European Competition Law & Regulation MASTER THESIS
Academic course 2018-2019
How would the change from the ESM to the EMF
affect the accountability of the conditionality
measures taken by these mechanisms?
Jose Maria Paniagua Garcia-Señorans 12355852
Thesis supervisor: Dr René Smits
Acknowledgments
I would like to deeply thank my thesis supervisor, Dr René Smits, without whom I am convinced that I could not have developed a topic like this in which my knowledge was not very extensive. Thanks to his constant help, not only for his high knowledge on the subject, but also for the care with which he has been treating me during all this period, I have been able to develop such an interesting topic like this.
INDEX
1. INTRODUCTION...5
2. ECONOMIC CRISES...6
2.1. European Financial Stability Facility...7
2.2. European Financial Stability Mechanism...8
3. EUROPEAN STABILITY MECHANISM...9
3.1. Conditionality measures – Memorandum of Understanding...10
3.2. Procedure for granting financial support...12
4. ACCOUNTABILITY...14
4.1. Accountability as Rule of Law...14
4.2. Accountability in the ESM...15
4.3. Institutions that may render accountable the ESM...16
4.3.1. European Commission...16
4.3.2. European Parliament...17
4.3.3. European Court of Auditors...17
4.3.4. European Court of Justice...18
4.3.5. National Parliaments...19
5. LANDMARK CASE-LAW – CYPRIOT BAIL-OUT...20
5.1. Mallis Case...20
5.2. Ledra Advertising case...23
6. PROPOSAL FOR THE ESTABLISHMENT OF THE EUROPEAN MONETARY FUND....26
6.1. Legal Accountability of the EMF...28
6.2. Political Accountability of the EMF...30
7. ESM REVISION...32
8. CONCLUSIONS...34
1. INTRODUCTION
After the tragic economic crises suffered in 2010 in several countries of the Eurozone, the European institutions and the EU Member States have tried to correct these effects with the creation of financial assistance rescue mechanisms. These mechanisms have evolved over the years, and currently the European Stability Mechanism is the one in charge of such bail-outs.
In this thesis I will talk about the procedures of this mechanism in practice and how it imposes certain conditions on countries in need to access such financial assistance.
In the recent years the European Union has suffered from a lack of confidence on the part of citizens in all aspects, both in their institutions, bodies, actions or reprisals for actions taken in a wrong way.
In this specific case, I will investigate about the reviewability of the aforementioned conditionality measures that have these types of rescue mechanisms by institutions and bodies of the European Union, since they have been created between countries under international law, which means that it does not belong to the EU legal framework. Therefore, I will focus on the accountability of the conditionality measures of the ESM, since it is the current and most important mechanism to date, and I will also analyze the proposal for the creation of the European Monetary Fund by the European Commission. This proposal is not yet implemented, but I will try to look for similarities and differences with its future predecessor, the ESM, in terms of the accountability of its conditionality measures and their effects on citizens.
During the development of the thesis, we will answer different subquestions that arise on this subject, such as: Wich were the reasons to create suche mechanisms? Is the ESM sufficiently accountable under EU law? Is it indispensable to change from the ESM to the EMF? Would the implementation of the EMF improve the lack of accountability of the previous Mechanisms?
Due to the characteristics of the topic, during the development of the thesis I will try as far as possible not to assume the reader’s knowledge regarding the issues discussed and to clearly detail and specify all the elements needed.
2.
ECONOMIC CRISES
The economic crisis at the end of the first decade of the 21st century posed an important challenge for the Union, as was the case of the compatibility of its powers of intervention on the economies of the Member States, very limited by the treaties, with the need to maintain the economic stability of the Eurozone.1
The Union and, in particular, the Eurozone, entered the economic crisis with a situation in which, despite sharing a currency, it lacked sufficient integration of its financial markets and its industry. Besides, it lacked a "federal" budget that would allow it to face the severe recessions that were going to be suffered, and also of fiscal competences, in such a way that it was not possible to generate new resources so that the States could solve their financing problems.2
The Treaties were excessively scarce in the economic and financial field in such a way that they did not provide a sufficient legal basis for the adoption of policies of economic intervention and aid, preventing a common economic policy that would allow solving the economic turbulence and the problems arising from the excessive indebtedness of Member States. Moreover, from the Treaties and especially from the TFEU could be deduced, that such measures not only lacked normative support but could even be contrary to EU law.3 For example, Article 125 TFEU established the prohibition of a financial bail-out, which was completed by the prohibition of privileged access to financing through credit institutions or the ECB set out in Article 123 TFEU.4
Given this, Article 122 TFEU admitted the extraordinary possibility of financing from the budget of the Union. Thus, this last provision allowed “the Council, on a proposal from the Commission, may decide, in a spirit of solidarity between Member States, upon the measures appropriate to the economic situation, in particular, if severe difficulties arise in the supply of certain products...”.5 The adoption of extraordinary measures also allowed the granting of Union financial assistance to a
1 Hinarejos, A., The Euro Area crisis in constitutional perspective, Oxford University Press, Oxford, 2015, p. 29. 2 Estella, A., ¿Hacia una Unión Bancaria Europea? El Mecanismo Único de Supervisión Bancaria (MUS), RGDE,
n. 33, 2014, p. 3.
3 https://europeanlawblog.eu/2012/11/27/to-bail-out-or-to-not-to-bail-out-the-cjeu-confirms-competence-to-conclude-the-esm-treaty/
4 Art. 123 (1) TFEU: “Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.”
“Member State that is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control”.6
The Treaties, as modified by the Treaty of Lisbon, did not provide for instruments of support for Member States with liquidity issues, (but, on the contrary, the TFEU imposed the bail-out ban on Article 125, at the same time that imposed the States to avoid “excessive government deficits”.7 The only exception to this scheme is provided in Article 122 TFEU which admits the possibility of financial assistance from the European Union to States in crisis situations, but only on certain extraordinary occasions coupled with situations of severe economic difficulty caused by natural calamities or exceptional circumstances beyond the control of Member States as we mentioned before.8
2.1. European Financial Stability Facility
The first significant measure of the EU was the European Financial Stability Facility (EFSF), created in June 2010 as a temporary mechanism that provided financial economic assistance to those countries in need subject to compliance with several conditions by the recipient State. This was the moment when the financial crisis started to affect the most fragile economies of the Union, and the main aim of the creation of this mechanism was to maintain the economic stability in the Eurozone.9
The first payments of EFSF loans amounted to 150 billion euros, forwarded to Ireland, Portugal and Greece. As already indicated, the disbursement of these funds is subject to compliance with political, economic and financial reforms closely monitored by the so-called ‘Troika’.10
According to the EFSF Framework Agreement between the EFSF and the Member States, since the 1 of July 2013,11 this institution does not participate in new financing programs, nor has signed new loan agreements. Its current activity just concerns: Recovering payments on loans from the recipient countries, make payments of interests to EFSF bondholders and refinancing the pending EFSF
6 Art. 122 (2) TFEU. 7 Art. 126 TFEU.
8 Borger, V., How the Debt Crisis Exposes the Development of Solidarity in the Euro, European Constitutional Law Review, No. 9, 2013, p. 14.
