Saving the single currency? Gauweiler and the legality of the OMT programme

Alicia Hinarejos, Downing College, University of Cambridge; author of The Euro Area Crisis in Constitutional Perspective 

On the 16^th of June the Court of Justice delivered its decision in the Gauweiler case, concerning the legality of the Outright Monetary Transactions (OMT) programme of the European Central Bank (ECB). The Court considered the programme compatible with EU law. The decision has important implications for the powers of the ECB, the constitutional framework of the EU’s Economic and Monetary Union, and for the relationship between the Court of Justice of the EU and the referring court, the German Federal Constitutional Court. This was the first time that the German court asked for a preliminary ruling, and it remains to be seen whether the reply given by the Court of Justice will be to the national court’s liking. (See my earlier comments on the Advocate-General's opinion in this case here).

Background

The ECB is in charge of conducting monetary policy for the euro area and its role is very narrowly defined in the Treaties. This role, however, has evolved and expanded substantially in recent years, as the ECB has announced or adopted various ‘non-standard’ measures in response to the euro area sovereign debt crisis. The OMT programme is one of these measures: it was announced in September 2012 in a press release and, so far, it has never been used.

The idea is that the ECB will buy government bonds from euro countries in trouble, i.e., when nobody else buys these bonds, or their yield is becoming so high that the Member State will not be able to cover interest payments on newly issued bonds, thus having no more access to credit and risking default. Crucially, the Treaty prohibits the ECB from acquiring government bonds directly (Art 123 TFEU) as this would amount to monetary financing, or becoming a direct lender of last resort to a Member State. Instead, the ECB would buy government bonds in the secondary market—that is, from a party that has bought these bonds first from a Member State—rather than from a Member State directly. While the ECB has already done this before, with the OMT programme there would be an added formal element of conditionality, as the Member State in question would need to obtain financial assistance from the European Stability Mechanism or the EFSF and comply with its conditions (i.e. macroeconomic reforms negotiated between the Member State and the troika: the Commission, the ECB, and the IMF).

The applicants before the German Court argued that the ECB had overstepped its Treaty role by creating a programme that should be viewed as a tool of economic, not monetary, policy; it was also alleged that the programme violated the prohibition of monetary financing. In an exercise of ultra vires jurisdiction, the German Constitutional Court’s preliminary response was to consider the OMT programme illegal under EU law. For the first time ever, the national court then referred the case to the CJEU. In the referring court’s view, the Court of Justice might either declare the OMT scheme contrary to EU law, or provide a more limited interpretation of the programme that is in accordance with the Treaties. The German Court provided certain indications as to what those limits should be, and it went on to state that whether the OMT scheme could eventually be held to violate the constitutional identity of the German Basic Law would depend on the CJEU’s interpretation of the scheme in conformity with EU primary law.

The case was sensitive for various reasons: although not yet used, the mere announcement of the OMT scheme played an important role in getting the euro area out of the acute phase of the crisis, and offers a credible defense against similar future scenarios. A declaration of illegality, or the placing of substantive limits on the programme, could have jeopardised post-crisis recovery. Additionally, the reference was the first ever submitted by the German Constitutional Court, and its tone was quite bold; there was, and is, clear potential for conflict between the two courts, with consequences unknown for EMU. Moreover, the case touches on the nature and legitimacy of the role of the ECB as an independent expert, and on the dichotomy between the original, rule-based conception of EMU and the evolving, more policy-oriented EMU that rose out of the crisis.

The Court of Justice’s Decision

(1)  Preliminary questions

Various arguments had been put forward against the admissibility of the reference. Some of them went to the nature of the ECB’s announcement of the OMT programme and its reviewability; others to the circumstances under which the reference had been made by the national court.

First, it was argued that the ECB’s announcement was not a legal act, but a preparatory act without legal effects. The Court of Justice rejected this view. Second, the Court similarly rejected arguments to the effect that the conditions under which the reference had been made were not compatible with the preliminary ruling procedure, because the questions at stake were too abstract and hypothetical, because the German court would not consider itself bound by the resulting preliminary ruling, or because the national proceedings could be said to create the possibility for German citizens to bring a direct action against the validity of an EU act without having to use Art 263 TFEU (and without complying with its conditions for admissibility). In dealing with these arguments, the Court relied on the division of competences between itself and the national courts within the framework of the preliminary ruling procedure, refusing to second-guess the German court’s assessment of the need for a preliminary ruling or the rules of national law governing judicial review and the organization of legal proceedings. Unsurprisingly, the Court reasserted the binding force of its preliminary rulings upon national courts.

(2)  The legality of the OMT programme

Broadly speaking, the German court had raised two main concerns: that the OMT programme was a measure of economic, not monetary, policy, thus beyond the powers of the ECB; and that the programme was incompatible with the prohibition of monetary financing of Member States enshrined in Art 123(1) TFEU.

Is it monetary policy?

The Court started by assessing the nature of the OMT scheme and whether it should be classified as a measure of monetary or economic policy. The applicants had argued that the scheme should be viewed as an economic policy measure adopted with the aim of saving the euro by changing certain flaws in the design of monetary union, i.e. by pooling the debt of euro countries. They also emphasized the effects of the attached conditionality on Member States’ economic policies. All this, they argued, placed the OMT scheme beyond the merely supporting role that the ECB may have in economic policy, according to the Treaties. The German Constitutional Court agreed, based on various features of the OMT scheme: its conditionality and parallelism with ESM and EFSF financial assistance programmes (as well as its ability to circumvent them) and its selectivity (in that OMT bond-buying would only apply to select countries, whereas measures of monetary policy typically apply to the whole currency area).

The ECB, on the other hand, argued that the aim of the scheme ‘is not to facilitate the financing conditions of certain Member States, or to determine their economic policies, but rather to “unblock” the ECB’s monetary policy transmission channels’ [104]. In other words, the crisis was making it impossible for the ECB to pursue monetary policy through the usual channels. The proposed bond-buying would ensure that credit conditions return to normality, and that the ECB is able to conduct its monetary policy again. Additionally, the ECB argued that the element of conditionality was necessary to ensure that the OMT scheme would not interfere with the programme of macroeconomic reform agreed between the ESM and the Member State in receipt of financial assistance.

