Margarida Vasconcelos: Unsurprisingly, the ECJ ruled that the ESM is valid, as it does not breach EU law

On 27 November, the European Court of Justice gave its judgement in Case C-370/12
Thomas Pringle v Government of Ireland, Ireland, The Attorney General. The Irish Supreme Court did not find Ireland's proposed ratification of the European Stability Mechanism (ESM) Treaty to be unconstitutional, and declined to injunct the Irish State from ratifying this treaty. However, the Irish Supreme Court has decided to refer to the ECJ for preliminary ruling, questions concerning whether the European Council Decision of 25 March 2011 to amend Article 136 TFEU of the EU Treaties relating to the establishment of a permanent Stability Mechanism for the Eurozone is valid and whether Eurozone Member States are entitled to sign and ratify an international agreement such as the ESM Treaty taking into account the EU Treaties provisions, and whether such entitlement depends on the validity and entry into force of the European Council Decision. Unsurprisingly, the ECJ ruled that the ESM is valid, as it does not breach EU law.

The Court noted that Article 136 TFEU was amended by the European Council Decision 2011/199 through a simplified revision procedure, which applies only to Part Three of the TFEU, and may not increase the competences conferred on the EU in the Treaties.

According to the Court the European Council Decision amends a provision of Part Three of the Treaty, namely Article 136 TFEU, and does not encroach on the EU exclusive competence in the area of monetary policy for eurozone Member States, as well as the EU competence in the area of the coordination of the economic policies of the Member States. The ECJ noted “the provisions of the EU and FEU Treaties do not confer any specific power on the Union to establish a stability mechanism of the kind envisaged by Decision 2011/199” but “the Member States whose currency is the euro are entitled to conclude an agreement between themselves for the establishment of a stability mechanism of the kind envisaged by Article 1 of Decision 2011/199”. Moreover, the ECJ stressed that eurozone Member States “may not disregard their duty to comply with European Union law when exercising their competences in that area” and “…the reason why the grant of financial assistance by the stability mechanism is subject to strict conditionality under paragraph 3 of Article 136 TFEU, …, is in order to ensure that that mechanism will operate in a way that will comply with European Union law, including the measures adopted by the Union in the context of the coordination of the Member States’ economic policies.”

Hence, the Court held that Decision 2011/199 satisfies Article 48(6) TEU conditions for the use of the simplified revision procedure.
The ECJ also ruled that the Council Decision amending article 136 TFEU does not increase the competences conferred on the Union in the Treaties.

The Court recalled that “Article 136(3) TFEU, the insertion of which is provided for by Article 1 of Decision 2011/199, confirms that Member States have the power to establish a stability mechanism and is further intended to ensure, by providing that the granting of any financial assistance under that mechanism will be made subject to strict conditionality, that the mechanism will operate in a way that will comply with European Union law.”  It  held therefore “That amendment does not confer any new competence on the Union” as it does create a “legal basis for the Union to be able to undertake any action which was not possible before the entry into force of the amendment of the FEU Treaty.”

Consequently, the Court ruled that the European Council Decision 2011/199/EU of 25 March 2011 amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro is valid.

The ECJ also ruled that eurozone Member States are not precluded to conclude and ratify an agreement such as the ESM Treaty, by certain provisions of the TEU and TFEU, namely provisions concerning the EU’s exclusive competence for monetary policy and provisions which provide that the EU institutions are required to act within the limits of the powers conferred on them in the Treaties.

It is important to note that according to the ECJ the ESM Treaty is not in breach of the ‘no bail-out clause’ in Article 125 TFEU.
Unsurprisingly, according to the ECJ’s interpretation of Article 125 TFEU, that provision “is not intended to prohibit either the Union or the Member States from granting any form of financial assistance whatever to another Member State.” The Court noted, “Article 125 TFEU does not prohibit the granting of financial assistance by one or more Member States to a Member State which remains responsible for its commitments to its creditors provided that the conditions attached to such assistance are such as to prompt that Member State to implement a sound budgetary policy.” It held that “the other ESM Members do not act as guarantors of the debt of the defaulting ESM Member” therefore, “a mechanism such as the ESM and the Member States who participate in it are not liable for the commitments of a Member State which receives stability support and nor do they assume those commitments, within the meaning of Article 125 TFEU.”

It is important to recall that the ESM Treaty allocates new tasks to Commission, the ECB and the Court, therefore the Irish Supreme Court also asked whether such allocation of powers is compatible with these Institutions’ powers as defined in the Treaties.

The ECJ recalled “that the Member States are entitled, in areas which do not fall under the exclusive competence of the Union, to entrust tasks to the institutions, outside the framework of the Union, such as the task of coordinating a collective action undertaken by the Member States or managing financial assistance … provided that those tasks do not alter the essential character of the powers conferred on those institutions by the EU and FEU Treaties…” The Court deemed that the tasks conferred on the Commission and ECB within the ESM Treaty do not entail any power to make decisions of their own and that the activities carried out by those two institutions within the ESM Treaty only commit the ESM. As regards the role of the Court itself, the Court held “that the allocation by Article 37(3) of the ESM Treaty of jurisdiction to the Court to interpret and apply the provisions of that treaty satisfies the conditions laid down in Article 273 TFEU.”

As regards the conclusion and ratification of the ESM before the entry into force of Decision 2011/199, the Court noted, “the amendment of Article 136 TFEU by Article 1 of Decision 2011/199 confirms the existence of a power possessed by the Member States” and “that decision does not confer any new power on the Member States.” Consequently, the Court ruled, “that the right of a Member State to conclude and ratify the ESM Treaty is not subject to the entry into force of Decision 2011/199.” Hence, as pointed out by Denis Cooper, “everybody has been wasting their time processing an EU treaty change which was completely unnecessary”.