Reading guide Pringle

For Tuesday’s class, please prepare the CJEU case Pringle (C-370/12). This blogpost is supposed to guide you through the case.

Finding the case and the TEU, TFEU and ESM Treaty

Go to curia.europa.eu and type in the case number in the search mask (I am using the pdf version for the screenshots you will see below).

You can find the TEU and TFEU here.

You can find the ESM Treaty here (though in the following analysis we will consult only the case and TEU+TFEU)

→ Ideally you read the blogpost, Pringle and the TEU and TFEU references in conjunction (you will thereby practice to read CJEU judgments as well as the EU Treaties). It might be a bit overwhelming at first, but your learning benefits will be much higher that way.

Structure

CJEU judgments are usually structured the same way:

• header
• Part I: “Legal context”: describes the (national, European or international) measures that the judgment deals with (I usually skip this in the beginning, and consult it only later).
• Part II: “The background to the main proceedings and the questions referred for a preliminary ruling”: describes the factual background of the case, and reproduces the questions the national court refers.
• Part III: formal and substantive analysis of the case. The remainder of the judgment analyzes and answers the three questions referred by the national court. Each question is separated into a formal part (competence+admissibility) and a substantive part.
• Each of them starts with an analysis of the Court’s competence to decide in the matter, and on the admissibility of the questions (e.g. paras 30–44, 78–91)
• Then the substance of the question is discussed. In the first paragraph of each part the Court paraphrases the question; in the last paragraph of each part the Court provides the answer to the question.
• Part IV: the decision on costs of the procedure (always ignore)
• and finally, at the very end of the judgment, the tenor of the judgment (reproduces the answer the Court gave to each of the three questions).

Starting to read a case

This is how I read every CJEU case:

1. First, I go to the header. The header holds a number of interesting informations:

→ here you can see the “keywords” (ideally giving you a first idea of what the case is about); the type of procedure (here: preliminary reference procedure); and the parties to the case.

→ you can see that the CJEU decided as “full court” (i.e., all judges), rather than in smaller constellations. This indicates that the CJEU believed the case to be of fundamental importance, raising new and complicated legal questions; you can also see that the CJEU employed the “accelerated procedure”. Finally, the high number of observations forwarded by the different governments indicate the importance of the case.

2. I then scroll to the “background to the main proceedings”. I ignore the reference questions (because the CJEU rephrases them later in a much more concise fashion).

You can learn two things:

• the case deals with Decision 2011/199, which apparently revises the EU Treaties, according to a “simplified revision procedure” (in Art 48(6) TEU). The Decision is challenged because it is allegedly in breach with this procedure.
• the case also deals with the ESM Treaty. It is challenged because it allegedly conflicts with various aspects of EU law.

3. Then I scroll to the end of the judgment , and read the ruling.

Here you see the answers provided by the Court:

• Decision 2011/199 which amends the Treaty is oke; it does not breach EU law
• the ESM Treaty does not breach EU law
• The competence of Member States to conclude the ESM Treaty does not actually depend on the Treaty amendment by Decision 2011/199. ( → which means that the ESM Treaty could have been concluded without amending the TFEU).

4. Then I look at the judgment body to find out why the CJEU has decided the way it did in these three questions.

We will briefly look at what the ESM Treaty is, and then follow the Court’s discussion of the three reference questions.

What is the ESM Treaty?

To answer this question, you could either check out the “legal context” part of the judgment, or simply google it. Here are the main points:

• When the economic crisis first hit in 2008, the EU was initially quite cocky, and believed that the crisis would mainly remain an US problem. However, in 2010 the (economically) peripheral Member States in the Eurozone (Greece, Spain, Portugal, Ireland, Italy) faced increased problems.
• They had increasing difficulties to refinance themselves on the financial market. All countries have public debt: they issue bonds (which investors buy as a “safe” investment, as Eurozone countries were assumed not to default on their debt), and repay these bonds over a certain period. To do so, they “roll over” their debt: they issue new bonds to repay the old ones. This is usually not a problem (all countries do it), assuming that the interest rate a country has to pay for the new bonds is not excessively higher than what it had to pay for the old bonds.
• However, in 2010 the interest rate the peripheral countries had to offer so that investors would buy their bonds exploded (see table below). This made it much more difficult for these countries to refinance themselves. This, in turn, was assumed to affect the stability of the Eurozone as a whole: if a country cannot repay its debt, it has to default, which means that it will not repay its debt. As a number of big European banks held the government bonds of these countries, such debt default could in turn destabilize the core countries (like Germany or France).

