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The Charter in times of crisis:

The legal nature of the European Stability

Mechanism and its impact on the enforcement

of social rights

Abstract

To provide a permanent safety net for the ongoing financial crisis, the Member States established the European Stability Mechanism. Because the Treaties lack a legal basis for a permanent emergency fund, the Member States had to find a solution outside the treaty framework. For that reason, they established the ESM through an inter se agreement. At the same time, some institutions are involved in the ESM and fulfil a relevant role. As a condition for financial assistance, a Member State must implement far-reaching reforms that can impact citizens social rights and that thus may conflict with the Charter. These conditions are negotiated by the institutions. However, due to its establishment as an inter se agreement outside the Treaties, judicial review is complicated and individuals are chanceless in seeking redress. This thesis examines the legal nature of the ESM and the consequences that legal nature has for the enforcement of social rights. The Court is often criticized for its reluctance to acknowledge the social rights included in the Charter in the context of conditionality. This thesis argues that the Court is not unwilling, but unable: as the legal character of the ESM restricts the extent to which the Court is able to exercise its jurisdiction. The Court lacks the framework that it usually has to review acts of the institutions. The complexity of the sources and the lack of transparency further complicate judicial review. To reverse the downgrade of social rights, institutional changes are needed.

Evelyn Vaalburg

Student number: 6125298 Supervisor: prof. R. Smits

LLM International and European Law: European Union Law, University of Amsterdam Final version: 31 July 2017

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2 TABLE OF ABBREVIATIONS

AG Advocate General

ECB European Central Bank

ECJ European Court of Justice

ECOFIN Economic and Financial Affairs Council ECSR European Committee of Social Rights EFSF European Financial Stability Facility EFSM European Financial Stability Mechanism

EMU Economic and Monetary Union

EP European Parliament

ESM European Stability Mechanism

EU European Union

GDP Gross Domestic Product

ILO International Labour Organization

IMF International Monetary Fund

MoU Memorandum of Understanding

OECD Organisation for Economic Co-operation and Development

QMV Qualified Majority Voting

TEU Treaty on European Union

TFEU Treaty on the Functioning of the European Union

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3 TABLE OF CASES

European Court of Justice: Cases in numerical order 25/62, Plaumann & Co v Commission [1963] ECR 95

26/62, Van Gend en Loos v. Nederlandse Administratie der Belastingen [1963] ECR 1 6/64, Flaminio Costa v. ENEL [1964] ECR 585

22/70 Commission v. Council (ERTA) [1971] ECR 263

130/73 Magdalena Vandeweghe v Berufsgenossenschaft fur die chemische Industrie [1973] ECR -01329 294/83 Parti écologiste ‘Les Verts’ v. European Parliament [1986] ECR 1339

314/85, Firma Fotofrost v Hauptzollamt Lübeck-Ost [1987] ECR 4199

C-181/91 & C-248/91 Parliament v. Council and Commission (1993) ECR I-3685 C-316/91 Parliament v. Council (1994) ECR I-625

C-352/98P Laboratoires Pharmaceutiques Bergaderm v Commission [2000] ECR I-5291 C-294/99 Athinaïki Zythopoiia AE v Elliniko Dimosio. [2001] I-06797

C-50/00 P Unión de Pequenos Agricultores v Council [2002] ECR I-6677 C-151/02 Jaeger [2003] ECR-I-8289

C-503/03, Commission v. Spain [2006] ECR I-01097 C-402 and 415/05 P Kadi [2008] ECR I-6351

C-236/09 Association Belge des Consommateurs Test-Achats v Conseil des Ministres [2011] ECR I-773 T-541/10 and T-215/11, ADEDY and others v. Council supported by the Commission, Orders of the General Court of 27 Nov. 2012

C-434/11, Corpul Naţional al Poliţiştilor v Ministerul Administraţiei şi Internelor (MAI) and Others, Order of 14 December 2011

C-127/12, Sindicato dos Bancários do Norte, Order of 7 March 2013

C-264/12, Sindacato Nacional dos Profissionais de Seguro v Fidelidade Mundial, Order of 26 June 2014 C-370/12 Pringle v Government of Ireland, Judgment of 27 November 2012

C-146/13 Spain v European Parliament, Judgment of 5 May 2015

T-289/13 Ledra Advertising v. Commission and ECB, Order of 10 November 2014

C-8/15 P to C-10/15 P Ledra Advertising v. Commission and ECB, Judgment of 20 September 2016 C-105/15 P to C-109/15 P, Mallis and Malli v. Commission and ECB, Judgment of 20 September 2016 C-258/14 Florescu, Judgment of 13 June 2017

European Court of Justice: Opinions

Opinion 1/00 pursuant to Article 300(6) EC, [2002] ECR I-03493 International Court of Justice: Cases

Judgment in Qatar v. Bahrain (Jurisdiction and Admissibility) ICJ Reports 1994

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Table of Contents

Introduction 6 1. Problem Statement 6 2. Relevance 7 3. Research Question 8

4. Methodology and Structure 8

1. Factual Background 9

1. The Economic and Monetary Union 9

2. The Financial Crisis 10

3. Previous Stability Mechanisms 11

a. The EFSM 11

b. The EFSF 12

4. Establishment of the ESM, a permanent mechanism 12

5. Framework and legal structure 13

6. Involvement of the Institutions 14

7. The Memoranda of Understanding 15

8. The ESM before the Court: Pringle 15

a. The use of the simplified revision procedure 16

b. Compatibility with the Treaties 17

c. Commentary 19

9. Concluding Remarks 20

2. Conditionality and Social Rights 21

1. Conditionality 21

2. Impact of Austerity 22

a. Labour Rights 23

b. Health and Social Benefits 23

3. Legitimacy of Conditionality? 24

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3. The Legal Nature of the ESM 26

1. Using international law: the conclusion of an inter se agreement 26

a. The Regime governing inter se agreements 27

b. Jurisdiction of the Court 29

2. EU Institutions outside the legal framework 30

a. The case law of the Court: Bangladesh and Lomé 31

b. The ruling in Pringle: doctrine and application 32

c. Analogy 32

d. Procedural and substantive concerns 33

e. Jurisdiction of the Court 34

f. Institutional Balance 35

3. The Memoranda of Understanding 36

a. Qualification; act or recommendation? 36

b. Attribution and Discretion 37

c. Consequences of the Two-Pack 38

4. Preliminary Conclusion 39

4. The Court of Justice: unwilling or unable? 40

1. Background: the rule of law and judicial protection in the EU 40

2. Remedies 41

a. Action for Annulment: Art. 263 TFEU 42

b. Preliminary Reference: Art. 267 TFEU 44

c. Non-contractual Liability: Arts. 268 and 340 TFEU 45

3. Some remarks about the Charter 47

4. Concluding remarks 49 5. Conclusion 50 1. Summary of research 50 2. Recommendations 50 6. Bibliography 52

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Introduction

1. Problem Statement

The European Stability Mechanism is the concluding piece in a series of emergency responses, aimed at tempering financial market anxiety due to the European sovereign debt crisis, a crisis that arose in the wider context of the global financial crisis. A ‘quick fix’ had to be provided for Member States that had lost their access to the financial markets, and mechanisms providing financial assistance were established through different instruments. Those measures however were seen as only temporary. A permanent solution was still needed, to assure the markets that the Eurozone could provide a sustainable safety net. As the Treaties do not contain a clear legal basis for setting up a permanent mechanism, an alternative solution had to be found. Due to the time pressure under which these events took place, the Member States acted outside the Treaty framework, and concluded an agreement among them to replace the temporary mechanisms: the European Stability Mechanism (hereafter: ESM).

