Climate case against ING: what does it mean for monetary policy?

 

Annelieke Mooij, Assistant Professor, Tilburg University

Photo credit: Sandro Halank, via Wikimedia Commons

The Dutch climate organization “milieudefensie” had threatened to start a case against the Dutch ING bank. The 14th of February 2024 the ING has responded that it will not give in into the demands of the climate organization. Hence making it highly likely that the climate policy of the ING will face legal challenges. Prima facie the case seems without EU relevance as it concerns a national climate organization suing a national bank. Though the case may seem to lack European relevance, the opposite is true. The decision by the Dutch judiciary may have serious European consequences. In particular for the Monetary Union and may even bypass the independence of the ECB.

Milieudefensie v. ING

The climate organization (plaintiff) asks the court to order the ING to take four concrete steps. The first is to align its climate policy with the target of 1.5C as stipulated by the Paris Agreement. The second demand is that the ING reduces its own emissions by 48%CO2 and 42% CO2e by 2030. Third that it stops financing large corporate clients who have adverse climate impacts. The fourth and final demand is that ING engages in discussion with the plaintiff about how to substantiate these demands. The demands made by the plaintiff are serious claims. Raising the question of the likelihood these demands are met by the Dutch court.

Whilst the court summons is not yet finalized it is likely that the plaintiff will refer to two earlier cases. The first is to an earlier case won against the Dutch state. In the Urgenda case the Dutch Supreme Court ruled that the state had to reduce its emissions in accordance with the Paris Agreement. The Supreme Court did not state how the state had to comply, simply that it had to comply. The case gave a strong message to the state that it had the obligation to meet the climate agreements. Urgenda provided the foundation for the second case.

The second case that the plaintiff will likely reference is that of Milieudefensie v. Shell. This case still has an appeal pending. The case concerned the climate responsibilities of Dutch oil concern Shell. The judiciary decided that Royal Dutch Shell (RDS) was responsible for the emission reductions of the global shell activities. In this capacity it had to reduce its global emissions by 45% by 2030 in comparison to 2019 levels. This was considered a revolutionary case as it is one of the first where the judiciary recognized climate duties against a legal person.  The legal foundation was article 6:162 of the Dutch Civil Code, this article is a form of tort law. The court considered that the emission reduction plans of Shell were not concrete enough. Shell thereby violated an unwritten duty of care. Prima facie the case against ING therefore looks strong. There are, however, two obstacles to overcome.

The first minor challenge is that of the impact of ING’s financial products on their clients. In the case against Shell the court considered that the mother company RDS determined the policy of the entire group (paraf. 4.4.4). It therefore had the influence to change the companies’ policies and directions. Arguably a bank can have a similar steering influence upon the direction of its clients. In particular the ING may refuse loans intended to buy polluting machines. On the other hand banks can approve loans for investment in greener operations. Loans can thereby have a powerful impact upon the direction of a consumer. Operating credit on the other hand will have a less likely impact on the course of a business. To demand that all financing is discontinued to corporate clients who do not have a climate plan provides a broad interpretation to the duty of care of the banking sector. In particular, as the Dutch judge will have to weigh the right to a clean environment against the right to operate a business.

The second difficulty is that unlike RDS, ING’s emissions (in)directly result from a varied investment portfolio. As stated by the response of ING measuring merely the emissions can lead to a negative climate result. An increased investment in heat pumps, increases the emission portfolio of ING but can decrease global emissions. The emissions in the Shell case were the direct result of the company’s own activities. Redirecting its efforts from fossil fuels to sustainable energy will have a positive impact upon the fight against climate change. In length of this argument Ferrari and Landi argue with regard to central banks that investments should be made not by simply investing in the lowest emitters.  Instead of this so-called “best-in-universe” approach, banks should invest in companies that do well within their substitute production group. The so-called best-in-class method of investment. Through this approach global demand can be shifted to green products. Therefore unlike the Shell case the court will have to decide between a blanket reduction of emissions which may have a negative environmental impact, or a best-in-class approach. The difficulty is that the court will then have to provide instructions not on what goals to achieve but rather on how to achieve emission reductions. The methods of achievement has been something the court has refrained from doing in both Shell and Urgenda. The decision on methodology may have a large impact on the future European Central Bank’s purchasing programmes.

 

Impact on the Monetary Union

The right to (private) life codified in the European Convention for Human Rights (ECHR) played a significant role in these cases. Article 52(3) of the EU Charter states that the ECHR provides a minimum level of protection. The CJEU may therefore award a higher level of protection but not lower than the ECHR. The interpretation of the ECHR therefore has a large influence on the fundamental rights protected within the EU Charter of Fundamental Rights.

The judgements of national judges are not binding for the European Court on the Convention of Human Rights (ECtHR). However, when there appears to be a consensus among the majority of members the ECtHR considers there is common ground. The existence of common ground decreases the margin of appreciation for the member states. The case of Urgenda directly involved an appeal to human rights against the state, specifically the right to life (article 2) and private life (article 8). Similar cases have been successfully tried in Ireland and France. The ECtHR is yet to rule on the climate change cases that are pending. There however seems a likelihood of a positive outcome for the plaintiffs. The CJEU will have to consider the scope of these cases and can decide on the same or a higher standard of protection. There is, however, a difference with the case of ING.

