The agreement of the 25 contracting parties to the Treaty on Stability, Coordination and Governance of the Economic and Monetary Union on the implementation of Article 8 further emphasizes the role of the European Commission, which is unlawful

The main issue during the negotiations of the recently signed Treaty on Stability, Coordination and Governance of the Economic and Monetary Union, was whether the contracting parties are allowed to use the EU institutions to implement, monitor and enforce compliance with the treaty’s rules. Under this intergovernmental Treaty the EU institutions, particularly the European Commission, would be exercising functions beyond those given to them under the EU Treaties, which breaches EU law. However, the drafters of the treaty were not particularly concerned with its legality, the main aim is to save the euro. Therefore, they have turned a blind eye to potential breaches of the EU Treaties. As Bill Cash pointed out “the treaty is based on the dangerous assumption that the end justifies the means, and that they would argue that, even if it is unlawful, the requirement to introduce the treaty for political reasons overrides the law.”

The EU institutions legally cannot have a formal role in any agreement outside the EU Treaties. The role of the EU institutions is not only defined by the European Treaties but is limited by those Treaties and it would be unlawful for an institution to operate beyond the powers granted to it by the Treaties. In fact, any intergovernmental agreement changing the rules concerning the powers of the EU institutions is not possible without the consent of all Member States to amend the Treaties. A group of member states cannot confer any role or further powers to the EU institutions, through an intergovernmental treaty, outside the EU framework, without the approval of all EU member states. According to Professor Paul Craig “It would therefore be wrong if a Treaty other than the Lisbon Treaty could confer new powers or functions on the EU institutions.” He believes that it “would be contrary to the existing Lisbon Treaty and to legal principle” if “the SCG Treaty can confer new functions on the EU institutions”.

The Treaty has been drafted in order to give the idea that the EU institutions would only be involved in actions and procedures that they already have under the EU Treaties, that they would only act within the framework of the EU Treaties. Unsurprisingly, Brussels has used its usual legal tricks. However, as noted by Professor Paul Craig “the idea that an EU institution, such as the Commission, will exercise existing power in the Lisbon Treaty/EU legislation in the context of the SCG Treaty” and the idea “that an EU institution such as the Commission exercises a power under the SCG Treaty that is analogous to that which it possesses under the Lisbon Treaty/EU legislation” are “legally problematic.” According to Professor Craig “The fact that an EU institution has power pursuant to the Lisbon Treaty or EU legislation to do certain things, cannot per se legitimate use of an analogous power pursuant to a different Treaty.”

The legal basis used by the drafters to give jurisdiction to the European Court of Justice under the Treaty to verify the contracting parties compliance with their obligation to give effect to the balanced budget rule is Article 273 TFEU. Under this article Member States are allowed to give powers to the ECJ to settle disputes between them in a special agreement relating to the subject-matter of the EU Treaties. However, the negotiators have made an extensive interpretation of this provision. Article 8 goes far beyond as a clause that intends to settle disputes between contracting parties, as foreseen in article 273. It is important to note that the obligation to give effect in national law to the balanced budget rule is not an obligation under EU law. Article 8 of the Treaty, by conferring jurisdiction upon the Commission and the ECJ as regards the obligation of the contracting parties to enshrine the balanced budget rule into national law, involves the use of the EU institutions in a way that breaches the EU Treaties.

Under Article 8 (1) of the Treaty “The European Commission is invited to present in due time to the Contracting Parties a report on the provisions adopted by each of them in compliance with Article 3(2). If the European Commission, after having given the Contracting Party concerned the opportunity to submit its observations, concludes in its report that a Contracting Party has failed to comply with Article 3(2), the matter will be brought to the Court of Justice of the European Union by one or more of the Contracting Parties.” Hence, the referral to the ECJ is not reserved to the contracting parties since it has been indirectly extended to the Commission. The Commission is authorized, under the Treaty, to issue a report on the provisions adopted by each contracting party in compliance with Article 3(2). The European Commission is therefore allowed to assess whether the contracting parties have properly implemented the balanced budget rule and to ask a country that has incorrectly incorporated such rule into its national law to give an explanation. Then, if the Commission is not satisfied and believes that a contracting party is in breach of Article 3 (2) of the Treaty, and produces a negative report, the other contracting parties are obliged to refer the case to the ECJ. The contracting parties accepted therefore an obligation to bring the matter to the ECJ when the Commission finds that another contracting party has failed to comply with the above-mentioned provision. As noticed by Professor Paul Craig “Article 8 (…) gives the Commission the ‘trigger’ as to whether a legal action should be brought.” In fact, he stressed “Not only is there a mandatory obligation, there is no doubt whatsoever that the substance of the legal argument would be the negative report by the Commission.” Consequently “the Commission is still ‘bringing’ the action.”

In the history of the European Union there is only few cases of one Member State bringing an action before another in the ECJ. One can therefore conclude that it would be very unlikely member states taking each other to the ECJ under Article 8. In fact, as Professor Paul Craig pointed out “If inter-state actions were the only way to invoke the ECJ’s jurisdiction under the SCG Treaty then it would in practice remain a dead letter” which “explains the Commission’s role as defined in the first half of Article 8 and the efforts made by the drafters to square this with the precept that the Commission cannot itself bring a legal action under Article 273.”

