This guest post,
by Kenneth
Armstrong, Professor of European Union Law at Queen Mary, University of
London, originally appeared on EUtopialaw and
is cross-posted here with permission. Of interest to network members,
Prof. Armstrong will serve as the Senior
Emile Noël Fellow at NYU Law School in the spring 2013 term. Not
reproduced here but also perhaps of interest is an exchange
of comments between Prof. Armstrong and network member Peter Lindseth
in response to his original post on EUtopialaw.
* * *
The Court of Justice has delivered its much anticipated
ruling in the challenge brought by Thomas Pringle to the legal provisions
establishing the European Stability Mechanism (ESM). In dismissing the
challenge, the European Court of Justice – convened as a Full Court of all
twenty-seven judges – became the latest court to deal with the legal fall-out
from the Eurozone crisis. Constitutional challenges in national courts,
including Germany and Estonia, have, this far failed to create significant
legal obstacles to the structures put in place by EU states in their attempt to
manage the crisis and to provide financial support to Eurozone states.
Although the challenge before the CJEU failed, the Court
reiterated that while Member States are free to establish mechanisms like the
ESM outside of the structures of the EU treaties, the exercise of their powers
through such structures must be consistent with and not incompatible with their
continuing obligations under EU law.
The challenge turned on three main questions: (1) had there
been an improper use of the simplified revision procedure (introduced by the
Lisbon Treaty) to adopt a European
Council Decision amending the Treaty on the Functioning of the
European Union (TFEU) to make provision for a stability mechanism; (2) was
the ESM
Treaty in conflict with the obligations of the Member States and EU
institutions under the EU treaties; (3) was the entry into force of the ESM Treaty
dependent upon the ratification and entry into force of the TFEU treaty
amendment?
The case had been dealt with using an accelerated procedure
in response to a request made by the Irish Supreme Court for a ruling on the
legal issues surrounding the establishment of the ESM.
Background
In its earlier response to the crisis, the Council of
Ministers had created the European
Financial Stabilisation Mechanism using Article 122(2) TFEU as a legal
basis. It had also established the European Financial Stability
Facility as a company under Luxembourg law. But under pressure from
turbulent bond markets, EU political leaders decided to send a signal to those
markets by using the simplified revision procedure to amend the treaties to
make provision for a permanent stabilisation mechanism. The resulting European
Council Decision 2011/199/EU amending the treaties and the ESM
Treaty creating the new stabilisation mechanism both required
ratification by Member States.
The ratification of the ESM Treaty required the approval of
the Eurozone states (albeit that it could enter into force when ratified by
Eurozone states representing 90% of the required funding). The ESM Treaty was
duly ratified and came into force for 26 state on 27 September 2012 (Estonia
ratified in early October following a narrow Supreme Court rejection of a legal
challenge). The ESM became operational on 8 October 2012.
By contrast, as an amendment to the TFEU, the European
Council Decision required ratification by all twenty seven Member States. If
ratified, the amendment would enter into force on 1 January 2013 (several
months after the ESM became operational). Indeed by the 8th of October,
three Member States had still not ratified (the UK and Poland eventually
notified its ratifications in mid November leaving the Czech Republic as the
remaining state yet to ratify).
It is against this background that Thomas Pringle TD
launched his legal challenge in the Irish courts.
Pringle in the Irish
Courts
On 13th April 2012, Thomas Pringle TD – a member of
Dáil Éireann – brought legal proceedings before the Irish High Court
challenging both the validity of the European Council decision amending the
TFEU and the ESM Treaty itself. Pringle argued inter aliathat the
amendment of the treaties ought to have been undertaken through the ordinary
and not the simplified revision procedure and so the European Council Decision
was not validly adopted. As for the ESM Treaty, as well as arguing that it
violated provisions of the Irish Constitution, Pringle alleged that it was
substantively incompatible with economic policy provisions of the treaty; used
the institutions of the EU in a manner incompatible with their obligations under
EU treaties; interfered with the allocation and division of competence in
economic and monetary policy; violated EU Charter of Fundamental Rights
guarantees of effective judicial protection; breached the principle of legal
certainty and breached the duty of sincere cooperation.
In her judgment
of 17th July 2012, Ms Justice Mary Laffoy dismissed the arguments
relating to the validity of the European Council Decision (she considered the
provision to be valid and hence did not require a reference to Luxembourg) and
the alleged incompatibility between the ESM Treaty and EU law. Nonetheless, the
issue remained whether the lawful operation of the ESM Treaty was itself
dependent upon the entry into force of the European Council Decision, something
which Ms Justice Laffoy believed ought to be referred to the Court of Justice
of the EU.
