Protecting the Formal Rule of Law in the EU’s Asylum Policy: The CJEU’s Judgment on the Asylum Relocation Mechanism

Niels Kirst, Ph.D. Researcher in European Union Law at the School of Law and Government of Dublin City University*

*Reblogged from the Bridge Network blog

Introduction

In a recent judgment, the CJEU confirmed that Poland, Hungary, and the Czech Republic breached European Union law (EU law) by not implementing two Council Decisions (here and here; discussed in detail here) for the relocation of asylum seekers after the European refugee crisis in the Mediterranean. In this seminal judgment, the Court of Justice of the European Union (CJEU) rejected the arguments of the parties who alleged that the European Union’s relocation mechanism could not be implemented due to a general threat to law and order and public security (Poland and Hungary), as well as the argument that the malfunctioning and the ineffectiveness of the mechanism prevented its implementation (Czech Republic).

The judgment was released against the backdrop of the current COVID-19 pandemic in the European Union (EU), which has prompted a broader discussion on European solidarity among the Member States. The judgment is a strong affirmation of the principle of solidarity and the principle of sincere cooperation (enshrined in Article 4 (3) Treaty on European Union (TEU)) and clarifies the scope of Article 72 TFEU (maintenance of law and order and the safeguarding of internal security). While the judgment has no immediate consequences for the affected Member States, since the Council Decisions lapsed in the meantime, it was lauded as an affirmation that the EU is a legal order based on the rule of law (see here, here and here).

Two Council Decisions established the relocation scheme in September 2015 (Council Decision (EU) 2015/1523 and Council Decision (EU) 2015/1601), in which the Member States committed to relocate persons likely in need of international protection from Italy and Greece. Poland, Hungary, and the Czech Republic were outvoted in the latter decision adopted by qualified majority voting in the Council of the European Union (Council) and subsequently either refused to take any asylum-seekers (Hungary) or took only a minimal number (Poland & Czech Republic).

As a consequence, and given that all other Member States had pledged to relocate a certain number of asylum-seekers, the Commission decided to initiate an infringement procedure and refer the three Member States to the CJEU. In the Advocate General’s Opinion (AG’s Opinion), which was analyzed earlier, the departing AG Sharpston reiterated the rule of law and the principle of solidarity in the EU legal order and found that the Member States had failed to fulfill their obligations under EU law. This blog post will provide an analysis of the reasoning of the CJEU and the grounds of the judgment.

Admissibility of the Infringement Proceedings

 A large part of the judgment was concerned with the admissibility of the infringement proceeding. The infringement proceeding was brought by the European Commission (Commission) under Article 258 of the Treaty on the Functioning of the European Union (TFEU) in June 2017. First, the three Member States alleged that the Commission’s action is devoid of purpose since the matter of the proceeding (the Council Decisions) had expired. A judgment would only have a declaratory nature which does not amount to a legitimate interest in bringing the proceedings (para. 47-50). The CJEU rebutted these arguments by highlighting that ‘a declaration as to the failures to fulfill obligations at issue is still, moreover, of substantive interest’ (para. 66), according to Commission v Italy (1972) (Case 39/72). The CJEU found that the infringement proceeding is neither devoid of purpose nor inconsistent with the objectives under Article 258 TFEU (para. 70-71).

Second, Poland and Hungary alleged a breach of the principle of equal treatment by singling out three Member States in the infringement proceedings (para. 72-73). The CJEU highlighted the discretionary principle, which allows the Commission a certain leeway in bringing infringement proceedings (para. 75). Further, the CJEU reiterated the ongoing reporting by the Commission, which stressed the lack of implementation of the measures by the three Member States and the apparent threat of a subsequent infringement proceeding (para. 77-78). Finally, the Commission’s decision to bring an infringement proceeding against these three Member States was justified by the gravity and persistence of the alleged infringements (para. 81-82).

Third, Hungary alleged a breach of the rights of defence during the pretrial phase of the infringement procedure. According to Hungary, first, the Commission denied a request for extension of deadline amid multiple infringement proceedings ongoing against Hungary, second, the deadlines in the proceeding were extremely short, and third, the Commission committed formal errors in drafting the infringement procedure letters (para. 84-88). The CJEU rebuffed these arguments by asserting that the Commission’s discretion in bringing an infringement proceeding was not overstepped in the present case (para. 93-97). Further, neither a minor formal error nor a denial to grant an extension of the deadline is substantively eroding the admissibility of the infringement proceeding concerning the rights of defence (para. 98 – 110).

Fourth, the Czech Republic alleged that the infringement proceeding lacked precision and that it was inconsistent in its legal plea (para. 111). The CJEU dismissed these arguments by highlighting that the infringement proceeding was not ultra petita and that the dates for compliance with the request were sufficiently clear for the Czech Republic (para. 120-122). By dismissing the arguments on inadmissibility, the CJEU followed the AG’s Opinion and turned to the substance of the case.

Substance of the Case

First, the CJEU had to assess if the infringements took place (para. 124-133). The CJEU affirmed that the Member States breached Article 5 (2) of both Council Decisions, which required the Member States to communicate the number of asylum seekers they are willing to take to the Commission. Consequently, they breached Article 5 (4) of the Decisions which required the actual relocation of asylum seekers (para. 126-129). The proof of this breach of the obligations deriving from the Decisions can be found in the monthly reports of the Commission (para. 130-132). Moreover, the Member States did not dispute that they failed to indicate to the Commission their pledge of taking asylum seekers (para. 129). Instead, they relied on a twofold justification for their non-implementation of the Council Decisions.

In their defence, Poland and Hungary first argued that Article 72 TFEU (maintenance of law and order and the safeguarding of internal security) read in conjunction with Article 4 (2) TEU (national identity clause) allowed them to suspend the application of the Council Decisions since they would have created an internal security risk in their territory (para. 134-138). Poland, in particular, argued that Article 72 TFEU would be a conflict of law rule and would subsequently set aside the secondary legislation such as Council Decisions (para. 137).

The CJEU commenced with the assessment that ‘in a European Union based on the rule of law, acts of the institutions enjoy a presumption of lawfulness,’ with the consequence that both Council Decisions were binding for the Member States (para. 139). Notably, in its judgment in Slovakia and Hungary v Council (discussed here) the CJEU had already affirmed the lawfulness of the Council Decisions. While in the former case, Poland pleaded the illegality of the Council Decision under Article 72 TFEU (see paras 306-309 of that judgment), in the present case, both Poland and Hungary argued that Article 72 TFEU allowed them to disapply the Council Decisions (para. 142). Both arguments are flawed, according to the CJEU.

The CJEU reiterated that the only situations in which the Treaty expressly allows for derogations which affect law and order or public security are Articles 36, 45, 52, 65, 72, 346 and 347 TFEU (para. 143). However, the derogations of Article 72 TFEU, which concern Title V of the Treaty (the Area of Freedom, Security, and Justice), must be interpreted strictly (para. 144). Therefore it forecloses the general refusal of application of the Council Decision (para. 150). Moreover, in Article 5 (4), in conjunction with Article 5 (7), the Decisions foresee the possibility to deny the relocation of asylum seekers in case that there are reasonable grounds that a person is a threat to national security or public order (para. 151). These Articles are a reflection of Article 72 TFEU. Therefore, the Council duly took into account the responsibilities incumbent on Member States to protect national security (para. 153).

