Source: http://eulawradar.com/case-c-37012-pringle-is-the-esm-treaty-compatible-with-the-eu-treaties/
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Case C-370/12, Pringle – is the ESM Treaty compatible with the EU Treaties? | EU Law Radar
Posted on 26 August 2012 by admin	Is Council Decision 2011/199/EU, amending Article 136 of the TFEU with regard to a stability mechanism for Member States whose currency is the euro, valid? And is a Member State entitled to enter an international agreement such as the European Stability Mechanism Treaty (ESM Treaty) or would that mean undertaking obligations which are incompatible with the TEU and TFEU?
The claimant, Thomas Pringle, is a member of the Dáil: the lower house of the Irish Parliament. He objects to Ireland’s participation in the ESM Treaty and its proposed ratification. At the start of his litigation in the Irish High Court he made five claims against the Government of Ireland, Ireland and the Attorney General:
The ‘sovereignty’ claim. He submitted that the Irish Government’s participation, on behalf of the State, in the proposed ratification of the ESM Treaty was contrary to the Irish Constitution. It was a delegation of state sovereignty, and an excessive exercise of the Government’s executive powers in conducting the external relations of the State.
The ‘power transfer’ claim. He argued that the legislative instrument which gives effect to the ESM Treaty in Ireland (the 2012 European Stability Mechanism Act), involved an impermissible transfer of power from the Irish Parliament to the Irish Minister for Finance.
The ‘ESM Treaty’ claim. He claimed that by adopting the ESM Treaty, Ireland was taking upon itself obligations that were incompatible with the provisions in the TEU, and the TFEU concerning Economic and Monetary Policy – obligations which encroached on the exclusive competences of the Union in the matter of the euro and related policies.
The ‘Council Decision’ claim. He argued that the Decision was not lawfully adopted. The Decision alters the competences of the Union contrary to the third paragraph of Article 48(6) TEU, which states: ‘The decision … shall not increase the competences conferred on the Union in the Treaties’. Furthermore, the Decision was inconsistent with EU law.
The ‘injunction’ claim. He requested an injunction to restrain the Irish Government from ratifying the ESM Treaty before the ending of the legal proceedings.
At first instance, Mr Pringle TD was unsuccessful under every head of claim. Judge Laffoy felt that the Council’s Decision was ‘completely valid’ in light of Case 314/85, Foto-Frost. However, she did decide that a reference to the CJEU was necessary about the effect of the failure of one or more Member States to give notice of ratification of the Council Decision in accordance with Article 2 of the Decision, and its effect on the coming into force of the ESM Treaty.
On appeal to the Irish Supreme Court, that court not only rejected Mr Pringle’s ‘sovereignty’ claim but also declined to grant the injunction. However, it too felt that a preliminary reference to the CJEU was necessary on points 3 and 4 in the above list. Namely, was the Council Decision valid? And did the ESM Treaty entail obligations which were incompatible with the Union Treaties? The Court outlined the main submissions of the parties before asking its Questions of the CJEU.
Mr Pringle’s submissions
Mr Pringle TD asserted that the Council Decision was invalid because the proposed amendment of Article 136 TFEU had used the simplified revision procedure. This was an unlawful amendment of that Treaty because it fundamentally altered the basic law and principles of the EU. The proposed amendment should have been carried out by means of the ordinary revision procedure as laid down in Articles 48(1) to (5) TEU. In any event, since the instrument had been adopted on the basis of Article 48(6) TEU it must comply with the conditions set out in that sub-paragraph. And in his view, the Council’s Decision did not comply with those conditions. The Council’s Decision increased, or reduced, the Union’s competences in the area of monetary policy.
Mr Pringle TD made the following illustrations. The amendment confers on the Member States whose currency is the euro, the power to establish a stability mechanism. This creates a competence in the area of monetary policy to safeguard the stability of the euro area as a whole, in an area in which the Union has exclusive competence by dint of Article 3 TFEU.
The amendment authorises Member States to establish a European stability mechanism, which constitutes a provision for the formation of a closer economic union. This creates new competences to be exercised through a body outside and detached from the framework of the European Union. The stability mechanism would in essence be an institution of eurozone Member States only, whose objective is to support the euro currency, whereas the definition and conduct of the single currency falls within the exclusive competence of the Union.
Furthermore, the proposed Article 136(3) TFEU confers a mechanism of new powers not presently provided for by the Treaties, namely, the granting of financial assistance subject to ‘strict conditionality’. Any functions performed by the EU Commission and the European Central Bank in the context of the ESM Treaty would have no legal basis in the Treaties, would amount to new roles and competences for those EU institutions, and would be liable to be incompatible with the Union Treaties.