9 https://www.esm.europa.eu/efsf-overview
10 This term is used to describe any task carried out by three people. In this context, the Troika refers to three institutions: the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission.
11 https://www.esm.europa.eu/sites/default/files/20111019_efsf_framework_agreement_en.pdf. EFSF Framework Agreement, p. 27.
bonds (since the maturities of the loans granted to Ireland, Portugal and Greece are later than the bonds issued by the fund).12
The EFSF will be dissolved and liquidated when all the financial assistance and all the financing instruments issued by the mechanism provided to the Member States of the euro area have been fully repaid.13
2.2. European Financial Stability Mechanism
Furthermore, on May 2010 surged the EFSM (European Financial Stability Mechanism), another mechanism responsible of ‘preserving the financial stability of the European Union with financial assistance’ that ‘may be granted to a Member State which is experiencing, or is seriously threatened with, a severe economic or financial disturbance caused by exceptional occurrences beyond its control’.14
The European Financial Stability Mechanism is a complement to the European Financial Stability Fund described above and does not exclude access to other sources of financing outside the EU, such as the IMF. It has its legal basis in article 122(2) TFEU stated before and in Council Regulation n. 407/2010.15
The lack of mechanisms of financial assistance to the States has been one of the main problems encountered by the European Institutions for facing urgent situations arising from the crisis.16 These legal mechanisms, were therefore ineffective or at least insufficient to deal with the crisis, which led to different types of decisions. First, the institutional position of the ECB was strengthened.17 At the same time, two types of measures were adopted: on the one hand, to use the legally envisaged mechanisms to their full potential, especially what is established in Article 122 (2) TFEU; and, on the other, expand these faculties through the creation of new mechanisms.18
12 Soler, J. A., El Derecho de la Unión Europea ante la crisis económica: consideración especial de los mecanismos
de rescate e incidencia en el desarrollo constitucional de la Unión, UCAM, 2016, p. 260.
13 Ibid, p. 261.
14 Art. 1 ‘Aim and Scope’ of COUNCIL REGULATION (EU) No 407/2010, of 11 May 2010 establishing a European financial stabilisation mechanism. ELI: http://data.europa.eu/eli/reg/2010/407/oj
15 Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism, ELI: http://data.europa.eu/eli/reg/2010/407/oj
16 Frosina, L., Reformas en la gobernanza e incertidumbres en la culminación de la Unión económica y monetaria, Revista de Derecho Constitucional Europeo, No. 25, 2016, p. 2.
17 Alexander, K., The ECB and Banking Supervision: Building Effective Prudential Supervision?, Yearbook of European Law, Vol. 33, n. 1, 2014, pp. 417 y 419.
3. EUROPEAN STABILITY MECHANISM
The European Council on 25 March 201119 decided to introduce paragraph 3 on article 136 in the TFEU, which was the starting point for the Treaty establishing the European Stability Mechanism20, signed on 2 February 2012, by the Member States of the Eurozone. The Treaty involves the implementation of permanent rules on financial assistance to these States, taking distance from the prohibitions established in the TFEU. These are rules aimed at maintaining financial stability. With this objective, the Treaty becomes an international financial institution of intergovernmental nature without supranational identity.21 The characteristics of the new instrument were defined in its Declaration of November 28th 2010 and confirmed by the European Council at its meeting of December 16 and 17 in 2010.22
This is now the only permanent mechanism that responds to new requests for financial assistance from the Member States of the euro area. The EFSF will definitively cease to exist once all outstanding loans granted through its assistance programs have been totally repaid.23
As we said, the European Stability Mechanism (ESM) is created through the reform of the Treaty of Lisbon (through Decision 2011/199/EU24) modifying art. 136 TFEU, by means of the simplified procedure, incorporating a paragraph 3 of the following wording: “The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”25
The Mechanism will be considered the necessary instrument to deal with cases of risk to the financial stability of the euro area as a whole as experienced in 2010, helping to preserve the
19 2011/199/EU: European Council Decision 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. ELI: http://data.europa.eu/eli/dec/2011/199/oj
20 Treaty Establishing the European Stability Mechanism. https://www.esm.europa.eu/sites/default/files/20150203_-_esm_treaty_-_en.pdf
21 De Miguel, E. (2014). Mecanismo Europeo de Estabilidad: escrutinio jurisprudencial. Instituto de Estudios
Fiscales. Crónica Presupuestaria, No. 2/2014, p.159.
22 https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/118578.pdf, EUCO 30/1/10 REV 1. 23 EUROPEAN STABILITY MECHANISM. (2015). About us. http://www.esm.europa.eu/about/index.htm
24 Decision 2011/199/EU: European Council Decision 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.
economic and financial stability of the Union itself.26 Thus, at its meeting of 16 and 17 December 2010, the European Council agreed that, since this mechanism will aim to safeguard the financial stability of the euro area as a whole, the extraordinary financing measure provided for in Article 122 (2) TFEU will no longer be necessary for that purpose.27
The Mechanism takes the form of an intergovernmental body of public international law. It aims to mobilize funds and provide support for stability, under strict conditionality, adapted to the instrument of financial assistance chosen, to its members (euro zone member states) which experience or run the risk of experiencing serious funding problems, where this is essential to safeguard the financial stability of the euro area as a whole and of its Member States. To this end, the Mechanism shall be empowered to obtain funds through the conclusion of financial agreements with its members, financial entities or other third parties. Support for the financial stability of a member state of the Mechanism is subject to strict conditionality, adapted to the financial assistance instrument chosen.28
3.1. Conditionality measures – Memorandum of Understanding
The conditionality may take various forms, from a macroeconomic adjustment program to an obligation of continuous compliance with pre-established eligibility conditions.29 The new Article 136 TFEU allows the States to create an alternative financing mechanism to safeguard the Euro Zone as a whole and always under strict macroeconomic conditions.
These strict macroeconomic conditions mean that when a State requires an alternative financing system to the private debt markets, it will have to sign an international commitment called the Memorandum of Understanding (MoU), which will establish strict macroeconomic policy requirements that will condition at all times the financial aid.30 The MoU was defined concerning a different context (balance of payments support for a Member State) in the Florescu case – which I will discuss later -, where the ECJ determined that it concerns to an “agreement between the EU and
26 Frosina, L., Reformas en la gobernanza e incertidumbres en la culminación de la Unión económica y monetaria, cit., p. 5.
27 https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/118578.pdf, para. 1.
28 Asensi, A., Las ayudas estatales al sector financiero y su supervisión en el contexto de la Unión Bancaria Europea, RDCE, No. 23, 2015, p. 15.
29 De Montalvo, F., El tribunal de justicia al rescate de los derechos en el contexto de las medidas de estabilidad
derivadas de la crisis económica: Pringle v Ledra Advertising, UNED. Teoría y Realidad Constitucional, n. 39,
2017, p. 617.
