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
Photo credit: maslmaslmasl, via Wikimedia Commons