The ESM was thus established outside the Treaty framework, while at the same time some EU institutions are involved in its operation and have played an important role in negotiating the conditions for financial assistance. In return for financial support, Member States are obliged to implement far-reaching reforms in welfare and fiscal policy areas - areas that traditionally fall under to the sovereign power of the Member States and that are an important topic in national elections.1 At the same time, these reforms can negatively

influence social rights enjoyed by citizens as guaranteed by the Charter of Fundamental Rights.2 The

austerity measures implemented by debtor states had a dramatic effect on their societies, in terms of unemployment, increase of poverty and access to welfare, often resulting in political instability.3 Thus it is

understandable that citizens will challenge those measures, thereby relying on the Charter of Fundamental Rights.

In some Member States, the consequences of the crisis are still being felt. With regard to Greece, the members of the so-called ‘Troika’4 have recently reached an agreement on the conditions for the third

tranche of the current financial assistance package.5 The financial assistance and the conditionality attached

to this assistance remain a controversial and sensitive topic in European politics, both in creditor states and

1 Chalmers, Davies & Monti, European Union Law: text and materials, (3rd edn, Cambridge University Press 2014),

p. 742

2 M. Schwarz, ‘A memorandum of misunderstanding’, (2014) CMLRev. 51, p. 398 3 Chalmers, Davies & Monti, (supra note 1) p. 715

4 The Commission, ECB and the IMF together are called the troika

5 See “Greece and creditors reach deal on next part of bailout” Financial times, 16 June 2017, available at

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in debtor states. While I was preparing this thesis, Jeroen Dijsselbloem, the current head of the Eurogroup, was strongly criticized for suggesting that southern Member States waste their money on “alcohol and women”.6

In the judicial area, the ESM’s legality and modus operandi have, from day one, been subjected to criticisms, regarding both its general compatibility with EU law and, in particular, with the Charter of Fundamental Rights (hereafter: The Charter). This thesis will focus on these criticism, making use of recent case law and literature. The consequences of the ESM as an inter se agreement while using the institutions will be discussed, as well as the scope and applicability of the Charter, and the possibilities for individuals to seek redress in courts.

2. Relevance

The financial crisis called for urgent action. Doing nothing was not an option, as ‘financial contagion’ was impending. In emergency situations, authorities enjoy a wide margin of appreciation to take the measures deemed necessary to overcome a crisis.7 Infringements of social rights can to a certain extent be justified

by the urgency of the situation. However, the EU is not in a state of acute emergency anymore, and the ESM is, in contrast to its predecessors, meant to provide a permanent and sustainable solution. Not only to manage the current crisis, but also possible future crises. For that very reason it is of paramount importance that the ESM complies with the EU’s general principles: legitimacy, accountability and the Rule of Law.8

The Court of Justice has an important role to play in this process. Until recently, no consensus had been reached among the institutions and legal authors9 on the question whether the scope of the Charter extended

to the ESM and the institutions involved, partly because the Court refused to take a clear position on this issue. However, in the autumn of 2016 the Court delivered its judgement on Ledra Advertising,10 according

to some, a “mile-stone case”11 regarding the protection of human rights in the context of austerity measures.

These recent events emphasize the need to provide a clear description of the ESM’s complex and mixed

6 See “Dijsselbloem under fire after saying eurozone countries wasted money on ‘alcohol and women”, Financial

Times, 21 March 2017, available at https://www.ft.com/content/2498740e-b911-3dbf-942d-ecce511a351e

7 A tendency that is in particular known from the so-called fight against terrorism.

8 Art 2 TEU; the Union is founded on the values of respect for human dignity, freedom, democracy, equality, the

rule of law and respect for human rights, including the rights of persons belonging to minorities. These values are common to the Member States in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail.

9 C. Kilpatrick, ‘Are the Bailouts Immune to EU Social Challenge Because They Are Not EU Law?’ (2014) EuConst. 10,

p. 395

10 Joined cases C-8/15 P to C-10/15 P, Ledra Advertising v Commission and ECB, Judgment of 20 September 2016 11 A. Poulou, ‘The Liability of the EU in the ESM Framework’, (2017) Maastricht Journal 24(1), p. 127

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institutional structure, by taking a closer look at some of its more peculiar features, and placing them in the context of ECJ case law.

3. Research Question

The establishment of the ESM as a treaty outside the EU legal framework has consequences for the extent to which the ECJ is able to exercise jurisdiction. Furthermore, it is unsure whether the Charter applies within the context of the ESM. The applicability of the Charter can be questioned for two reasons: Firstly, on the ground that the institutions do not act in the context of the Treaties, secondly because a Memorandum of Understanding is not perceived as a legally binding agreement. On the other hand, it is unthinkable that situations of a ‘legal vacuum’ exist where fundamental rights do not apply. Of all the cases that have until now been brought forward, concerning conditionality vis-à-vis social rights, not one has been successful, with the Court often declaring the applicants inadmissible. Many authors have criticized the Court for its ‘non-interventionist’ stance where it comes to the enforcement of social rights. Do they have a point? Is the Court in fact unwilling? The Court can only exercise its jurisdiction in the instances provided for by the Treaty. The fact that the ESM was established outside that framework inevitably has consequences for the jurisdiction of the Court to review the ESM in the light of the Charter. The aim of this thesis is therefore to examine the legal nature of the ESM to be able to answer the following question: What consequences does the legal nature of the ESM have for the extent to which the Court can exercise judicial control?

4 Methodology and Structure

This thesis is conducted on the basis of a review of academic literature, relevant case law and the study of legal texts. By way of a description and interpretation of the cases and literature, an attempt will be made to analyse the current state of affairs and thus provide a clear picture of the ESM as a legal phenomenon. I will examine how the ESM relates to the Treaties and which legal principles and doctrines impose constraints on its functioning. Chapter 1 gives an overview of the establishment of the ESM in the context of the euro crisis, its institutional framework and structure, and the analysis by the ECJ in Pringle.12 In Chapter 2 conditionality will be discussed and how it can affect social rights. In Chapter 3 the legal nature of the ESM will be examined: the practice of inter se agreements, the use of the institutions within the ESM, and the qualification of the Memoranda. In Chapter 4 I will discuss various ways to challenge austerity measures, as well as the respective chance of success or failure. The last Chapter will contain my conclusion and recommendations.