As it had done in Pringle, the Court set out to determine whether the measure in question fell within the scope of monetary or economic policy by investigating its objectives and instruments. The Court considered the stated objectives of the OMT programme (to safeguard ‘appropriate monetary policy transmission and the singleness of the monetary policy’) and concluded that they contributed to the ultimate aim of monetary policy, i.e. maintaining price stability. The Court drew an analogy with Pringle at this point to argue that possible indirect effects of the OMT programme in economic policy (the fact that the programme may contribute to safeguarding the stability of the euro area) did not mean the measure should be classified as pertaining to economic policy. The Court came to similar conclusions when examining the instruments to be used in order to achieve the objectives of the programme. In sum, both objectives and instruments of the OMT programme—and thus the programme itself—were taken to fall within the scope of monetary policy.

Interestingly, while Advocate General Cruz Villalón had come to the same overall conclusion regarding the classification of the OMT programme as a measure of monetary policy, he had introduced an important caveat: he saw a problem in the fact that the ECB made bond-buying through the OMT scheme conditional on the Member State’s compliance with a programme of macroeconomic reform adopted within the framework of the ESM or EFSF, and the fact that the ECB plays a very active role in the negotiating and monitoring of this programme with the Member State. This double role of the ECB (first within a framework for financial assistance which constitutes economic policy, according to Pringle, and then in its bond-buying role within the OMT) would tip the OMT scheme beyond the boundaries of the ECB’s powers: monetary policy with, at most, a supporting role in economic policy. The AG thus considered that, if the OMT were to be activated, the ECB would have to distance itself from the Troika and the monitoring of the conditionality for financial assistance immediately.

On the contrary, the Court saw no problem with making bond-buying through the OMT programme conditional upon the Member State’s compliance with ESM or EFSF conditionality; this would lead to the sort of indirect effects in economic policy that the Court had already considered irrelevant to the classification of the measure, and it would ensure that ESM/EFSF conditionality would not be rendered ineffective by the ECB’s actions. This, according to the Court, is in line with the ECB’s obligation to support the general economic policies in the Union. The fact that bond-buying in the secondary markets can be considered a measure of economic policy when the ESM does it (Pringle), and a measure of monetary policy when the ECB does it, is justified, according to the Court, because of the different objectives pursued in each case. Finally, the Court made no reference to the involvement of the ECB within the troika.

Is it proportionate?

The Court concluded that the OMT programme, as first described by the ECB in its announcement, is appropriate for attaining its objectives and does not go beyond what was necessary to achieve them. In conducting its review of proportionality, the Court recognized the ECB’s broad discretion to make complex assessments and technical choices in the area, and it conducted a light-touch review. The Court was satisfied that the ECB had satisfied the duty to give reasons sufficiently, and that it had not made a manifest error of assessment in its analysis of the economic situation and in its view that the OMT programme would be appropriate to achieve the effect sought. Equally, the Court surmised that the measure, as described in the ECB’s press release, would not go beyond what was necessary to achieve its objectives, given the limited nature of the programme and the wording of the press release itself (i.e. that bond-buying would only take place in order to satisfy very specific objectives, and that it would cease as soon as they had been achieved). No prior quantitative limit was considered necessary.

Is it against the prohibition on monetary financing?

The Court then turned to the possible circumvention of the prohibition on monetary financing of Member States. While the Treaty makes it illegal for the ECB to buy government bonds directly from a Member State, the referring court argued that, although OMT bond-buying would take place in the secondary market, this amounted to a circumvention of the same rule. This circumvention would undermine fiscal discipline and would make certain Member States responsible, ultimately, for the debts of others.

The Court of Justice agreed that the ECB should not be able to buy bonds from Member States in the secondary markets under conditions which meant that, in practice, the bond-buying would have the same effect as if it had taken place directly; or, put differently, if indirect bond-buying would defeat the purpose of Art 123(1) TFEU in the same way as buying bonds directly. In order to decide whether the OMT programme could be considered such an illegitimate circumvention of the Treaties, the Court sought to elucidate, first, the aim of Art 123(1) TFEU (the prohibition on monetary financing of Member States); and second, the extent to which indirect bond-buying within the OMT scheme would threaten the achievement of that aim.

According to the Court, the purpose of the prohibition on monetary financing of Member States is to encourage the latter to pursue a sound budgetary policy: if Member States cannot rely on monetary financing, they are subject to market discipline and they need to avoid excessive debt and deficits if they want to be able to sell their bonds, and thus have access to credit in the financial markets, in favourable or sustainable conditions.

The aim of encouraging a prudent budgetary policy could be threatened by indirect bond-buying within the OMT programme to the extent that such actions would improve a Member State’s access to credit, unless certain safeguards were built into the programme. The Court was convinced by the ECB’s assurances that any implementation of the programme would contain such safeguards: distortion to the conditions under which a Member State can sell its bonds in the primary market would be limited (by not announcing in advance the ECB’s intention to buy a Member State’s bonds in the secondary market, and by allowing a reasonable period of time to elapse between the Member State’s sale of its bonds in the primary market and their subsequent acquisition by the ECB). The Court was further satisfied that the uncertain possibility of having the ECB buying a Member State’s bonds in the secondary market would not, by itself, diminish Member States’ incentive to pursue a prudent budgetary policy, given the limited nature of the OMT programme and the limited cases in which it may be used. Finally, making bond-buying within the OMT programme conditional on the Member State’s compliance with ESM/EFSF conditionality would ensure, according to the Court, that Member States in receipt of financial assistance would not see bond-buying through the OMT programme as an alternative to fiscal consolidation.

Overall, then, the Court concluded that the OMT programme—as presented in the press release and subject to the safeguards explained by the ECB before the Court—is compatible with the prohibition on monetary financing: under those conditions, indirect bond-buying through the OMT programme would have an effect on Member States’ access to credit, but that effect would not be equivalent to that of buying bonds directly from Member States (monetary financing) and it would not defeat the purpose of the ban of monetary financing, which is to encourage Member States to pursue a prudent budgetary policy.

Final Remarks

The judgment in Gauweiler brings no surprises: the ECB’s OMT programme is in accordance with the Treaties, as long as it implemented in the way that the ECB assured the Court it would be. So certain safeguards have to be built into the system, but these safeguards are not new or especially onerous, and they do not go as far as the ones put forward by the German Federal Constitutional Court as conditions of legality. The final result is as expected; the question is whether the safeguards required by the Court of Justice will satisfy the referring court, and what impact this decision will have on the relationship between the two courts.