The CJEU, further stressed, that the serious reason (reasonable grounds) requirement for rejection of individuals from the relocation scheme is to be interpreted with a much wider margin of discretion for Member States than the requirements for exclusion from refugee or subsidiary protection status under Directive 2011/95 (the Qualification Directive) (para. 155), which implements the 1951 Geneva Refugee Convention in the EU legal order, or the rules on exceptions to free movement law. Broad discretion is accorded to the Member States’ authorities to reject applicants on the grounds of national security or public order (para. 158). However, Member States must provide consistent, objective, and specific evidence for the suspicion that the applicant actually or potentially is a threat to the public policy of the Member States (para. 159). The invocation of Article 72 TFEU as a peremptory norm to deny any applicant on the grounds of public policy is invalid, as highlighted already in the AG’s Opinion (para. 160).

Since Poland and Hungary refused to pledge to take any asylum seekers, they could not carry out an individual assessment of the persons concerned (para. 161). Further, the claim by the Member States that the mechanism was ineffective and characterized by a lack of cooperation by the Italian and Greek authorities had to be resolved in the spirit of cooperation and mutual trust (para. 164). In conclusion, the CJEU found that ‘there is nothing to indicate that effectively safeguarding the essential state functions, such as of protecting national security, could not be carried out other than by disapplying both Council Decisions’ (para. 170). Instead, the mechanism provided for in the Council Decisions would have been the appropriate measure, which left the Member States genuine opportunities to safeguard national security (para. 171). They failed to take this measure.

In the second defence, the Czech Republic argued that the malfunctioning and the ineffectiveness of the mechanism made it disapply the Council Decisions and instead pursue bilateral avenues of support for the concerned Member States (para. 173-176). The CJEU reiterated that also, in this case, it was up to the Member States to resolve these issues taking into account the mechanism provided by the Council Decisions and the spirit of cooperation and mutual trust (para. 182). An outright suspension of the mechanism was not an adequate means to lament its ineffectiveness. Further, ancillary bilateral measures by the Czech Republic could not replace the general non-application of the Council Decisions (para. 187). In conclusion, all three Member States failed to fulfill their obligations deriving from the Council Decisions on the relocation mechanism.

Comment

This judgment is a strong affirmation that Council decisions are binding for the Member States, whether they like them or not. The EU is a legal order based upon the rule of law. A formal compliance with the Treaty, Regulations, Directives, and Decisions is necessary as a precondition of a rule-based order. Member States may not disapply EU law simply because they do not like the decision, or because it conflicts with their domestic political agenda. Specifically, the Visegrád states have voiced a rejection of the EU’s common asylum policy (see here) that culminated in Slovak Republic and Hungary v Council and the present decision. The legal consequences of the judgment are entirely declaratory. The obligations from the Council Decisions lapsed. Therefore, there are no consequences for Poland, Hungary, and the Czech Republic after this judgment. Notably, the Commission will also not be able to pursue a penalty payment against the Member States under Article 260 TFEU.

Moreover, the judgment is an indication that consensus in the EU has to be formed on the political level. Otherwise, decisions on disputed issues such as the admittance of asylum seekers will lead to the non-implementation of the measures by individual Member States. This is a sad reality following from this judgment. In an ideal world there should not be a necessity of the Commission to commence infringement proceedings after a qualified majority in the Council takes a decision. The dispute over a common approach to asylum policy highlights that qualified majority voting still requires Member States to come to a consensus that is tolerable for all of them. Otherwise, the Council risks the non-implementation of decisions by some Member States. As a guidepost, it would be recommended that any further decision in the area of asylum policy is based on a consensus among the Member States. Otherwise, the next infringement proceedings are just around the corner.

Barnard & Peers: chapter 26

JHA4: chapter I:5

Photo credit: Puskechina, via Wikimedia commons 

Brexit and Labour Standards at the time of COVID-19 – To Converge or to Diverge, that is the Question

Jeff Kenner, Professor of European Law, University of Nottingham*

As the COVID-19 pandemic engulfs the world, requiring an unprecedented and, as of yet, unforthcoming global response, the idea of Brexit, the sheer self-indulgence and chicanery of Brexit, has quickly become remote from the minds of policy makers and peoples alike. Nevertheless, with negotiations on ‘forging a new partnership’ between the EU and the UK barely off the ground by mid-March 2020, as Europe went into lockdown, the UK Government has continued to insist that there will be no extension of the standstill post-Brexit transition period beyond the deadline of 31 December 2020 set by the EU-UK Withdrawal Agreement of October 2019. Any mutually agreed decision to extend that deadline must, under the Agreement, be made in matter of days, by 1 July 2020, almost certainly before the pandemic is over and there is any return to whatever will count for normal. With world GDP hurtling downwards,  businesses shuttered and ever spiralling worker lay-offs and redundancies, Brexiter ideologues seem prepared to test chaos theory to its limit by taking the UK out of the EU’s regulatory orbit and into a new age of borders, divergence and economic shock therapy from the beginning of 2021.  

In attempting to understand the rationale for this approach, the issue of social and labour standards quickly comes to the fore. If we assume that the UK means what it says, and there is no mutually agreed one-off extension of the transition period for ‘up to one or two years’ (Article 132 of the Withdrawal Agreement), then there will be less than six months in which to establish whether the UK is prepared to shift its stance and agree to non-retrogression, or what might be described as static alignment, of social and labour standards pertaining in the EU and UK at the end of the transition period. If the UK commits to static alignment to preserve a ‘level playing field’ (LPF) to prevent undercutting or social dumping, and to similarly maintain common standards in the areas of environment, climate change, tax and state aids, it may yet confound sceptics and facilitate an agreement with the EU within the timeframe.

Alternatively, if, notwithstanding its geographical proximity and interdependence with the EU, the UK chooses a path of labour market and social deregulation and divergence, pursuing a Singapore-type economic model, through a combination of ideology and a desire to secure a trade agreement with the United States, it could be hugely disruptive to the Single Market and, potentially, to the future of the European Social Model. Such a ‘no deal’ scenario, or ‘disorderly Brexit’ would require the EU to impose its Common Customs Tariff on UK goods under the rules of the World Trade Organisation. This would lead to immense short to medium-term economic problems for the UK - which exports 45% of its goods to the EU (House of Commons Library, 2018) - with a predicted fall of 5.5% in the country’s GDP and a doubling of unemployment to 7% (Bank of England, September 2019). Such problems will be magnified by COVID-19 and its aftermath. EU Member States, struggling to recover from the pandemic, would face a second debilitating wave of disruption as the UK, which imports 53% of its goods from the Union, would impose its own tariffs. The EU’s response to such a scenario would be a supreme test of its commitment to uphold Social Europe and its unity in a period when European solidarity is likely to be in short supply following the failure to burden share in response to the socio-economic crisis caused by COVID-19.