The cases against the states directly invoked human rights. In the Shell case the Dutch judge only indirectly applied the fundamental rights when interpreting the duty of care. It will likely do the same in the case of ING. This provides a less strong signal about common ground to the ECtHR that the right to a clean environment includes specific obligations for banks and other legal persons. It will take more national judges to reach similar judgements to provide the ECtHR with to conviction that there is common ground. The court in the Shell case, however, included the in its considerations the UN Guiding principles. These principles create a large common understanding throughout the ECHR members. The states obligation to enforce direct obligations for legal persons through its courts are likely to be accepted by the ECtHR.   If so it cannot be ignored especially by the largest bank in the EU; the European Central Bank (ECB).

The ECB has a tiered mandate. Its primary objective is to obtain price stability which has been defined as keeping inflation under but close to two percent on the medium term. To achieve this goal the Treaty on the Functioning of the European Union (TFEU) has granted the ECB with a high level of independence. This means that neither the EU or national legislators cannot determine or influence how the ECB executes its monetary policy. The ECB is therefore likely to argue that it cannot be influenced as to how it conducts is monetary policy even with regard to climate change. The ECB, however, is not immune from other primary or secondary legislation. In the Olaf case the CJEU considered that the ECB falls within the EU legal framework. Its independence only protects the ECB against political influence when it conducts monetary policy.

In addition to its primary mandate the ECB has a secondary mandate to abide by. This mandate includes “[…]the sustainable development of the Earth”. The ECB has to comply with its secondary mandate if it does not violate its primary mandate. Currently this is interpreted by the ECB to mean that when the ECB has a choice in how to achieve its price stability objectives, the secondary mandate is guiding. The secondary mandate, however, has various goals. Some of these goals can be achieved simultaneously but some are independent or even substitute goals. This makes it currently difficult to pinpoint to the legal obligations of the ECB from the secondary mandate. When it comes to climate change, however, the ECB considers itself bound by the Paris Agreement. In addition the ECB has to abide by the EU Charter of Fundamental Rights. It is however unclear what precise duties these treaties bring to the ECB when it carries out its private sector funding programmes. The ECB states that it is trying to decarbonize its corporate sector portfolio’s by using a method called tilting. The green bonds in the sector are given preference to the brown bonds. The difficulty is that when green bonds run out the ECB will continue by purchasing brown bonds if it considers this necessary for its monetary aim. The case of Milieudefensie v. ING, can provide clear guidance with regard to the ECB’s fundamental right climate responsibilities in its corporate sector programmes.  The Dutch court’s reasoning can provide the balance between a bank’s obligations to climate against the right to operate a business. This reasoning can be incorporated by the ECB.

The ECB makes choices with regard to how (intense) to pursue price stability. These choices should be guided by human rights such as climate change and economic needs. The ING decision can create a guiding framework on how to balance these different interests. However before such guidelines can be considered binding more national cases need to be tried, or the ING case would have to reach the ECtHR. Still quite a road to be travelled.

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

Photo credit: maslmaslmasl, via Wikimedia Commons

The European Central Bank – judicial review of monetary policy and banking supervision

Introduction

The financial crisis has had broad political and economic effects across the European Union. It has had legal effects too – leading to the European Central Bank (ECB) not only developing controversial new means of intervention in monetary policy, but also being granted new powers of banking supervision and (with the ‘Troika’ of the Commission and the IMF) becoming involved in austerity policies in the Member States that needed financial assistance. 

The two blog posts below discuss recent developments in the case law on review of the monetary policy (Weiss: blog post by Annelieke Mooij) and banking supervision powers (La Banque Postale: blog post by Carlos Bosque and Alejandro Pizarroso) of the ECB. As for judicial review of austerity policy, the EU General Court recently followed up the CJEU ruling in Ledra Advertising (discussed here) with its judgments in Bourdovali and Chrysostomides.

While the recent judgments reaffirmed the limited judicial review of ECB measures on monetary and austerity policy, they suggest a contrary willingness to demand stricter judicial scrutiny of banking supervision. Whether this becomes a more general trend remains to be seen.

Judicial review of the ECB’s monetary and economic policy powers: the latest chapter

Annelieke Mooij, PhD student in EU law, Dublin City University

In June the last bail-out agreement was struck with Greece signalling the end (at least for now) of the Greek financial crisis. The Asset Purchasing Programme of the European Central Bank (ECB), also known as Quantitative Easing, has ended in December 2019. And the most recent case in the important euro-crisis case-law, the Weiss case, has been decided in December. This is not to say that the discussion surrounding the economic and monetary union is finalized, nor that no financial crisis will ever rise again. It is therefore important to reflect on the past crisis and prepare for the next.

During the euro-crisis several topics were an important point of discussion, but none was as prevalent as the question into the powers of the ECB. More precisely to what extend may monetary policy impact economic policy?  The Treaty on the Functioning of the European Union (TFEU) clearly splits economic and monetary policy. Whereby economic policy is left for the Member States to conduct and monetary policy is within the competence of the ECB. The euro-crisis, however, has shown that these two policies are not so easy to separate. Leading to separate cases where the Court had to decide upon the lawfulness of the OMT programme (Gauweiler, discussed here) and Public Asset Purchasing Programme (Weiss). With the crisis and the Decision of the Court behind us, it is time to add-up the scores and answer the question to what extent may the ECB enter the field of economic policy and what instruments has it gained?