30 Memorandum of Understanding on the working relations between the European Commission and the European Stability Mechanism, https://www.esm.europa.eu/sites/default/files/2018_04_27_mou_ec_esm.pdf
a Member State on an economic programme, negotiated by those parties, whereby that Member State undertakes to comply with predefined economic objectives in order to be able, subject to fulfilling that agreement, to benefit from financial assistance from the EU”.31 In this case, we can replace the EU with the ESM and define the MoU as a legal agreement between the mechanism and the solicitor Member State, where the first determines conditions for the MS to comply with via national measures in order to receive financial assistance.32
These conditions of the Mechanism have the purpose of promoting a sound and responsible budgetary policy from the States. Therefore, it does not allow States to ignore their sound budgetary policy and is compatible with the prohibitions of the Treaty, specifically, with those established in articles 123 and 125 TFEU. Despite this, it can also be said that this reform of Article 136 TFEU has really meant the end of the strict bail-out prohibition on which the fiscal discipline of the euro-zone states had been partially articulated.33
The conditionality applied in the Memorandum of Understanding concerns usually a vast range of different policies such as budget reduction policies, labour policies, judicial policies, tax changes etc. The issue arises when the possibility of one policy taken by national governments complying with the conditions of the financial assistance infringe fundamental rights. It can intrude into EU law and rights preserved by the Charter of Fundamental Rights.34
Furthermore, despite its actions and nature are very similar as the ones on the EU legal order, the ESM is not part of it, which means that it does not have to comply with the EU standards in terms of accountability. Specifically, we can see how the ESM does not hold a similar democratic and transparent way of decision-making and an effective judicial enforcement system concerning the defense of rights and the reviewability of the decisions taken by the mechanism.35
The mechanism should be liable to political and legal accountability. The first means that it should answer in front of a democratic body to clarify and support its decisions and behaviours, and the latter determines that its practices should be analyzed by judicial review.36
31 Case C-258/14, Florescu and others, judgment of 13 June 2017, ECLI:EU:C:2017:448, para. 34.
32 Pennesi F., The Accountability of the European Stability Mechanism and the European Monetary Fund: Who
Should Answer for Conditionality Measures?, European Papers vol. 3, 2018, pp. 513-514.
33 Medina Guerrero, M., La constitucionalización de la regla del equilibrio presupuestario: integración europea,
centralización nacional, Revista de Estudios Políticos, No. 165, julio-septiembre 2014, p. 191.
34 Charter of Fundamental Rights of the European Union 2012/C 326/02, ELI: http://data.europa.eu/eli/treaty/char_2012/oj
35 Allen, F., Governance for the Eurozone. Integration or disintegration?, Philadelphia: FIC Press, 2012, pp. 154-155. 36 Bovens, M., Analysing and assessing public accountability. A conceptual framework, European Governance Papers,
3.2. Procedure for granting financial support
The procedure for granting financial support is initiated by the request of the Member State to the President of the Board of Governors, the main control and supervision body of the Mechanism and which is made up of the Ministers of Economy and Finance of the Member States of the Eurozone, who have the right to vote. Upon receipt of such request, the President of the Board of Governors will entrust the European Commission, in coordination with the ECB, to assess the existence of a risk to the financial stability of the euro area as a whole or of its Member States, assess the sustainability of public debt and assess the actual or potential financing needs of the ESM member in question. If a decision of support is adopted, the Board of Governors will entrust the European Commission to negotiate with the member of the relevant Mechanism a Memorandum of Understanding that accurately defines the conditionality associated with the financial assistance instrument.37
The performance of the Mechanism does not have, however, necessarily to be the last ratio action, since the possibility of agreeing on a program of assistance with a preventive character is admitted.38 From the point of view of the principles that inspire the Union, the Mechanism is based on the principle of solidarity. As Advocate General Kokott pointed out in the Pringle case, which we are going to explain afterwards, prohibiting States from granting assistance to their European partners goes against the principle of solidarity that grounds the Union and, therefore, against the purpose and objective of the Union, that is why it must be considered to be in accordance with Union law.39
In the approval of the Mechanism, it was established that the CJEU shall be competent to rule on any dispute between the contracting parties or between them and the Mechanism regarding the interpretation and application of this Treaty, in accordance with Article 273 TFEU. And this same leading role has also been granted shortly afterwards and in the same field of measures to be adopted in the face of the crisis by the Stability, Coordination and Governance Treaty in the Economic and Monetary Union (TSCG),40 signed in Brussels on March 2012, which in accordance with its Article 3.2, imposed on the signatory States the obligation to incorporate a budget balance
37 Frosina, L., Reformas en la gobernanza e incertidumbres en la culminación de la Unión económica y monetaria, cit., pp. 6 y 7.
38 Urbaneja Cillán, J., El Mecanismo Europeo de Estabilidad. Análisis a través de la Jurisprudencia comunitaria en
el asunto Pringle, Universidad de Extremadura, No. 30, 2012, p. 139.
39 Borger, V., How the Debt Crisis Exposes the Development of Solidarity in the Euro, cit., p. 8. 40 https://www.consilium.europa.eu/media/20399/st00tscg26_en12.pdf
rule into their respective legal systems, by means of provisions that had binding force and were of a permanent nature.
This Treaty gives the Court of Justice the power to resolve possible non-compliance situations with art. 3 (2) with the Commission or any Contracting Party, given that its judgment "binding on the parties to the proceedings, which shall take the necessary measures to comply with the judgment within a period to be decided by the Court of Justice.”41 If such measures are not carried out, the Court of Justice may be requested to impose financial penalties.42 In this regard, it should be remembered that those States that were to receive European financial support under the Mechanism must previously ratify the Stability Treaty.43
41 Art. 8 (1) TSCG. 42 Art. 8 (2) TSCG.
43 Medina Guerrero, M., La constitucionalización de la regla del equilibrio presupuestario: integración europea,
4. ACCOUNTABILITY
It has been argued through the years what the term accountability means. There have always been disputes on the lack of accountability that the European Union and its institutions show in the exercise of their positions. Therefore, it is fundamental to assess what the definition of accountability is and how it is enforced in practice.
4.1. Accountability as Rule of Law
First of all, accountability is a rule of law principle. The latter has been defined by the UN Secretary-General in 2004 by stating: "The rule of law refers to a principle of governance in which all persons, institutions and entities, public and private, including the State itself, are accountable to laws that are publicly promulgated, equally enforced and independently adjudicated, and which are consistent with international human rights norms and standards. It requires, as well, measures to ensure adherence to the principles of supremacy of law, equality before the law, accountability to the law, fairness in the application of the law, separation of powers, participation in decision-making, legal certainty, avoidance of arbitrariness and procedural and legal transparency."44
Therefore, we can see how the accountability principle is present on the definition of rule of law where it says that all persons are accountable to the law, which means having legal and even social consequences when breaching the law.45
But what is the exact definition of the term? Accountability is usually understood as a synonym of responsibility, especially in those countries or languages that does not have the precise word for the term (e.g. French and Spanish). According to Mark Bovens, it is basically an institutional arrangement where an actor can be held to account by a forum, in which “the actor has an obligation to explain and to justify his or her conduct, the forum can pose questions and pass judgement, and the actor may face consequences”.46 Dr René Smits explains what accountability of the European Central Bank means, and since it is a European institution that takes part on the
44 UN Secretary-General, The rule of law and transitional justice in conflict and post-conflict societies, Report to the Security Council, 2004, UN Doc. S/2004/616, para. 6, p. 4.