The UK left the EU on 31 January 2020. It was a unique moment. For the first time a Member State had departed from the Union and become a ‘third country’. Three and a half years had elapsed from the tightly fought referendum and, at the second attempt, the parties had settled the bare bones of their divorce with a revised version of the Protocol on Ireland and Northern Ireland annexed to the Withdrawal Agreement. Northern Ireland, territorially part of the UK but with its land border with the EU and its history of conflict, is tied by the Protocol, potentially indefinitely, to EU rules on customs and related areas of regulation considered necessary to avoid a border on the island of Ireland and preserve peace. The revised Protocol does not, however, address the issue of labour standards, unlike the original version which contained an Annex committing the parties, inter alia, to non-retrogression of the labour standards pertaining at the end of the transition period. Instead the issue is now left to the future relationship negotiations discussed below.

Under Article 50 of the Treaty on European Union the parties were required, almost as an afterthought, to take account of the ‘framework’ of their future relationship during the Brexit negotiations. This loose requirement was met by the issuance of a joint non-binding Political Declaration accompanying the Withdrawal Agreement. The Political Declaration loosely commits the parties to establish ‘the parameters of an ambitious, broad, deep and flexible partnership across trade and economic cooperation with a comprehensive and balanced Free Trade Agreement at its core’ (para. 3). It is perhaps reassuring that the Political Declaration states that the parties are determined to safeguard ‘high standards of free and fair trade and workers’ rights’ (para. 2). It must be understood, however, that back in October 2019 the parties were so focused on finding a solution to avoiding a regulatory border on the island of Ireland that there was little time spent on the Political Declaration and much of it, including this worker-friendly language, remained untouched from the previous version negotiated between the European Commission and the Government of the UK’s former Prime Minister, Theresa May, in November 2018.  

With the ascendancy of Boris Johnson to the position of Leader of the Conservative Party and UK Prime Minister in July 2019, followed by a resounding election victory five months later, the picture now looks very different.  On the one hand, May had trumpeted close alignment with EU labour standards, promising that workers’ rights would be ‘fully protected and maintained’ post-Brexit at least at EU levels or even building on them (Lancaster House speech, January 2017). In March 2019, following the adoption of the first version of the Withdrawal Agreement, May introduced proposals to safeguard EU-derived labour rights and require a report to the UK Parliament on any new workers’ rights introduced by the EU, raising the remote prospect of dynamic alignment with EU labour standards to close off the prospect of social dumping.  However, May ultimately failed to navigate the Withdrawal Agreement through the UK Parliament and consequentially resigned from the Conservative Party leadership. Following his General Election victory, Johnson, on the other hand, now with a majority in Parliament, promptly withdrew May’s proposals on labour rights from the legislation to implement the Withdrawal Agreement. Instead the Government announced that there would be a new Employment Bill but, to date, it has not been published and its ambitions are unclear (House of Commons Library, 20 December 2019).

Looking forward, the Political Declaration declares that the proposed Free Trade Agreement (FTA) ‘will be underpinned by provisions ensuring a level playing field for open and fair competition’ (para. 17). More bluntly, European Commission President, Ursula von der Leyen, has made clear that an FTA is contingent upon an LPF guarantee of ‘zero tariffs, zero quotas, zero dumping’ (London School of Economics speech, 8 January 2020). As regards labour standards, the Political Declaration enunciated that LPF provisions must encompass ‘robust commitments’ to ‘uphold the common high standards applicable in the Union and the United Kingdom at the end of the transition period in … social and employment standards … and include appropriate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement’ (para. 77, emphasis added). Although the ILO is not mentioned, Union and international standards are the reference point for the LPF and, moreover, the parties are committed to ‘promote adherence to and effective implementation of internationally agreed principles and rules’ (para. 77).

There has, however, been much water flowing under the bridge since the Political Declaration was issued.  When the ink was barely dry on the document, a leaked UK Government paper revealed its view that the ‘interpretation of these [LPF] commitments will be very different’ and binding arbitration was ‘inappropriate’ (Financial Times, 25 October 2019). In response, the UK stated that it had ‘no intention of lowering the standards of workers’ rights’. Following the election, however, Johnson’s Government has indicated that it regards such commitments as merely rhetorical and not conditional for an FTA.  This was borne out in February 2020 when the UK published its approach to the negotiations (Command Paper 211). Its bottom line is that it will not negotiate any arrangement ‘in which the UK does not have control of its own laws and political life’ (para. 5). The UK Government has seized on the suggestion by the EU’s chief negotiator, Michel Barnier, that the UK’s desire post-referendum to leave the EU Customs Union and Single Market would mean that the EU would look to an FTA similar to the agreement between the EU and Canada (CETA). Barnier presented an illustrative single slide pointing to the Canada option at a very different stage of the process in December 2017.

For the UK, the reference to CETA presents an opportunity to suggest that labour standards should merely be promotional. In its negotiating strategy document, the UK notes that: ‘In line with precedent, such as CETA, the Agreement should recognise the right of each party to set its own labour priorities and adopt or modify its labour laws’ (para. 76). No reference is made to an LPF. At most the UK is prepared to agree to ‘reciprocal commitments not to weaken or reduce the level of protection afforded by labour law and standards in order to encourage trade and investment’ but these provisions ‘should not be subject to the Agreement’s dispute resolution mechanism’ (paras. 76-77). From this it can be discerned that the UK wishes to self-regulate its labour standards and could determine that any prospective domestic diminution of labour law might be unconnected with trade relations with the EU. In return, the EU would be expected to accept the UK’s commitment to reaffirm existing ILO principles and rights, which is a rather limited assurance given that the UK has ratified only 88 ILO Conventions, which includes the eight ‘core’ conventions but is significantly lower than several EU Member States including Spain, 133, France, 127 and Italy, 113 (ILO, NORMLEX, April 2020).

Not surprisingly, key Member States, notably France and Belgium, have demanded stricter LPF provisions in response to the UK’s negative messaging in order to prevent undercutting of labour standards even if it means that no agreement is concluded in 2020 (Financial Times, 23 February 2020). The EU’s ‘Negotiating Directives’ (Council of the EU, 25 February 2020), known as the ‘negotiating mandate’, set out the parameters for the Commission to negotiate with the UK. There has been a degree of internal compromise but, nonetheless, a marked toughening of the language used in the Political Declaration. Part 15 of the Negotiating Directives sets out a series of LPF conditions, specifically that ‘the envisaged agreement should uphold common high standards, and corresponding high standards over time with Union standards as a reference point, in the areas of [inter alia] social and employment standards’ (para. 94, emphasis added). Thus, the position of the EU has shifted from static alignment at the end of transition to a form of dynamic alignment without necessarily requiring full convergence. Turning to enforcement mechanisms, the document repeats the language in the Political Declaration on effective domestic implementation, enforcement and dispute settlement but adds a reference to the need for ‘appropriate remedies’ and seeks to reserve a power for the Union ‘to apply autonomous, including interim, measures to react quickly to disruptions of the equal conditions of competition in relevant areas, with Union standards as a reference point’ (para. 94). Such Union intervention would be anathema to the UK which makes clear in its negotiating document that there should be ‘no role for the Court of Justice’ in the governance arrangements (para. 6).