Brief recap

In order to assess the impact of the crisis it is first necessary to make a brief overview of the state of the art before the crisis. The monetary goal of the ECB in the TFEU was described as price stability which is by the ECB defined as inflation close to but under 2%. In addition the ECB may support, without undermining monetary policy, general economic policy.

The instruments available to the Bank are listed in the Protocol of the ESCB, Article 18.1 defines two clear instruments. The first is the purchase and sale of marketable instruments, the second is to conduct credit operations. According to the Article 123 TFEU the ECB is prohibited from directly financing Member States and according to Article 125 TFEU the ECB may not bail-out Member States. Pre-crisis these formed the most important contours of ECB’s powers with regard to monetary policy. Then came the euro-crisis.

Crisis case law

The euro-crisis case law exists of three major cases Pringle, Gauweiler and Weiss. The Pringle case did not involve the ECB but concerned the ESM programme, in the form of a treaty between Eurozone Member States to assist those among them which were having economic difficulties. It is nevertheless an important case as the Court accepted that there can be overlap between economic and monetary policies. This approach abandons the strict separation that flows forth from the Treaties. From the perspective of the ECB this is not very unexpected as the ECB is allowed to conduct monetary policy and support economic policy. The problem however is the definition of “support”. The word support entails that it may not determine economic policy, but the line between the two seems vague.

In the Gauweiler decision the Court stated that in order to determine whether a measure is of monetary or economic policy the objectives and instruments have to be assessed. The OMT programme under discussion in the Gauweiler case had as objective to restore the monetary transmission channels and the singleness of monetary policy (paras. 46-49). This included counteraction against the speculation of a break-up of the Eurozone. Adding the objective of keeping the euro together may not have fallen within a strict adherence to the law. It is however not strange that the ECB chose to save the euro. The Eurozone falling apart may have led to further implications for the price stability goal.

The second criterion in determining whether a measure is of monetary or economic policy is that of the instruments used. In the Gauweiler case it became clear that these operations may have economic effects (para. 52).  They may however not be violating either directly or in spirit the no-bail out clause and the prohibition upon direct lending. The Court determined the main criterion to evaluate this was by asking the question whether the impetus to keep a sound budgetary policy is kept.

The Weiss case added that these so called “indirect effects” do not have to be unforeseen and can be knowingly accepted (para. 62). The Court furthermore states that in order to reach inflationary goals the ECB’s policy will impact interest rates and the real economy – thereby accepting that monetary policy, in order to be effective, will often impact economic policy (para. 63). This conclusion is neither unexpected, nor unwanted per se as the Treaty clearly provides the ECB the power to support economic policy. Yet in the Gauweiler case the Court also accepted the role of the ECB within the so-called Troika.

The Troika consists of the Commission, ECB and the IMF and has been given shape in the ESM Treaty. This Treaty provides the Commission, IMF and the ECB, when a Member applies for support, with the task to negotiate and monitor the Memorandum of Understanding (MoU) with the Member in need of assistance. This MoU contains many aspects arguably economic in nature. The negotiation and monitoring is considered by the Advocate General as one of economic policy. The Court does not go into this matter in its judgement. By not going into the role of the ECB within the Troika the Court arguably accepts – or at least allows this function. It therefore seems that during the crisis the ECB has gained the power to negotiate and implement certain economic goals. These instruments are difficult to view as monetary policy instruments. The remaining option is to classify them as in support of general economic policy.

Weiss – the last chapter?

Arguably the last chapter, at least for now, in crisis case law is that of the Weiss case. In the Weiss case the programme under discussion was that of the Public Sector Purchasing Programme (PSPP). Unlike the OMT programme the PSPP has actually been implemented. Legally, however, this makes little difference as the OMT programme was adjudicated as if it would be implemented. This programme is technically one of four programmes conducted under the Asset Purchasing Programmes. The word technically is used in this context because the PSPP purchases far outweigh the other programmes. In the last month of the programme the PSPP volume was a rough 81% of the total purchases.

This is interesting to note as one of the criticisms after the Gauweiler case was that the arguments of the ECB were taken at face value. This seems the case for the argument given by the Advocate General (para. 150.) that PSPP is “just one of the four-programmes”. Part of this might be because the Court only assesses whether the ECB has made a “manifest error of assessment” (para. 91). In the same paragraph the Court however also states that monetary policy decisions are usually controversial and “nothing more can be required of the ESCB apart from that it use its economic expertise and the necessary technical means at its disposal to carry out that analysis with all care and accuracy”. This almost creates a situation whereby technical assessment of the ESCB’s judgement is impossible, as it is difficult to find a body appropriate to “second-guess” the ECB’s decision-making.

Another main difference between the two programmes was that the OMT programme was only to be applied to countries that fulfilled certain conditionality requirements.  The PSPP on the other hand was a general programme, which is arguably closer to the ECB’s monetary goals. The Court considers that a general programme can still breach the monetary assistance prohibition of article 123 TFEU if the ESCB creates a de facto certainty of purchase for the primary actors (para. 110). 

