27th May: ALDE seminar on the rule of law in the Economic and Monetary Union, what role for the Court of Justice?
This seminar was organised to further reflect on this important issue, which I presented in my AFCO opinion on the review of the economic governance framework. (Link to document).
It was a pleasure to have Danuta Huebner, chair of the AFCO committee, present to open the seminar, given her strong support for reflection about this important issue and other potential future Treaty revisions.
The rule of law is a fundamental value of the EU yet within the EMU the system is asymmetrical and, unlike in other areas, the Court of Justice is at least partly excluded from having the role of judicial control (art 126.10 TFUE on budgetary discipline). This means that there is no role for the judges in questions of economic governance; it is not possible for Member States or the Commission to launch an action for annulment nor proceedings for failing to fulfil an obligation in the field of EMU, meaning that if there are differences in treatment between large and small Member States for example, the legality of the decision cannot be challenged. This is a fundamental question of fairness, equality and citizens’ rights which is currently not ensured.
Franz Mayer, a professor of Constitutional Law at the University of Bielefeld, recalled that the rule of law was a central element of European integration, and that after the experience of World War II it was Germany who insisted on the creation of the Court of Justice. The Court has made citizens the agents of EU law because EU law can be invoked in national courts and EU law has supremacy over national law, including constitutional law. In contrast, in the EMU the Court’s role is excluded: there are rules but there is no infringement procedure instead there is a political procedure.
Within the current framework there are multiple layers of rules but no proper mechanism for enforcement when the rules are not respected. An important question is: is it the rule of law if rules exist or should it be measured by the effectiveness of the rules? In the framework of Germany there is a difference between the rule of law and the concept of “Rechtsstaat”, which includes consideration about when laws need to be there and concerns rules made by the parliament and is linked to the democracy principle.
In the current framework of economic governance the lack of transparency and accountability is a large problem, the lack of role for the European Parliament clearly illustrates this. Instead there are multiple temporary, informal governance structures inside the EMU. There is a real risk of this lack of rule of law spilling over into other sectors in the EU which currently work well.
A key question which needs to be asked is: what could be the possible role for the ECJ in EMU?
- Patrolling the rules may seem like the obvious answer. But actually the Fiscal Compact clearly illustrates the limits of an international court in the framework of the EMU: in the context of the common market (e.g. freedom of goods and services) it is the national court which normally implements the ECJ’s decision under the preliminary reference procedure. This is the key to success to explain why in the realm of supranational common market law European law works. This is not the case for EMU and results in an implementation issue.
- Or the ECJ could give guidance for the national courts: which has been seen in the case of the German Constitutional Court and the ECB’s OMT decision. But it remains to be seen if the German Constitutional Court is ready to accept ‘guidance’ from the ECJ.
- Could the Court not take up the role of the guardian of democratic accountability and a minimum of transparency through generating a more visible role for the EP in the Euro context? Maybe the Court is not willing/able to make this leap, and the Court is more complex than it was when it was originally created. The issue of the legitimacy of judge made law can also not be ignored.
Ultimately there will be a review of the governance of the Euro system and there will be a need for Treaty change. If the Court remains absent up until this point then it is unlikely that with Treaty change a role will be created for it in the reviewed governance of EMU, which will result in a weakened Court overall.
Implementation of the rules is a key issue in this discussion. It is not necessarily enough to allow the Court to patrol the rules in order for them to be effective. When the judgement concerns a Member State versus the Court, implementation of the Court’s decision can be a real issue – allies are needed on the ground in the Member State.
It is also important to consider that there are limits of the law, and that can sometimes not be assessed by lawyers and Courts. This can be illustrated in some of the German Constitutional Court’s investigations within the framework of the Euro crisis, which probably actually surpassed their capacity.