The EU’s LPF proposals identify the following areas of labour and social protection for alignment to the common standards applicable within the EU and the UK at the end of the transition period: ‘fundamental rights at work; occupational health and safety, including the precautionary principle; fair working conditions and employment standards; and information, consultation and rights at company level and restructuring’ and to ‘protect and promote social dialogue’ (para. 101). In a further sting in the tail for the UK, and possibly also to prevent backsliding within the EU, the mandate suggests that if the parties increase their respective levels of social and labour protection beyond these commitments the partnership ‘should prevent them from lowering those additional levels in order to encourage trade and investment’ (para. 110).

Moreover, building on the parties’ commitment to ensure sustainable development in the Political Declaration, the EU proposes that  the partnership ‘should include provisions on adherence to and effective implementation of relevant internationally agreed principles and rules’ including ILO conventions and the European Social Charter (ESC) of the Council of Europe (para. 109). The UK remains a member of the Council of Europe and has ratified the ESC. Finally, there would be a system of monitoring the implementation of commitments and the ‘social and environmental impacts’ of the partnership (para. 113).

On the face of it the differences between the parties are widening and could soon be irreconcilable. During the hiatus before negotiations resumed on 20 April, the Commission published a 440-page ‘Draft Treaty’ putting its negotiating directives into concrete form (UKTF (2020) 14). As the parties adapt to Zoom, Teams or other newly learned technologies, or even face to face, there will have to be compromises on both sides to reach agreement and an extraordinary amount of goodwill. Moreover, labour standards to ensure an LPF is only one of several issues, including fishing, Gibraltar and State aids, that threaten to wreck the negotiations. The position has been further complicated by a statement by the key UK’s ministerial negotiator, Michael Gove, that the UK is prepared to give up on tariff free and quota free access to the Single Market if it means committing to the EU’s demands for an LPF (The Independent, 5 May 2020).

A crunch point will be reached in the autumn of 2020 if not earlier. It is possible that there will be a fudged commitment to an LPF based on static alignment with enforcement only by the UK authorities subject to limited mechanisms for independent dispute settlement. For the EU this may be enough to move on from Brexit and concentrate fully on how to recover from the disaster of COVID-19. The toughened-up provisions having been presented in the negotiating mandate can be climbed down from assuming that this can be levelled with all Member States and the European Parliament. For the UK it may be much more difficult. It would have to accept the social acquis and be indefinitely tied to converged labour standards with, at most, gradual divergence over time if, somewhat optimistically, it is assumed that workers’ rights are considerably enhanced at EU-level in the next decade or, perhaps more likely, developed through the case law of the Court of Justice. The problem with concluding that there will inevitably be a fudged convergence is that the UK is temperamentally inclined towards having the sovereign right to diverge its labour standards even if it chooses not to exercise this divergence in practice for domestic political reasons. It wants to be ‘an economic competitor on [the EU’s] own doorstep’ as Chancellor Angela Merkel has warned the German Parliament (Politico, 11 September 2019). For Boris Johnson, at the zenith of his political power, the whole point of Brexit is to ‘take advantage’ of the ‘freedoms’ including what he euphemistically describes as ‘better regulation’ for the sectors in which the UK has a commercial advantage (The Guardian, 23 September 2019).

The EU is faced with a difficult choice. It can negotiate a ‘partnership’ which gives the UK enough latitude to accept the status quo in the interim but slowly diverge from common labour standards without effective EU oversight or remedial powers, or it can accept the likelihood that the UK will go its own way towards potentially more rapid divergence which, even if it does not create a ‘Singapore on the Thames’, will mean that there will almost certainly be no negotiable FTA in the short to medium-term. The economic and social pain that this choice will entail, on both sides of the English Channel, may be delayed by an extension of the transition period but it probably cannot be avoided.  For the EU, the choice to accept divergence may be the lesser evil in the longer run. It would provide an opportunity to show that more advanced social and labour standards offer a better path to economic prosperity and social cohesion in a more fragmented world. For the UK, it may advance the realisation of the stark reality of its isolation and the high economic and social price to be paid for alternative ‘deals’ with any of the United States, China or Russia. Over time the negative effects of divergence from EU standards could bring about the change in British mindset that is needed to return to the regulatory orbit of Social Europe, a move which could still fall short of re-joining the Union. For the time being, for both sides, whether to maintain convergence, be it static or dynamic, or embrace divergence, is an urgent question that must be answered soon.

*This is the English version of an editorial in Dirriti Lavore Mercati, 2-2020, ‘Brexit e tutele del lavoro al tempo del Covid-19: convergenza o divergenza, questo è il problema’. It was first published in English in the Regulating for Globalization Blog (Wouters Kluwer) – the author is grateful to the publishers for agreeing for this contribution to be published in this blog.

Barnard and Peers: chapter 27

Photo credit: Roger Blackwell, via Wikimedia commons

CJEU asked to rule on acquisition of nationality in light of EU citizenship: The fundamental status on the horizon? (C-118/20 JY v Wiener Landesregierung)

David A.J.G. de Groot, EU-CITZEN Network*

* I would like to thank Tania Isacu, Rainer Bauböck and Gerd Valchars for their very useful comments.

Introduction

The Supreme Administrative Court of Austria has requested a preliminary ruling from the Court of Justice of the European Union (CJEU) in the case C-118/20 JY v. Wiener Landesregierung, concerning the revocation of a guarantee of the grant of Austrian nationality.

Austria maintains a strict ‘single nationality’ policy, meaning that wherever possible, it requires that a person has only Austrian nationality and no other. Consequently, Austrian nationality is lost in most cases automatically upon voluntary acquisition of another nationality. Equally, Austria requires that upon acquisition of its nationality all previous nationalities have to be relinquished. Austria, as opposed to e.g. Germany, has made no exceptions to this rule where the previous or future nationality is the nationality of a Member State.

C-118/20 JY concerns the procedure for acquisition of Austrian nationality, and more specifically at which moment during the procedure the previous nationalities have to be lost, and whether this is in conformity with the rules on EU citizenship.

Facts of the case

It is unclear from the facts when JY exactly moved to Austria. What is known is that JY applied on 15 December 2008 for Austrian citizenship. At the time, JY held Estonian citizenship and was therefore an EU citizen. More than five years later, in March 2014, the authorities granted her a guarantee of the grant of Austrian nationality, which would enable acquisition of Austrian nationality on condition of providing proof that the previous nationality had been relinquished.

Technically speaking, at this moment she was still not an Austrian national.

She subsequently relinquished her Estonian citizenship on 27 August 2015. Consequently, from that moment on she was stateless.

On 6 July 2017, the authorities revoked the original guarantee of the grant of Austrian nationality and rejected her application for Austrian citizenship.

The reasons provided by the authorities was that JY had committed two serious administrative offences since the decision on the guarantee of the grant of Austrian nationality. These, in combination with eight prior offences (all speeding offences), made her ineligible for naturalization. The two serious administrative offences concerned a failure to provide a compliant vehicle inspection disk and driving under the influence of alcohol.

Based on this, the Administrative Court considered that her future conduct could not be ascertained.

Additionally, the Administrative Court considered that the C-135/08 Rottmann decision of the CJEU was not applicable, since at the time of the revocation decision, JY no longer was an EU citizen, as she was stateless. The court furthermore considered that the breaches were of such a serious nature that the revocation of the guarantee was proportionate in light of the 1961 Convention on the reduction of statelessness. Also, the requirements for revocation of the guarantee as provided for in the Austrian Citizenship Act were considered fulfilled.