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1. Factual Background

1. The Economic and Monetary Union

One of the central objectives of the EU is to create an economic and monetary union.13 In 1989 the Delors

committee, commissioned by the European Council, published a report setting out the roadmap for the economic and monetary union (hereafter: EMU) as we know it today, including the adoption of a single currency, the euro.14 The EMU was founded by the Maastricht Treaty in 1990, when the “Europeanization

of monetary policy”15 became a reality and monetary policy became an exclusive EU competence, with

price stability as its primary objective.16 It led to the adoption of the euro by eleven Member States in 1999,

under the condition that they would meet the convergence criteria.17 These criteria entail a series of

economic conditions and legal criteria to make sure that States have sound annual budgets and avoid excessive deficits,18 further strengthened by the Stability and Growth pact, which aims at coordinating

budgetary policies by the Member States.19

By adopting a single currency, the Member States transferred their sovereign power to exercise monetary policy to the ECB, while at the same time maintaining the power to set their own economic and fiscal policies. Thus, to make sure that economic policies were not too divergent, the Treaty contains a number of provisions obliging the Member States to coordinate their economic policies,20 in order to achieve the

principles set out in art 119(3) TFEU: price stability, sound public finances and monetary conditions and a

13 Art 3(4) TEU: The Union shall establish an economic and monetary union whose currency is the euro.

14 Chalmers, Davies & Monti, (supra note 1) p. 707. The suggestions by the Delors Committee can now be found to

a large degree in art 119 TFEU.

15 K. Tuori, ‘The European Financial Crisis – Constitutional Aspects and Implications’, (2012) EUI Working Paper

LAW 2012/28, p. 4

16 Art 3(1)(c) TFEU: The Union “shall have exclusive competence in monetary policy for the Member States whose

currency is the euro”, while the primary objective of maintaining price stability is to be found in art. 119(2) TFEU.

17 Art 140 TFEU in conjunction with the Protocol on the excessive deficit procedure, art 1 and the Protocol on the

convergence criteria, arts. 1, 3 and 4.

18 Also to be found in the Treaty; art 126(1) TFEU prohibits excessive deficits.

19 Regulation 1466/97: the preventive arm (as amended by regulation 1055/2005 OJ L174/1 and regulation

1175/2011 OJ L306/12) and Regulation 1467/97: the corrective arm (as amended by regulation 1056/2005 OJ L174/5 and regulation 1177/2011 OJ L306/33

20Art. 2(3) TFEU contains the basic provision; an obligation to ‘coordinate economic and employment policies’, art

5(1) TFEU provides a facilitating role for the Council to ‘adopt measures [...] for these policies’, Arts 120-121 TFEU further elaborate on that by requiring the Member states to conduct their economic policies (Art 120) and to coordinate them within the Council (Art 121).

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sustainable balance of payments.21 The reverse of fiscal sovereignty is fiscal liability:22 Member States are

prohibited to assume each other's commitments, as prescribed in the no-bailout clause.23

The original EMU thereby resulted in an asymmetric group of policies:24 on the one hand the EU having an

exclusive competence to exercise monetary policy at EU level and on the other hand sovereignty of the Member States in conducting their economic and fiscal policies, within the limits of the Treaties and with a coordinating role for the Union.

2. The financial crisis

However, the guidelines and obligations did not result in the fiscal discipline promised by Member States. Various Member States did not comply with the Stability and Growth Pact, without this having any consequences,25 or as De Grauwe mentions; “A fire code without a fire brigade”.26 Financial markets did

not attribute risks to individual Member States but to the Union as a whole, which led to a lack of fiscal discipline and a lack of incentives, because Member States regardless of the state their economies were in could borrow cheap money on the markets.27 And when in 2007 the global financial crisis erupted, it became

clear that the various commitments and safeguards could not prevent a crisis in Europe:28

In 2009, the Greek government revealed that the government deficit was in reality twice the size previously reported.29 The financial markets reacted by imposing risk premiums on Greek bonds and soon Greece was

almost unable to access the capital market. At that time, no crisis mechanism was in force for granting financial assistance to a Member State facing financial difficulties, a situation which allowed for “legal improvisation”:30 In May 2010 the first package of loans to Greece was agreed, after a statement of the

Heads of State or Government of the EU that “Euro area Member States will take determined and coordinated action, if needed, to safeguard financial stability of the euro area as a whole.”31

21 Chalmer, Davies & Monti, (supra note 1), p. 711-712 22 K. Tuori, (supra note 15), p. 8

23 Art 125 TFEU

24 A. Hinajeros, ‘Fiscal Federalism in the European Union: Evolution and Future Choices for EMU’, (2013) CMLRev.

50 p. 1624, also referred to as “Maastricht asymmetry”, (see for instance; K. Tuori (2012) supra note 15, p. 5)

25 Idem, p.1627. See also Case C-27/04, Commission v Council [2004] ECR I-6649 when the Council decided not to

impose sanctions on Germany and France for running excessive deficits

26 P. De Grauwe, ‘Fighting the wrong enemy’ VOX 19 May 2010, available at:

http://voxeu.org/article/europe-s-private-versus-public-debt-problem-fighting-wrong-enemy

27 A. Hinajeros, (supra note 24) 1627 28 K. Tuori, (supra note 15) p. 10

29 For the exact numbers see the report of the Commission: Greek Government and debt statistics, Eurostat, COM

(2010)1 final, 8 January 2010

30 K. Tuori, (supra note 15) p. 12

31 Statements made on 11 February and 25 March 2010, to be found at;

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11 3 Previous stability mechanisms

The first mechanism concerned Greece alone (the Greek Loan Facility) and consisted of loans of both the euro area countries and the IMF. These loans were subject to conditionality negotiated between the Greek government, the IMF and the Commission. Soon it became clear however that the euro crisis would probably extend to other euro area states: markets were questioning the creditworthiness of other countries like Ireland and Portugal, putting pressure on their debts.32 The ECOFIN Council therefore announced that

a European stability mechanism was to be provided,33 which resulted in the European Financial Stability

Mechanism (hereafter: EFSM) and the European Financial Stability Facility (EFSF). Finally the European Stability Mechanism (ESM) was established, assuming the rights and obligations of its predecessors.