Interestingly it also considers that due to the division key the more debt a Member State accumulates, the lower the proportion the national bank buys (para. 140). Therefore despite the general application of the programme the ESCB is still able to uphold the incentives for individual Member States to keep a sound budgetary policy. Unlike the referring court the ECJ does not go into the numeral specifics of the volume of purchases. Thereby indirectly confirming the budgetary independence the ESCB enjoys. This, however, also indicates there are few or no organs within the EU to check the details of ESCB decisions.

Conclusions

With the euro-crisis slowly becoming history (at least for now) it is time to assess its impact. The impact of the euro-crisis upon the European Central Bank has been serious. Case law has shown that monetary policy and economic policy are not strictly separated and one may influence the other (Gauweiler). This influence cannot be contrary to monetary policy but the effects can be foreseen and knowingly accepted (Weiss). Secondly the power of the ECB to support general economic policy is more clearly defined. This power may include the task to negotiate and monitor compliance of fiscal reforms. The legality and consequences of the latter caused debate amongst scholars and could form a cumulative process that should be carefully watched.  The Weiss case did not bring major reforms, nor does it seem out of place. It however further demonstrated that there are few organs to check the specific arguments put forward by the ECB. Though the ECB was designed as a highly independent bank it is difficult to imagine that this level of independence was desired.

Welcome to Hard Look Review, ECB

Carlos Bosque* and Alejandro Pizarroso**

* Legal Counsel at the European Investment Fund. Doctoral Candidate at the Universidad Carlos III de Madrid

** Legal Counsel at the Bank of Spain. LL.M. Graduate at the Columbia Law School

The views expressed herein are those of the authors, and not of the European Investment Fund or the Bank of Spain

Discretion, like the hole in a doughnut, does not exist except as an area left open by a surrounding belt of restriction. It is therefore a relative concept. It always makes sense to ask, “Discretion under which standards?” or “Discretion as to which authority?”

-          Richard Dworkin

Some European cases (and many recent ones, like the decision on the lawfulness of the public sector asset purchase program, discussed in the post above) seem to immediately draw the attention they deserve. Others, however, tend to go unnoticed. Among these, we may find La Banque Postale (T-733/16), a General Court case (sided by five identical rulings concerning other French credit institutions) dealing with the review of ECB supervisory decisions, which resulted in the annulment, for the very first time, of one such decision. The case revolved around the degree of discretion that the ECB should enjoy in its supervisory action. The message sent by the General Court was, however, quite clear. It effectively welcomed the ECB to a heightened standard of review —to hard look review.

We will analyse this question here, but first we turn to the case.

 The facts are quite simple. In the aftermath of the Financial Crisis, the European Union legislator introduced a leverage ratio in order to discourage financial institutions from taking on excessive leverage risk. This ratio assesses the capital of an institution in relation to its exposures. But it does so independently of the risks associated to the latter, so as to measure the overall exposure of an institution. Some exemptions are nevertheless permitted. In 2014, Article 429(14) of Regulation 575/2013 was passed, creating a derogation for exposures arising from the deposits that an institution may be forced to transfer to a public sector entity for the purposes of funding general interest investments. The ECB, says Article 429(14), “may permit” these exposures to be excluded from the calculation of the leverage ratio of an institution.

Pursuant to this provision, La Banque Postale requested the ECB to exclude from the calculation of its leverage ratio the amounts collected through certain regulated savings accounts that it was legally bound to transfer to a public entity. The ECB, however, rejected its request. It advanced three reasons for its decision. First, it argued that the institution remained globally liable for these exposures. Secondly, it noted that La Banque Postale was obliged to reimburse its depositors for the amounts transferred to the public entity, independently of whether the latter returned the funds to the institution, and even in the event of France’s default. Finally, the ECB contended that the inevitable delay when retrieving the funds from the public entity could lead to a fire sale in the case of a bank run. La Banque Postale, whose leverage ratio denominator was to raise by 50% from such refusal, challenged this decision.

The case presented two issues: (1) whether the ECB had discretion in the application of the exemption; and, if so, (2) whether the ECB had exercised its discretion in a permissible manner.

While the first issue was relatively easy to decide, given the clear language (“may permit”) of the provision, the second issue was rather more thorny. Having established that the ECB enjoys discretion in the application of the exemption provided that the conditions in Article 429(14) are met, the General Court turned to the second question. The answer was clear: the ECB did not exercise its discretion in a permissible manner. To reach this conclusion, the General Court relied on its traditional standard of review for discretionary decisions. EU courts —it noted— must not substitute the judgment of administrative bodies; their assessment is confined to determine whether an administrative decision is based on materially incorrect facts, or is vitiated by an error of law, manifest error of appraisal, or misuse of powers. But the application of this standard was quite interesting.

According to the General Court, the first two grounds put forward by the ECB were affected by an error of law, because the ECB denied the exemption on reasons that were inherent to the exposures referred to in the provision, thus rendering the exemption almost inapplicable. The possibility that France may default —the main basis for its decision, as the ECB admitted during the trial— was specifically dismissed. Since the derogation in Article 429(14) refers only to amounts deposited in a public entity, which are thus state backed, the possibility that the country in question may default cannot be grounds for denying the exemption.

