Margarida Vasconcelos: the ESM Treaty entered into force

On 12 September, the German Constitutional Court pronounced its judgment on the several applications for the issue of temporary injunctions aiming at preventing German ratification of the ESM Treaty and the Fiscal Compact. Unsurprisingly, the court has not rejected the ESM but it has set conditions for its use.

The Court held that provisions of the Treaty establishing the European Stability Mechanism – TESM on the revised increased capital call, the provisions on the inviolability of the documents and on the professional secrecy of the legal representatives of the ESM could be interpreted in a way which “might violate the Bundestag’s overall budgetary responsibility.” Consequently, the Court stressed, “This must be effectively precluded by declarations under international law made upon ratification of the Treaty.”

Then, on 13 September, President Joachim Gauck signed the ESM legislation approved by the Bundestag and the Bundesrat. Germany has formally completed the ratification process of the ESM after the eurozone member states agreed to a legally biding "interpretive declaration", which has been added to the Treaty, incorporating the court’s above-mentioned conditions.
Hence, on the 27 September, following the deposit by Germany of its instrument of
Ratification, the ESM Treaty entered into force. The President of the Eurogroup Jean-Claude Juncker, said that “The ESM will be globally the largest international financial institution with a strong capital base of €700 billion of which €80 billion will be paid-in by early 2014 including almost €33 billion in October.”

It is important to recall that 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.

As Anthony Coughlan said, "… the game is not over yet. The judges in the ECJ are going to have difficulty with the three questions that have been sent to them. The ECJ has never been confronted with this sort of challenge before and it will be interesting to see how they meet it. If the ESM is allowed to proceed with its present legal structure – it does not bode well for either the ECJ or the Commission in the future. So it will be interesting to see how the judges on the ECJ respond now that they have this opportunity to adjudicate on the relation between the existing EU Treaties and the embryonic "Federation for the Eurozone, Confederation for the rest of the EU" which French President NIcolas Sarkozy spoke of last November and which the political-legal pathway towards is the ESM Treaty for the Eurozone."

In fact, one could say that the ESM is unlawful as it is not in line with the EU Treaties, it breaches, particularly, article 125 TFEU, the no bailout clause, which forbids Member States for being liable for the debts of another. By amending the Treaty authorizing the eurozone countries to create a permanent financial support mechanism has not reduced the effect of the bailout clause, as any derogation from this provision is incompatible with the principles of the EMU. It is important to recall that Article 48(6) TEU allows Treaty amendments to be made, within the TFEU Part III “on internal policies and actions of the Union” by European Council, as long as there is unanimity and the amendments do not extend the competences of the European Union. However, it is possible to argue that the European Council decision to amend the Treaty increases the competences conferred on the Union in the Treaties. The creation of the ESM entails further transfer of powers to Brussels namely further political and fiscal cooperation. Under Article 48 (6), the European Council’s decision amending the Treaty cannot enter into force until it is approved by the Member States, in accordance with their respective constitutional requirements. The Decision states that it shall enter into force on 1 January 2013 provided all the domestic instruments of ratification have been received by then. There is a conflict between the date of entry into force of the European Council Decision, which is 1 January 2013, and the date of enter into force of the mechanism that the Decision allows to be established. The ESM has come into force before the amendment to Article 136. In order to accelerate the ratification of the ESM treaty, the Eurozone leaders decided to turn a blind eye to the amendment of article 136. Furthermore, it is important to note that the ESM was established by a treaty among the euro-area Member States as an intergovernmental organisation under public international law. The ECJ has made clear that an international agreement cannot affect the allocation of responsibilities defined in the Treaties and, consequently, the autonomy of the Community legal order. In fact, Member States may only sign international agreements that are compatible with EU law.