Alicia
Hinarejos, Downing College, University of Cambridge; author of The Euro Area Crisis
in Constitutional Perspective
One of the features of the response to the euro area crisis
has been the resort to intergovernmental arrangements that largely avoid
judicial and parliamentary control at the EU level. The paradigmatic example
has been the European
Stability Mechanism (ESM), created by the euro area countries in order to
provide financial assistance to countries in difficulties, subject to
conditionality. The ESM was created through the adoption of an international
agreement, the ESM Treaty; it is an intergovernmental mechanism created outside
the framework of the EU, but with significant links to it. Most importantly,
the ESM ‘borrows’ two EU institutions, namely the Commission and the European
Central Bank (ECB), in order to carry out its functions. (Those two bodies,
along with the International Monetary Fund, constitute the so-called ‘Troika’
which oversees the controversial bail-out processes).
The nature of the ESM and the way it operates raises
important questions regarding judicial protection. As mentioned above, ESM
financial assistance is granted after strict conditions have been negotiated
and agreed in a Memorandum of Understanding. These conditions typically require
the Member State in receipt of assistance to adopt ‘austerity’ reforms that
have an impact on its citizens—understandably, these citizens may wish to
challenge the validity of these conditions, often questioning their compliance with
the EU Charter of Fundamental Rights.
In Pringle, the
Court stated that Member States were not within the scope of application of the
Charter of Fundamental Rights when creating the ESM, or presumably when acting
within its framework. This meant that their actions could not be reviewed for
accordance with the Charter (although they can still be reviewed in national
courts for compliance with purely national law, or in the European Court of
Human Rights for compliance with that treaty). This, however, left open the
question of whether, or in what form, the Charter applied to the EU
institutions—the Commission and the ECB—when operating under the ESM. This is
the question that the Court of Justice had to answer in the Cyprus bailout
cases (Ledra
Advertising and Mallis).
Cyprus wrote to the Eurogroup in 2012 to request financial
assistance, and it was in receipt of ESM assistance from 2013 until 2016. The
country had to recapitalize its biggest bank and wind down its second. The
Memorandum of Understanding stipulated that bondholders and depositors would
bear part of the cost. As a result, the applicants suffered substantial
financial losses and turned to the EU courts: first to the General Court, and
then on appeal to the Court of Justice. They were challenging the validity of
the Memorandum of Understanding (Ledra
Advertising), as well as a Eurogroup statement that referred to the conditions
attached to the bailout (Mallis);
they also asked for damages. In their view, the involvement of EU
institutions—the Commission and the ECB—in the adoption of these measures meant
that it should be possible for individuals to challenge their validity at the
EU level; they also argued that these institutions’ involvement should trigger
the EU’s non-contractual liability.
The General Court dismissed all complaints as inadmissible.
It decided that neither the Memorandum of Understanding nor the Eurogroup
statement could be the subject of an action for annulment; the former because
it is not a measure adopted by an EU institution, the latter because it is not
intended to produce legal effects with respect to third parties. It considered
that the involvement of the Commission and the ECB in the adoption of these
measures was not enough to attribute authorship to them, or to trigger the
non-contractual liability of the Union.
The Court of Justice agreed, in part, with the General Court:
neither the Eurogroup statement (Mallis)
nor the Memorandum of Understanding (Ledra
Advertising) can be the object of an action for annulment. The Court
insisted again on its finding in Pringle
that ESM acts fall outside the scope of EU law; the involvement of the
Commission and the ECB does not change this, and is not enough to attribute
authorship of these acts to them for the purposes of judicial review.
Yet the Court goes on to reveal a twist in Ledra Advertising: even if they are not
its authors, the involvement of the Commission and the ECB in the adoption of an
ESM Memorandum of Understanding may be unlawful, and thus able to trigger the
non-contractual (damages) liability of the EU. The Commission, in particular,
retains its role as ‘guardian of the Treaties’ when acting within the ESM
framework. As a result, the Commission should not sign an ESM act if it has any
suspicions as to its accordance with EU law, including the Charter.
The Court repeated the usual rules for the EU institutions to
incur non-contractual liability: (a) they must have acted unlawfully, (b)
damage must have occurred, and (c) there must be a causal link between the
unlawful act and the damage. Not just any unlawful act gives rise to damages
liability: there must be ‘a sufficiently serious breach of a rule of law
intended to confer rights on individuals’. While the right to property
enshrined in the Charter was a ‘rule of law intended to confer rights on
individuals’, that right is not absolute: Article 52 of the Charter allows
interference with some Charter rights. Applying that provision, the Court came
to the conclusion that the measures contained in the Memorandum did not
constitute a disproportionate and intolerable interference with the substance
of the applicants’ right to property, given ‘the objective of ensuring the
stability of the banking system in the euro area, and having regard to the
imminent risk of [greater] financial losses’.
So individuals can challenge the EU institutions’ bailout
actions by means of an action for damages (non-contractual liability), but not
by means of an annulment action. It is useful to remember that the rules on
access to the EU courts as regards those two types of remedy are quite
different. The standing rules are more liberal for damages actions: it’s
sufficient to allege that damages have been suffered as a result of an unlawful
act by the EU, whereas it’s much harder to obtain standing to bring annulment
actions. The time limits are more liberal too: individuals have five years to
bring damages cases, but only two months to bring actions for annulment. On the
other hand, the threshold to win cases is much higher for damages cases: any unlawfulness by the EU institutions
leads to annulment of their actions, but only particularly serious illegality
gives rise to damages liability.
In any case, we know from the Court’s ruling that breaches of
at least some Charter provisions within the ESM framework could potentially
give rise to damages liability. In the anti-austerity context, it should be
noted that social security and many social welfare claims fall within the scope
of the right to property, according to the case law of the European Court of
Human Rights. In the case at stake, the Court did not discuss the
proportionality of the interference with the applicant’s rights at much—or
any—length, but it is clear that future applicants will face an uphill
struggle.
On the whole, Ledra
Advertising is a welcome change from other cases concerning measures
adopted as a result of a bailout, where the Court’s approach had been to deny
the existence of any link to EU law. Indeed, it seems unavoidable that the EU
should bear the appropriate degree of responsibility when allowing its EU institutions
to operate within the ESM framework. This is not to say that it will be easy
for individuals to be awarded damages; as this case illustrates, the threshold
is extremely high. Moreover, while a significant aspect of the role of the EU
institutions within the ESM has been clarified, questions remain concerning the
judicial and democratic accountability of this mechanism. Overall, however, Ledra Advertising is a step in the right
direction.
Barnard and Peers: chapter 19, chapter 8
Photo credit: www.newsweek.com
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