But the opinion also found that the third reason advanced by the ECB was vitiated by a manifest error of appraisal. The General Court noted that, even if the liquidity risk identified by the supervisor may materialize in some cases, the ECB had previously admitted that small delays in retrieving the funds from the public entity were immaterial for the assessment of the institution's liquidity ratio. The ECB, in fact, had established such view in a previous decision concerning the liquidity ratio of La Banque Postale, and its analysis was backed by the EBA. This incoherence, the court found, runs counter to the principle of sound administration that applies to all EU institutions. The ECB’s decision denying the application of the exemption was therefore annulled.

In our view, this ruling should not go unnoticed. Certainly, it is the first time that a supervisory decision of the ECB has been annulled since the Single Supervisory Mechanism became operational in 2014. But how should we read this case? The little attention that the judgment has drawn appears striking if, as we are inclined to think, the General Court is sending a clear message to the ECB with respect to its discretionary powers in the field of banking supervision.

The General Court, in fact, seems to be welcoming supervisory decisions to hard look review, a term coined in the United States to refer to the rigorous standard of judicial review applied to agency's action since the 1970s (the phrase is usually associated with the US Supreme Court decision in State Farm). The General Court recites its usual standard of review for administrative discretion, but as Professor Craig has taught us, what really matters is how the test is used, the intensity of review that the court applies (Paul Craig, EU Administrative Law 445 (3rd ed. 2018)). It is true that the two specific rules that can be extracted from the case (i.e. discretion cannot be exercised in a way that runs counter to the objective of the provision being applied or its effet utile, and discretion does not allow an administrative body to be incoherent in its assessment over a given subject) appear to be reasonable.

But what matters is how scrupulous the assessment of the General Court was, as evidenced by the (at times, excruciating) lengthiness and complexity of the ruling. The court avoids substituting the ECB’s judgment. However, it carefully weighs each and every one of its arguments, despite the clear discretion afforded by the governing rule, and regardless of the issue’s technical nature. The court seems to be telling the ECB that, unlike monetary policy, where it “must be allowed … a broad discretion” (Gauweiler, C-62/14, ¶ 68), banking supervision is an area of the law where stringent review of discretionary administrative action applies.

The General Court, though, offers a way out for the ECB —sufficient justification. While the opinion does not specifically highlight this aspect, it suggests that by formulating clear reasons for its decision the ECB could have denied the application of the exemption. By carefully examining the plausibility of France's default or the liquidity risk incurred by La Banque Postale for the transfer of funds to a public entity, the General Court seems to say, the decision could have been upheld. But it is now clear that, in its supervisory role, the ECB is but another administrative body of the EU, whose action will be subject to intense scrutiny on the part of the General Court, and whose decisions will have to be carefully justified in order to survive this heightened standard of review.

Whether this development should be praised (enhanced judicial review?) or not (ossification of administrative action?) is a matter of opinion. This is an issue where reasonable minds can reasonably disagree, but its importance justifies giving it the attention it demands. The conclusions drawn here are tentative, as we need to see whether subsequent judgments (by the General Court or the Court of Justice) will conform to this case law. However, La Banque Postale should serve as a warning —welcome to hard look review, ECB.

Barnard & Peers: chapter 19

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Towards a European Monetary Fund: Comments on the Commission’s Proposal

Michael Ioannidis, Senior research fellow, Max Planck Institute for Comparative Public Law and International Law, Heidelberg.

On 6 December, the European Commission presented a package of proposals on the further integration of the Eurozone. This was the first effort of European institutions to put on paper the rules that could shape post-crisis EMU, an issue that took centre stage in European politics after Macron’s election in France and will probably receive a new impetus after the formation of the new government in Germany. The most important part in Commission’s package is the proposal to bring the European Stability Mechanism (ESM) within the EU framework. The ESM, Europe’s main financial assistance mechanism, was set up in 2012 by an international treaty between Eurozone Members. For various reasons, legal and political, it was established as an organization of public international law, outside the EU. The Commission now proposes that the Council adopts a Regulation to make the ESM “a unique legal entity under Union law”, change its name, and add few more tasks to its mandate. Annexed to the proposed Council Regulation is a Statute governing the new body that is largely (but not entirely) based on the current ESM Treaty (ESMT).

Rebranding

The proposed Regulation starts with a marketing exercise, rebranding the ESM as EMF (European Monetary Fund). The name EMF was popularised by academics at the beginning of the crisis as part of the call to establish a European assistance mechanism, a suggestion that was practically largely realized with the establishment of the ESM in 2012. The name EMF remained, however, in the agenda of policy-makers as a symbol of Europe eventually getting its own regional equivalent of the IMF – and becoming less dependent on the latter in future crises. The Commission takes on board the widespread charm of the name EMF – but this is not a choice without its problems.