The Court of Justice has recognized the broad discretion of the ECB to make complex economic assessments and technical choices, while at the same time striving to discharge a meaningful and necessary role: the Court does not want to be seen to be second-guessing the expert body’s policy choices, so it focuses on procedural requirements and applies a light-touch review when it comes to assessing the proportionality of the scheme. It is in the final part of the judgment (when assessing the compatibility of the OMT programme with the ban on monetary financing) that the decision is at its most strict. It is in this section that the Court seeks to apply (and be seen to be applying) a coherent, rigorous-enough-yet-within-judicial-boundaries compatibility test.  Will the Court’s efforts prove convincing enough? It depends on what section of the Court’s audience we consider. The decision can be said to continue in the Pringle vein of ratifying a move away from a rules-based EMU to a policy-based one in the wake of the crisis. Ultimately, disagreement will remain between those that see this evolution as unavoidable and even necessary if EMU is to adapt and survive, and those that, either do not agree with this evolution, or think that it should take place by different means. Finally, the Court’s discussion (like the AG’s Opinion before it) does turn on the specific features of the OMT programme rather than on more abstract questions such as the nature of EMU, its evolution, and the role of solidarity within its constitutional framework. While the decision should unmistakable be read in its more general constitutional context, the most natural forum for this broader discussion may not be a judicial one.

Barnard & Peers: chapter 19

Forty percent Venus, sixty percent Mars? The Commission’s Proposal on gender quotas in corporate boards

Juan Carlos Benito Sánchez, LL.M. Candidate at KU Leuven — Twitter @jcbensan

Economic decision-making in the European Union suffers at the highest corporate echelons from a lack of diversity, particularly in the area of gender diversity: over half of the graduates from European universities today are female, yet men outnumber women in corporate boards by a ratio of nearly four to one. What is more, differences between Member States are vast: female representation among directors ranges from less than five percent in some countries to more than thirty percent in others. The latest statistics can be found at the site of the European Commission’s database on women and men in decision-making.

Acknowledging this reality and within the framework of the Women’s Charter and the Strategy for Equality between Women and Men 2010-2015, the European Commission launched in November 2012 its Proposal for a Directive  of the European Parliament and of the Council on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures.

The Economic and Social Committee and the Committee of the Regions having both issued opinions, the proposal was adopted by the European Parliament at first reading in November 2013. In December 2014, however, the Council (Employment, Social Policy, Health and Consumer Affairs configuration) rejected  the proposal because of a failure to reach an agreement, inviting the preparatory bodies ‘to continue their work on the file.’ The latest development came in the form of a progress report  issued on 11 June 2015, concluding that

[t]here is a broad consensus among the Member States in favour of taking measures to improve the gender balance on company boards. While a large number of Member States support EU- wide legislation, others continue to prefer national measures (or non-binding measures at the EU level). Thus further work and political reflection will be required before a compromise can be reached.

Main contents of the proposal

The Proposal for a Directive (as considered by the Council), which ‘seeks to achieve a more balanced representation of men and women among the directors of listed companies by establishing measures aimed at accelerated progress,’ only targets publicly listed companies having their registered office in a Member State and excludes SMEs from its scope of application. It is expected that a trickle-down effect will ensue, thereby leading companies not affected by these measures towards more balanced corporate boards.

Targeted companies should attain by the predetermined deadline (31 December 2020) either (a) 40 percent of members of the under-represented sex among non-executive directors or (b) 33 percent of members of the under-represented sex among all directors, both executive and non-executive. The choice of option is in principle open to the implementing Member State, which may also exempt those companies where women represent less than ten percent of the employees from compliance with the numerical aims. An additional obligation is envisaged for targeted companies to set individual quantitative gender balance objectives when the overall thresholds do not directly apply.

A reporting duty to the national equality bodies has been introduced, following the ‘comply-or-explain’ principle. A document must be compiled detailing the ‘gender representation on [companies’] boards, distinguishing between non-executive and executive directors’ as well as ‘the measures taken with a view to attaining the applicable objectives.’ The same information shall be published in an appropriate and accessible manner on the companies’ websites.

The core of the proposal lies on the series of procedural requirements imposed on companies which fall short of the planned numerical objectives. These companies must, when selecting candidates for director positions, undertake a comparative analysis of the qualifications of each candidate by applying clear, neutrally formulated and unambiguous criteria established in advance. They shall, following this analysis, give priority to the candidate of the under-represented sex, unless an objective assessment of all criteria specific to the individuals tilts the balance in favour of the other candidate(s). The wording of these requirements is directly drawn from the case-law of the CJEU regarding gender quotas (see, inter alia, Judgments in Kalanke, in Marschall v Land Nordrhein Westfalen and in Abrahamsson and Anderson v Fogelqvist.)

Upon request from any candidate, all parameters considered when deciding over selection (the qualification criteria, the objective comparative assessment and, where relevant, the considerations tilting the balance) need be disclosed to her or him in a transparent manner. Moreover, if the candidate of the under-represented sex establishes a prima facie instance of discrimination, the burden will shift onto the respondent company to disprove those allegations—as occurs with other discrimination claims under EU law.

Sanctions are to be imposed by the Member States alone for the infringement of the procedural requirements, the reporting obligations or the mandate to set individual quantitative objectives. In other words, non-compliance with the numerical quota objectives by the end of the established deadline is not per se penalised beyond requiring companies to state ‘the reasons for not attaining the objectives and a description of the measures which the company has already taken and/or intends to take in order to meet them.’

The Union’s intervention in the field has an essentially temporary character; the ultimate objective of the proposal being to foster gender diversity within corporate boards to the extent that conditions in society are such as to not guarantee that balance on their own. This interim approach is reflected by the sunset clause contained in the proposal: the directive shall expire in December 2029. As a last point, it is notable that the directive would only effect minimum harmonisation, thus allowing Member States to go beyond these measures ‘provided those provisions do not create unjustified discrimination or hinder the proper functioning of the internal market.’

The flexibility clause: a point de discorde

Article 4b of the revised proposal features the most controversial provision and the reason why progress is only very slowly being made: namely, the so-called equivalent efficacy or flexibility clause. Following this clause, Member States which have enacted measures to ensure a more balanced representation of men and women on corporate boards would be authorised to suspend application of the procedural requirements, given that those measures are equally effective or have attained progress coming close to the aims set out in the directive.