The Council Decision was also inconsistent with EU law. The Decision is an act of the institutions. Its validity must therefore conform with: the Union Treaties, the EU Charter, and the general principles of Union law. This is not the case here. Changes to the Union Treaties could not have been adopted by means of the simplified revision procedure. The Decision purports to authorise Member States to take actions in contravention of Part Three, Title VIII of the TFEU and, in particular, Articles 122, 123, 125, 126, and 127 TFEU, actions which go against the object and spirit of those provisions when read together as a whole – for those provisions regulate the conditions under which financial assistance may be granted to Member States, and the extent to which one Member State can assume the financial commitments of another.
More particularly, the stability mechanism circumvents the prohibitions in the Treaty by way of an intergovernmental agreement, which is in breach of the duty of sincere co-operation (Article 4(3) TEU). The mechanism conflicts with Article 121(2) TFEU, which provides that the Council formulates a draft for the broad guidelines of the economic policies of the Member States and the Union. The mechanism contravenes Articles 122(2), 123, and 125 TFEU, whose objective is to regulate and limit the granting of financial assistance, directly or indirectly, to other Member States. Establishing a mechanism parallel to the TFEU in order to facilitate the offering of financial assistance also infringes Articles 123 and 125 TFEU. The stability mechanism would also be contrary to Article 125(1) TFEU, which contains the ‘no-bail’ out clause. Moreover, in light of Case C-540/03, Parliament v. Council it is a rule of EU law that a provision of secondary EU law that expressly or impliedly authorises Member States to act contrary to the primary norms of EU law, would itself violate Union law.
In so far as the ESM Treaty is concerned, Mr Pringle TD added that the ESM Treaty was incompatible with the EU Treaties. The Member States’ establishment of the ESM Treaty created a permanent autonomous international institution with the purpose of evading the structures, prohibitions, and restrictions of Part Three, Title VIII of the TFEU – provisions which were intended to be generally applicable to all EU Member States. The ESM Treaty entails Member States circumventing prohibitions contained in the EU Treaties by way of an intergovernmental agreement outside the Union legal order that is in conflict with the Union Treaties and is in breach of the duty of sincere co-operation enshrined in Article 4(3) TEU. The ESM Treaty also breaches the allocation of competences between the national and Union legal orders as defined in the Union Treaties for it confers new competences on Union Institutions and entails performance by them of tasks that are incompatible with their functions as defined in the EU Treaties. Moreover, the ESM Treaty breaches the general principle of effective judicial protection as enshrined in both the European Convention on Human Rights, and the EU Charter of Fundamental Rights, and recognised as a general principle of EU law. Moreover, the ESM Treaty also infringes the general principle of legal certainty.
The submissions of the Irish Government, State and Attorney General The Irish Government, State and Attorney General (collectively, ‘the State’)observe that the stability mechanism is an intergovernmental mechanism, in which the participants are the Member States whose currency is the euro. The State submits that it was appropriate to use the simplified revision procedure. The European Council was required by Article 48(6) TEU to consult the EU institutions and each of them had expressed the opinion that the amendment proposed by the Council Decision would not have the effect of increasing the competences conferred on the Union in the Treaties. Further, the functions which the ESM Treaty confers on the Union institutions have clear legal bases in the Union Treaties: the Commission has the power to perform the tasks conferred on it by the ESM Treaty by virtue of Article 17 TEU, and the EU Commission and the European Central Bank are already performing similar tasks in the context of the so-called “Six Pack” legislation. Furthermore, whereas the Union is exclusively competent in monetary policy for Member States whose currency is the euro, monetary policy is part of broader economic policy dealing with interest rates and monetary supply. A funding mechanism cannot be engaged in any way with monetary policy.
In so far as the particular Treaty provisions are concerned: Article 122(2) TFEU provides for Union financial assistance to Member States which are “in serious difficulties or…seriously threatened……”. This Article relates to Union competence via the Council and is irrelevant to the grant of funding to Member States pursuant to an international agreement under which an international financial institution would grant funding.
Article 123 TFEU prohibits the provision of credit by the European system of banks to governments of the euro area and other public bodies. The fact that a Member State undertakes to subscribe to the authorised capital stock of a stability mechanism would not mean that the Member State was providing overdraft facilities or any other type of credit facility as envisaged by Article 123 TFEU.