45 Nollkaemper, A, Wouters, J., Accountability and the Rule of Law at International Level, p. 5. https://www.mzes.uni-mannheim.de/projekte/typo3/site/fileadmin/reports/report%20Accountability%20and%20Rule%20of%20Law.pdf 46 Bovens, M., Analysing and assessing public accountability. A conceptual framework, European Governance Papers,
stability mechanism, we can take as a reference his ‘ART’47 explanation. It means that “applied to the central bank, its Accountability consists in an ex-post giving reasons requirement, with ex-ante Transparency of the procedures and mechanisms the central bank should follow in its operations, and with a true dialogue with the people’s Representatives, the executive and stakeholders. This accountability provides what is dubbed ‘output legitimacy’”.48
4.2. Accountability in the ESM
Focusing on the specific case that concerns us, the term 'accountability' does not appear explicitly mentioned in the ESM treaty. Nonetheless, this does not mean that thus the mechanism is not accountable at all, because there are three provisions present on the Treaty that may be considered as tools of accountability.
First, the TESM provides that the mechanism must communicate its actions, specifically on Article 27 (2) which makes the ESM to “publish an annual report containing an audited statement of its accounts” and to hand the ESM Members with a “summary statement of its financial position […] showing the results of its operations”. This annual report could be therefore deemed as an actor-forum relationship as above-mentioned on Mark Bovens definition, being the ESM the actor, and the members, the forum. However, it is just an informative procedure where no judgement or response can be given from members or citizens to call to account the Mechanism.49
Secondly, Article 28 of the TESM makes the Mechanism to establish “an internal audit function according to international standards”. The Board of Auditors must draw up a report every year to the Board of Governors.50
Moreover, in the next Article of the Treaty, it provides for an external audit function “by independent external auditors approved by the Board of Governors”, external auditors that will have the “power to examine all books and accounts of the ESM”.51
These two audit procedures can be deemed as an actor-forum relationship concerning accountability as well. In this situation, differently as the previous one, the actor is forced to explain its actions to
47 ART: Accountability, Representatives and Transparency.
48 Smits, R., Accountability of the European Central Bank, Ars Aequi januari 2019, p. 30.
49 Terras, G., The difficult trade-off between economic stability and democratic accountability: a case study of the
European Stability Mechanism, Universiteit Gent, 2015, p. 19-20.
50 Art. 30 (4) TESM. 51 Art. 29 TESM.
the forum, which increases the level of accountability. However, there is still no opportunity to pass judgement on the Mechanism by the forum.
Finally, the third provision on the TESM that relates to the principle of accountability is the one stated in Article 30 (5) of it. It provides that “the Board of Governors shall make the annual report accessible to the national parliaments and supreme audit institutions of the ESM members and to the European Court of Auditors”.
This Article involves the presence of national parliaments and audit institutions in rendering the Mechanism accountable. This could mean that they receive the information of its activities and allow them to make interrogations on them. However, the procedure is not the one exposed, as it is just a merely informative measure and thus very similar to the first two provisions above-mentioned.52
4.3. Institutions that may render accountable the ESM
The ESM has established in a publication announced on October 2018 that its actions are accountable by different institutions like national parliaments, the EP and external auditors while complying with principles like transparency, efficiency and integrity.53 Therefore, theoretically, there are possibilities that some institutions or stakeholders can render accountable the Stability Mechanism. For example, the ones taking part on its activities or the ones that supervise and receive information from its acts, such as the European Commission, the European Parliament, the Court of Justice, the European Court of Auditors (ECA) or the national parliaments of ESM members.
4.3.1. European Commission
Starting with the European Commission, its functions are to propose new laws, to enforce EU law and supervise whether Member States apply EU law correctly, among others.54 It also carries out
52 Terras, G., The difficult trade-off between economic stability and democratic accountability: a case study of the
European Stability Mechanism, cit., p. 21.
53 Publication ESM: Governance, Transparency and accountability, October 2018, p. 11.
https://publications.europa.eu/en/publication-detail/-/publication/bbdbf500-eed1-11e8-b690-01aa75ed71a1/ language-en/format-PDF
tasks on the ESM such as to assist in the MoU procedure for providing a macro-economic adjustment program for the States members of the mechanism when asking for financial support.55 Nonetheless, the EU Commission does not have the capacity for holding the mechanism accountable itself. The ESM was established under public international law by the TESM and it is subject to it and not to to European law. Therefore, despite it has something to say on the Memoranda of Understanding as it takes part on the drafting, this is not related to rendering accountable the Mechanism.
4.3.2. European Parliament
Furthermore, something similar happens when we talk about the European Parliament, whose functions are, inter alia, to represent the citizens directly and to advise and supervise the institutions of the Union.56 The issue is the same as before, as the ESM is not part of EU law, but public international law, the EP cannot scrutinize its actions like it would do with the European Treaties. Even though, it could be considered to have a small control over the ESM due to the power conferred to the EP Committees to communicate with the EC, IMF or ECB members in some instances, but just of an informative nature.57
4.3.3. European Court of Auditors
It can be thought that the European Court of Auditors (ECA) is an institution with the condition needed to render accountable the ESM as it is an external auditor body and its main functions are to check whether the EU budget have been used efficiently and in a correct manner, therefore carrying out financial, compliance and performance audits to enhance the accountability of the EU.58
The ECA selects a representative among its members to represent them and take part into the ESM’s Board of Auditors (The other four are appointed by the audit institutions of the Mechanism members and the Board of Governors).59
55 https://ec.europa.eu/jrc/en/fiscal-policy-european-semester/macroeconomic-adjustment-programmes 56 http://www.europarl.europa.eu/factsheets/en/sheet/19/the-european-parliament-powers
57 Regulation (EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability, para. 10.
58 https://www.eca.europa.eu/en/Pages/MissionObjectives.aspx 59 Art. 30 (1) TESM.
This means that the ECA is represented by its appointed member in the Board of Auditors, whose primary functions are stated in Art. 30 of the Treaty of the ESM, stating that it “shall draw up independent audits […] inspect the ESM accounts and verify that the operational accounts and balance sheet are in order […] draw up a report to be submitted to the Board of Governors” and “make the annual report accessible to the national parliaments and supreme audit institutions of the ESM Members and to the European Court of Auditors.”
As we can see, the Board of Auditors must submit to the ECA its annual report, but its participation does not go beyond that. The Board of Auditors just inspects and analyze that the operational accounts and the balance sheet are in order. Therefore it does not judge or penalize the ESM conducts which means that there is a lack of accountability by just being an informative procedure.
4.3.4. European Court of Justice
The European Court of Justice plays an essential role in making sure that EU law is interpreted and applied correctly in the EU or specifically in the EU Member States. Besides, it is responsible for the enforcement of the law, for annulling EU legal acts or for sanctioning EU institutions for acting with an incorrect conduct.60
The CJEU “suffers” the same problem that we stated before when analyzing the compatibility of the ESM with the EU Commission or the EU Parliament, the no subjection under EU law of the mechanism. The CJEU shall send the national courts the criteria for interpreting EU law to determine whether the TESM articles comply with it,61 and shall deal and solve conflicts that occur between the members of the Mechanism or the members and the ESM when contesting any decision of the Board of Governors.62 However, these actions are not sufficient to render accountable the Mechanism.