It is important to note that the 25 contracting parties agreed to annex to the Minutes of the signing of the Treaty, the arrangements agreed by them for the implementation of Article 8 of the Treaty. Hence, “if the Commission concludes in a report to the Contracting Parties that one of them has failed to comply with Article 3(2) of the Treaty”, the contracting parties agreed to follow such arrangements in order “to bring a matter to the Court of Justice of the European Union in accordance with the second sentence of Article 8(1) of the Treaty on Stability, Coordination and Governance in the economic and monetary union (hereinafter" the Treaty") and on the basis of Article 273 of the Treaty on the Functioning of the European Union”.

The agreement of the contracting parties further emphasizes the role of the Commission in the procedures, it reads “The application, whereby the Court of Justice is requested to declare that a Contracting Party has failed to comply with Article 3(2) of the Treaty, as concluded in the Commission's report, will be lodged with the Registry of the Court of Justice by the applicants mentioned in paragraph 2 within three months of receipt by the Contracting Parties of the Commission's report concluding that a Contracting Party has failed to comply with Article 3(2) of the Treaty.” Such applicants will be the three Member States holding the Presidency of the Council of the European Union (Trio of Presidencies) at the date of publication of the Commission's report. However, if these member states are also subject to proceedings before the ECJ under Article 8(1) or (2) of the Treaty, the agreement foresees that “the duty to bring the matter to the Court of Justice will be supported by the members of the former Trio of Presidencies, under the same conditions.” The agreement on the implementation of Article 8 specifies, therefore, the contracting parties (trio of EU presidencies) that are obliged to refer the case to the ECJ if the Commission concludes, in a report, that a contracting party has failed to comply with Article 3(2) of the Treaty.

The agreement also reads “The applicants will act in the interest of, and in close cooperation with, all the Contracting Parties bound by Articles 3 and 8 of the Treaty, with the exception of the Contracting Party against which the case is directed, and in accordance with the Statute and Rules of Procedure of the Court of Justice.” The other contracting parties agreed to provide, upon request, any necessary technical or logistical support to the applicants, in the course of the proceedings before the Court of Justice, and to jointly support the costs incurred by the applicants as a result of the judgment of the Court.

Hence, the Trio of EU presidencies will take the matter to the ECJ, but under instructions from the European Commission. Moreover, under the arrangements agreed by the 25, “If a new report from the Commission concludes that the failure of the Contracting Party concerned to comply with Article 3(2) of the Treaty has ceased, the applicants will immediately inform the Court of Justice in writing that they wish to discontinue the proceedings, in accordance with the relevant provisions of the Rules of Procedure of the Court of Justice.”

It is important to mention that Article 273 TFEU does not foresee other forms of jurisdiction of the Court, namely infringement procedures brought by the Commission. The ECJ has jurisdiction for settle disputes between member states, but no role is foreseen to the European Commission. Under Article 273 only a Member State may be an applicant before the Court of Justice, having the Commission involved is incompatible with this provision. The Treaty does not allow the European Commission to directly take contracting parties to the ECJ as this would be a clear breach of the EU treaties, but it still plays a considerable role. The European Commission would be allowed to decide whether a country should be taken to the ECJ. This is another legal trick to overcome the EU treaties and provide the European Commission with a role on this matter – whether to take contracting parties to the ECJ. The contracting parties will be allowed to make use of the Commission for purposes, which are outside the scope of EU treaties, breaching, therefore, EU law. According to Professor Paul Craig is not lawful for this treaty to prescribe such a role to the Commission. In fact, he said “If Article 273 cannot accommodate enforcement actions brought directly by the Commission, we should not allow this injunction to be circumvented by devices that render a contracting state the ‘formal plaintiff’, when the imperative to bring the action and the substance of the argument to be made are determined by the Commission.”

The Treaty also reads, “The judgment of the Court of Justice of the European Union shall be binding on the parties in the procedure, which shall take the necessary measures to comply with the judgment within a period to be decided by said Court.” This provision is similar to Article 260 TFEU whereby the member states are required to comply with the ECJ judgments, but if a Member State fails to comply with an ECJ’s ruling pursuant to Article 8 of the Treaty, the Commission cannot bring the matter before the Court and ask for fines to be imposed. The ECJ cannot fine countries if they do not comply with such judgments, as foreseen in the EU Treaties. However, according to the Preamble to the Treaty “Article 260 of the Treaty on the Functioning of the European Union empowers the Court of Justice of the European Union to impose the payment of a lump sum or penalty on a Member State of the European Union having failed to comply with one of its judgments.” Moreover, Article 8 (2) provides, “Where, on the basis of its own assessment or that of the European Commission, a Contracting Party considers that another Contracting Party has not taken the necessary measures to comply with the judgment of the Court of Justice referred to in paragraph 1, it may bring the case before the Court of Justice and request the imposition of financial sanctions following criteria established by the Commission in the framework of Article 260 of the Treaty on the Functioning of the European Union.” This is another legal trick, as under article 273 TFEU the European Commission cannot seek to impose upon contracting party penalties in accordance with Article 260 TFEU. The agreement signed by the 25 member states on the implementation of Article 8 also states, “On the basis of an assessment by the European Commission that a Contracting Party has not taken the necessary measures to comply with the judgment of the Court of Justice referred to in Article 8(1) of the Treaty, the Contracting Parties bound by Articles 3 and 8 of the Treaty state their intention to make full use of the procedure established by Article 8(2) to bring the case before the Court of Justice, building upon the arrangements agreed for the implementation of Article 8(1) of the Treaty.”