Article 125 TFEU prohibits the Union from assuming the commitments of central governments or other public bodies of the Member States. It does not prohibit assistance by an international organisation with legal personality distinct from its Members. None of the financial instruments available to the stability mechanism entails the liability or assumption of commitments within the meaning of Article 125 TFEU.
Article 127 TFEU deals with monetary policy but the stability mechanism is not concerned with the definition or implementation of monetary policy.
Moreover, the proposed stability mechanism would not be in breach of Ireland’s obligation of sincere cooperation pursuant to Article 4(3) TEU; rather, participation in a stability mechanism, which aims to preserve the euro, fulfils the State’s obligations under Article 4(3) TEU as it would involve participating in activities “which flow from the Treaties”.
Finally, the Irish State remarked that it found it difficult to envisage circumstances in which a stability mechanism would violate human rights, in the particular context of the ESM Treaty, ‘given the record of the Court of Justice in upholding human rights’ – the review role accorded to the CJEU would ensure that human rights are fully protected within the ESM legal order.
And in respect of the ESM Treaty, the State submitted that the funding mechanism had a clearly-defined purpose, and limited powers. These powers gave the ESM Institution neither any role in defining or implementing the monetary policy of the Union, nor any role in the coordination of the economic polices of the Member States. Furthermore, participation in the ESM Treaty would not violate the ‘no bail-out’ principle reflected in either Article 125 TFEU or in other provisions of Part Three, Title VIII TFEU. Moreover, the ESM Treaty does not confer any new competences on the EU Institutions. And, once again, the principle of effective judicial protection is fully protected by virtue of Article 37 of the ESM Treaty, which provides that disputes may be submitted to the CJEU.
On 31 July 2012, the Irish Supreme Court decided to refer questions to the CJEU and requested the CJEU to deal with the reference under the ‘accelerated procedure’ (Article 104a of the Rules of Procedure). According to the Bailii website, the Irish Supreme Court has asked:
(2) Having regard to
Similar issues are currently before the German Constitutional Court. Its judgment is due to be handed down on 12 September 2012.
A version of the CJEU’s judgment in Case C-370/12, Pringle ECLI:EU:C:2012:756 is reproduced below. The reproduction is not authentic. Only the versions of the document published in the ‘Reports of Cases’ or the ‘Official Journal of the European Union’ are authentic. The source of the reproduction is the Eur-Lex Europa web site. The information on that site is subject to a disclaimer and a copyright notice.
27 November 2012 ()
30 Ireland, the governments of the Kingdom of Belgium, the Federal Republic of Germany, the Kingdom of Spain, the French Republic, the Italian Republic, the Republic of Cyprus, the Kingdom of the Netherlands, the Republic of Austria and the Slovak Republic, the European Council and the Commission submit that the jurisdiction of the Court to examine the first question is limited, if not excluded, because the question relates to the interpretation of primary law. They contend that the Court has no power under Article 267 TFEU to assess the validity of provisions of the Treaties.
31 In that regard, first, it must be borne in mind that the question of validity concerns a decision of the European Council. Since the European Council is one of the Union’s institutions listed in Article 13(1) TEU and since the Court has jurisdiction, under indent (b) of the first paragraph of Article 267 TFEU ‘to give preliminary rulings concerning … the validity … of acts of the institutions’, the Court has, in principle, jurisdiction to examine the validity of a decision of the European Council.
Update – 9 February 2014
The German Constitutional Court has been hearing a fresh case which involves, among other issues, the Decision of the Governing Council of the European Central Bank on Technical Features of Outright Monetary Transactions. The German Constitutional Court has decided to make a preliminary reference to the CJEU about whether the ECB’s Decision is compatible with EU treaty law, and whether the ECB has exceeded its mandate. See further, Case C-62/14, Gauweiler – objecting to any unlimited bond buying spree by the ECB.
Update – 1 April 2014
Besides the reference in Gauweiler, the OMT is also the subject of an appeal from the General Court to the CJEU. The appeal is docketed as Case C-64/14 P, von Storch and Others v ECB. For an outline of this appeal, see the ‘Update – 18 March 2014’ to Case C-62/14, Gauweiler – objecting to any unlimited bond buying spree by the ECB.
Update – 6 February 2015
The CJEU’s judgment in Pringle is also being relied upon by the Irish State in another reference from Ireland concerning the Irish bailout, see further Case C-41/15, Dowling – the illegal takeover of a bank and the Irish bailout.
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