A. The EFSM

The EFSM is grounded in a Council Regulation using Art. 122(2) TFEU as its legal basis.34 The

Commission, in liaison with the ECB, negotiates the conditions with the Member State seeking financial assistance (Art. 4 of Regulation 207/2010), after which the Council decides by a qualified majority on an implementing decision.35 As the budget of the EFSM was managed by the Commission and guaranteed by

the EU budget, its capacity was limited to €60 billion, a relatively small budget compared to the other mechanisms, and not enough to play a major role in the “rescue umbrella”.36 Another difficulty with the

EFSM was that Art. 122(2) TFEU calls for exceptional circumstances beyond the control of the Member State concerned as a precondition for support, (repeated in the preamble and Art. 1 of the Regulation) which some authors call dubious in the case of Greece.37

32 A. De Gregorio Merino, ‘Legal Developments In The Economic And Monetary Union During The Debt Crisis: The

Mechanisms Of Financial Assistance’, (2012) CMLRev. 49, p. 1618

33 Press release, extraordinary Council Meeting ECOFIN 9 May 2010 - 9596/10

34 Council Regulation 407/2010 establishing a European Financial Stabilisation Mechanism:

[2010] OJ L118/1. Art 122(2) TFEU reads as follows; “Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken”.

35 K. A. Armstrong, ‘The New Governance of EU Fiscal Discipline’, (2013) NYU School of Law, JMWP 29/13, p. 7-10.

See for instance; Council Implementing Decision 2011/77/EU on granting Union financial assistance to Ireland (as amended): [2011] OJ L30/34;

36 K. Tuori, (supra note 15), p. 13

37 G. Bianco, ‘The New Financial Stability Mechanisms And Their (Poor) Consistency With EU Law’, (2012) EUI

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Alongside the EFSM, a facility was created among the euro area Member States to provide additional financial support. Due to time pressure and the need for rapid action, the European Financial Stability Facility (EFSF) was established as a private company (a “special purpose vehicle”) instead of a public institution, under Luxembourg private law.38 Its budget was much larger than that of the EFSM,39 and

consisted of commitments from the euro area Member States. Comparable to the EFSM, the Commission has a major role in the procedure of the EFSF, in negotiating, signing and monitoring compliance with a Memorandum of Understanding (MoU).40 Although both the EFSM and the EFSF were seen as emergency

responses and temporary solutions,41 they paved the way for a new permanent mechanism based on the

same characteristics:42 an intergovernmental agreement, established outside the Treaty framework, with

major roles for the Commission and the ECB, the involvement of the IMF43 and strict conditionality set out

in an MoU.

4. Establishment of the ESM, a permanent mechanism

Alongside the temporary mechanisms, plans were made in 2011 for a permanent European Stability Mechanism in 2011 because the two mechanisms both raised doubts as to their compatibility with the Treaties: the legal basis of the EFSM was questionable, whereas the problem with the EFSF concerned its (in)compatibility with Art. 125 TFEU.44 At the same time the markets had to be reassured that a structural

remedy, offering a permanent “safety net”, was being established.45 In October 2010, the European Council

agreed that a permanent crisis mechanism had to be established;46 this agreement was followed by a draft

decision to amend Art. 136 TFEU according to the simplified revision procedure.47 The purpose of this

38 R. Jansen, ‘What’s what in Europe; The European Financial Stability Facility (EFSF) and the European Stability

Mechanism (ESM) – A Legal Overview’, (2011) Euredia 2011/4, p. 418

39 440 billion euro’s

40 EFSF Framework Agreement art 2(1)(a), see

<https://www.esm.europa.eu/sites/default/files/20111019_efsf_framework_agreement_en.pdf>

41 EFSF Articles of Incorporation, art 4 states that “The Company is formed for an unlimited duration. [...] No new

financing programme and no new loan facility agreements will be established or entered into after 30 June 2013”

42 K. Tuori, (supra note 15) p.12

43 The Commission, ECB and IMF together are called the “Troika”.

44 B. de Witte and T. Beukers, ‘The Court of Justice approves the creation of the European Stability Mechanism

outside the EU legal order: Pringle’ (2013) CMLRev. (50) p. 805.

45 A. De Gregorio Merino, (supra note 32) p. 1618

46 Conclusions of the European Council of 28-29 Oct. 2010, EUCO 25/10

47 Conclusions of the European Council of 16-17 Dec. 2010, EUCO 30/10. What is interesting is that the European

Parliament proposed changes to foresee a greater role to the European Union institutions in Art. 136(3), merely stating that conditionality should be prescribed by a regulation adopted by co-decision (Amendment of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro, annex to the Resolution of the European Parliament of 23 March 2011) however hereby new

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amendment was to take away the doubts that had been raised concerning the compatibility with Art. 125 TFEU of a mechanism providing financial assistance; these doubts had led to various proceedings before the German Constitutional Court.48 The amendment therefore has a declaratory function rather than creating

a (new) legal basis: it only recognizes the ability of Member States to establish a mechanism among themselves.49 In March 2011 the amendment was adopted and a new paragraph was added to Art. 136

TFEU50 and at the same time the ESM Treaty was drafted and negotiated.

5. Framework and legal structure

The ESM is established through a treaty between the Member States of the euro area. The final version was, after renegotiating, signed and ratified in October 2012. The ESM is an “intergovernmental organization under public international law.”51 It has full legal personality (Art. 32(2) of the ESM Treaty)

and its purpose is to “mobilize funding under strict conditionality [...] to the benefit of ESM members experiencing [...] severe financial problems, if indispensable to safeguard the financial stability of the Euro area as a whole and of its Member States” (Art. 3). To a large extent, it resembles the design of the IMF.52

The ESM basically operates in the same way as its predecessors did.53 The mechanisms that it can use are

more or less similar to that of the EFSF, and any support provided is “subject to strict conditionality” (Art. 12(1)).

The central decision-making body of the ESM is the Board of Governors, comprised of the ministers of finance of the euro area states, with the Commissioner for Economic & Monetary Affairs and the president of the ECB participating as observers (Art. 5(1) and (3)). The Board can decide to increase the lending volume (Art. 10) and it may at any time call in authorised unpaid capital (Art. 9); ultimately it is the Board that decides whether financial assistance is granted and under which conditions (Art. 6(f) and Art. 13). The

competences would be conferred on the institutions and then the simplified revision procedure could not be used to amend the Treaty.

48 A. De Gregorio Merino, (supra note 32), p. 1628

49 Idem, p. 1629. This was confirmed by the Court in Pringle (discussed in paragraph 8 of this chapter) 50 Decision 2011/199 amending Art 136 TFEU with regard to a stability mechanism for Member States whose

currency is the euro [2011] L91/1 the amendment reads as follows;

"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”

51 It was characterized this way in the Conclusions of the EU council of 24/25 March 2011 Doc. EUCO 10/1/11 REV

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52 Which is mentioned explicitly in the preamble, for instance (13), of the ESM Treaty. According to Ruffert; ‘A

regional copy of the IMF’ - (M. Ruffert, ‘The European Debt Crisis and European Union Law’, (2011) CMLRev. 48, p. 1789

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Board decides by unanimity unless otherwise stated (Art. 4(3)). For instance, in an emergency procedure it can vote by a qualified majority of 85% when the financial sustainability of the euro area is at stake (Art. 4(4)). A voting right in a qualified majority procedure is based on the financial contribution of a member, and equal to the number of shares a Member State holds (Art. 4(7) and annex II). Compared to the EU Treaties, in which a balance is sought between smaller and larger Member States, this voting procedure seems odd. Germany and France together have almost 50% of the votes, and when the Board decides by QMV the three largest contributors can veto a decision.54 Moreover, a Member State which fails to meet its

obligations loses its right to vote. (Art. 4(8)).