‘With a view to combining flexibility with maximum legal certainty,’ Article 4b exemplifies three scenarios deemed by law to guarantee equal effectiveness, leaving the door open at the same time to analogous situations existing in the Member States. In this respect, the last version of the proposal allows disconnection as soon as ‘members of the under-represented sex hold at least 25% of the total number of all non-executive director positions or 20% of the total number of all director positions and the level of representation has increased by at least 7.5 percentage points over a recent five-year period.’ Beyond 2020, more stringent conditions will have to be complied with if the Member State wishes to maintain the suspension.

Considering the documents issued by the Working Parties of the Council, the flexibility clause has created a major point of contention between delegations. While agreement broadly exists on the main lines of the proposal, Member States are divided between those pushing for the flexibility clause to be enhanced and those warning against any further softening of the text. The recent progress report consequently acknowledges that ‘[s]ome further fine-tuning of the flexibility clause is likely to be required before an agreement can be reached on the Directive.’

Comments

The proposal should be welcomed as a significant step towards tackling gender imbalance within corporate governance in the European Union. Substantive measures in this respect have been long overdue and much awaited; the question thus remaining is if and when consensus within the Council will be reached. The Luxembourg Presidency in its outlook overview of priority dossiers  refers to the proposal on gender balance, recognising that it ‘[has] been blocked in the Council for a considerable time.’

From the standpoint of Discrimination law, it is regrettable that the rationale of the directive appears to be predominantly economically driven, at the expense of considerations of parity, diversity, legitimacy and democracy. Instead of upholding the claim that gender balance in corporate boards will yield microeconomic growth—an assertion which, on the other hand, risks perpetuating gender stereotypes, as it is based on the assumption that women and men act differently in business contexts—, the proposal should rather build upon dependency with a view to eradicating and correcting structural male dominance in decision-making.

De lege ferenda, it would perhaps be advisable to abandon the understanding of quotas purely on the basis of sex and transitioning to a gender terminology that accommodates at the same time additional genders or gender identities. Following this suggestion, measures could be envisaged that give a soft preference in a similar manner not only to female candidates but to candidates of genders or gender identities which differ from that of over-represented male candidates.

As regards the sanctioning regime, more meaningful enforcement measures could be conceived of within the limits of proportionality that do not leave failure to comply with the numerical targets unpunished, e.g. in the form of fiscal incentives or of penalties within the area of public procurement.

One of the striking points of the proposal is undoubtedly that of the flexibility clause. Despite its stated purpose of allowing more proactive Member States to develop their own equality programmes without conflicting with the substance of the proposal; this possibility permits, in practice, a large derogation by means of national tailor-made gender diversity strategies. Whereas due regard must be had to subsidiarity, it should be noted that the envisaged thresholds for equivalent efficacy are deceptively low as a consequence of the watering down of the proposal during the Council deliberations.

To conclude on a pragmatic note, it can be said that the current prospects of more robust European Union legislation tackling gender imbalance within corporate governance are bleak: the still ongoing difficulties within the Council to reach an agreement foreshadow, if anything, an even more compromised version of the text. For the time being, in the European Union it is more around twenty percent Venus, eighty percent Mars. Surely an imbalance of planetary dimensions.

Barnard & Peers: chapter 20

Photo credit: www.livemint.com

Reform of the EU’s Court System: Why a more accountable – not a larger – Court is the way forward

Alberto Alemanno, Jean Monnet Professor of EU Law & Risk Regulation, HEC Paris

Laurent Pech, Jean Monnet Professor of EU Public Law, Middlesex University London

1. The context

Recent media coverage of the EU Court of Justice suggests that the period of ‘benign neglect by the powers that be and the mass media’ – once described by Professor Eric Stein – may well be truly over once and for all. The most unexpected aspect of this rather unique level of media attention is that it does not directly concern any particular judicial ruling by a Court, which, since it decided its first case in 1954, has issued more than 28,000 judgments and orders. Instead, the Court of Justice (CJ) and its President, Mr Vassilios Skouris, have been subject to unprecedented media scrutiny following intense internal infighting about a contentious proposal which officially aims to ‘reinforce the efficiency of justice at EU level’ by doubling the number of judges working at the General Court (GC).

Before offering a review of the CJ’s diagnosis and critically assessing the solutions defended by its President, it may be worth briefly recalling that the GC – initially known as the EU’s Court of First Instance – was set up in 1989 to help the CJ cope with its increasing workload. To help in turn the GC cope with a similar issue, the first EU specialised ‘judicial panel’ was set up in 2005: Known as the EU Civil Service Tribunal (CST), the jurisdiction is exclusively limited to disputes between the EU and its civil servants and consists of 7 judges. By contrast, both the CJ and the GC currently consist of 28 judges, with one judge from each Member State. The CJ is however also assisted by nine Advocates-General.

2. The Court of Justice’s diagnosis

The casus belli, which has prompted the current debate about the EU’s judicial architecture, is the increase in the number of new cases brought before the GC (from 398 in 2000 to 912 in 2014); the stock of cases currently awaiting to be decided (1,423 in 2014 and expected to rise to 1,600 in 2015); and finally, the increasing number of actions for damages brought against the EU due to the excessive length of proceedings before the GC on the basis of Article 47 of the EU Charter, which guarantees a right to have cases heard within a reasonable time.

While increasing workload is not in itself a new phenomenon – and has indeed been a recurrent problem for both the CJ and the GC – the latter’s growing workload has been seen as particularly worrying. Indeed, in addition to a rapid increase in the number of cases before it, the GC’s productivity has decreased despite an increase in the number of both judges (due to the Union’s enlargement) and their legal assistants known as référendaires (see however here for a recent update from four GC judges where it is submitted that 80% of the GC’s backlog has now in fact been liquidated and that in the first four months of 2015, the number of completed cases exceeded the number of new cases filed).

In parallel to these distressing trends, the situation has begun to worsen as well with respect to the CST due to the rather childish inability of the Member States to fill two vacant slots since September 2014 – out of a total of seven as previously noted – following persistent disagreement about how the principle of rotation should be implemented.

3. The Court of Justice’s latest solution

In 2011, the CJ initially refused to consider the creation of new specialised courts – a solution which at the time was favoured by the GC itself – and suggested instead the appointment of 12 extra judges at the GC. However, following persistent disagreements between the Member States on how to rotate the appointments between themselves, this preliminary solution was removed from a package of reforms to the Statute of the Court of Justice.