4.3.5. National Parliaments
There are currently 19 ESM Member States and each of them give its Minister of Finance the mandate of ESM Governor. Every Governor has the power to vote in the Board, thus each Member State is implicated in ESM decision making. National Parliaments can render accountable its
60 Explained in several TFEU articles and in https://europa.eu/european-union/about-eu/institutions-bodies/court-justice_en
61 Art. 273 TFEU. 62 Art. 37 (3) TESM.
Minister of Finance, since the latter informs them about its future decisions, and the parliament discuss them and can even require the Minister to resign as a consequence of misuse of his powers.63
However, is there a possibility to render accountable the ESM itself? First, we need to know that a Member State cannot render accountable other Governors from other countries since this would obviously clash with national interests and sovereignty.
However, this has still nothing to do with rendering account to the ESM entirely. We can find in a Public hearing from the vice-president of the Netherlands Court of Audits, Kees Vendrink, who affirmed that “Democratic control and public scrutiny only exist to the limited extent that Ministers of Finance can be held to account by their national parliament for their individual share in the functioning of the ESM and not for the functioning of the ESM bodies or the organisation as such.”64
Therefore, ESM national Parliaments cannot hold the ESM accountable as an organization.
63 Terras, G., The difficult trade-off between economic stability and democratic accountability: a case study of the
European Stability Mechanism, cit., p. 30-32.
64 Vendrik, K., Public hearing on “Budgetary control of the European Financial Stability Facility (EFSF), the European Financial Stabilisation Mechanism (EFSM) and the European Stability Mechanism (ESM)” European Parliament, 24 April 2012, p. 4.
5. LANDMARK CASE-LAW – CYPRIOT BAIL-OUT
5.1. Mallis Case
In 2012, Cyprus was under pressure economically speaking. The two main commercial banks of the country needed recapitalization to recover from the financial difficulties, thus the government asked for financial assistance to the European Stability Mechanism.
The Eurogroup stated that Cyprus should negotiate an MoU with the ECB, the EU Commission and the IMF (the so-called troika). The primary condition imposed on Cyprus was the bail-in of those two banks. A bail-in takes place when the beneficiary is forced to use its own funds to repay the debt,65 (using its creditor and depositors’ money).
After accepting these conditions, the Eurogroup66 stated that they reached an agreement for granting the stability support to the Cypriots,67 partly via the bail-in of the banks. Right after this decision, in the next few months, the majority of the account holders of the banks with more than 100.000 € suffered the loss of a considerable part of their assets.68 This caused the dissatisfaction of depositors, who claimed that the Eurogroup was the only body that decided and supported the bail-in of the two banks on Cyprus. The Eurogroup issued a statement declaring that support and approval on 25 March 2013, the same day as the ESM decision for granting financial assistance to Cyprus.69
Apart from the Eurogroup, the depositors brought the action against the Commission and ECB defending that the they were authors of that statement as well, so at least they could judge someone judicially accountable. The General Court and the ECJ dismissed the claim.
The Court analyzed the part that the Eurogroup took in the conditionality measures. It is an informal body where the ministers of the euro area member states debate their responsibilities with the common currency and try to seek coordination for a better economic growth.70 As Art. 137 TFEU
65 https://www.thebalance.com/what-is-a-bail-in-and-how-does-it-work-1979089 66 Protocol (No 14) on the Euro Group, C 326/283, 26.10.2012,
https://www.consilium.europa.eu/media/20422/protocol-14-en.pdf
67 Joined Cases C-105/15 P to C-109/15 P, Mallis v Commission, ECLI:EU:C:2016:702, para. 19.
68 Duve, C., Who Decides Whether Bail-in is Legal? What Comes after Cyprus and Greece?, Law and Financial Markets Review, 2015, p. 180.
69 https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/136487.pdf 70 https://www.consilium.europa.eu/en/council-eu/eurogroup/
says, the Protocol on the Eurogroup lays down “arrangements for meetings between ministers of those Member States”, and either the EU Commission and the ECB may assist to those meetings,71 but they do not have decision-making power, that is why they cannot be defined as the authors of such a statement.72 The Commission and the ECB take action on the conditionality measures, for example, the negotiation of the Memorandum of Understanding, but such responsibilities73 are given by the Board of Governors under the TESM.74
We can see how the activities that these two bodies apply are not associated to the Eurogroup or to the EU legal framework, but under international law, as they are entrusted by the TESM and the Board of Governors to carry them out (as they belong to international law).
As the appellants claimed for the annulment of the statement of the Eurogroup (it is only possible against institutions, bodies, agencies and offices of the EU) based on Art. 263 TFEU, the Court decided to assess the situation and stated that the body has informal character (in Protocol No 14 previously mentioned), it is not an EU institution mentioned in the Treaty on European Union,75 and it is not considered one of the EU Council configurations listed in Decision 2009/937/EU.76 Furthermore, it is not an office, body or agency of the EU listed in Article 263 (para. 1) TFEU, due to the informal condition of the body and its not possession of legal personality.77
Finally, the Court defined the act as having “a purely informative nature”, and it was aimed to communicate to the public of the agreement instituted by the Eurogroup and Cyprus showing their intention to negotiate the financial assistance.78 The statements do not have any legal effect on third parties, thus there is no possibility of being reviewed by the ECJ.
We could think then who is responsible for giving an answer for the conditionality measures if the Eurogroup is just an informal body for discussing? As we could see, the EU did not take part in the financial assistance to Cyprus, and that is why we can not find the answer under EU law. Since it was the Stability Mechanism who acted, the solution should be in the Treaty enacting the ESM.
71 Art. 1 Protocol (No 14) on the Euro Group. C 326/283, 26.10.2012. https://www.consilium.europa.eu/media/20422/ protocol-14-en.pdf
72 Joined Cases C-105/15 P to C-109/15 P, Mallis v Commission, cit., para. 57.
73 We can find these duties acquired by both bodies in specific TESM provisions and in: J oined Cases C-105/15 P to C-109/15 P, Mallis v Commission, cit., paras. 54-56.
74 Art. 13 (3) TESM and Joined Cases C-105/15 P to C-109/15 P, Mallis v Commission, cit., para. 52. 75 Art. 13 (1) TEU.
76 Annex I of Council Decision 2009/937/EU of 1 December 2009 adopting the Council’s Rules of Procedure. https:// eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32009D0937&from=EN
77 Opinion of Advocate General Wathelet, Joined Cases C-105/15 P to C-109/15 P, Mallis v Commission, ECLI:EU:C:2016:294, paras. 62-65.
According to Art. 5 (6) (f) TESM, the Board of Governors has the powers to really provide stability support with conditionality measures. This body has the exact same configuration of the Eurogroup; it is the one that receives the petitions from Member States to address financial support,79 and the one that entrusts the Commission and the ECB (sometimes with the IMF) to draft the conditions of the assistance in the Memorandum of Understanding under its supervision.80 Therefore, the Board of Governors is the most crucial decision-making body of the Mechanism.
The ECB and the EU Commission are just acting as agents of the ESM’s Board of Governors,81 that means that the powers conferred to these two institutions are not for making decisions of their own.82 The meaning of this is that the responsible for the conditions on the ESM cases would be the Board of Governors instead of the Eurogroup (despite having the same composition), as the former is established by international law (TESM).