The new name, having “monetary” at its centre, alludes to the monetary tasks within the EMU that the TFEU (and the CJEU in Pringle) clearly distinguishes from economic policies and ascribes exclusively to the ECB. Quite expectedly, the body with the closest name to EMF in European institutional history was the European Monetary Cooperation Fund (EMCF), established by Regulation (EEC) No 907/73 with monetary-related tasks. Even if one admits the allure of IMF’s acronym, two things need to be reminded of. First, the original name under which the IMF itself was conceived was “International Stabilization Fund” (ISF). The reason for ultimately adopting IMF instead of ISF was United Kingdom’s (and JM Keynes’) insistence that the word “stabilization” alluded to the stabilization funds of the past, used to influence currency exchange rates and connected to unpleasant British experiences of keeping the pound pegged to the international gold standard. Such connotations are not of contemporary concern.

Second, the IMF, which has access to financial resources through the central bank reserves of its members, has closer connection with proper monetary authorities than the ESM, which is financed by issuing bonds in capital markets. The establishment of the European Financial Stabilisation Mechanism (EFSM) by the EU in 2010, a body within the EU framework and very similar function with the EMF, attests to the view that the words “Stability” or “Stabilization” are accurate descriptors of the function of the future EU financial assistance mechanism. ESF (European Stability Fund) could thus be a plausible alternative to EMF.

Conditionality

The Commission rebrands the ESM to mirror the IMF’s name, but it is much more hesitant to give the new body real IMF-like teeth. There is one single concept that made the Washington-based prototype famous: conditionality. That is, the power to set and monitor the conditions under which countries can access IMF resources. In Commission’s proposal, though, conditionality is not a job for the EMF but mainly for the Commission itself.

During the crisis, the conditionality task was shared by three, and later four, institutions: the Commission, the ECB, the IMF, and, at a later stage, the ESM. The Commission’s proposal deletes all references of the ESMT on the involvement of the IMF in Eurozone conditionality, but does not give this role to the EMF. Conditionality is for the Commission to keep. According to Art. 13 of the proposed EMF Statute, conditionality is negotiated by the Commission, in liaison with the ECB, and “in cooperation with the EMF”. “Cooperation” is admittedly a very weak form of involvement, especially if it’s compared with the phrase “together with” that previously described IMF involvement in the ESMT. Moreover, MoUs shall be signed both by the Commission and the EMF. In the ESMT, in contrast, MoUs where signed by the Commission “on behalf” of the ESM. The phrase “on behalf”, establishing an agent-principal relation between Commission and the ESM, is now stricken out, meaning that the Commission becomes legally a co-owner of EMF conditionality. Finally, under the proposed EMF Statute, compliance with conditionality is being monitored solely by the Commission, in liaison with the ECB. No role is explicitly provided for the EMF in this critical phase.

The no-bailout clause and conditions for assistance

At the beginning of the crisis, when the idea of a financial assistance mechanism for Eurozone Members was first tabled, Art. 125(1) TFEU appeared to many as a critical legal obstacle. Art. 125(1) TFEU contains two sentences with two identical prohibitions. The first is directed to the EU and the second to the Member States. Both the Union and the Member States “shall not be liable for or assume the commitments” of (another) Eurozone Member State.

Considering that ESM assistance could be seen as indirectly amounting to an assumption of commitments, the Member States thought necessary in 2011 to introduce Art. 136(3) in the TFEU. According to this provision, “[t]he Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality”. Drafted with the ESM in mind, Art. 136(3) TFEU only refers to the establishment of a fund by Member States and not by the EU. It thus “clarifies” only the second sentence of Art. 125(1) TFEU.

Does that mean that establishing the EMF as an EU body contravenes Art. 125(1) first sentence TFEU? The answer is no. In Pringle, the CJEU adopted an interpretation of Art. 125(1) TFEU that allows financial assistance if it is indispensable for the stability of the Eurozone and is coupled with “strict conditionality”. Although in Pringle the Court was called to interpret the second sentence of Art. 125(1) TFEU, that is directed to the Member States, the first sentence, which will be relevant for the EMF, should be read in the same way: a Fund established by the EU that meets Pringle-conditions is compatible with Art. 125(1) TFEU.

Whether the Commission’s proposal is fully Pringle-compatible, however, is not straightforward. The proposal introduces a fundamental difference to the ESMT that seems to go unnoticed in Commission’s explanations of the proposal. It refers to the objective of the EMF and the conditions for offering assistance. Currently, under Arts 3(2) and 12 ESMT, assistance is possible “if indispensable to safeguard the financial stability of the euro area as a whole and of its Member States”. According to the Commission’s proposal, however, the EMF can provide assistance if “indispensable to safeguard the financial stability of the euro area or of its Members” (emphasis added). Deleting the phrase “as a whole” (in Art. 12) and replacing “and” with “or” (in Arts 3(2) and 12 of the proposed Statute) means that a crisis that threatens the stability of a single Member State but not the euro area as a whole can (and shall) prompt action from the EMF. This is a very important shift of focus from Eurozone to the Member States.

This change needs to be assessed in light of the judgment of the CJEU in Pringle and the spirit of Art. 136(3) TFEU. In paras 136 and 142 of Pringle, the Court follows para. 5 of the ECB Opinion on the draft amendment to Art. 136 TFEU, presenting as condition of financial assistance that such assistance is indispensable for the euro area’s stability. Moreover, Art. 136(3) TFEU, although not directly applicable to the Regulation proposal because EMF will be a Union body, expresses the same central idea: an assistance mechanism may be established with the objective to offer assistance “if indispensable to safeguard the stability of the euro area as a whole.”