This led the President of the CJ to suggest last October the progressive doubling of the number of GC judges (from 28 to 56). However, to mitigate the economic burden engendered by the proposed doubling, the abolition of the CST was also suggested – with its seven judges expected to move to the GC – and a gradual implementation of the reforms, with an initial increase of 12 judges in 2015; a further increase of 7 in 2016 following the dissolution of the CST and the transfer of its case-load to the General Court; and finally, a last set of 9 additional judges to be appointed in 2019. The proposed abolition of the CST was something of a surprise as most observers consider it a success story and indeed, it has been presented as such by President Skouris himself on the occasion of its 5th Anniversary.

Be that as it may, the CJ’s proposal would therefore ‘only’ result in the net creation of 21 extra judges, at an alleged net cost of €13.875m per year, assuming that there are 7 judges working at the CST in 2016. While this amount does not appear to take into account the €168m for the construction of a new tower, an expense which is however justified by the need to ‘repatriate’ staff who have been working in prefabricated buildings since 1999, the economic cost of the CJ’s proposal may be viewed as relatively modest. One may for instance compare this estimated cost to the total amount of damages currently claimed against the EU on the basis of Article 47 of the EU Charter, i.e., €26.8 million. The economic importance of the cases heard by the GC is also such that the cost of the CJ’s proposal is not a significant argument one may raise against it. We argue however that the solution put forward by the President of the CJ (and recently endorsed by the Council) is not adequate both from a structural and sustainability point of view.

4. Critical Assessment

As nicely summed up by our colleague Steve Peers, supporters of the CJ’s solution have relied on the following arguments to support the proposal to progressively double the number of GC judges:

1.      It would be a more flexible solution than the creation of specialised courts to the extent that litigation may increase in areas not initially foreseen and that cases most suitable for specialised courts tend to be repetitive and easy to deal with;

2.      Keeping such cases closer to the CJ would also make sense considering that the CJ may have to deal with similar cases via national references for a preliminary ruling;

3.      The appointment of new judges to the GC could be done swiftly and would also avoid any pork-barrel politics should the specialised courts not consist of a judge per Member State (as has been the case with the CST);

4.      Finally, the CJ’s solution would have the singular advantage of simplifying the EU judicial system.

These are sound arguments but unfortunately none of them are, in our view, empirically substantiated. The lack of any proper prospective impact assessment of the CJ’s proposal is, in this respect, particularly regrettable. Similarly, one may deplore the top-down, not to say authoritarian, approach adopted by the President of the Court, which suggests a deliberate attempt to avoid any meaningful discussion of reasonable alternative proposals, such as the establishment of specialised courts with jurisdiction to hear and determine direct actions in a specific area. The CJ’s proposal also marks a shift away from the principle of specialisation – endorsed by the Masters of the Treaties and set to materialise into the creation of subsequent specialised chambers, such as in trademark litigation (representing around 1/3 of the GC’s workload) – towards a generalist jurisdiction made up of two judges per each Member State.

As for the argument raised against the principle of specialisation – to avoid creating a court with a ‘rigid’ jurisdiction that might not be justified in the light of future workload – well, the same argument could actually be invoked against the creation of a ‘super-GC’ whose future caseload is unlikely to double in the near future. This is especially true given the limited access to justice in direct actions currently granted by the Treaty as interpreted by the CJ. More critically, we submit that the doubling of GC judges is an unnecessary distraction from less visible and arguably more decisive issues such as case management and productivity per personnel unit. Those challenges, if tackled properly, would most likely bring long-lasting benefits to the institution without entailing a radical restructuring of the EU’s judicial system.

We therefore propose to step back from what has become a largely emotive and not always evidence-based debate in order to gauge whether an alternative diagnosis and set of reforms should not be in order.

5. Thinking outside the dock

Although the dominant narrative accompanying this debate highlights the existence of a dramatic backload, there is a broader issue facing the ability of the GC to effectively deliver justice today.

We submit that the real difficulties encountered by the GC lie in the broader set of challenges faced by such a unique transnational and multilingual court whose jurisdiction has been growing in parallel to the transfer of competences to it since it was first established in 1989. It is important to realise that while the GC acts as an administrative court, invested with fact-finding tasks, the CJ largely operates as a constitutional court. These two courts, to oversimplify slightly, not only have jurisdiction over different kinds of cases but also hear actions originating from different actors. If the privileged client of the CJ is a national judge – largely embedded into its domestic reality – those of the GC are predominantly private business operators. Logically, therefore, the instruction of the cases should follow different operational guidelines and linguistic regime. Yet they largely don’t and this is so despite the reform of the rules of procedure.

Let us illustrate why this assimilation of the two courts when it comes to their judicial organisation may explain several of the many challenges faced today by the GC.

In both courts, the instruction of a case is led by a Judge rapporteur (JR) nominated by the relevant President according to unknown criteria (even though specialisation would seem to be taken into account at times). He/she is expected, once the written procedure is terminated, to draft a preparatory, internal document (rapport préalable). While the preparation of this working document by the JR requires on average two weeks at the CJ, it generally takes a minimum of 12 weeks at the GC (this is just an average: a trademark case might take significantly less and a competition law case significantly more). This is largely due to the fact that while the rapport préalable constitutes a few pages at the CJ, it generally consists of a fully-fledged document at the GC, which largely anticipates the draft judgment.

This difference itself reflects two different approaches: Unlike the CJ, where collegiality manifests itself on a weekly basis, allowing all Court members to exchange on the new cases that have reached maturity, the current operation of the GC shifts more responsibility to the chambers and in particular to the JR. In the absence of an Advocate General, the JR at the GC and his/her référendaire find themselves largely insulated from the rest of the Court and this for a significantly longer period of time. This situation – which is further exacerbated by the higher number of chambers – may mean a waste of precious time should the other members of the Chamber disagree with the approach developed by the JR in full autonomy over the previous months. A preliminary document stating the orientation of the chamber, to be agreed upon before the Judge Rapporteur and his/her legal assistant start working on the initial draft could be a promising area of reform. And this is only one of several areas where creative and low costs measures could be adopted to address some of today’s concerns regarding the GC’s workload. Other instances of reforms – which have largely remained taboo but would entail great savings – include a review of language arrangements (e.g. English could be used as a default procedural language in all competition or even ‘economic’ cases); a court fee to discourage vexatious or frivolous litigation; new rules on the allocation of legal costs for the losing applicant; a questioning of the automatic right of appeal, which would filter out, thus discourage, further and usually unsuccessful additional litigation initiated by wealthy parties, etc.