However, during this crisis period, the Eurogroup has had an institutional revolution, it evolved from being just a discussing body to a body having an increased position and powers like the capacity to manage the conditionality policies of the MoU.83 It has the power to make urgent decisions in terms of financial aid, and Cyprus was one of those decisions. The banks needed immediate recapitalization, so the Eurogroup took the bail-in decision with the creditor’s assets as a condition for financial assistance.84 The Cypriot finance ministry even stated that they did not have the power to negotiate, and they were “forced to accept this measure under duress”.85
The other evolution that the Eurogroup suffered during the crisis is the creation of the Board of Governors. As the exact same members compose it, its creation allows the Euro group to take the position of the other institution and therefore having the capacity to take conditionality measures outside of the EU law and thus of the judicial control of the Court of Justice. So basically when the ministers act as the Eurogroup, they are supposedly just a body with no formal nature, and its decisions do not generate legal effects, and when they act as the Board of Governors, its actions are not judged under EU law but international law.86
The conclusion of the above-mentioned is that the development of the powers conferred to this institution shows the lack and “the absence of EU-level democratic legitimacy and accountability of
79 Art. 13 (1) TESM. 80 Art. 13 (3) TESM.
81 Opinion of Advocate General Wathelet, Joined Cases C-105/15 P to C-109/15 P, Mallis v Commission, cit., para. 108.
82 Case C-370/12, Pringle v Ireland, 27 November 2012, ECLI:EU:C:2012:756, para. 161. 83 Craig P., The Eurogroup, Power and Accountability, Wiley, Eur Law J. 2017, p. 249. 84 Joined Cases C-105/15 P to C-109/15 P, Mallis v Commission, cit., para. 16.
85 Pennesi F., The Accountability of the European Stability Mechanism and the European Monetary Fund: Who
Should Answer for Conditionality Measures?, cit., p. 522.
the Eurogroup when it assumes EU-level executive powers.”87
5.2. Ledra Advertising case
The Ledra case88 was concluded on 20 September 2016 with the exact same background as the Mallis case previously analyzed, the bail-in of the two main banks in Cyprus as a conditionality measure attached to the Memorandum of Understanding and the complaints of the account holders of both financial institutions.
The General Court repeated that the MoU adopted by the ESM and Cyprus, signed by the EU Commission on behalf of the ESM as stated in Art. 13 (4) TESM, was established by entrusting the Commission and the ECB certain duties that do not confer any decision-making power, and their acts under the TESM concern just the ESM.89
However, the duties conferred to these two institutions from and under the application of the Mechanism do not exempt the ECB and especially the Commission from its obligations defined in Art. 17 (1) TEU of promoting “the general interest of the Union” and “shall oversee the application of Union law”.90 The Commission is known as “the guardian of the treaties”, and even in the Treaty of the ESM it is established that it has the function of assuring the compatibility between the Memoranda of Understanding under the ESM and European law.91
Therefore, the Commission, as a guardian of the treaties and EU law “should refrain from signing a memorandum of understanding whose consistency with EU law it doubts”,92 including, therefore, the Charter of Fundamental Rights of the EU93. This statement has made an important change from what we could see before as now it appears that people that have been affected from conditionality measures on MoU that are not consistent with EU law can render account the Commission. Specifically, they can claim damages for non-contractual liability stated in Arts. 268 and 340 (2) and (3) TFEU. This will happen in the case that “certain conditions are fulfilled” (like the
87 Report on the enquiry on the role and operations of the Troika (ECB, Commission and IMF) with regard to the euro area programme countries (2013/2277(INI)), 28 February 2014, para. 50.
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+REPORT+A7-2014-0149+0+DOC+XML+V0//EN
88 Joined Cases C-8/15 P to C-10/15 P, Ledra Advertising Ltd v Commission & ECB, 20 September 2016, ECLI:EU:C:2016:701
89 Ibid, para. 51.
90 Case C-370/12, Pringle v Ireland, para. 163. 91 Art. 13 (3) and (4) TESM.
92 Joined Cases C-8/15 P to C-10/15 P, Ledra Advertising Ltd v Commission & ECB, para. 59.
93 Charter of Fundamental Rights of the European Union (2000/C 364/01), 18.12.2000, https://www.europarl.europa.eu/charter/pdf/text_en.pdf
unlawfulness of the conduct), “the fact of damage” and the presence of “a casual link between the conduct of the institution and the damage complained of”.94
The Commission and the ECB could have incurred in a breach of EU law either by incorporating the bail-in condition on the MoU or by their “inaction” for not assuring that the MoU conformed with EU law.95
Since the Charter of Fundamental Rights of the EU defends in Art. 41 (3) the right to reparation of damages caused, the Court must assess then whether the inclusion of that clause in the agreement manifest “a sufficiently serious breach of a rule of law intended to confer rights on individuals”.96 However, the existence of some limitations related to these rights conferred upon citizens may occur when they meet the principle of proportionality and when it is strictly necessary for meeting objectives of general interest.97
In this Cypriot case, we can see how the adoption of such MoU, according to what is stated in Art. 12 of the TESM, is considered an objective of general interest sought by the Union, particularly, the aim of ensuring the stability of the entire Euro area.98 Then, how can the bankruptcy of two banks in one Member State can affect the whole Euro area? The Court reasoned that banks are interconnected and they possess an international nature. That means that “the failure of one or more banks is liable to spread rapidly to other banks”, in the MS at stake or in others.99
Finally, it has been shown why the ECB and the Commission, despite limiting the right to property of the plaintiffs, are not liable for the compensation demanded from them because such measures taken in the MoU are reasoned and are not considered disproportionate. Therefore, the Court dismissed the appeal.
The Ledra case shows a possible step in the right direction for increasing the judicial accountability of the ESM conditionality. Individuals are capable of challenging the EU institutions’ bail-out actions under the ESM (but not the ESM itself) with an action for damages (non-contractual liability) for the breach of Charter provisions. This situation is easier for the complainants as it is enough to allege that damages have arisen from an unlawful EU act, while before it was way harder to obtain standing to bring an annulment action trying to challenge such EU institutions’ acts.
94 Case C-611/12 P, Giordano v Commission, 2014, ECLI:EU:C:2014:2282, para. 35.
95 Joined Cases C-8/15 P to C-10/15 P, Ledra Advertising Ltd v Commission & ECB, para. 63. 96 Case C-352/98 P, Bergaderm and Goupil v Commission, 2000, ECLI:EU:C:2000:361, para. 42. 97 Art. 52 (1) CHFR.
98 Joined Cases C-8/15 P to C-10/15 P, Ledra Advertising Ltd v Commission & ECB, para. 71. 99 Ibid, para. 72.
Moreover, the limit to present the claims is higher (five years for damages and just two months for annulment actions), and the percentage of cases won is higher as well.100
However, as mentioned above, the decisions that EU institutions take cannot be impeded by an action for damages. The claimants are required to show that three conditions required are met, such as that the rule of law breached is intended to confer rights to individuals, a severe breach, and a casual link between both of them.101 This involves that claimants have it extremely difficult to bring this claims, taking into account that they must show that EU law was breached by one of the EU institutions in establishing certain conditions that, as we already talked about, are taken under pressure and urgency situations for solving the financial situation of the whole Euro area.