6. Involvement of the Institutions

The bodies of the ESM itself are complemented by EU institutions and the IMF. Thus, its tasks are exercised by a mix of different actors, raising questions regarding its accountability and independence.55 The issue of

institutions being involved while acting outside the legal framework of the Treaties and the impact this involvement has on judicial review will be elaborated on in Chapter 3. Here, the role of the various institutions in the context of the ESM will be briefly discussed.

As in the previous mechanisms, the ECB and the Commission have a major role in the operational part of the ESM. First of all, the emergency procedure mentioned previously in paragraph 5 is used when deemed necessary by the Commission or ECB (Art. 4(4)). Furthermore, when a member of the ESM requests financial assistance, the ECB and the Commission together with the IMF are entrusted with the task of assessing the potential risk to the financial stability of the euro area, as well as the sustainability of the public debt and the financing needs of the Member State requesting assistance (Art. 13(1)). Subsequently, the Commission, together with the ECB and IMF, negotiates the MoU and the conditionality attached to the assistance (Art 13(3)). The Commission also signs the MoU on behalf of the ESM, following approval by the Board of Governors (Art. 13(4)). Compliance with the MoU of the Member State concerned will be monitored by the Commission, together with the ECB and IMF (Art. 13(7)).

Lastly, the Court of Justice has a role in the ESM. Disputes between the ESM and a Member State or between Member States are first to be settled by the Board of Governors, and are, in a second instance, subject to submission to the Court of Justice (Art. 37(3)), in accordance with art. 273 TFEU.56

54 M. Dawson & F. de Witte, ‘Constitutional Balance in the EU after the Euro-Crisis’ (2013) MLR 76(5), p. 828-835.

Germany, France and Italy all have more than 15% of the shares.

55 M. Schwarz, (supra note 2), p. 395

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What these mechanisms all have in common is the Memorandum of Understanding (MoU) which stipulates the reforms that a State has to carry out in order for it to receive financial assistance. The MoU is the expression of the strict conditionality requirement mentioned in Art. 136(3) TFEU and repeated in art 12(1) of the ESM. By linking conditionality to the assistance, the ESM seeks to safeguard the effectiveness and diminish the risk of financial contagion.57 The conditions are negotiated by the Commission and the ECB

as described in the previous paragraph.58 In general, conditionality has to be appropriate with the support

scheme that is selected, and it can therefore take different forms under the ESM. However, in case of the disbursement of loans, the choice of conditionality-instruments is limited to a macro-economic adjustment programme.59 No requirements are mentioned in the ESM Treaty with regard to the content of a

Memorandum, except for a very general statement that it has to “reflect the severity of the weaknesses to be addressed and the financial assistance instrument chosen” and that it has to be consistent with EU law.60

The Memorandum can be very detailed, as it does not only prescribe the amount a government has to cut in terms of public spending, but also in which sectors those cuts should be allocated, for instance through labour market reform or by limiting pension expenditures.61 The legal qualification of a Memorandum and

its impact on social rights will be further elaborated on in Chapter 4. The ESM, together with the ECB, monitors whether a Member State acts in compliance with the conditionality.62 The Member State itself has

to transpose the Memorandum into national law.

8. The ESM before the Court: Pringle

The establishment of the ESM was not uncontroversial; various constitutional Courts of the Member States have contested the adoption of the ESM and reviewed its compatibility with their constitution.63 Ultimately,

the ECJ got the chance to shed its light on various aspects of the ESM Treaty, in the case of Mr. Pringle.64

57 ESM Treaty, Preamble, no. 3 58 Art 13 ESM Treaty

59 Art 16(2) 60 Art 13(3)(2)

61 K. Tuori, (supra note 15), p. 16 62 Art 13(7)

63 See for instance: ESM Treaty (Temporary Injunctions), Judgment 2 BvR 1390/12, 12 September 2012, German

Constitutional Court, Case 3-4-1-6-12 Request of the Chancellor of Justice to Declare Article 4(4) of the Treaty Establishing the European Stability Mechanism in Conflict with the Constitution, Supreme Court of Estonia, Judgment of 12 July 2012 (available in English at http://www.riigikohus.ee/?id=1347) and Wilders vs. State ECLI:NL:RBSGR:2012:BW7242 available at http://jure.nl/ECLI:NL:RBSGR:2012:BW7242 (in Dutch)

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After the various crisis mechanisms that had raised doubts regarding their compatibility with EU law, a judicial analyse of the Court was well awaited.65

In the spring of 2012, when the Member States were to ratify the ESM, Thomas Pringle, a member of the Irish Parliament, challenged the legality of the ESM and brought proceedings against the Irish Government. Subsequently, the Irish Supreme Court decided to refer preliminary questions to the Court of Justice. It was an exceptional case, given the fact that the Court decided sitting ‘in full court’, with all 27 judges, and with eleven governments intervening in the proceedings, together with, for the first time, the European Council.66

A lot of aspects of the ESM that were previously unclear were clarified by the Court. Therefore it is relevant in this context to discuss some aspects of the case.

A. The use of the simplified revision procedure

The first question concerned the use of the simplified revision procedure and the validity of the amendment of Art.136 TFEU. Through the simplified revision procedure, the European Council can decide to revise parts of the Treaty, while the European Parliament and the Commission only have to be consulted. Therefore, there are two substantive requirements: First, the procedure can only be used to revise Part Three of the TFEU, and second, the amendment may not increase the competences conferred on the Union.67 The

Court had to determine whether those two conditions were fulfilled when the Council amended Art 136. The question brought by the referring court was whether the decision, formally amending Part III, did not also affect in substance Part I of the Treaty, particularly the exclusive competence of the Union in the area of monetary policy.68 The Court starts by stating that the Treaty contains no clear definition of monetary

policy, and therefore the objectives and instruments of a measure are to be examined in order to conclude whether a measure is of an economic or a monetary nature.69 The Court observes that the ESM is meant to

safeguard the stability of the euro area as a whole, whereas the primary objective of the Union’s monetary policy is to maintain price stability,70 and even though the stability mechanism may indirectly affect price

stability, it cannot therefore be treated as a measure of monetary policy.71 Furthermore, the Court observes

that the ESM was established to complement the regulatory framework for economic governance: the ESM is meant to manage financial crises that, despite the strengthened framework, may nevertheless occur. The Union’s competences in the area of economic policy are limited, and the Treaties do not provide a legal

65 G. Lo Schiavo, ‘The Judicial ‘Bail Out’ of the European Stability Mechanism: Comment on the Pringle Case’ (2013)

Research Papers in Law 9/2013, p. 3

66 B. De Witte & T. Beukers, (supra note 44), p. 805 67 Art 48(6) TEU

68 Paras 45-47 of the Pringle judgment 69 Idem, para. 53

70 Which can be found in Arts. 127(1) and 282(2) TFEU 71 Para. 56 of the Pringle judgment

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basis for establishing a permanent stability mechanism. Therefore, the Member States are still able to create a stability mechanism, provided that they act in compliance with EU law. The conditionality attached to the financial assistance is meant to ensure that compliance.72 Altogether the Court concludes that the

amendment falls within the scope of economic policy, thus satisfying the first condition of the simplified revision procedure. Secondly, the Court has to determine whether the amendment establishes new competences for the Union. The Court concludes that this is not the case, because the amendment cannot serve as a legal basis for the Union: it is only a declaration of a pre-existing power of the Member States. The fact that the Institutions have a role in the functioning of the ESM has no relevance in answering this question because the amendment itself does not mention the possible role of the institutions.73 As the ESM

falls within the scope of economic policy and does not create any new powers for the Union, the Court concludes that the conditions of the simplified revision procedure are fulfilled.