With respect to the judges themselves, we would wish to see the President of both the CJ and GC Courts as much concerned about quality than he is about quantity. Today, due to the concern generated by the backlog of cases before both the GC and the CJ, the metric of success of a judge has become the number of cases closed by each judge every year. Yet this ranking-based approach, which heavily relies on (internal) naming-and-shaming tools to induce judges to be more productive, has failed to deliver on its promises. This has largely to do, in our opinion, with the current external lack of transparency – and as a result, accountability – regarding inter alia the productivity of the members of the Court. This is not to say that the number of closed cases should be the alpha and omega of the Court’s judicial policy. Indeed, we would advise a broader discussion of judges’ accountability during their terms with the view of identifying quantitative as well as qualitative performance benchmarks for judges and their cabinets to satisfy on a year-on-year basis.

More emphasis on the productivity of the members but measured in a less crude way may also produce positive effects on the selection of new members. In this context, it would be a good idea to ‘europeanise’ – de jure condito – the judicial selection process further. All Member States should be mandated to publish a public call, then to put forward a list of at least three candidates for each judicial position, selected on the basis of a number of additional obligations regarding gender balance, management skills and professional background of the applicants. A preferred candidate should then be indicated by the judicial panel provided for by Article 255 TFEU, which would take into due account the specific needs, in terms of specialisation, of the Court. A reform of this nature could help diversifying judicial selection while at the same time preventing any national epistemic communities, be it academia, the national judiciary or politics – from monopolising judicial recruitment at EU level. The term of the EU judges’ mandate is another area ripe for reform and we would personally favour a single, non-renewable term of nine years, with a prohibition on any transfer of judges from the GC to the CJ during a judge’s term to avoid disruptions.

Closely linked to the issue discussed above is another sensitive one: the recruitment and supervision of support staff. With a view to improving both quality and productivity, we would prioritise a review of the feudal rules that currently govern the recruitment and management of référendaires, i.e. the EU judges’ legal secretaries. In a few words, we would favour the organisation of a regular civil service exam for the whole CJEU to guarantee a common core of knowledge in a number of areas; the adoption of updated and uniform entry requirements (e.g. candidates should be qualified to practice law or have taught law full time at university level for a minimum number of years); and the creation of a pool of qualified candidates (or two pools with a junior and a senior stream) from which judges could select their teams of legal secretaries who will be automatically appointed and retained for the duration of the relevant judge’s term as long as clear and pre-defined performance targets are met. To promote best practices, compulsory and regular attendance at management (for judges) and legal drafting (for legal secretaries) courses could be required. To favour stability and move away from the current medieval arrangements, the legal assistants should no longer be contractually linked to a particular judge but to the Court. It would also be a good idea to introduce on the one hand, some basic elements of modern employment law such as the EU rules that prohibit discrimination, and on the other hand, internal whistleblowing rules as suggested by the European Ombudsman in January 2014. Finally, to help EU judges and their cabinets deal with unusually complex and/or time-consuming cases, an additional, centralised pool of highly qualified legal secretaries in sub-specialised areas of EU Law (e.g. EU taxation law) could be set up and its members be ‘seconded’ on a case-by-case basis to relevant cabinets. A similar experience gained by the GC in its early days has been – according to many – very positive.

6. Looking beyond the workload challenge

Contrary to the dominant narrative, we argued above that the real challenge facing the Court today is more qualitative than quantitative in nature. We would therefore tend to agree with the view defended by a number of EU judges that the proposal to double the number of GC judges is ‘yesterday’s solution for yesterday’s problem’. Rather than exclusively focusing on the GC and its allegedly excessive backlog of cases, we would welcome a broader reflection in the context of a more evidence-based and inclusive framework. The urgent question today is how to ensure that the CJEU will remain an authoritative institution delivering readable, prompt and cogent rulings in a unique multicultural, multilingual and multi-legal context.

As is often the case in life, what makes the difference is the human factor. The CJEU is no exception. The solution to many of its challenges depends more on its understanding of human nature than the law. One may hope that the CJ’s new President will prove more willing to embrace a subtler understanding of the many dynamics operating within a judicial body and more proactive than reactive when it comes to judicial reform. In our view, a better system of incentives, a wiser use of psychological insights (e.g. peer-pressure), and most fundamentally, a more open court, promise more than the proposed mechanical addition of more judges. Reforms of this nature would render the Court more accountable to the outside world and enhance, as a result, its legitimacy and authority at what is a very difficult juncture for the European project.

Barnard & Peers: chapter 10

Jump before you’re pushed: the CJEU rules on the voluntary departure of irregular migrants

Steve Peers

For the first time, the CJEU ruled yesterday (in its judgment in Zh and O) on the provisions of the EU’s Returns Directive (the main set of rules governing the expulsion of irregular non-EU migrants) concerning ‘voluntary departure’. The word ‘voluntary’ is a euphemism here, of course:  there’s still a legal obligation for the migrant to leave, underpinned by the threat of force. But nevertheless it still makes a big difference to the people concerned whether they have a chance to leave the country under their own steam. If they aren’t given that chance, they are likely to be woken up in their homes in the middle of the night, arrested, detained in jail, and restrained on their journey to their country of origin or transit by an armed officer. Some are injured or die during this process. So it’s far better to jump than to be pushed.

But when do irregular migrants have the choice to do so? The Returns Directive makes it the normal rule to give them a period for voluntary departure, for a period of between seven and thirty days.  This time must be extended if necessary in individual cases, for instance whether there are children in school. But there are exceptions: Member States may decide not to grant this period, or to curtain it to less than seven days, in three cases: where there’s a ‘risk of absconding’; where ‘an application for a legal stay has been dismissed as manifestly unfounded or fraudulent’; and if the person concerned ‘poses a risk to public policy, public security or national security’.

If one of these exceptions apply, the removal must then be carried out by national officials, and the Directive in principle requires the migrant to be issued with an entry ban. (It’s still an option for a Member State to issue an entry ban in cases of voluntary departure). Migrants who have the chance of voluntary departure are entitled to family unity, emergency health care and education in the meantime, and it’s implicit that they would not normally be detained.