• The EU Member States decided to issue “emergency” loans to the peripheral countries via bilateral agreements, as well as via two institutions that were created ad-hoc, the EFSF and the EFSM. These emergency loans were supposed to push down the interest rates of the peripheral countries (as they were less dependent on the financial market, and because the financial market saw that the Eurozone was essentially guaranteeing that the peripheral countries would not default on their debt).
• However, the amount of money these institutions could lend was limited; it was not certain that they could sufficiently push down the interest rates, especially in a situation where enough speculators would bet on a default of e.g. Greece.
• Therefore, the EU states decided to develop a more stable institution with a larger financial backing (700bn Euros), the ESM (European Stability Mechanism). For a number of reasons, they decided that they would not do so within the existing EU framework. Instead they established the ESM as an international organization, with the Eurozone countries as its members, and an international agreement (the ESM Treaty) as its basis.
• While Member States are free to conclude international agreements among themselves in areas not covered by EU law (i.e., where they retain competence), they are prohibited from using this strategy to circumvent EU law (and this is precisely what the CJEU had to scrutinize in the decision Pringle).
• Member States receive loans from the ESM under certain conditions (termed “strict conditionality”), which are supposed to ensure that the country enacts the necessary measures to serve its debt in the future.
• Under the ESM Treaty, the EU institutions are conferred certain management tasks. It thereby takes a hybrid form, being outside the EU legal framework, but making use of its institutions.
• Voting in the ESM depends on the capital guaranteed (e.g., Germany and France have guaranteed 20% and 27% of the total ESM capital. Thus, they have almost 50% of the votes in the ESM). The EP plays no formal role in the process. According to the Commission, the ESM shall be transferred into “regular” EU law sometime in the future.

1. TFEU Amendment by Decision 2011/199 (paras 29–76)

Overview

• By looking at the tenor of the judgment, we just found out that the CJEU decided that the TFEU Amendment by Decision 2011/199 is legal.
• We also found out that the Decision 2011/199 amends the TFEU in some form, according to a “simplified revision procedure” in Article 48(6) TEU.
• Now we need to find out what the Decision holds (how was the TFEU amended?), what the applied procedure is, and why the Court found the amendment to be legal.

Court competence + admissibility (paras 30–44)

Answer the following questions on this part:

• Some countries claim that the CJEU has no jurisdiction. On which grounds? (para 30)
• why is this claim not correct (according to the CJEU)?
• Why does Ireland claim that the case is inadmissible? (2 grounds, para 38)

• Why are these claims incorrect (according to the CJEU)?

Substance (paras 45–76)

We will first have to find out what the procedure in Article 48(6) TEU is.

• Please look up the Article in the TEU!

• We can see that there is an “ordinary revision procedure” and a “simplified revision procedure”.
• Describe the “ordinary revision procedure”!
• How is the “simplified revision procedure” different? (3 grounds, one in each paragraph)
• Can a single Member State block amendments?

→ compare this to “regular” international agreements.

• What does the amendment hold? (look to the “legal context”, para 6)

• What is Article 136 TFEU about?

• You already found out that the “simplified revision procedure” can only change “provisions of Part Three of the Treaty on the Functioning of the European Union relating to the internal policies and action of the Union.” Is this condition fulfilled by the amendment? (para 46)
• what is an additional problem? (para 47) → whether the provision only alters the Union competence in “economic policy” (where the Union and the Member States have shared competence), or whether it encroaches upon the Union’s exclusive competence in “monetary policy”
• Why does, according to the Court, the amendment not encroach upon the Union’s competence in monetary policy? (in particular para 60, 63)

→ do you find this plausible?

• You also found out that the “simplified revision procedure” “shall not increase the competences conferred on the Union in the Treaties.” Why does the CJEU argue that the amendment conforms to this requirement? (paras 71–75)

→ Thus, the CJEU finds the amendment is oke — it did not breach the requirements of Art 48(6) TEU.

2. Would the ESM Treaty breach EU law?

The plaintiff argues that the ESM Treaty would breach a number of EU law provisions. The Court scrutinizes these claims one by one.

1. Does the ESM Treaty encroach on the Union’s exclusive competence in monetary policy?

The Union has exclusive competence in monetary policy. Thus, in order to prove that the ESM Treaty (concluded by the Member States) does not breach EU law, it must be shown that it does not fall within “monetary policy” — instead, it is argued that it falls under “economic policy”, where the Union and the Member States share competence (this means that the Member States can still conclude an agreement among themselves, outside the EU framework). The relevant provisions are:

• Article 3 TFEU — laying down the exclusive competences of the Union, including monetary policy
• Article 127 TFEU — describing what “monetary policy” entails (main focus: “to maintain price stability”, i.e., taking care that the inflation rate is neither too high or too low.)

• Which arguments are brought forward to show that the ESM Treaty falls under “monetary policy”? — para 93
• Why does the CJEU disagree? — para 96
• Why does the CJEU distinguish between the “purpose” of the ESM Treaty, and merely “indirect consequence[s] of the economic policy measures adopted?” — para 97

→ Consequently, the CJEU argues that the ESM Treaty does not encroach upon the Union’s exclusive competence in monetary policy.

2. does the ESM Treaty breach TFEU provisions on economic policy?