B. Compatibility with the Treaties

The second issue was whether the Member States, in concluding the ESM Treaty, acted in compliance with various EU Treaty provisions. Firstly, the Court recalls its statement that the ESM does not fall within the area of monetary policy, and therefore the conclusion of the ESM is not precluded by the exclusive competence of the Union to act in that area.74

Then, the Court determines whether the conclusion of the ESM is in breach of Art. 3(2) TFEU, which states that the Union has the exclusive competence to conclude international agreements in so far as the agreement affects common rules or alters their scope. According to the Court that is not the case, so Art. 3(2) does not preclude the conclusion of the ESM.75 It should however be noted that Art. 3(2) TFEU concerns the

competence to conclude agreements with third states, whereas the ESM is an agreement between Member States, an aspect not mentioned by the Court.76

The next point is the compatibility of conditionality with the Union’s competence to coordinate economic policy. The Court refers to the nature and objective of the ESM, and observes that the ESM “is not concerned with the coordination of economic policies but rather constitutes a financing mechanism”77 and

that the objective of conditionality is not to coordinate economic policies but to make sure that financial assistance is in compliance with EU law.78

72 Idem, paras 64-69 73 Paras 71-75. 74 Paras 95-97 75 Para. 107

76 G. Lo Schiavo, (supra note 65), p. 11 77 Para 110

78 A. Hinajeros, ‘The Court of Justice of the EU and the Legality of the European Stability Mechanism’ (2013) The

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The next point is the consistency of the ESM with the no bail-out clause, contained in Art. 125 TFEU. The Court first stipulates that the article has to be read in a narrow way. It does not prohibit every form of financial assistance.79 In addition, the Advocate General (hereafter: AG) in her view refers to sovereignty

and solidarity as fundamental principles that preclude a broad reading of Art. 125.80 The Court examines

the aim and objective of Art. 125 and concludes that the prohibition is meant to ensure that Member States follow a sound budgetary policy. By prohibiting liability for each other’s commitments, Member States are aware that they remain subject to the logic of the market when they enter into debts.81 By making financial

assistance dependent on compliance with strict conditionality, Art. 136(3) is in line with the objective of Art. 125.82 According to De Witte & Beukers, three requirements can be read in the Court's interpretation

that have to be fulfilled to ensure compatibility with Art. 125: 1. A Member State must remain responsible for its commitments, 2. financial assistance can only be granted when necessary for the stability of the euro area as a whole and 3. it must be subject to strict conditions.83

The next aspect is whether the ‘borrowing’ of institutions to perform tasks within the ESM is in line with Art. 13(2) TEU.84 The Court refers to its previous case law in which the use of the institutions outside the

legal framework and under international treaties was examined,85 and recalls the conditions that have to be

fulfilled: the Member States are entitled to confer tasks upon the institutions, provided that, A) it is not an area of exclusive competence of the Union and that, B) they do not alter the essential character of the institutions’ power.86 The Court concludes that the tasks conferred upon the ECB and Commission within

the ESM fulfil these conditions. With regard to the duties conferred on the Court itself by the ESM Treaty, the allocation of jurisdiction that the ESM provides for is in line with Art. 273 TFEU.

Finally, the Court briefly discusses the applicability of the Charter of Fundamental Rights, and the right to effective judicial protection (Art. 47 of the Charter). The provisions of the Charter are addressed to the Member States only when they implement EU law (Art. 51(1)). As the Member States established the ESM outside the EU legal order, the Court concludes that the Charter is not applicable in that area.87 While the

Court remains silent about the relevance of the Charter with regard to the institutions performing tasks in the context of the ESM, the AG notes in her view that the Commission “remains, even when it acts within

79 Paras. 130-132 of the Pringle judgment

80 View of A. G. Kokott, delivered on 26 October 2012, paras. 136-144 81 Para. 135 of the Pringle judgment

82 Para. 143

83 B. De Witte & T. Beukers, (supra note 44), p. 822-823

84 Art 13(2) reads as follows; Each institution shall act within the limits of the powers conferred on it in the Treaties,

and in conformity with the procedures, conditions and objectives set out in them. The institutions shall practice mutual sincere cooperation.

85 The reasoning of these cases and the applicability to the ESM will be discussed in Chapter 3 86 Para. 158 of the Pringle judgment

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the framework of the ESM, an institution of the Union and as such is bound by the full extent of European Union law, including the Charter of Fundamental Rights.”88

C. Commentary

The Pringle case was met with both joy and criticism. Some authors praised the pragmatic stance of the Court,89 while others expressed considerable criticism.90 It is relevant to make some remarks concerning

the Court’s position on the subjects that are relevant in this thesis, before those aspects are further elaborated on in the following chapters.

The position that the ESM is completely separated from the scope of the Treaties, is subject to doubt: the ESM was established to safeguard the euro area, an objective closely connected to that of establishing an economic and monetary union, this being one of the main objectives of the EU and a “central piece in the furtherance of the integration project”91. While the amendment of Art. 136 ultimately was not necessary for

the establishment of the ESM, and eventually not more than a declaration of an already existing competence, it does show a strong link with the Treaties; furthermore, the mechanism has to be in compliance with the Treaties, a duty included in the ESM Treaty itself;92 moreover the Court does not hesitate to mention several

times in Pringle that conditionality serves to ensure compatibility with the Treaties.93 The autonomy that

the Member States enjoy within the ESM is therefore still limited by the Treaties.94 On the other hand, the

fact that the Court has clearly stated that no legal basis exists for the Union to establish a stability mechanism like the ESM, has the consequence that the ESM can only be incorporated within EU law by an amendment of the Treaties, under the ordinary revision procedure, or by using Art. 352 TFEU.95

Secondly, it is remarkable how easy the Court accepts the use of the institutions outside the framework of the Treaties: the institutions are established, and their powers are governed by the Treaties, and there exists no legal basis for their exercise outside that framework, except for enhanced cooperation.96 The Court refers

to its previous case-law without going into further detail, so that the procedural and substantive limits to that practice remain vague.