Control by the Council and the European Parliament

Under the proposal, the EMF is a “unique body of EU law”, independent, and governed by its own Board of Governors and Board of Directors. In order to be compatible with the Meroni principle (the EU law principle which limits the delegation of powers), Art. 3(1) of the proposed Regulation requires that the Council is responsible for approving a series of important decisions of the EMF Board of Governors and Board of Directors. The Council approves these decisions following the qualified majority rules provided in Art. 238(3) TFEU.

This arrangement creates two complications. First, the majority required for Council approval is different from that envisaged in Art. 4 EMF Statute both in terms of the necessary thresholds and the basis for their calculation. Art. 238(3) TFEU requires 55% of the members of the Council representing the participating Member States, comprising at least 65% of the population of these States while Art. 4 EMF Statute requires 85% of voting rights that are equal to the number of share allocated to it in the authorised capital stock of the EMF. It is thus legally possible that a decision that has the support of 85% of voting rights/shares is not backed by the minimum of 11 Member States required in the Council. Second, the Council approval makes the Council, an institution of the whole of the EU, responsible (also judicially) for the decisions of the EMF, a body of the euro area.

Moreover, the proposed Regulation claims to make the EMF accountable to the European Parliament. The EMF is required to submit reports, respond to oral and written questions, and accept invitations to its Managing Director. There are two difficulties with such an accountability scheme. First, these are only reporting obligations and do not allow the Parliament any influence in the actual decision-making of the EMF. Second, the European Parliament may not be an adequate forum for EMF accountability purposes in the first place. Members of the EMF are only euro area Members, but in the European Parliament and the Council all EU Member States are being given seats, not only those that have adopted the euro. The EMF is thus made accountable to institutions with a different composition than the Members that provide for its capital.

Is Art. 352 TFEU a sufficient legal basis?

The Commission suggests as legal basis of the proposed EMF Regulation the flexibility clause of Art. 352 TFEU. Art. 352 TFEU allows the Council to adopt measures when Union action is necessary to attain one of the objectives set out in the Treaties and the Treaties have not provided the necessary powers in other provisions. The latter condition is easily met in this case. In Pringle, the CJEU ruled that the Treaties, and Articles 2(3), 5(1), 122(2), and 143(2) TFEU in particular, do not contain an appropriate legal basis for the establishment of a stability mechanism. Moreover, the objective of the EMF, namely to ensure the financial stability of the euro area, does fall within the Union objective to establish an economic and monetary union.

The critical question for the applicability of Art. 352 TFEU is whether the establishment of the EMF is also “necessary” to attain those objectives. Here, the picture gets more complicated. Since the establishment of the ESM in 2012, the Eurozone disposes of a financial assistance mechanism to assist Members in distress and to safeguard Eurozone stability. That might mean that the establishment of the EMF by means of a Regulation is not any more necessary. In order to satisfy Art. 352 TFEU, what needs to pass the necessity test is not the existence of an assistance fund – such a fund already exists; it is rather the integration of the fund in the EU framework that the Commission must prove to be necessary. This is a more difficult test for the EMF proposal.

A final issue with regard to Art. 352 TFEU has to do with the extension of Union competences. In its Opinion 2/94, the CJEU has ruled that Art 352 TFEU “cannot serve as a basis for widening the scope of [Union] powers beyond the general framework created by the provisions of the Treaty as a whole and, in particular, by those that define the tasks and the activities of the [Union].” The question in this context is whether a future EMF – a Union body – that employs “strict conditionality” to its funding programmes goes beyond the allocation of powers the Union, which in the field of economic policy has simply coordinating competences. The Eurozone experience shows that this is possible. The macroeconomic conditions that have been tied to financial-assistance packages since the beginning of the crisis seem to go beyond coordination in intensity and beyond EU competences in breadth. As long as ESM was an intergovernmental organization this did not pose such critical competences question – although it has been raised with regard to the Two Pack reforms. This critical question, which goes directly into the question of the extent to which the Treaties allow a real economic Union, will need to be revisited if the EMF plans succeed.

Barnard & Peers: chapter 19

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Bailouts, Borrowed Institutions, and Judicial Review: Ledra Advertising

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

One of the features of the response to the euro area crisis has been the resort to intergovernmental arrangements that largely avoid judicial and parliamentary control at the EU level. The paradigmatic example has been the European Stability Mechanism (ESM), created by the euro area countries in order to provide financial assistance to countries in difficulties, subject to conditionality. The ESM was created through the adoption of an international agreement, the ESM Treaty; it is an intergovernmental mechanism created outside the framework of the EU, but with significant links to it. Most importantly, the ESM ‘borrows’ two EU institutions, namely the Commission and the European Central Bank (ECB), in order to carry out its functions. (Those two bodies, along with the International Monetary Fund, constitute the so-called ‘Troika’ which oversees the controversial bail-out processes).

The nature of the ESM and the way it operates raises important questions regarding judicial protection. As mentioned above, ESM financial assistance is granted after strict conditions have been negotiated and agreed in a Memorandum of Understanding. These conditions typically require the Member State in receipt of assistance to adopt ‘austerity’ reforms that have an impact on its citizens—understandably, these citizens may wish to challenge the validity of these conditions, often questioning their compliance with the EU Charter of Fundamental Rights.