On appeal, the Supreme Administrative Court referred the following questions to the CJEU:

Does the situation of a natural person who, like the appellant in cassation in the main proceedings, has renounced her only nationality of a Member State of the European Union, and thus her citizenship of the Union, in order to obtain the nationality of another Member State, having been given a guarantee by the other Member State of grant of the nationality applied for, and whose possibility of recovering citizenship of the Union is subsequently eliminated by revocation of that guarantee, fall, by reason of its nature and its consequences, within the scope of EU law, such that regard must be had to EU law when revoking the guarantee of grant of citizenship?

If the first question is answered in the affirmative,

Is it for the competent national authorities, including any national courts, involved in the decision to revoke the guarantee of grant of nationality of the Member States, to establish whether the revocation of the guarantee that prevented the recovery of citizenship of the Union is compatible with the principle of proportionality from the point of view of EU law in terms of its consequences for the situation of the person concerned?

Analysis

There are many different issues in this case.

Primarily, there is the question: is EU citizenship applicable? Does it only have to be taken into account? Or, has it in fact been violated?

In its C-369/90 Micheletti judgment, the CJEU stated back in 1992 that “under International law, it is for each Member State, having due regard to Community law, to lay down the conditions for the acquisition and loss of nationality” (emphasis added). This was consistently repeated in the EU citizenship cases C-192/99 Kaur, C-200/02 Zhu and Chen, C-135/08 Rottmann and C-221/17 Tjebbes (discussed here). Therefore, the role of EU citizenship in this case will feature quite prominently.

However, before we delve into the questions of whether and how EU law is applicable, we should wonder whether the procedure applied by Austria for acquisition of nationality is actually even in conformity with international law.

Relinquishment requirement under international law

The Austrian authorities and the referring court seem to be under the impression that this method of using a temporary guarantee for the acquisition of nationality in order for the person to relinquish their other nationality is in conformity with international law. In short: it is not!

By de facto requiring that before a final assessment for naturalization the person has already relinquished all nationalities and consequently is stateless, Austria is violating the 1961 Convention on the reduction of statelessness and the European Convention on Nationality (ECN). By making a full reassessment of the eligibility (with the exception of the income requirement, a reassessment of which had been considered in violation with the Constitution) after the other nationalities have been relinquished, thus by conducting an assessment ex nunc and not ex tunc, the law deviates from international standards.

The guarantee given by Austria did not satisfy the criteria of Article 7(2) of the 1961 Convention, which provides that “A national of a Contracting State who seeks naturalization in a foreign country shall not lose his nationality unless he acquires or has been accorded assurance of acquiring the nationality of that foreign country.” In the 2013 Tunis Declaration of the UNHCR, concerning the interpretation of the 1961 Convention, it is stated that loss of the previous nationality should in principle only occur upon acquisition of the other nationality. An exception is provided where an assurance for the future acquisition is given. However, the Declaration clearly states that such an assurance for the grant of nationality may not be “retracted on grounds that conditions for naturalization are not met”. It is equally provided in the Declaration that the state of previous nationality may only provide for loss of its nationality if the guarantee provided is “unconditional and does not leave any discretion to the authorities of the country.” Since the guarantee made by Austria was not unconditional, could be and was actually retracted based on a new assessment of eligibility, Austria can be considered in violation of international law.

Additionally, by giving the impression that its nationality will be acquired and thus a renouncement of the previous nationality will not cause statelessness, Austria has violated the principle of mutual trust in EU law. Every renouncement made in accordance with the nationality laws of the other Member States in order to obtain Austrian citizenship in essence violated those other Member States’ laws and commitments to the prevention of statelessness.

Paradoxically, one could consider that any guarantee ever made by Austria, irrespective of whether the nationality was acquired later or not, had no legal value under international law. Thus, Austria may have created a situation where many naturalized citizens have technically never lost their previous nationality, because the renouncement was contra legem at the time it was made (due to the fact that it would have rendered the person stateless and the guarantee could not provide sufficient assurance that it would not). Only those naturalized citizens who would have lost the previous nationality automatically due to voluntary acquisition of Austrian nationality (e.g. previous nationals of the Netherlands, Lithuania and Slovakia) would only have Austrian citizenship.

Question 1 - EU citizenship law applicable

The Administrative Court considered that EU law, and specifically EU citizenship, was not applicable to the case because at the moment of the decision revoking the guarantee, JY was already stateless and no longer an EU citizen.

This is a rather narrow interpretation and also rather galling considering the fact that it was the Austrian procedure for the acquisition of nationality that created that situation in the first place.

One should consider the question of applicability of EU law, and specifically EU citizenship, from two slightly different perspectives: (1) EU citizenship (Article 20 TFEU) and (2) free movement (Article 21 TFEU).

(1) Taking the view point of Article 20 TFEU, the case already clearly falls within the ambit of EU citizenship, but not necessarily for the reasons pointed out by the referring court.

The referring court makes this a case of loss of EU citizenship, while arguably it is actually a case of acquisition of EU citizenship.

As was stated above, the CJEU has consistently held that the Member States must have due regard to Union law when laying down the conditions on acquisition and loss of nationality. However, until now there have been no cases concerning acquisition of nationality. National courts seem to believe that only where the nationality, and thus EU citizenship, is lost, does EU law comes into play. However, arguing so, they forget that EU law is equally applicable to the acquisition of nationality.

This principle of applicability of EU law to the acquisition of the nationality of a Member State should apply irrespective of the nationality of the person prior to the acquisition, be it that of a Member State, a Third-Country or when the person is stateless.

In the present case, though, since JY had the nationality of a Member State before starting the procedure for acquisition of another Member State’s nationality – which Austria cannot deny considering that it applied the facilitated naturalization criteria for EU citizens on the basis of Article 11a(4)(2) of the Austrian Citizenship Act to JY – the applicability of EU law to the case is beyond doubt.

Any arguments brought forward by the Austrian authorities that the moment of revocation of the guarantee is the point of reference for establishing whether the nationality of the person makes EU citizenship law applicable (which is irrelevant, as explained, since it concerns an acquisition and not a loss case) conflicts with the principle of estoppel. It was the Austrian guarantee that did not fulfil the requirements to ensure that JY would have been an EU citizen.

(2) The referring court has only made reference to Article 20 TFEU in its submissions; however, one should consider that Article 21 TFEU is equally applicable.

Prior to becoming stateless, JY was an EU citizen who made use of her right of free movement by residing in a Member State other than the Member State of nationality. Consequently, her residence prior to becoming stateless was based on Directive 2004/38.

In its judgment C-165/16 Toufik Lounes (discussed here), the CJEU stated that “the rights conferred on a Union citizen by Article 21(1) TFEU, […] are intended, amongst other things, to promote the gradual integration of the Union citizen concerned in the society of the host Member State.” The Court furthermore considered that “Union citizens, […] who, after moving, in the exercise of their freedom of movement, to the host Member State and residing there for a number of years pursuant to and in accordance with Article 7(1) or Article 16(1) of Directive 2004/38, acquire the nationality of that Member State, intend to become permanently integrated in that State.”