88 View of A.G. Kokott, (supra note 80) para 176

89 See for instance B. De Witte and T. Beukers (supra note 44): “All in all, the Court has given, in Pringle, a

well-reasoned judgment expressing a good mixture of legal principle and political pragmatism.” p. 848

90 G. Beck,’ The Court of Justice, legal reasoning, and the Pringle case - law as the continuation of politics by other

means’, (2014) E.L.Rev. 39(2), he concludes that: “The Pringle judgment of the Court of Justice and the ESM judgment of the Federal Constitutional Court provide, not a model for legal reasoning, but an illustration of the sad, brute fact that the rule of law is, in the end, no more than a fair-weather phenomenon.” p. 249

91 Editorial Comments, ‘Union Membership in Times of Crisis’ (2014) CMLRev. 51, p. 8 92 Recital (4)

93 B. De Witte & T. Beukers, (supra note 44) p. 839 94 Editorial Comments, CMLRev. (supra note 91) p. 8 95 B. De Witte & T. Beukers, (supra note 44) p. 834 96 G. Beck, (supra note 90), p. 249

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Lastly, it should be noted that the duty to comply with the Treaties includes, according to some authors, compliance with the Charter. Due to the principle of sincere cooperation, Member States are obliged, in whatever framework they act, to respect EU law and refrain from any acts that could jeopardise the Union’s objectives. It could be argued that this obligation extends to the observance of fundamental rights, even when the Member States are acting outside the Treaty framework.97

9. Concluding Remarks

The ESM was established as a Treaty outside the EU legal order, which was a necessary step, seeing that the Treaty lacked an appropriate legal basis. Nonetheless, it has strong links with the EU legal order, by making use of the institutions and overlapping with certain provisions in the area of shared competence. In contrast to its predecessors, it is meant to be permanent, turning a crisis response into a permanent mechanism.98

97 G. Beck, (supra note 90), p.247-248 98 G. Bianco, (supra note 37) p. 9

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2. Conditionality and Social Rights

Within the framework of the ESM, conditionality has a central position. Financial assistance is subject to strict conditionality, and in Pringle the Court declared that conditionality is the key aspect guaranteeing that financial assistance is compatible with the Treaty.99 And by adding paragraph 3 to Art. 136 of the

Treaty, conditionality was “granted full recognition at Treaty level”.100

The conditionality attached to the financial assistance contains far-reaching reforms in the fields of labour and social policy, which can have a negative impact on various social rights, such as: access to health care, access to social security and social assistance and various labour-rights. At the same time, since Lisbon, the social dimension has gained importance at EU level. It remains to be seen how these two are compatible with each other.

One of the Member States most affected by the crisis and still dependent on financial assistance from the ESM is Greece. The conditionality has a dramatic impact on its society. In 2013, the IMF concluded in its report on Greece that: “the burden of adjustment was not shared evenly across society”.101 And whereas the

IMF in the meantime has stated that the social aspects deserve a more important role and must be better safeguarded in assistance programmes, with ‘national ownership’ as a starting point, it has also acknowledged that there are some exceptions: “In certain programmes, successful crisis resolution has required significant cuts in expenditures, including in social sector and in real wages (The Greece program is a leading example)”.102 According to Koukiadaki and Kretsos, austerity measures in Greece have led to

a ‘welfare state retrenchment unprecedented in the post-war period’ and ‘an almost full commodification of labour’.103 In this chapter, I will therefore examine what conditionality exactly means, in legal and factual

terms. To provide a better overview of the consequences of austerity measures, I will also describe in detail some reforms as well as the effect these reforms had on existing social rights, using Greek as a case study.

1. Conditionality

Conditionality is negotiated by the European Commission (in liaison with the ECB and the IMF), and detailed in the Memorandum of Understanding (hereinafter: MoU) that is concluded with the Member State

99 Para. 69 of the Pringle judgment

100 F. Costamagna, “Saving Europe ‘Under Strict Conditionality’: A Threat for EU Social Dimension?” (2012) Working

Paper LPF 7/2012, p. 7, available at: http://ssrn.com/abstract=2230329

101 IMF Country Report, Greece: ex post evaluation of exceptional access under the 2010 Stand-By Arrangement, no

13/156, May 2013, para. 47

102 IMF report: Review of conditionality 19 june 2012

103 A. Koukiadaki and L. Kretsos, ‘Opening Pandora’s Box: The sovereign Debt Crisis and Labour Market Regulation

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requesting financial assistance.104 Conditionality may range “from a macro-economic adjustment

programme to continuous respect of pre-established eligibility conditions”105 whilst the only requirement

is that it should “reflect the severity of the weakness to be addressed and the financial assistance instrument chosen”.106 It is thus important to note that there are neither definite requirements or limits, nor do they

exclude specific (social) policy fields from the scope of conditionality.107 Nor does the ESM Treaty itself

make any reference to fundamental rights. According to De Schutter and Dermine, as a consequence, the institutions and organs of the ESM do not take these rights into account when making their decisions, these decisions thus being based only on macroeconomic considerations.108

That being said, a closer look will now be taken at the substantive part of conditionality: what do those measures in practice entail? Firstly, the austerity measures negotiated in the MoU are aimed at reducing public expenses, in order to achieve specific economic targets, whilst prescribing in detail which measures have to be taken; in most instances, these measures entail wage moderation, cuts in social benefits and public health care reforms. To sum up: all aspects belonging the recipient state’s social policy are taken into account.109

Secondly, measures are prescribed that aim at regaining competitiveness. This is done by reforming the labour market; through measures that diminish labour costs, reduce wages and dismantle the wage-setting systems.110 Fabbrini describes the content of MoU’s as “a complete take-over by the Troika of the economic

and budgetary policy.”111

2. Impact of Austerity

Most authors describe austerity measures in terms like “draconian”112; nor do the studies, including one

commissioned by the European Parliament,113 describing the impact of these measures, present a positive

104 Art. 13(3) and (4) ESM Treaty 105 Art 12(1)

106 Art 13(3) subpara. 1

107 A. Poulou, ‘Austerity and European Social Rights, how can courts protect Europe’s lost generation?’ (2014) GLJ

15(6) p. 1148

108 O. De Schutter and P. Dermine, ‘The Two Constitutions of Europe: Integrating Social Rights in the New Economic

Architecture of the Union’ (2016) CRIDHO Working Paper 2016/2, p. 16

109 A. Poulou, (supra note 107) p. 1147

110 F. Costamagna, ‘The Court of Justice and the Demise of the Rule of Law in the EU Economic Governance: The

Case of Social Rights’ (2016) Carlo Alberto Notebooks no. 487, p. 9-10

111 F. Fabbrini, ‘States’ Equality v States’ Power: the Euro-crisis, Inter-state Relations and the Paradox of

Domination’ (2015) Cambridge Yearbook of European Legal Studies, 17 p. 16

112 See for instance; Chalmers, Davies & Monti, (supra note 1), p. 720

113 European Parliament, The Impact of the Crisis on Fundamental Rights across Member States of the EU.

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picture. Some of these studies will be discussed here to give an impression of the consequences, by taking the situation in Greece as an example.