At Germany request, under Article 8 (2), “If the Court finds that the Contracting Party concerned has not complied with its judgment, it may impose on it a lump sum or a penalty payment appropriate in the circumstances and that shall not exceed 0,1 % of its gross domestic product.” The Treaty confers, therefore, on the ECJ the power to impose fines on countries, which have failed to transpose or correctly incorporate the balanced budget rule into national law. Under the Treaty the penalty must not be higher than 0.1% of a country’s GDP. Furthermore, article 8 provides that the fines imposed by the ECJ on eurozone contracting parties would be paid into the ESM whilst fines impose on non eurozone contracting parties would go to the EU budget.

One could say that Article 273 TFEU mainly refers to disputes concerning the interpretation or application of agreements, excluding the ECJ’s competence to impose penalties. Under Article 260 TFEU the Court has competence to impose penalties on Member States, which have not taken the necessary measures to comply with its judgments for violations of EU law, however Article 8(2) does not concern violation of EU law. The ECJ has no powers to impose fines on countries that failed to bring their national laws into line with article 3 (2) of the Treaty.

Moreover, Article 8 (3) of the Treaty also stipulates, “This Article constitutes a special agreement between the Contracting Parties within the meaning of Article 273 of the Treaty on the Functioning of the European Union.” This provision deceitfully gives the idea that the use of the ECJ and the European Commission by the contracting parties is legal under the EU treaties. Article 8 of the Treaty is not compatible with the EU Treaties. The European Commission and European Court of Justice cannot enforce the Treaty provisions. The Court of Justice has allowed Member States to use the EU institutions in procedures established outside the framework of the Treaties, but there was a unanimous agreement. Consequently, all EU Member States must agree on the use of the EU institutions outside the framework of the EU Treaties. The Commission or the ECJ cannot enforce the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, as it’s not within their mandate. This intergovernmental Treaty is not enforceable because the European Court of Justice has no competence to rule on the compliance of the agreement, but it has competence to consider any potential conflict with the EU treaties. In fact, the Court of Justice should be asked for its opinion on the compatibility of this intergovernmental agreement with the Union treaties. If there is a conflict between the EU treaties and this intergovernmental treaty obviously the EU Treaties would take precedence.

It is important to recall that the letter sent by Sir Jonathan Cunliffe, Britain's Permanent Representative to the European Union, to the Secretary-General of the Council of the European Union recording the UK position set out by the Prime Minister at last January’s European Council on the Treaty, makes it clear that the government has serious reservations on the Treaty and its use of the institutions, particularly in Article 8. In fact, Mr Lidington said to the European Scrutiny Committee “In Article 8, our concerns centre on the possible role both of the Commission and of the European Court of Justice.” He reiterated that “Our position as a Government is that the EU institutions, including the Commission but the Court too, must only be used outside the EU treaties with the consent of all Member States, and that any such action by the institutions must respect the EU treaties and not contravene them.” However, when Mr Clappison asked whether the Government has given consent to the use of the EU institutions in this Treaty, Mr Lidington replied, “ No, we have not been asked so to do.” Hence, as noticed by Mr Clappison “As it stands, if we have not given our consent, then what the EU is doing is not lawful, in our view. The two conditions that are set here are, for the EU’s action to be lawful, it could only be done with our consent and must respect the EU treaties. If we have not given our consent, it is not lawful.”

The UK can, and should, challenge the use of Article 273 before the ECJ and argue that it does not cover the circumstance of the present Treaty. Ultimately, it would be for the ECJ to decide on this mater, which favours further EU integration. However, one could wonder whether the UK will ever bring a legal action before the ECJ. Bill Cash has recently asked the Prime Minister if he will “take forward his current concerns about the legal position of the non-EU treaty to the European Court”. David Cameron replied by saying “the path (…) of a legal challenge—is a less good one than using our leverage and influence to ensure that the agreement sticks to fiscal union rather than gets into the single market. That is the right approach and the one we are pursuing.”

Bill Cash believes that the Government knows that the Treaty is unlawful and, stressed that the Government “must put referral to the European Court of Justice firmly on the agenda, follow that through and, at the same time, reassess our policy towards the European Union and insist on a renegotiation of the treaties to ensure that the United Kingdom is not found wanting.”