Mr Pringle appealed to the Irish
Supreme Court repeating his arguments about the invalidity of the
European Council Decision and the incompatibility between the ESM Treaty and
the obligations of Eurozone states under the EU treaties. Whereas the High
Court had dismissed these arguments and only considered referring a relatively
narrow question, the Irish Supreme Court took a much broader approach in asking
the Court of Justice to rule on: (a) whether the European Council Decision had
been validly adopted via the simplified revision procedure (b) whether the
obligations of EU Member States under the EU treaties prevented a Eurozone state
from entering into and ratifying the ESM Treaty; (c) the question of whether
the capacity to incur obligations under the ESM Treaty was subject to the entry
into force of the European Council Decision amending the treaties.
The Ruling of the
Court of Justice
On the first question of the validity of the European
Council Decision, the use of the simplified revision procedure under Article
48(6) TEU is justifiable subject to the conditions that it relates to Part III
of the TFEU (relating to EU policies) and does not increase the competence of
the Union. As an amendment to Article 136 TFEU, the Decision was formally an
amendment to Part III, but it was contended that insofar as the measure
impacted on the competence of the EU in economic and monetary policy it might
also impact on Part One as well as potentially increasing the competences of
the Union. Much of the Court’s analysis focused on whether the European Council
Decision purported to give Member States competence in an area of monetary
policy which was within the exclusive competence of the EU. For the Court, the
ESM Treaty established a stabilisation mechanism as a complement to its
structures for economic governance. While the stability of the Euro might have
implications for the monetary goal of price stability, this did not make the
ESM a monetary policy instrument. The Court also concluded that the Decision
did not affect the competence conferred under the TFEU in economic policy,
dismissing suggestions that a mechanism could have been created out of existing
legal bases including Article 352 TFEU.
However, in establishing a parallel stabilisation mechanism,
the Court warned that the exercise of powers by Member States via the ESM
Treaty could not disregard the obligations of Member States under EU law
(Article 13(3) ESM Treaty requires that any Memorandum of Understanding
concluded with a state in receipt of stability support must be compatible with
EU law). Thus, in allowing Member States to establish mechanisms outside of the
structures of the EU treaties, the Court repeatedly emphasises the obligation
on Member States to act in a manner consistent with EU law.
As to the compatibility of the ESM Treaty itself with the
obligations of states under EU law, the Court addressed the contention made by
Mr Pringle’s counsel that the ESM Treaty was in conflict with Article 125 TFEU
(the no bail-out rule). Article 125 TFEU inhibits the EU and the Member States
from taking on the commitments of other Member States. Mr Pringle’s Counsel has
suggested that either the ESM Treaty was incompatible with Article 125 TFEU or
an attempt to evade it. However, for the Court, the objective of Article 125
TFEU is to ensure fiscal discipline by ensuring that states remain responsible
for their own debts. In that regard, the stabilisation mechanism establishes
new loans and lines of credit for which recipient states remain legally
responsible. As such, there was no conflict with Article 125 TFEU.
The Court equally dismissed suggestions that the obligations
of the European Commission, the ECB and the Court itself under the ESM Treaty
were incompatible with EU law. The Court noted that the ECB and Commission
could be entrusted with tasks by Member States provided they did not alter the
essential character of the power conferred on those institutions. Moreover, the
ESM Treaty did not give these institutions the power to make decisions on their
own.
Other arguments that the ESM Treaty was incompatible with
obligations under the EU Treaties were dismissed.
Where the Court is at its most Delphic, is its handling of
the question of whether the ESM Treaty could enter into force prior to the
entry into force of the European Council Decision amending the TFEU. This was
the question which the Irish High Court had focused upon. The Court simply
states that the treaty amendment “confirms the existence of a power possessed
by the Member States” and did not confer any new power. This is essentially
code for the conclusion that no treaty change was itself necessary and that the
Member States were free to establish the ESM without any reference back to the
EU treaties. This point had been made by the UK’s Financial Secretary to the
Treasury in a letter
to the Chairman of the House of Commons European Scrutiny Committee where
he noted that; “It is not legally necessary for the Article 136 Treaty change
to have been made before the ESM can come into force”.
Conclusions
It is perhaps not wholly unsurprising that Mr Pringle’s
challenge failed. But the litigation did shed light on the legal response to
the Eurozone crisis. Worryingly it has highlighted the manner in which EU
Member States embraced treaty change in a manner that turned out to be wholly
unnecessary and which was undertaken for purely political ends to send messages
to nervous markets. Member States are clearly free to use other vehicles and
structures outside of the EU to exercise their powers provided that in so doing
they do not conflict with their obligations under EU law. On the one hand, this
may give states – particularly Eurozone states – a desirable legal flexibility.
But on the other hand, it does beg questions as to whether acting outside of EU
structures diminishes the centrality of the EU itself as the focal point for
European cooperation.
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