The Zh and O judgment concerns the third of the exceptions from the rule of giving a period for voluntary departure: the exception for ‘public policy’, et al. Last year’s judgment in Mahdi, discussed here, touched on the first exception (the ‘risk of absconding’), in a different context (the grounds for detention). Zh and O was about two separate cases, and the Dutch courts asked three questions to clarify the meaning of the public policy exception.

Judgment

The national court wanted to know whether the ‘public policy’ exception had the same meaning as the similar provisions in the EU’s citizens’ Directive, and also the EU Directives on family reunion and long-term resident non-EU citizens. First of all, the CJEU said that the exception had to be interpreted ‘strictly’. It confirmed that the three exceptions to the rule of voluntary departure were the ‘only’ ones allowed. A Member State has to ‘prove’ that there is a risk to public policy. Secondly, the voluntary departure rule aimed, among other things, to protect the ‘fundamental rights’ of the persons concerned during the expulsion process.

So while Member States ‘retain the freedom’ to decide on the concept of public policy, they did not have full latitude to determine the concept without any control by the Court. Here the CJEU referred ‘by analogy’ to case law on the EU citizens’ Directive. So the exception had to be applied on a ‘case-by-case basis’, to decide if the ‘personal conduct’ of the migrant ‘poses a genuine and present risk to public policy’. This meant the suspicion of committing a criminal act, or even a criminal conviction, could not by itself justify the conclusion that a ‘public policy’ risk exists.

On the other hand, the ‘public policy’ exception could still apply where an appeal against a criminal conviction had not yet been decided, or where there was no conviction, as long as ‘other factors’ justified the use of that exception. What are those other factors? The Court referred to the ‘nature and seriousness’ of the act and ‘the time which has elapsed since it was committed’. So the national court had to consider that in one case, the migrant was actually not trying to stay in the Netherlands without authorisation, but was on his way out (travelling to Canada) when he was stopped. In the other case, the migrant had been accused of domestic abuse, but it was relevant that there was nothing to substantiate that accusation.

Finally, the Court ruled that there did not have to be a separate assessment of the question of limiting voluntary departure; that issue could be considered when making the initial return decision. The Court reiterated its prior judgment in Boudjlida (discussed here), when it ruled that the migrant must have the opportunity to be heard on the question of whether voluntary departure ought to be granted.

Comments

The Court’s analysis in this judgment has broader implications. First of all, unlike the Advocate-General’s opinion, the Court drew an analogy between the concept of ‘public policy’ in the EU citizens’ Directive and in the Returns Directive. It should follow that the public policy exceptions in the EU’s legal migration legislation (and not just in the two other Directives referred to by the Court) should be similarly interpreted.

Secondly, the Court’s general approach to the exceptions to the rule of voluntary departure is surely equally relevant to the other two exceptions from that rule: the risk of absconding and the manifestly unfounded or fraudulent application to stay. So those other exceptions must be strictly interpreted; Member States have the burden of alleging them; and migrants can object to their application during a form of hearing.

Thirdly, a criminal conviction or suspicion does not by itself trigger the ‘public policy’ exception. But they can be considered along with other factors. The Court did not suggest that the factors which it referred to (departing the country, limited credibility of an allegation) were the only factors to take into account. So there might well be others in other cases. Presumably, for instance, it would conversely be relevant if a migrant’s battered wife has been admitted to hospital. A prior history of irregular migration or criminal convictions (and conversely, the absence of any such prior history) might also be relevant.

More broadly, the Court’s approach, expressly linking the opportunity for voluntary departure with the protection of human rights, properly takes account of the dramatic impact of forced removal on individual migrants. Its judgment does not limit the underlying obligation for irregular migrants to leave the European Union. But it rightly tempers that obligation with a consideration for the basic humanity of the people being removed.

 

Barnard & Peers: chapter 26

Integration requirements for third-country nationals: the first CJEU ruling

Steve Peers

When can a Member State require immigrants to undertake integration courses? The Court of Justice dealt squarely with this issue for the first time in today’s judgment in P and S, which concerned the application of the EU’s Directive on the long-term residence of non-EU citizens. (The UK, Ireland and Denmark have an opt-out from this law).

The judgment has a broader relevance, since the EU Directive on family reunion for non-EU citizens also provides for Member States to adopt integration conditions. On the other hand, EU free movement law does not provide for Member States to impose such conditions on EU citizens or their family members. As for Turkish nationals, the EU-Turkey association agreement does not provide for such a condition either, but Member States may impose one subject to a standstill rule in most cases (see last year's Dogan judgment, discussed here).

Today’s judgment turns on the wording of the long-term residence Directive, which states that Member States ‘may require third-country nationals to comply with integration conditions, in accordance with national law’. The case concerned non-EU citizens who already had long-term resident status under the Directive, but Dutch law still requires them to take civic integration courses and penalises them with a fine every time they fail. A later change to Dutch law requires non-EU citizens to pass these courses before they get long-term residence status, but that later version of the law was not directly at issue in this case.  

Judgment

According to the Court, the requirement to take integration courses does not as such infringe the Directive, first and foremost because the Directive clearly permits an integration condition to be imposed before obtaining long-term resident status. Next, the Court ruled that the requirement did not breach the equal treatment rule set out in the Directive, since Dutch nationals could be presumed to have knowledge of Dutch society and the Dutch language, whereas non-EU citizens could not.

However, that was not the end of the Court’s analysis. It then focussed on whether the national rules undercut the effectiveness of the Directive. The Directive had as its main aim the integration of non-EU citizens, and the Court stated that learning the national language and about the host State could facilitate communication with Dutch citizens, and ‘encourages interaction and the development of social relations’. Acquiring a knowledge of Dutch also ‘makes it less difficult’ to find work and take up training courses. The integration requirement therefore contributed to the aims of the Directive.

The Court went on to say that there were some limits upon what Member States can do, as regards ‘the level of knowledge required to pass the civic integration examination’, ‘accessibility of the courses and the material  necessary to prepare’ for the exams, the level of registration fees and ‘specific individual circumstances, such as age, illiteracy or level of education’. But the Court seemed most concerned about the amount of the fines, which were quite high and would be imposed for every failure, or even where the non-EU citizen had not sat the exam within the required time. The fines were also imposed on top of the high fees to sit the exam. So in principle this aspect of the system infringed EU law, although it was left to the national court to apply the Court’s ruling in practice. Finally, the Court stated that it was irrelevant whether the persons concerned already had long-term resident status, since (in this case) it was not a condition for getting or retaining that status.