Thus, according to the CJEU, naturalization by an EU citizen in the Member State of residence is the ultimate proof of having become permanently integrated in the society of the host Member State.

The CJEU considered that “it would be contrary to the underlying logic of gradual integration that informs Article 21(1) TFEU to hold that such citizens, who have acquired rights under that provision as a result of having exercised their freedom of movement, must forego those rights –– in particular the right to family life in the host Member State –– because they have sought, by becoming naturalised in that Member State, to become more deeply integrated in the society of that State.”

Considering that the CJEU stated that one could not allow an EU citizen to forego rights by becoming more deeply integrated in the society of the host State, a fortiori one cannot expect a Union citizen to gamble away his or her EU citizenship on the possibility of becoming more deeply integrated in the society of the host State, not only foregoing some rights, but the entire legal framework their existence in that State and personal identity are based on. For, from the moment she became stateless, Directive 2004/38 seized to be applicable to JY.

This case, therefore, goes beyond mere Article 20 TFEU, since the rights acquired under Article 21 TFEU are equally at stake.

For that reason, under all circumstances the questions would have to be rephrased in order to include Article 21 TFEU.

The answer to the first preliminary question is thus a definite ‘yes, EU law has to be taken into consideration when a guarantee to acquire the nationality of a Member State is revoked.’

Question 2 - EU law violated

In its second question, the referring court wonders if the national authorities have to consider whether the revocation of the guarantee that prevented the recovery of citizenship of the Union is compatible with the principle of proportionality from the point of view of EU law in terms of its consequences for the situation of the person concerned.

This is the wrong question.

The reference in the question to the principle of proportionality is a consequence of the erroneous reasoning of the referring court that the case concerns loss of nationality, while – as explained above – it actually concerns acquisition of nationality. If indeed it were to concern loss of nationality, then it would be clear based on C-135/08 Rottmann and in C-221/17 Tjebbes that it is mainly the principle of proportionality that has to be observed when it concerns the loss of the nationality of a Member State and of EU citizenship. In C-221/17 Tjebbes the Court listed multiple criteria which have to be observed in such cases. In the present case concerning acquisition of nationality, while the principle of proportionality of course has to be observed, this is by far not the only part of EU law that will have to be considered.

It should be noted at this point that the Administrative Court considered the traffic violations ‘serious crimes’ capable of and proportionate for justifying a revocation of the guarantee. Driving under influence might cause a situation where the consequences could result in a criminal offence; however, the referring court also stated that according to its recurring case-law such a violation will cause revocation of the guarantee irrespective of the actual volume of consumption in the case. If we consider e.g. a situation where the volume is very low, but just above the permitted limit, this cannot be equated to an offence which requires a long prison term (in Austria it does not. The two administrative offences solely resulted in fines totalling €412). It should definitely not be an administrative offence that renders you stateless.

I would like you to also think about the other violation of not having a compliant vehicle inspection disk. Just consider the next time when you have to bring your car to the vehicle inspection that your nationality might depend on it. Would you consider this reasonable? For the time being, I would advise any person who is considering to ever naturalize in Austria to sell their car.

Considering the fact that it concerns ‘recovery of citizenship of the Union’, one should wonder first whether the entire situation that led to this can be considered compatible with EU law.

As was already explained above, the guarantee of the grant of nationality was not unconditional and could be retracted. Therefore, the guarantee did not even fulfil the requirements under international law.

Since EU law is applicable, the Charter of Fundamental Rights of the EU (CFR) and the general principles of EU law are also applicable.

One should consider that JY’s legitimate expectations have clearly been violated. She acted in complete good faith by renouncing her Estonian citizenship in order to acquire the Austrian nationality. This good faith has been thoroughly betrayed.

One should, furthermore, consider that there might be a violation of JY’s right to private life as protected by Article 7 CFR. This is due to the fact that nationality, just like all other civil status, is governed by private life. A requirement to become stateless in order to acquire another nationality, and then additionally refuse the grant of this nationality, is an unjustifiable violation of the right to private life.

Furthermore, as was explained above, we are presented here with a clear violation of Article 21 TFEU. No EU citizen should ever have to forego all rights derived from EU law in order to become more permanently integrated in an EU host State.

The second question should therefore be rephrased in order for it not to be limited to the principle of proportionality, but to EU law in general. Additionally, it would serve the CJEU to extend the scope of the question to include an assessment whether the naturalization procedure of Austria is in conformity with EU law.

Time to take a stance on dual EU citizenship

There is an additional reason why the method employed by Austria violates the free movement rights, but this requires a longer explanation.

One should consider this case in a large and complex web of different lines of case-law.

In my Article on the “Free Movement of Dual EU Citizens”, I have explained that the C-165/16 Lounes case has created a rather complicated situation. This is due to the distinction made by the CJEU between ‘single’ EU citizens – being persons who have the nationality of only one Member State – and ‘dual’ EU citizens – being persons who have the nationality of more than one Member State.

As I explained in that Article, when a person returns to their Member State of nationality, and this is the only Member State of which (s)he has the nationality, the ‘right to return’ case-law applies (C‑370/90 Surinder Singh; C‑291/05 Eind; C-456/12 O&B, discussed here; C-230/17 Altiner and Ravn). This means that the person will only retain those rights derived from EU law that (s)he had made use of prior to the return while residing in another Member State. As was shown, prior to C-165/16 Lounes, problems arose for dual EU citizens when they moved between Member States of nationality, being on the one hand excluded from the scope of Directive 2004/38, while on the other hand only rights that were acquired on the basis of the Directive could be retained.

After C-165/16 Lounes, on the contrary, a dual EU citizen who returns or moves to one of his or her Member States of nationality, would not only be able to retain rights which were previously used, but continues to be able to derive new rights from the EU citizenship framework. This means that a single EU citizen is not treated in the same manner as a dual EU citizen would in a Member State of nationality, while both have made use of their free movement rights. While single EU citizens are still affected by reverse discrimination, dual EU citizens are only affected by it if they have never moved to and resided in the Member State in which they were born and of which they have the nationality.

I wrote that this differentiation is dangerous. I also stated that the CJEU should consider situations where the EU citizen had to renounce or automatically lost their original Member State’s nationality upon naturalization in another Member State, like in the case at hand.

I considered that one may not make a distinction between persons who acquired a nationality at birth and those who acquired it by naturalization. The reasoning of the CJEU in Lounes would have required a further distinction between persons who had naturalized and previously had the nationality of another Member State and those that had the nationality of a Third Country prior to naturalization. This would create immense problems.

Consequently, an application of C-165/16 Lounes to naturalized EU citizens who lost the previous nationality, without completely abolishing reverse discrimination, is impossible.

I stated that if the CJEU considered that there are two lines of case-law – one concerning single EU citizen returners and one concerning dual EU citizens – , it would have to restrict Member States as to requirements of renouncing the previous nationality if this is the nationality of another Member State and to the automatic loss of the nationality upon acquisition of another Member State’s nationality.