Enzo Moavero Milanesi, a former judge at the Court of First Instance and former Minister for European Affairs of Italy, considers that too often lawyers are absent from the discussion about monetary union and economic governance, which is dominated by economists and politicians. What is needed is a balance between the three. When evaluating the situation today it is crucial to remember that the founding fathers had a vision of the Court of Justice and for a centralised European jurisprudence and the rule of law is central to the evolution of the Union. Since the very beginning EMU has been founded on rules and when these rules are not respected then trust in the system is lost, which has been clearly illustrated by the financial crisis. During the crisis rules have been strengthened, new rules have been introduced and we now find ourselves presented with multiple elements of flexibility concerning the rules decided during the crisis, in order to soften them. From a legal perspective there is nothing strange in the concept of flexibility within rules, it is present everywhere. It is natural for the Court of Justice to interpret economic governance rules, the question is does the Court have the necessary means in order to be active in this field, or does it need to be given them? It needs to ensure institutional balance, it needs to be able to guarantee both states and citizens of the fairness of the system; this is exactly what the Treaty foresees.
Indeed the Fiscal Compact foresees a clear role for the Court concerning budgetary discipline, but only by ensuring that each Member State translates these rules into their legal systems and if a Member State fails to do this then the other Member States and the Commission can go in front of the Court for failure to fulfil their obligations. This threat was sufficient to oblige every Member State to translate the requirements for balanced budgets into their legislation.
Within the 6-pack and the 2-pack it is also foreseen that it is ultimately the Court which would have the last word if a Member State does not respect its obligations. The Commission has the right to launch proceedings for obligations not having been respected. Article 265 provides the option for infringement proceedings to be launched when a European institution fails to act. It is important not to view these legal options as abstract, to the contrary they must be viewed as the concrete tools which make ‘peer review’ possible. It is not just the option of ‘moral persuasion’ but can be used to force the Court to make a judgement.
Three concrete examples of the action of the Court:
In mid-June the Court will pronounce its judgement on the German Constitutional Court’s objection to the ECB’s OMT decision. It remains to be seen if the Court will follow the position of the Advocate General. What safeguards will the Court put in its judgement? (C-62/14 Peter Gauweiler and Others v Deutscher Bundestag)
In early 2015 the Court ruling annulled the ECB’s Eurosystem Oversight Policy Framework obliging Central Counterparty Clearing System to be located within a Member State of the Eurosystem. It is the Member State which brought the issue in front of the Court who won, on the procedural side. (T-496/11 United Kingdom v European Central Bank)
Another example is the German Landesbank which went in front of the Court concerning which banks which are considered to be systemic are under the surveillance of the ECB or the national supervisor. The Court’s judgement on this issue will be closely watched. (T-122/15 Landeskreditbank Baden-Württemberg v ECB)
A potential action which could be undertaken by the Court would be the analysis of the legal framework of the Fiscal Compact. This would be possible if a Member State were to decide not to respect one of the criteria and for the issue then to be brought in front of the Court. This would provide an authoritative interpretation!
Following the presentations by the panel, Philippe de Schoutheet’s valuable experience as the Permanent Representative of Belgium during negotiations on the Maastricht Treaty brought him to the conclusion that in order to move forward on this issue it is essential to better define what the competencies should be for the Court within the EMU, in the framework of possible future treaty change. The economic Union requires a greater coordination of economic policies but ultimately the question of the best collective policy mix is a question of economic and political judgement, not the law.
Another interesting point raised by a participant is that under the current economic governance framework (notably the 6-pack and the 2-pack) it is already possible to take the issue of non-respected decisions and unapplied sanctions in front of the Court. The current issue seems to be more that the Council and the Commission are hesitant to use the powers given to them.
Barbara Spinelli highlighted the problem of the current system: if the EU would be better equipped to respond to challenges if it had a proper budgetary capacity then it is still essential to have a functioning solution in the meantime. The EU is currently within what Descartes calls a ‘morale provisoire’ and while working towards a European solution the rule of law has to exist and function, with the possibility of going in front of the Court of Justice.
This event brought together experts on this very important issue and allowed the discussion and reflection to continue. The situation in the Union is currently very serious and we are reaching the limits of a system where decisions are made by Member States and then not respected. It is important to reflect on the cost of this non accountability and the fact that much citizen support has already been lost.
The solution needs to be found through combining the economic and legal perspectives. The current system which we have put in place will ultimately destroy the Union if there is not reform, confidence has been lost by the people, which can clearly be seen in the rise of the extremist parties in many Member States.