January 25
2021
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13th January 2021
Banking & Finance Institutional law Justice & Litigation

Op-Ed: “The European Commission’s role in the intergovernmental sphere of EMU: reflections on the CJEU’s case-law after Chrysostomides and Bourdouvali” by Karl Croonenborghs

1. Introduction

On 16 December 2020 the Court of Justice of the EU (CJEU) delivered its long-awaited judgment on appeal in the joint Chrysostomides and Bourdouvali cases (C-597/18, C-598/18, C-603/18, C-604/18). The ruling adds some extra pieces to the increasingly complex institutional puzzle of the economic governance framework of the Economic and Monetary Union (EMU). This contribution in particular focuses on clarifications brought by the CJEU over time in its case law regarding the European Commission’s role in the EMU’s intergovernmental sphere dealing with economic policy (fn 1). The article first gives an overview of the CJEU’s evolving body of relevant jurisprudence. Next, some reflections are shared with respect to this case law as well as an outlook on its impact for the Commission.

 

2. The CJEU’s view regarding the Commission’s role in the EMU’s intergovernmental sphere

2.1. European Stability Mechanism 

The first litigation before the CJEU where the Commission’s role came to the fore concerns the European Stability Mechanism (ESM). In Pringle (C-370/12 paragraphs 68-69, 100-101), the CJEU confirmed the legality of the ESM as a financing mechanism for the euro area established by an inter se agreement among euro area Member States provided the latter do not change or affect any common rules and respect EU law. The CJEU also vetted the Commission’s involvement in the ESM under a so-called Bangladesh mandate (Pringle, paragraphs 158-159).

It should be recalled that the tasks entrusted by euro area Member States to the Commission within the context of the ESM Treaty consist of assessing requests for financial assistance (Article 13(1)), the negotiation and signing of a memorandum of understanding (MoU) with a euro area Member State detailing conditionality attached to the financial assistance (Article 13(3)), ensuring the latter’s consistency with EU measures of economic policy coordination (Article 13(4)), and the monitoring of compliance with such conditionality (Article 13(7)).

The CJEU held the view that these tasks that the Commission discharges on behalf of the ESM are compatible with its roles under Article 17(1) TEU, namely the promotion of the EU’s general interest and overseeing the application of EU law. In particular, the CJEU held that the tasks allocated to the Commission enable it to ensure that the MoU concluded by the ESM is consistent with EU law (Pringle paragraph 164). The CJEU’s reasoning in Pringle is based on an extension of its case law regarding international agreements in Parliament v Council and Commission (C-181/91 and C-248/91) (the ‘Bangladesh case) and Parliament v Council (C‑316/91)) that Member States are entitled, in areas which do not fall under the Union’s exclusive competence, like economic policy, to entrust EU institutions with tasks outside the EU legal framework insofar as these tasks do not alter the essential character of the powers conferred to those EU institutions in the Treaties.

In Ledra (C-8/15 P to C-10/15 P, paragraph 53), the CJEU reconfirmed in a case regarding an action for damages that, even though the ESM’s acts fall outside the EU legal order and the Commission acts as an agent of the ESM, the Commission’s tasks allocated in the ESM Treaty oblige it to ensure that the MoU detailing conditionality attached to financial support complies fully with EU law (Ledra, paragraph 57-60). In this ruling, the CJEU went a step further by explicitly clarifying that the Commission retains within the ESM its role of guardian of the Treaties resulting from Article 17(1) TEU and should refrain from signing any MoU whose consistency with EU law it doubts. This means the Commission’s signature pertains to a tool to uphold EU law. In addition, the CJEU (Ledra, paragraph 67) also clarified that the Commission is to comply with the Charter of Fundamental Rights of the EU when it acts outside the EU legal order. In Bourdouvali (T-786/14 paragraphs 200-202), the General Court extended the Commission’s obligation to ensure compliance with EU law in the ESM to its monitoring duties under the ESM Treaty.

2.2. Eurogroup 

The Eurogroup is a forum established in 1997 where euro area Ministers of Finance informally meet to discuss and coordinate matters connected to their shared specific responsibilities for the euro. From its establishment by a resolution of the European Council, the Commission has participated and has been strongly involved in its preparation through the Eurogroup Working Group (EWG). Its mandatory participation in both was formalised in Article 137 TFEU and Protocol No 14 to the TFEU and the Statutes of the EFC. The same is true for the Commission’s participation in the Euro Summit, an informal meeting at the highest political level of HoSG offering strategic orientation in economic policy and completing EMU to the euro area (Article 12 TSCG and Rules of Organisation).