In Pringle, the Court stated that Member States were not within the scope of application of the Charter of Fundamental Rights when creating the ESM, or presumably when acting within its framework. This meant that their actions could not be reviewed for accordance with the Charter (although they can still be reviewed in national courts for compliance with purely national law, or in the European Court of Human Rights for compliance with that treaty). This, however, left open the question of whether, or in what form, the Charter applied to the EU institutions—the Commission and the ECB—when operating under the ESM. This is the question that the Court of Justice had to answer in the Cyprus bailout cases (Ledra Advertising and Mallis).

Cyprus wrote to the Eurogroup in 2012 to request financial assistance, and it was in receipt of ESM assistance from 2013 until 2016. The country had to recapitalize its biggest bank and wind down its second. The Memorandum of Understanding stipulated that bondholders and depositors would bear part of the cost. As a result, the applicants suffered substantial financial losses and turned to the EU courts: first to the General Court, and then on appeal to the Court of Justice. They were challenging the validity of the Memorandum of Understanding (Ledra Advertising), as well as a Eurogroup statement that referred to the conditions attached to the bailout (Mallis); they also asked for damages. In their view, the involvement of EU institutions—the Commission and the ECB—in the adoption of these measures meant that it should be possible for individuals to challenge their validity at the EU level; they also argued that these institutions’ involvement should trigger the EU’s non-contractual liability.

The General Court dismissed all complaints as inadmissible. It decided that neither the Memorandum of Understanding nor the Eurogroup statement could be the subject of an action for annulment; the former because it is not a measure adopted by an EU institution, the latter because it is not intended to produce legal effects with respect to third parties. It considered that the involvement of the Commission and the ECB in the adoption of these measures was not enough to attribute authorship to them, or to trigger the non-contractual liability of the Union.

The Court of Justice agreed, in part, with the General Court: neither the Eurogroup statement (Mallis) nor the Memorandum of Understanding (Ledra Advertising) can be the object of an action for annulment. The Court insisted again on its finding in Pringle that ESM acts fall outside the scope of EU law; the involvement of the Commission and the ECB does not change this, and is not enough to attribute authorship of these acts to them for the purposes of judicial review.

Yet the Court goes on to reveal a twist in Ledra Advertising: even if they are not its authors, the involvement of the Commission and the ECB in the adoption of an ESM Memorandum of Understanding may be unlawful, and thus able to trigger the non-contractual (damages) liability of the EU. The Commission, in particular, retains its role as ‘guardian of the Treaties’ when acting within the ESM framework. As a result, the Commission should not sign an ESM act if it has any suspicions as to its accordance with EU law, including the Charter.

The Court repeated the usual rules for the EU institutions to incur non-contractual liability: (a) they must have acted unlawfully, (b) damage must have occurred, and (c) there must be a causal link between the unlawful act and the damage. Not just any unlawful act gives rise to damages liability: there must be ‘a sufficiently serious breach of a rule of law intended to confer rights on individuals’. While the right to property enshrined in the Charter was a ‘rule of law intended to confer rights on individuals’, that right is not absolute: Article 52 of the Charter allows interference with some Charter rights. Applying that provision, the Court came to the conclusion that the measures contained in the Memorandum did not constitute a disproportionate and intolerable interference with the substance of the applicants’ right to property, given ‘the objective of ensuring the stability of the banking system in the euro area, and having regard to the imminent risk of [greater] financial losses’.

So individuals can challenge the EU institutions’ bailout actions by means of an action for damages (non-contractual liability), but not by means of an annulment action. It is useful to remember that the rules on access to the EU courts as regards those two types of remedy are quite different. The standing rules are more liberal for damages actions: it’s sufficient to allege that damages have been suffered as a result of an unlawful act by the EU, whereas it’s much harder to obtain standing to bring annulment actions. The time limits are more liberal too: individuals have five years to bring damages cases, but only two months to bring actions for annulment. On the other hand, the threshold to win cases is much higher for damages cases: any unlawfulness by the EU institutions leads to annulment of their actions, but only particularly serious illegality gives rise to damages liability.

In any case, we know from the Court’s ruling that breaches of at least some Charter provisions within the ESM framework could potentially give rise to damages liability. In the anti-austerity context, it should be noted that social security and many social welfare claims fall within the scope of the right to property, according to the case law of the European Court of Human Rights. In the case at stake, the Court did not discuss the proportionality of the interference with the applicant’s rights at much—or any—length, but it is clear that future applicants will face an uphill struggle.

On the whole, Ledra Advertising is a welcome change from other cases concerning measures adopted as a result of a bailout, where the Court’s approach had been to deny the existence of any link to EU law. Indeed, it seems unavoidable that the EU should bear the appropriate degree of responsibility when allowing its EU institutions to operate within the ESM framework. This is not to say that it will be easy for individuals to be awarded damages; as this case illustrates, the threshold is extremely high. Moreover, while a significant aspect of the role of the EU institutions within the ESM has been clarified, questions remain concerning the judicial and democratic accountability of this mechanism. Overall, however, Ledra Advertising is a step in the right direction.

Barnard and Peers: chapter 19, chapter 8

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