The Eurozone has a common currency and a common central bank, but important aspects of economic policy making remain with the Member States. Consequently, the states are under various obligations, aimed at ensuring that their economic policies do not destabilize the Eurozone. Most notably, they are required to keep their budgets balanced, and their national debt not to exceed 60% of the GDP (Article 126 TFEU in conjunction with a Treaty Protocol).

• The Union has the competence to coordinate economic policy among the Member States (reference to Article 2(3) TFEU — the general competence, Articles 119–121, and Article 126 TFEU). The plaintiff argues that this is competence is breached by the ESM Treaty.
• How does the CJEU argue that this is not the case? — paras 108–114
• Article 122 TFEU allows the Union to provide financial assistance to Member States. The plaintiff argues that the ESM Treaty, which does the same thing, would breach Article 122 TFEU.

• How does the CJEU argue that Article 122 TFEU is not breached? — paras 115–122
• Article 123 TFEU “prohibits the ECB and the central banks of the Member States from granting overdraft facilities or any other type of credit facility to public authorities and bodies of the Union and of Member States and from purchasing directly from them their debt instruments.” In other words, the ECB cannot grant a loan to Member States, or directly buy bonds from them ( → the latter issue comes up again in the OMT judgment). Usually, central banks can “finance” their governments by buying its bonds. However, the TFEU prohibits this: Member States are supposed to refinance their debt through the financial markets alone (this is supposed to enforce “discipline”). → the question now is: does the ESM Treaty breach this requirement?

• Why does the CJEU argue that Article 123 TFEU is not breached? — paras 123–128
• Article 125 TFEU used to be called the “no-bailout clause” (I object to this description, which I believe is ideologically charged). Many commentators argue that its aim was to prohibit the EU or the Member States from taking over the debt of other Member States, i.e., they shall not “bail out” those states that fail to refinance themselves on the financial markets. The plaintiff argues that the ESM Treaty circumvents this prohibition. However, the wording is a bit peculiar, which allows the CJEU to interpret Article 125 TFEU more narrowly.

• How does the CJEU argue that the ESM Treaty does not breach Article 125 TFEU? — paras 129–147

3. does the ESM Treaty breach other principles of EU law?

The next concern the CJEU has to deal with is the following: in the ESM Treaty, some EU institutions — Commission, ECB, CJEU — are assigned certain tasks.

• According to the plaintiff, this breaches the principle of conferral — Article 13 TEU. The principle holds that the EU institutions can only do things where they are granted explicit authorization by the TEU and TFEU.
• The tasks assigned to the Commission and the ECB are found in paras 156–157. The most interesting one is that both institutions negotiate the “MoU” (Memorandum of Understanding) with the Member State that receives a loan. The MoU defines the conditions that the Member State has to fulfill (“conditionality” → these MoUs have been heavily criticized, because they forced the peripheral countries to implement heavily neoliberal policies, including pension and wage cuts, cuts to social expenditure, labor market deregulation, privatization of public infrastructure).
• How does the CJEU argue that the ESM Treaty does not breach the principle of conferral in regard to the Commission and the ECB? — paras 156–169
• The CJEU also receives certain powers under the ESM Treaty. This is based on Article 273 TFEU:

• How does the CJEU argue that the ESM Treaty does not breach the principle of conferral in regard to the CJEU? — paras 170–177

(we skip the discussion on the “effective judicial protection”)

4. is the Treaty amendment necessary for the ESM Treaty to be ratified?

This is an interesting issue. Remember that a Treaty amendment under the “simplified amendment procedure” “shall not increase the competences conferred on the Union in the Treaties” (Article 48(6) TEU). From this, the CJEU concludes that the amendment is not necessary for the ESM Treaty to be ratified; this implies that the Member States could have enacted the ESM Treaty without the amendment. Rather, the amendment merely “confirms the existence of a power possessed by the Member States” (para 184)

Concluding thoughts

• EU law was very much undetermined on the issue. Most commentators agree that the CJEU accepted the ESM Treaty only because of the exceptional circumstances of the crisis.
• The ESM Treaty is criticized for circumventing (if not legally, then in practice) the procedural requirements and safeguards established in the EU Treaties.
• The EP is sidelined, and the voting in the ESM is based on the principle of “money talks.” It can be argued that, during the crisis, the Member States (at least the powerful ones) took back control of the EU.
• Conditionality enforced through the ESM has forced the peripheral countries to engage in massive austerity programs. Many commentators, in particular economists, argue that this undermines any chance of the economies of these countries to grow significantly anytime soon. This, in turn, undermines their ability to repay the debt, so that ultimately “strict conditionality” leaves everybody worse off.
• You can therefore see that the Pringle judgment deals with many different complex problems: the distribution of competences between Member States and Union as well as between the different Union institutions; democratic governance; and the battle on socio-economic policies (pro- or anti-austerity).