I considered that the requirement of renunciation of the previous nationality would equal a requirement to choose for the ‘single EU citizen’ framework and, therefore, to forego rights; and equally the automatic loss of a Member State’s nationality would be for the sole reason that the person wanted to become more integrated in the Member State of residence. This also meant that a person with only the nationality of a Member State with a strict ‘single nationality’ policy would be at an enormous disadvantage, since (s)he would have to naturalize twice in order to get within the dual EU citizen framework. In order to get within the ambit of this framework, a person who is a national from a Member State with a strict ‘single nationality’ policy would, in a first stage, have to lose this nationality by naturalizing in another Member State which permits multiple nationalities; and subsequently, in a second stage, acquire, additionally to this newly acquired nationality, another nationality from another Member State. While a person who originally already had the nationality of a Member State that permits dual nationality, would immediately start at the second stage.

In the case C-230/17 Altiner and Ravn, which concerned returners, the CJEU had the opportunity to make C-165/16 Lounes applicable to single EU citizens and end reverse discrimination. This opportunity has passed and the Court repeated its ‘right to return’ case-law without any significant change.

One should be aware though that, whatever happens in C-118/20 JY, this case will have an impact in other areas of EU law. For example, the C-386/02 Baldinger case of the CJEU where the Court accepted Austria’s refusal to continue to grant certain pension rights to a person who lost Austrian nationality upon acquisition of Swedish nationality, will have to be revisited.

The Court will have to follow through with the line it has taken and declare in C-118/20 JY that these automatic loss clauses and requirements to renounce the other Member State’s nationality are incompatible with EU citizenship.

If it does not, there will be no more legal EU citizenship framework building up to a fundamental status, but just a random set of cases which had potential, once upon a time. That is not the story we would like to tell.

Conclusions

The case C-118/20 JY v. Wiener Landesregierung, concerning the revocation of a guarantee of the grant of Austrian nationality, is more than a case on loss of EU citizenship. It is the first case where the CJEU will have to rule on the acquisition of EU citizenship.

It was considered here that the preliminary questions referred imply that the Austrian rules concerning the duty to renounce the previous nationality are compatible with international law and EU law in general. It was demonstrated that they are not.

It has been shown that the guarantee of the grant of Austrian nationality violates international law to such an extent by being revocable that any naturalized person in Austria might argue that (s)he might still have the original nationality, due to the fact that the renouncement had been contra legem. It was furthermore considered that Austria, in having a guarantee that is revocable, violated the principle of mutual trust.

Additionally, it was argued that not only Article 20 TFEU is applicable to the case, as the referring court insinuated, but also, and especially, Article 21 TFEU.

It was maintained that the CJEU will additionally have to consider that this case is an extension of its Lounes judgment. In Lounes and subsequently in Altiner and Ravn, the Court has made a distinction in the EU citizenship framework between ‘single’ EU citizens and ‘dual’ EU citizens. In JY it will now have to complete this distinction by decreeing that it is no longer permissible for a Member State to require that a person who wants to naturalize has to forego rights by renouncing his or her other Member State’s nationality. Equally, Member States will no longer be permitted to provide for the automatic loss of their nationality when one of their nationals acquires the nationality of another Member State.

One should keep a close watch on this case as it will have an impact in many areas of EU law. The fundamental status of EU citizenship might be on the horizon.

Barnard & Peers: chapter 13

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The ECB and its expanded duty to respect and promote the EU Charter of Fundamental Rights after the Steinhoff case

Diane Fromage, Maastricht University*

* I would like to thank Menelaos Markakis for his useful comments.

On 12 March 2020, the Court of Justice rejected the appeal lodged before it against the Steinhoff case (T-107/17) decided by the General Court in May 2019. Even if it has – to my knowledge – received only limited attention by scholars, this case is particularly significant because it clarifies, and indeed unconditionally expands, the European Central Bank (ECB)’s duty to ‘respect the rights [of the EU Charter of Fundamental Rights (ECFR), [to] observe the principles and [to] promote the application thereof’ enshrined in Article 51 ECFR to its consultative function.

This case belongs to the series of cases brought before the Court of Justice on the ground of the measures adopted to counter the Great Financial Crisis. More specifically, it regards the losses incurred by private creditors resulting from the restructuring of the Greek public debt, which was the largest public debt restructuring ever conducted worldwide. Indeed, F. Steinhoff and the other parties to the case were affected by the measures adopted by the Greek State with a view to making the level of Greek debt more sustainable, and to avoiding bankruptcy resulting inter alia in the Greek State offering to conduct a voluntary Private Sector Involvement Scheme. To this end, it adopted Law No. 4050/2012 which essentially entailed a restructuring offer to Greek bond holders leading to a significant reduction of their value. The proposed law also included the introduction of a (retroactive) Collective Action Clause (CAC) whereby if a majority of two thirds of the bond holders of a specific issue were in favour of the exchange, all bond holders were to see the value of their bonds reduced [CACs have since been introduced in all euro area Member States following the entry into force of art. 12(3) European Stability Mechanism Treaty]. Steinhoff and the other plaintiffs incurred significant losses even where they had not given their consent to the exchange.

Prior to its adoption, the ECB was consulted on the Greek national law since it ‘shall be consulted […] by national authorities regarding any draft legislative provision in its fields of competence’ (art. 127(4) TFEU). In its consultative opinion, the ECB did not raise any objection and was overall positive. It underlined, among other things, that the resort to CACs to exchange bonds is in line with common practice, it welcomed the fact that the modalities of the exchange could be negotiated with private creditors representatives, and it recalled that Greece alone bears the responsibility to ensure that its debt remains sustainable. After the law had been adopted, Steinhoff and the other plaintiffs sought to engage the ECB’s non-contractual liability because of the damages (i.e. the losses) they suffered as a result of the ECB not having drawn Greece’s attention to the fact that the adoption and the implementation of Law No. 4050/2012 would lead to a breach of their fundamental rights. Remedy against this law was also sought by some bond holders before the Greek Council of State, and the European Court of Human Rights, resulting in both courts rejecting the claim that the right to property and to peaceful enjoyment of one’s possessions; the principle of equality and the principle of equal treatment and non-discrimination; the principle of proportionality; and the principle of legitimate expectations and legal certainty had not been violated (for further details, see the recent article by Evangelos Venizelos). Some of the bond holders also tried to challenge the Greek law before the national courts of other Member States, such as Germany.

Like the Accorinti case and the Nausicaa case before it, the Steinhoff case is the third one in which the ECB’s non-contractual liability is being invoked in the adoption of this Greek law and the losses for private investors it provoked. In that case, the General Court was called upon to examine essentially whether the ECB was liable for not having warned the Greek government against the illegality of the law it intended to adopt in the framework of its consultation as per Article 127(4) TFEU. In particular, the applicants claimed that the ECB should have indicated in its consultative opinion that the Greek law violated the principle of pacta sunt servanda; that it violated their right to property guaranteed by the ECFR (art. 17(1) and (2)); that is also violated the freedom of capitals within the EU (art. 63 TFEU); and that it breached the prohibition to grant privileged access to financial institutional to EU and national institutions enshrined in Article 124 TFEU.