The CJEU, for the first time, shed light on the Commission’s involvement in the Eurogroup in Mallis and Others (C‑105/15 P to C‑109/15 P). The CJEU held in this case dealing with an action for annulment against a Eurogroup statement, which was alleged to be a joint decision from the Commission and the ECB, that the Commission’s role in the Eurogroup in a financial assistance context cannot be wider than the role accorded to it as an agent in the ESM Treaty (Mallis & Others paragraph 53). The CJEU concluded that the fact that the Commission participates in the Eurogroup does not imply that Eurogroup statements in a financial assistance context are an expression of the decision-making power of the Commission. However, the Court went on to verify factually whether the statement at issue on substance did not reflect a decision of the Commission to create legal obligations for Cyprus to implement the measures it referred to.

Further, the CJEU also clarified the Eurogroup’s informal nature by confirming that it cannot be equated with a Council configuration or be classified as a body, office or agency of the EU within the meaning of Article 263 TFEU (Mallis and Others, paragraph 61). In its recent judgment in Chrysostomides and Bourdouvali, the CJEU upheld its ruling in Mallis and Others and confirmed that, be it for an action for annulment or for an action for damages, the Eurogroup is not an EU entity established by the EU Treaties with powers of its own in the EU legal order but is merely an intergovernmental body for informally coordinating euro area Member States’ economic policies. It serves as a bridge between the national and EU level. Importantly, the CJEU emphasised that the Eurogroup does not affect the Council’s role, which is the fulcrum of the EU’s decision-making process in economic matters (Chrysostomides and Bourdouvali, paragraphs 86-89).

However, the CJEU also ruled that individuals can bring actions for damages (Article 340 TFEU) against the Commission, the Council and the ECB for acts or conduct that they adopt following political agreements in the Eurogroup. Regarding the Commission’s role, the CJEU rules that ‘in the context of its participation in the activities of the Eurogroup’, it retains its role as guardian of the Treaties (Chrysostomides and Bourdouvali, paragraph 96) thereby extending its case law in Pringle and Ledra regarding the Commission’s role in the ESM more broadly to the Eurogroup. The CJEU also adds that ‘It follows that any failure on [the Commission’s] part to check that the political agreements concluded within the Euro Group are in conformity with EU law is liable to result in non-contractual liability of the European Union being invoked […]’.

 

3. Reflections on the implications of the CJEU’s case law

From the CJEU’s growing body of case law, a general legal principle can be first derived that the Commission must uphold EU law in the EMU’s intergovernmental sphere in view of its role as guardian of the Treaties (Article 17(1) TEU). However, the Court’s stance also implies that Member States when acting in the Eurogroup, its preparatory body or ESM decision-making bodies are under an obligation to fully respect EU law. This obligation flows from the principle of primacy of EU law and the principle of sincere cooperation (Article 4(3) TEU).

The latter obliges Member States to take all the measures necessary to guarantee the application and effectiveness of EU law (Commission v Slovenia, C-316/19, paragraph 119) and requires them and their organs to eliminate the unlawful consequences of a breach of EU law (C‑597/17). By virtue of the same principle, Member States should take due account of EU law when negotiating, concluding and fulfilling commitments entered into under an inter se international agreement like the ESM Treaty (by analogy to Commission v Germany, C-620/16, paragraphs 92-93).

Moreover, the CJEU confirmed the primacy of EU law in the relationship between the ESM and the EU legal order (Pringle, paragraph 69). It recalled that euro area Member States may not disregard their duty to comply with EU law and are prohibited from altering or affecting common rules set in the EU legal order when concluding an inter se agreement like the ESM Treaty (Pringle, paragraph 101). The same holds true for any subsequent amendments to this inter se agreement (fn 2) or its implementation in practice. With respect to the Eurogroup, the CJEU indirectly refers to the principle of primacy by stressing that the Eurogroup has no competence of its own in the EU legal order and by confirming the Council’s role as the EU institution for decision-making in economic matters (Chrysostomides and Bourdouvali, paragraphs 88-89).

Closely connected to the first principle mentioned above, a second implication can be inferred from the CJEU’s case law. It imposes a duty on the Commission in the context of its participation in the Eurogroup to ‘check’, which can be understood as actively monitor and legally scrutinise the activities of Member States in the Eurogroup (Chrysostomides and Bourdouvali, paragraph 96). By extension, it could be argued that insofar as the Commission is involved such scrutiny should also apply to Member States’ activities in the ESM and to the ESM as an institution, which is merely an emanation of them based on an inter se agreement (fn 3). The principle could already be indirectly inferred from the reference in Pringle (paragraph 72) that the ESM will operate in a way that will comply with EU law and directly from Ledra (paragraph 59) where the CJEU forbids the Commission to sign an MoU on behalf of the ESM whose consistency with EU law it doubts.

