sensitive. However, it still raises the question to which extent Article 114 TFEU can and should indeed constitute the correct choice of legal basis, aside from its procedural advantages. More specifically asked, is the Digital Single Market a mere extension of the internal market of the EU, or does the digital component render it distinct and therefore meriting a reconsideration of the correct choice of legal basis?

4.   The Ugly – mind the digital gap

Even if the above line of argumentation for an all-encompassing internal market capable of including finance-related objective is to be accepted, one significant flaw remains in this reasoning for the justification of Article 114 TFEU as legal base. Any legislation introduced in the area of digital law, including the package in digital finance, is missing a digital competence. As such, the only available competence in the treaties – alone or in combination – constitutes Article 352 TFEU in that it can be used as ‘gap filler’.

4.1.  The missing digital competence in the Treaties

This digital competence gap in the treaties is unsurprising since, at the time of their drafting, the digital era was still in its infancy, when the EU was having a deregulatory as opposed to the more recent regulatory approach. The question which thus arises is to which extent is the Digital Single Market distinct from the ‘ordinary’ or ‘analogue’ internal market? In other words, is there a distinguishing factor between the online and offline markets which requires recognition as a separate policy area and thus competence?

The main distinguishing factor between the online and offline markets is tangibility. By virtue, the Digital Single Market and its operations are less tangible than any analogue marketplace. This can be illustrated best with the most common ‘product’ in the online sphere: data. Should this fall under the free movement of goods or services? Or should it rather be classified as capital? A definite answer to this seems rather complex and highly context-specific,[61] which in turn questions an automatic recognition under Article 26 TFEU and the four freedoms of the internal market. Some commentators have therefore advocated for the creation of a fifth freedom for data flows,[62] while others have rather opposed such an approach.[63] Indeed, a separate legal basis concerning the processing of personal data and the protection thereof already exists in the form of Article 16 TFEU for general application as well as Article 39 for the area of common foreign and security policy.

However, data protection is but one feature of the Digital Single Market and the measures in digitalisation, which tend to be of much broader scope. Thus, while data protection certainly is of concern to the EU legislator when regulating the internet, Article 16 TFEU would be too narrow as legal base alone and would only be suitable in combination with other legal bases, provided their compatibility.[64] As such, it does not provide a generic extension of existing EU competences to the digital sphere, which, as could be argued, would thus be necessary. Based on this, it could be argued that there is a digital gap in the current set of competences under the EU treaties. As mentioned above, according to Article 5 TEU, any competences not conferred on the Union remain with the Member States. However, the treaties have indeed provided for this precise scenario, where Union objectives cannot be achieved by any of the available powers prescribed therein.

4.2.  A revival of the forgotten legal basis in Article 352 TFEU

Article 352 TFEU has long been known as the gap filler amongst the EU competences.[65] According to paragraph one, the Union may adopt measures if such action ‘should prove necessary, within the framework of the policies defined in the Treaties, to attain one of the objectives set out in the Treaties, and the Treaties have not provided the necessary powers’. Despite the clearly residual character of Article 352 TFEU, its scope has long been described as ‘potentially unlimited’,[66] and thus, if applied to the digital era, could indeed fill the digital gap if Article 114 TFEU is considered insufficient for that purpose. The use of Article 352 TFEU as a legal base would further have the advantage of not having to establish any internal market objective for the proposed measure as is the case with Article 114 TFEU.

However, this gap-filling nature may have worked against the application of Article 352 TFEU for some time. In its Opinion 2/94, the Court elaborated on this function with regard to the Union’s accession to the Convention of Human Rights and Fundamental Freedoms (ECHR) in that Article 352 TFEU ‘cannot serve as a basis for widening the scope of Community powers beyond the general framework created by the provisions of the Treaty as a whole and, in particular, by those that define the tasks and the activities of the Community’.[67] Such an extension of powers with the effect similar to treaty amendment or the modification of a specific policy area would thus go beyond its scope, entailing ‘fundamental institutional implications’ of ‘constitutional significance’ for both Union and Member States.[68] This is not the case here. In fact, as outlined above, Article 352 TFEU as legal base in digital finance would merely be required to be extending existing EU finance-related competence to the digital sphere, perhaps even in the form of a dual legal basis.

In more recent years, however, Article 352 TFEU has lost much of its significance as legal base,[69] since its main disadvantage rests with the procedural requirements the provision entails, most notably the requirement for unanimity in the Council. This confers on each Member State a veto power for any proposed measure, which has Article 352 TFEU as the legal base. In a Union of 27 Member States, this may delay enforcement of new measures, posing a significant challenge for the EU legislator in this rather fast-paced digital environment. As for the role of the European Parliament, Article 352 TFEU only requires consent as opposed to the more democratic co-decision procedure. By contrast, Article 114 TFEU follows the ordinary legislative procedure with qualified majority voting in the Council and the European Parliament as co-legislator, thus more adequately ensuring the maintenance of the institutional balance.

It has to be pointed out that these procedural requirements, while important considerations in the legislative process, cannot be the sole criterion in determining the correct legal basis. The court’s establishment of the democracy-maximising rationale in Titanium Dioxide[70] has been used only in addition to other principles of legal basis litigation, such as the ‘centre of gravity’ theory, and mainly with measures pursuing a twofold aim in order to avoid the result of a dual legal base. It is thus the substantive scope of a provision rather than its procedural requirements, which should be the decisive factor in the quest for the correct choice of legal basis. In fact, Article 352 TFEU was also suggested by the Advocate General in the ESMA case as the preferred alternative to Article 114 TFEU as a legal base.[71]

In addition, the unanimity requirement in Article 352 TFEU could even be seen as advantageous in the legislative process, adding the necessary legitimacy for the widening of EU competences to the digital sphere. In the words of AG Jääskinen in his Opinion in the ESMA case, ‘recourse to Article 352 TFEU (…) would have thus opened up an important channel for enhanced democratic input’.[72] Therewith, provided that no Member State makes use of its veto power, it could be argued that Article 352 TFEU would have a more positive effect than Article 114 TFEU as legal basis in the specific area of digital finance and the Digital Single Market as a whole. This positive effect would only be diminished if the veto power was used by Member States to essentially water down the actual effects of the measure, thus resulting in the least common denominator between the Member States. However, if consent can be reached by the 27 members of the Union it would certainly send a strong signal in support of the policy behind the measure in question.

5.   Concluding remarks

While digitalisation in the financial field has equipped us with new tools to be employed in this area, the legal regulation of their unconventional nature remains to be thoroughly explored. This includes determining the most suitable legal basis for the adoption of measures in the area of EU digital finance within the wider EU constitutional matrix.

Using the example of the EU’s legislative package in Digital Finance, this article has demonstrated that Article 114 TFEU as a legal base represents the default choice by the EU legislator (the ‘Good’), that is not fraught with the difficulties associated with other legal bases, such as those in the economic and monetary policy areas. Their structural and procedural limitations render them unsuitable for the regulation of measures in this area (the ‘Bad’). However, Article 114 TFEU does not provide the necessary digital competence for legislation in the Digital Single Market. The only suitable legal basis to solve this constitutional conundrum and to fill the digital competence gap in the EU would be Article 352 TFEU, which is often overlooked due to its procedural disadvantages (the ‘Ugly’). Suggesting a revival of this forgotten provision, this article has emphasised the potentially positive effect of procedural requirements, such as unanimity, by virtue of its added legitimacy.