In examining this case, the General Court recalls firstly that according to settled case-law, EU institutions and bodies may incur in non-contractual liability regardless of whether the damage suffered by the applicant results from a non-legally binding act. Only the fulfilment of three conditions matters, i.e. the rule of law which was breached conferred rights upon individuals and the breach was sufficiently serious, actual damage has been suffered, and a causal link exists between the breach of the obligation of the institution author of the act and the damage suffered. The General Court then turns to examine the function and the characteristics of the ECB’s consultative function, and recalls that while the ECB’s opinions are not binding on the national authorities, its non-contractual liability may still be engaged on their basis, though considering the large margin of appreciation left to the ECB in the adoption of its opinions, only a manifest and grave disregard of its margin of discretion may lead to such an outcome.

When examining the substance of the case before it, the General Court first finds that the pacta sunt servanda principle – which is, at it recalls, a general principle of EU law – is not violated in this case. Furthermore, it states that the opinions the ECB issues under the consultation procedure do not regard the contractual relationship between a Member State and a private individual, but are addressed to the Member States and belong to the ECB’s ‘fundamental missions in the area of monetary policy’ (own translation) and notably to its duty to maintain price stability. As a consequence, the General Court finds that the ECB was not under the obligation to highlight a violation of this principle since it is a general principle of contract law which applies to the parties to that contract.

The General Court comes to an opposite conclusion as regards the ECB’s responsibility to protect the right to property guaranteed by the ECFR (and which is also a general principle of EU law). Although it eventually concludes that there has been no disproportionate restriction of the right to property whose core content also remained unaffected, it considers that the ECB has a duty to denounce a violation of the right to property in the exercise of its competence, among which its consultative function: In its quality as EU institution, it is under the obligation to ‘respect the rights, observe the principles [guaranteed in the Charter] and promote the application thereof’ (art. 51 ECFR). In the Court’s view, this is so because, as already established in the Ledra Advertising case (discussed here), like the European Commission may breach the right to property both by means of a positive act, and by passive behaviour, as well as by failing to adopt a measure it had to adopt, the ECB too may breach the right to property by its passive behaviour. Its special status does not influence in any way on the duty to respect fundamental rights or to contribute to achieving the Union’s objectives that rests upon it. Although the General Court – surprisingly – does not mention it, it had already found the conclusions to which it came regarding the Commission in the Ledra Advertising case to be applicable to the ECB (Chrysostomides case). As further detailed below, this is thus not the novel part in the General Court’s reasoning.

The General Court subsequently examines a potential breach of the free movement of capitals guaranteed by Article 63 TFEU. It states that overriding reasons of general interest existed in that case that would justify a restriction to the free movement of capitals, that the plaintiffs have failed to show that the restriction imposed was disproportionate, and that therefore no breach of Article 63 TFEU occurred.

Lastly, the General Court comes to the conclusion that the ECB did not commit a sufficiently serious breach of the plaintiffs’ right for not pointing out the fact that the Greek law led to a breach of Article 124 TFEU, since there was no such breach. In any event, the plaintiffs would not be entitled to any compensation for damages even if that were the case since Article 124 TFEU aims at protecting the Union as a whole and does not confer any right on individuals and thus not on the plaintiffs.

Based on all these arguments, the General Court finds that the ECB’s non-contractual liability may not be engaged.

This judgment is of constitutional importance for the EU legal order because of the expansion of the ECB’s duty to observe and promote the ECFR it operated – a point which, by the way, the Court of Justice did not examine during the appeal procedure before it which ended in March 2020.

As explained above, the General Court essentially applies to the ECB its previous findings in the Ledra Advertising case which established the Commission’s unconditional duty to ensure that a memorandum of understanding concluded in the framework of a European Stability Mechanism programme was in compliance with the ECFR. The analogy drawn by the Court is, however, not fully convincing. In principle, the duty that rests on the European Commission may also be viewed as applicable to the ECB since it, too, is involved in the negotiation of the memoranda of understanding, and as recalled previously, the General Court itself came to this conclusion in the Chrysostomides case. However, the role played by the Commission (and the ECB) in the negotiation of the memoranda of understanding is an inherently different one from the one the ECB fulfils in its consultative function. Among other things, the Commission negotiates the memoranda of understanding, which it also signs on behalf of the ESM. It admittedly does not have any decision-making powers in accordance with the Court of Justice’s findings in the Pringle case, and the essential character of the powers conferred upon it by the Treaties is not altered by its taking part in the implementation in the ESM. But still, its active participation and thus its share of responsibility in the whole procedure is much higher than that of the ECB when it issues a merely consultative, non-binding, opinion on a piece of national legislation that falls within its field of competence. Consequently, the findings in the Ledra Advertising case cannot simply be applied to the Steinhoff case like the General Court did, and such an identical interpretation of the ECB’s duty in both cases would have, in my view, demanded a detailed justification at the very least. This is also the case because Article 51 ECFR foresees that ‘[t]he […] institutions, bodies, offices and agencies of the Union […] shall therefore respect the rights, observe the principles and promote the application thereof in accordance with their respective powers’ (emphasis added). The European Commission, which is the guardian of the Treaties, may thus arguably be viewed as being generally under a stronger obligation to actively promote the application of the ECFR than the ECB is for the ECB is an independent institution entrusted with a more limited and technical function within the EU legal order.

In its reasoning, the General Court in fact appears to disregard the rationale of the ECB’s consultative function. As established in Council Decision 98/415 on the consultation of the European Central Bank by national authorities regarding draft legislative provisions, the national authorities have to take the ECB’s opinions into account but they are not bound by them, and they alone bear responsibility for the acts adopted. The General Court also notes that the ECB benefits from a large margin of appreciation in the adoption of its opinions, so that only a grave and manifest breach of the limits of its power can lead to its non-contractual liability being incurred. It is the specific functions the ECB is entrusted with and the expertise it possesses that justify its prior consultation as specified in the OLAF case. The ECB is hence called upon to conduct a technical assessment, and not a general one that would take the whole of the EU legal framework into consideration. Therefore, requiring from it that it would check the compatibility with the ECFR of a national norm it does not contribute to shape and cannot amend in any way may be viewed as unjustified. Besides, since the ECB may give its opinion on national norms that fall outside of the scope of EU law, the risk exists that the scope of application of the Charter defined in Article 51 ECFR be eventually indirectly expanded as the Member State, which would then not be ‘implementing Union law’, would not otherwise be bound by the ECFR.

The distinction among general principles of EU law the General Court draws is the last point that deserves attention. As stated previously, even if both are general principles, the ECB is not found by the General Court to have to veil for the respect of the pacta sunt servanda principle, while it does have to protect the right to property. The Court comes to this conclusion on the basis of the fact the ECB’s opinions are directed to the Member States and belong to the ECB’s ‘fundamental missions in the area of monetary policy’, while the pacta sunt servanda principle would apply to the relationship between a Member State and a private party. But the right to property it indeed would have an active and a passive duty to protect. Since both are general principles of EU law still, why make such a distinction, and how to determine which general principles the ECB has to veil for and which it does not?

It thus seems that the General Court did not, in this occasion, contribute to further reinforce the level of protection of fundamental rights within the Union like it previously did in the Ledra advertising case for instance. A more detailed and nuanced reasoning would have arguably been needed for this to be the case. In fact, the limits of the conditions and the scope of application of the Charter may have become even more difficult to distinguish, and it can only be hoped that the General Court will provide further clarifications in the future.

Barnard & Peers: chapter 19

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