A third principle that can be derived from the CJEU’s stance in its evolving case law is that the Commission should actively raise its legal concerns with Member States in case it sees risks of non-compliance with EU law in their activities in the Eurogroup and the ESM. The Commission’s mandatory participation in the Eurogroup and Eurogroup Working Group offer a key means to (de)escalate legal issues. The same is true for the Commission’s participation as an observer in the ESM decision-making bodies for ESM activities (Article 5(3) and 6(2) ESM Treaty). Ultimately, the CJEU’s stance that the Commission retains its role as guardian of the Treaties in the Eurogroup and ESM fora implies that in case an informal legal dialogue with Member States fails, the Commission could decide, if deemed appropriate, to pursue infringement proceedings against all euro area Member States (Article 258 TFEU) to let the CJEU establish non-compliance with EU law, and if established and Member States fail to follow suit, seek a second judgment from the CJEU imposing financial penalties.

A final broader reflection that can be made is that the CJEU in Chrysostomides and Bourdouvali once again tries to marry the intergovernmental and Union dimension of EMU’s architecture for economic governance and narrow as much as possible the gap between both thereby trying to preserve the common framework set in the EU legal order under the auspices of the Commission. While from a legal perspective the CJEU’s stance finds its logic in the Commission exercising its role pursuant to Article 17(1) TEU regardless of whether it operates in the EU legal order or not, in practice it is likely capable of putting the Commission between the bedrock of the EU legal order and the political hard place of often diverging economic policy interests in the Eurogroup and ESM.

Such an observation is all the more pertinent because integration during the euro crisis has followed a strong intergovernmental logic (fn 4) through growing political coordination in the Eurogroup and Euro Summit and taking recourse to intergovernmental solutions to address crisis circumstances. In this respect, the CJEU’s ruling in Chrysostomides and Bourdouvali can be seen as a reminder for the different actors in the complex EMU architecture for economic policy that notwithstanding necessary informal political coordination among Member States, the Commission’s and Council’s roles set by the EU Treaties should be fully respected.

 

4. Outlook 

With the CJEU systematically confirming over time the Commission’s key role of ensuring compliance with EU law in the EMU’s intergovernmental sphere, it remains to be seen how the Commission will exercise its role of guardian of the Treaties in practice. The most difficult legal issues that it will likely have to address going forward concern the interplay between intergovernmental bodies (ESM, Eurogroup), and EU actors under the EU’s framework for economic matters in case they negatively affect or undermine Union competences, the roles, powers and tasks of EU institutions, offices, bodies and agencies active in EMU, or economic and fiscal surveillance outputs.

Inevitably, the Commission will have to navigate between strong and often differing political interests of Member States in EMU’s economic policy debates, where informal channels and fora are increasingly used in advance to come to important political decisions before they are dealt with in the EU framework or have to deal with institutional interests of newer institutional actors that are eager to weigh into such debates. The difficulty that the Commission will face when operating in the EMU’s intergovernmental sphere lies in the right balance between those diverging interests and ensuring their outcomes are fully compliant with the EU legal order.

However, the CJEU’s message can serve it well in this process: it is for the Commission under the control of the CJEU to protect the EU legal order in EMU from institutional erosion or deconstruction. However, this does not dispel Member States from their duty to have due regard for the Union system as a whole and cooperate with the Commission in the EMU’s intergovernmental sphere in order to avoid any conflicts with EU law.

 

Karl Croonenborghs is a Legal Counsel working at the European Commission’s Directorate-General for Economic and Financial affairs. His expertise and daily legal practice is in the law of EMU, financial assistance mechanisms, the euro and monetary law in general. The information and opinions set out in this contribution are those of the author only and do not necessarily reflect the official view of the European Commission.

* The author is grateful to Jean-Paul Keppenne and Leo Flynn, respectively Principal Legal Advisor-Director and Legal Advisor in the Commission’s Legal Service for their valuable comments in reviewing this contribution.

 

(fn 1) The article does not appraise the CJEU’s stance on the legal nature of the Eurogroup and its implications for effective judicial protection. For a critical assessment of the Court’s ruling see Menelaos Markakis and Anastasia Karatzia, Op-Ed: ‘The Final Act on the Eurogroup and Effective Judicial Protection in the EU: Chrysostomides’, EU Law Live, 22 December 2020.

(fn 2) The Amending Agreement to the ESM Treaty, endorsed by the Eurogroup on 30 November 2020 and soon subject to ratification in the national legal orders of euro area Member States confirms the obligation of the ESM, its Managing Director and staff to respect EU law in several instances (see new recitals 5b, 11b, 15a, 16, Articles 12 (1a) and (4), 14, and 18a) following Commission efforts in this regard during the negotiation of that inter se agreement.

(fn 3) Jean-Paul Keppenne, Tim Rusche, Laura Estrella Blaya, ‘An ESM Backstop Facility to the Single Resolution Board: The Difficult Marriage of an EU Mechanism and an Intergovernmental Institution’ in Diane Fromage and Bruno de Witte, ‘Recent Evolutions in the Economic and Monetary Union and the European Banking Union: A Reflection’, Maastricht Law Faculty of Law Working Paper Series, 2019/03.

(fn 4) Alberto de Gregorio Merino, ‘The Institutional Architecture of Economic Union’, Research Paper, Centro Studi Sul Federalismo, 2019

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