Furthermore, the Court has shown contradictory results with the institutions. For example, in Pringle case, the Commission was considered a simple agent of the ESM that did not have powers to make decisions by itself,102 whereas in this Ledra case the Commission must ensure that there is consistency between the ESM and EU law. Therefore, either the Commission can not make decisions on its own and therefore is not responsible for the conditionality measures taken under the ESM, or on the other hand, does have such power to ensure that these measures comply with EU law.103
As stated in Art. 13 (4) TESM, the European Commission just acts on behalf of the ESM, and the decision-maker of the latter is the Board of Governors. We have explained before this body is composed by the exact same representatives than the Eurogroup, namely the finance ministers of the Eurozone, and in its reunions (either as Eurogroup or as BoG), the EU Commission is not allowed to take part more than just as an observer, although with no power to vote.104
As we can see, despite having taken a step in the right direction for rendering accountable the ESM or at least one of the institutions in charge of carrying out its main tasks, the extreme difficulty for the claimants to really achieve a compensation by the breach of fundamental rights by the conditionality measures, I consider that it does not make a really great change compared to the prior situation to the Ledra case.
100 Hinarejos, A., Bailouts, Borrowed Institutions, and Judicial Review: Ledra Advertising, EU Law Analysis, 2016, http://eulawanalysis.blogspot.com/2016/09/bailouts-borrowed-institutions-and.html
101 Case C-352/98 P, Bergaderm and Goupil v Commission, 2000, ECLI:EU:C:2000:361 , para. 42. 102 Case C-370/12, Pringle v Ireland, cit., para. 161.
103 Pennesi F., The Accountability of the European Stability Mechanism and the European Monetary Fund: Who
Should Answer for Conditionality Measures?, cit., p. 529.
6. PROPOSAL FOR THE ESTABLISHMENT OF THE EUROPEAN MONETARY FUND
There has been debate over the implementation of a Mechanism like the ESM or its predecessors because of its establishment under international law. The reasoning was that especially after the modification of Article 136 TFEU adding another paragraph permitting the financial assistance, it would be possible to create such a Mechanism under EU law, and therefore, under the Union legal framework.
Since 6 December 2017, the proposal to transform the ESM into a European Monetary Fund (EMF), impulsed by the European Commission, promoted by the governments of France and Germany and with great acceptance among the other Member States of the European Union, is on the table.105 This may mean a radical change in the current system of financial stability in the eurozone, represented by the ESM, which, although it has played a substantial role in stabilizing the eurozone, could still be vulnerable to future banking and public debt crises.
The proposal is part of the Roadmap for deepening the Europe’s Economic and Monetary Union.106 Basically, the EMF “will be established as a unique legal entity under Union law. It will succeed the European Stability Mechanism, with its current financial and institutional structures essentially preserved. This means that the European Monetary Fund will continue to provide financial stability support to Member States in need, to raise funds by issuing capital market instruments and to engage in money market transactions. The membership will not change and the participation of additional Member States will remain possible, once they adopt the euro”.107
This proposal is based on the integration of the Mechanism into the EU legal framework. The legal basis for establishing this new mechanism is Article 352 TFEU, which states the faculty of the Council to adopt unanimously appropriate measures to attain the objectives on the treaties.
In its proposal, the Commission defends the idea that the inclusion of the ESM into the EU legal framework will enhance its institutional anchoring, and it will provide better transparency, judicial
105 Commission’s Proposal for a Council Regulation on the establishment of the European Monetary Fund COM/2017/0827 final - 2017/0333 (APP)
106 Communication from the Commission to the European Parliament,the European Council, the Council and the European Central Bank, further stepts towards completing Europe’s Economic and Monetary Union: A Roadmap COM/2017/0821 final, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52017DC0821
review and efficiency. Furthermore, this improvement will allow the Mechanism to get better communication with the Commission and to improve the accountability to the EU Parliament.108 The Proposal attaches an Annex with the EFM Statute109 where we find few differences between the previous ESM, and the future EMF objectives110 and principles.111 For example, the conditions for receiving financial assistance will be a bit different. In Art. 12 TESM, such assistance is provided “if indispensable to safeguard the financial stability of the euro area as a whole and its Member States”, while in Art. 12 of the EMF Statute, the words “as a whole” are deleted, and they changed “and” with “or”, which means that now, when a Member State is in need of assistance, it will be provided by the EMF, affecting so the euro area as a whole or just affecting one Member State.
The Mechanism will act as a common backstop to the Single Resolution Fund, changes the requirement of incorporation of Common Action Clauses in the government bonds with the right to negotiate collectively, changes the qualified majority (85%) for decisions on stability support, the possibility of including new financial instruments, a fast decision-making voting procedure…112 Moreover, all references to the IMF are non-existent now. The Commission takes more importance on conditionality measures, for example, signing the Memoranda of Understanding. With the ESM the Commission signs it on behalf of the Mechanism, and now it will be signed by the two of them, the Commission and the EMF together.113
However, is it needed to change such a Mechanism when we already have the ESM which is correctly working with the same goal?
This movement is promoting an integrationist aim relocating the ESM under the EU legal order subject to its judicial procedures and having the financial stability of the Eurozone as the primary purpose of such Mechanisms. Therefore, it is appropriate that they are included and integrated in the EU legal order. Moreover, the Commission could defend the idea that the implementation of the EMF is really necessary for assuring its compliance and consistency with EU law, due to the judicial control that the CJEU will have for the procedures and actions of the Mechanism.114
108 Ibid.
109 Annex to the Proposal for a Council Regulation on the establishment of the European Monetary Fund COM/2017/0827 final, https://ec.europa.eu/info/law/better-regulation/initiatives/com-2017-827_en 110 Art. 3 EMF Statute.
111 Art. 12 EMF Statute.
112 Gasparotti, A., The ESM and the proposed EMF: a tabular comparison, Euro Area Scrutiny, Economic Governance Support Unit, 2018, p.4.
113 Ibid.
114 Pennesi F., The Accountability of the European Stability Mechanism and the European Monetary Fund: Who
The powers possessed by the EMF will be under the control of the Council. This means that the Council will endorse and approve the actions of the Board of Governors subject to Art. 3 of the Commission’s Proposal. Furthermore, in certain urgent situations where the BoG must take decisions immediately, the Court still have to endorse those decisions having just 24 hours for doing it.115
6.1. Legal Accountability of the EMF
The change from the ESM to the new EMF would undoubtedly improve the judicial review of the Mechanism.
Since the ESM is an organization created from the TESM under international law and of an intergovernmental nature, the Mechanism cannot be challenged by EU citizens, and the same applies to the Board of Governors and the Board of Directors, neither them as bodies nor their activities.