Comments

The Court’s ruling makes clear that Member States can in principle impose integration requirements for long-term residence status, subject to the principle of effectiveness. The main feature of that principle in this case was the fees for failing (or not sitting) the exam, in conjunction with the fees for sitting the exam. Obviously the Dutch government is now obliged to lower those fees, and other Member States’ rules could be challenged on the same basis. The ruling is obviously particularly relevant to less wealthy migrants who would struggle to pay the fines and test fees several times over.

Although the Court did not rule in any detail on the other limits which EU law imposes upon national integration requirements, such limits certainly exist, as regards the level of knowledge needed to pass, the accessibility of tests and materials, and ‘specific individual circumstances’. It is not clear from the judgment exactly how Member States are obliged to take account of such circumstances – whether by means of a complete exemption from the test or a different version of it. But it should be noted that the list of specific circumstances mentioned by the Court is not exhaustive (‘such as’).

While the judgment clearly implies that Member States may even withhold long-term residence status if an integration test is not passed, the Court did not rule on that issue as such. So it remains open to argue that there may be stricter limits or other factors to consider when Member States impose an integration condition to acquire that status.

Nor did the Court rule on whether the failure to meet an integration condition could be a ground to lose long-term resident status. The Directive does not list this as one of the possible grounds for loss of that status, and it should follow from the objective of the Directive that the list of grounds which could lead to such a loss of status is exhaustive. This also follows from the structure of the Directive: if failure of an integration test could lead to loss of status, why did the drafters of the Directive only mention integration tests in the clause dealing with acquisition of that status?

Today’s judgment is only the first in a line of cases upcoming concerning integration conditions (the next batch of cases concern the parallel clause in the family reunion Directive). As a starting point, the Court has struck a good balance between ensuring that immigrants fit into society and the need to prevent integration tests forming a disguised means of excluding migrants from ever really fitting in despite their genuine efforts.

Barnard & Peers: chapter 26

An EU Neverendum: Should the UK keep voting on its EU membership?

 

Steve Peers

A recent press story suggested that supporters of the ‘Out’ side in the upcoming referendum are already planning to argue, in the event of an ‘In’ vote, that a further referendum must be held again within a few years. At first sight, it looks as if at least these ‘Out’ supporters expect to lose the referendum, and are planning to be sore losers at that. I wonder if that is a helpful message for them to send – but then it’s not my role to advise the ‘Out’ side on strategy.

But is it intrinsically outrageous to suggest that there should be a further referendum on the issue? The ‘Out’ side can reasonably argue that they are only copying the strategy of pro-EU politicians, who pushed for fresh votes in Denmark and Ireland after three referenda in those states voted down the Treaties of Maastricht, Nice and Lisbon, and repackaged the Constitutional Treaty after it was defeated in the French and Dutch referenda. In principle, that’s a fair point to make: but if the ‘Out’ side are going to make it, they can no longer criticise the pro-EU side for being ‘undemocratic’ when it pushed for repeat referenda. In fact, the anti-EU side already have form on this issue themselves – since they went back to the Czech Constitutional Court to challenge the Lisbon Treaty a second time, when they didn’t like the first court ruling. The judges weren’t impressed.

Repeated referenda are not unheard of in other contexts or countries: Ireland has had several referenda on divorce and abortion, and Quebec has twice voted on separation. Many Scottish nationalists also aspire to a second independence referendum in the foreseeable future. So I don’t think one can simply argue that referenda should never be repeated. But I do think that they should only be held in certain circumstances.

What circumstances are these? In my view, there are two: a significant change in circumstances, and the conditional nature of the vote. These two criteria may well be present at the same time. The first of these criteria justifies having a new vote on the UK’s membership now, given the changes that have occurred since the last vote in 1975: five major Treaty amendments and five enlargements of the EU, leading to much greater ‘immigration’ of EU citizens to the UK. The second Quebec separation vote was justified on the basis of the second criterion: Quebeckers voted ‘no’ to independence in 1980 on the premise that the Canadian constitution would be amended to address their grievances. Two attempts to agree such amendments then failed, and that was the rationale for having another independence vote in 1995. Some Scots argue similarly that promises of greater devolution to Scotland made in the 2014 independence referendum are being broken; and many Scots believe that if the UK votes to leave the EU while Scotland votes to stay, the first criterion would be satisfied.

How do we apply these criteria to the EU referenda? In all the cases where a second referendum was held, there were intervening changes in circumstances. There were Decisions and Declarations by the EU which directly addressed those concerns of the Irish and Danish voters who had voted ‘No’. The Constitutional Treaty was scrapped as such, and replaced by the Lisbon Treaty, which contained most of the same substantive text, but without the ‘constitutional’ trappings of the failed treaty which had outraged the anti-EU side so much at the time.

Applying these rules to the UK’s planned EU referendum, there would be a case for a new vote if there were intervening changes in circumstances, which directly refuted the basis for voting ‘In’.  Equally there would be a case for a fresh vote, if most or all of the case for the ‘In’ side was based on conditional promises of EU reform which then did not take place.

Of course, two can play this game. It must equally follow that in the event of an Out vote, there would be an argument for holding a fresh referendum on the basis of the same two criteria. Article 50 TEU, the ‘withdrawal’ clause, expressly provides that a State can apply to rejoin the EU if it leaves. It’s also arguable that a State can cancel its withdrawal request, although Article 50 is not clear on this point either way. Certainly it’s possible to suspend a withdrawal request de facto, by delaying the withdrawal date indefinitely. (See further my discussion of Article 50 here).

What would this mean in practice? Applying the first criterion, it’s possible that the remaining EU would be upset at the prospect of UK withdrawal so much that it offered a new renegotiation package before it happened. Or imagine that in the longer term, the EU changed profoundly, allowing for more restrictions on the movement of people and a greater number of vetoes for national governments and parliaments. There would then be a good case for holding a vote on rejoining. Applying the second criterion, there would be a case for a second referendum if the conditions set by the Out side were not satisfied in practice: for instance, if there were no satisfactory trade deals with the remaining EU and many third States, or if the UK still had to pay a price in return for trade access (contributions to the EU budget, acceptance of EU regulation, the full free movement of people) which the Out side had claimed that it would not have to pay.

 

Art credit: M.C. Escher