Either way, when individuals try to challenge a national measure that is trying to apply the conditionality of the Mechanism, the level of difficulty is similar. As stated in the first paragraph of Art. 267 TFEU, the CJEU gives preliminary rulings concerning the interpretation of EU law or the validity of an act of EU institutions and bodies. Therefore, the issue is whether the conditionality on the Memorandum of Understanding is considered an EU act or not. For example, financial assistance can be based on EU law or the ESM. When the latter applies, the acts of the Commission are not under EU law but according to Art. 13 (3) TESM, so it is signing the Memorandum on behalf of the Mechanism, which makes it an act of international law. This was the case in Ledra Advertising.116
Oh the other hand, when the financial assistance is based on EU law it can be reviewed by the CJEU. This is what happened in the Florescu case. Romania received financial assistance based on Art. 143 TFEU, and they concluded alongside the Commission Memorandum based on Art. 3 of the Council Regulation 332/2002117 for medium-term financial assistance.118 Thus, it was considered “an act whose legal basis lies in the provisions of EU law […] concluded by the European Union,
115 Art. 3 (2) Commission’s Proposal.
116 Joined Cases C-8/15 P to C-10/15 P, Ledra Advertising Ltd v Commission & ECB, cit., para. 52.
117 Council Regulation (EC) No 332/2002 of 18 February 2002 establishing a facility providing medium-term financial assistance for Member States’ balances of payments, ELI: http://data.europa.eu/eli/reg/2002/332/oj
represented by the Commission” and the MoU therefore “constitutes an act of an EU institution within the meaning of Art. 267 (b) TFEU”.119
This case demonstrates the big difference the legal basis make on the possibility of the citizens to access to the CJEU. The difficulty that individuals find when trying to challenge the ESM would be improved with the implementation of the EMF.
The activities of the EMF and its bodies will be all accountable to the CJEU since the Court has jurisdiction to rule on “the validity and interpretation of acts of the institutions, bodies, offices or agencies of the Union” regarding Art. 267 (b) previously mentioned, and the Memoranda of Understanding enacted by the EMF and the Commission will turn into EU law acts. Thus, the compensation for damages that so far could only affect the Commission or the ECB, now applies to the BoG and the Board of Directors as well, as they will become bodies under EU law.120
Another crucial decision in the development of judicial accountability is found in Art. 3 of the Commission’s Proposal where the European Council must receive the decisions taken by both the Board of Governors and Board of Directors and approve them for entering into force. It involves, of course, the decisions for financial assistance that so far, for example in the Cypriot bail-in conditions, were implemented by either the Eurogroup with its informal nature or the Board of Governors who acted out of the EU legal order, and thus the finance ministers could evade judicial control by both means.
This would be the path that individuals may follow for challenging such conditionality decisions by sending a preliminary reference on interpretation or validity of the Council’s approval since the latter would be an act adopted by an EU institution.
Furthermore, besides the judicial reviewability of the Mechanism, the fact that the EMF would be an EU body would make the conditionality measures of the MoU and all its acts comply with the EU Charter of Fundamental Rights, based on Art. 28 of the Charter that states that the latter applies to every institution, body, office and agency of the Union. In both Pringle and Ledra cases, it was expressed the need for the MoU to be consistent with EU law,121 but so far, as shown in the Ledra case, it is the task of the Commission to ensure this consistency, despite not weight in decision-making, while with the implementation of the EMF, the latter signing the MoU together with the Commission, both will have the responsibility to ensure consistency with EU law.
119 Ibid, para. 35.
120 Pennesi, F., The Accountability of the European Stability Mechanism and the European Monetary Fund: Who
Should Answer for Conditionality Measures?, cit., p. 539-540.
121 Case C-370/12, Pringle v Ireland, cit., para. 164, Joined Cases C-8/15 P to C-10/15 P, Ledra Advertising Ltd v
Lastly, as stated in Art. 29 of the EMF Statute, the Mechanism will have its own autonomous self-financed budget so the EU budget would not be affected in any case.
6.2. Political Accountability of the EMF
Unlike in the ESM Treaty, in the Commission’s Proposal, the word “accountability” is mentioned several times as one of the objectives for the completion of the European Monetary Union.
It is established that more political responsibility and transparency on the decisions have to be obtained granting the EP and National Parliaments with strong oversight powers on the EU’s economic governance.122 Accurately, it is displayed on Title II of the Proposal with Arts. 5 and 6, where it says that the EMF “shall be accountable to the European Parliament and to the Council for the execution of its tasks”.123 The Mechanism will submit annual reports on their acts to either the EP, the EU Commission and the Council.124
In that Article 5 of the Commission’s Proposal are established all the possibilities of accountability that the Mechanism will engage on. For example, the Managing Director may be requested to be heard by the committees of the EP on the execution of the Mechanism’s tasks, the EP and the Council may request the Mechanism to answer questions on its procedures, or the Managing Director may be requested to have discussions with the Chair and Vice-Chairs of the committes of the EP with regards to its activities.125
However, as we have seen, the European Parliament has already these sort of rights as they seem rights of only informative nature with regards to Regulation 472/2013.126 This Regulation was born with the aim of strengthening the budgetary surveillance of the Euro area Member States in economic difficulties. Specifically, the Commission must inform the EP about its activities within the European Economic Governance and to draft a comprehensive report every five years to this same institution.127
Moreover, the European Parliament has already stated that there is a noticeable lack of transparency in the MoU negotiations and that such procedures result in a negative view from the citizens and
122 Commission’s Proposal, cit., p. 3. 123 Art. 5 (1) Commission’s Proposal. 124 Art. 5 (2) Commission’s Proposal.
125 Art. 5 (3), (4) and (5) Commission’s Proposal.
126 Regulation (EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability, ELI: http://data.europa.eu/eli/reg/2013/472/oj
their concern on the lack of democracy of every EU-related acts or institutions.128
In order to mitigate such a problem, the European Parliament Committee on Economic and Monetary Affairs (ECON) has formed the Financial Assistance Working Group (FAWG), which is a body which function is to enhance the parliamentary oversight and democratic legitimacy of financial assistance programmes, and its establishment was focused on the implementation of ESM-supported programmes concerning the organization of meetings and hearings with Commission, ECB, IMF and ESM and national authorities.129
However, the participation in these meetings is totally voluntary, which allows freedom to the guests first to not attend, and second to disclose the information to the extent that they prefer or to the extent that they are allowed to due to confidentiality clauses that might apply, rendering any appearance complicated.
With the establishment of the EMF, according to Art. 230 TFEU and Art. 5 of the Proposal, it will be obliged to respond to the questions made by the competent parliamentary committee of the European Parliament.
Furthermore, the citizens that are affected by a Union activity (for example EMF’s activity) may address a petition to the EP,130 and the latter could even set up a temporary Committee of Inquiry to investigate possibles contraventions implementing Union law (like breaches of law from the Mechanism)131. The Parliament has as well the right to be consulted for appointing the Managing Director.132
Although these measures would help the European Parliament to receive more information about the activities of the EMF, this would simply improve the democratic oversight of the Mechanism slightly, since the EP will still have no decision voting power in the EMF, nor any power to choose the BoG or BoD. Therefore, the European Parliament still have no ex-ante powers to control EMF’s actions.
128 Report on the enquiry on the role and operations of the Troika (ECB, Commission and IMF) with regard to the euro area programme countries (2013/2277(INI)), cit., para. 30.
129 http://www.europarl.europa.eu/committees/en/econ/economic-governance.html?tab=Financial%20Assistance 130 Art. 227 TFEU.
131 Art. 226 TFEU. 132 Art. 7 EMF Statute.