A. Labour Rights

The Charter contains lots of provisions that refer to labour rights. Relevant in this context are for instance Art. 15 (Freedom to choose an occupation and right to engage in work), Art. 28 (Right of collective bargaining and action) and Art. 31 (Fair and just working conditions). According to Housos, the right to work114 has been one of the rights most severely affected by the crisis in Greece.115 To stimulate

competitiveness, measures were undertaken to further flexibilize the labour market. The role of trade unions has been diminished, employers can unilaterally convert full-time contracts into part-time and the competences of mediation and arbitration institutions have been restricted to basic salary issues.116 The UN

Report of 2015 mentions that in Greece approximately one million jobs are lost since the start of the crisis, causing an unemployment rate of 27,5% in 2013. The economic adjustment programmes contributed directly to that rate by reducing 26% of the employees in the public sector. At the same time, minimum wages were reduced, for younger people up to 32%.117

B. Health and Social Benefits

The right to access to social security and social assistance is acknowledged by the Charter in Art. 34, which emphasizes its significance in providing protection in case of illness, maternity, old age or loss of employment. The right of access to health care and the importance of a high level of health protection in the implementation of Union policy can be found in Art. 35 of the Charter.

Nevertheless, the Greek health care systems was massively reformed. The main aim of these reforms was to reduce public expenditure by capping it at 6% of GDP. To reach that objective, spending was cut and revenues were raised: the government reduced benefit packages and nursing wages, cut prevention and treatment programmes and increased charges for medicine.118 As a result, per capita health spending fell by

11% between 2009-2011.119 The negative effects of these measures are widespread: shortages of medicine,

114 The study of the European Parliament understands the right to work as “the right to engage in, and remain in,

employment under fair conditions.” Study of the European Parliament, (supra note 113), p. 62

115 K. Housos, ‘Austerity and Human Rights Law: Towards a Rights-Based approach to Austerity Policy, a Case Study

of Greece’, (2015), Fordham International Law Journal 39(2), p. 427

116 Z. Lanara-Tzotze, ‘The Impact of Anti-Crisis Measures, and the Social and Employment Situation: Greece’, Study

of the European Econ. & Soc. Committee Worker’s Group, (2013) p. 5-6. Available at: http://www.eesc.europa.eu/resources/docs/qe-31-12-350-en-c.pdf

117 UN: Report of the Independent Expert on the effects of foreign debt [...] on his mission to Greece in 2015, p. 15 118 A. Kentikelenis e.a., ‘Greece’s health crisis: from austerity to denialism’, (2014) The Lancet, Vol 383, p.748 119 OECD Report, Health at a Glance 2013, p. 9, available at:

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an increase in drug addiction and HIV infections, and longer waiting lists.120 Costs were shifted from the

public to the patients, thereby disproportionately affecting vulnerable groups and hindering overall access to health service.121

Social benefits also had to be reduced. The most publicized reform is the drastic cut in pensions as well as the reduction of social benefits such as unemployment benefits.122 According to the UN report of 2015,

only 10% of unemployed receive unemployment benefits, whereas 36% of the population is at risk of poverty.123

3. Legitimacy of Conditionality?

Before Lisbon, the EU was often criticized for favouring the internal market over other interests. To compensate for this asymmetry, the Lisbon Treaty introduced some provisions and modified existing ones to provide a balance between social and economic interests:124 Art. 3 TEU has been modified, and now

contains a range of social objectives;125 the horizontal social clause was introduced by Art. 9 TFEU;126 the

Charter has acquired legally binding value through Art 6 (1) TEU.127

In the light of these provisions, the strategy followed by conditionality raises serious doubts as to its compatibility with the strengthening and ‘upgrading’ of social objectives in the EU legal order, and with the idea that economic growth and social cohesion are equally important. In this regard, it is important to recall that the Court has stated in Pringle that “the mechanism will operate in a way that will comply with

120 A. Kentikelenis e.a., (supra note 118), p.748 121 Idem, p. 749

122 See for instance; the Second economic adjustment programme for Greece, First Review, (2012) p. 25 Available

at: http://ec.europa.eu/economy_finance/publications/occasional_paper/2012/op123_en.htm

123 UN: Report of the Independent Expert on the effects of foreign debt [...] on his mission to Greece in 2015, p. 16 124 F. Costamagna, (supra note 100), p. 13

125In Art. 3 TEU the aim and objectives of the Union are mentioned, in par (3) the following paragraph is inserted: It

shall combat social exclusion and discrimination, and shall promote social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child. It shall promote

economic, social and territorial cohesion, and solidarity among Member States.

126 Art. 9 TFEU reads as follows:

“In defining and implementing its policies and activities, the Union shall take into account requirements linked to the promotion of a high level of employment, the guarantee of adequate social protection, the fight against social exclusion, and a high level of education, training and protection of human health.”

127 Art. 6(1) TEU reads as follows;

The Union recognises the rights, freedoms and principles set out in the Charter of Fundamental Rights of the European Union of 7 December 2000, as adapted at Strasbourg, on 12 December 2007, which shall have the same legal value as the Treaties.

The provisions of the Charter shall not extend in any way the competences of the Union as defined in the Treaties. The rights, freedoms and principles in the Charter shall be interpreted in accordance with the general provisions in Title VII of the Charter governing its interpretation and application and with due regard to the explanations referred to in the Charter, that set out the sources of those provisions.

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European Union law.”128 As mentioned previously, social rights are to a great extent included in the

Charter.129 It is clear that conditionality measures in many instances encroach on some of these rights.

In 2015, the European Parliament published a detailed study130 concerning the impact of austerity measures

imposed in response to the crisis by several EU Member States.131 At the end of the study it concludes that

“It seems that many of the imposed measures were horizontal, indiscriminate cuts across the policy areas they targeted, in order to meet financial savings that were determined in advance. [...] Spending cuts should not be horizontal – they should be based on detailed evaluation of the effectiveness, efficiency, relevance and added value of public expenditure, and should include a public consultation.”132

The harmfulness of austerity measures and the violations they caused to fundamental rights were also the object of various other international monitoring mechanisms, such as ILO Conventions and the ECSR.133

4. Preliminary Conclusion

Conditionality in many instances has a negative impact on individuals’ social rights, a fact that is difficult to reconcile with the Charter and the renewed importance of the social dimension in the Treaties. At the same time, the ESM has been established as an intergovernmental treaty, outside the legal framework of the Union. To clarify how the ESM relates to the Charter and the Treaty itself, I will highlight some of its characteristics in the next chapter, as well as the consequences it has for the jurisdiction of the Court.

128 Para. 72 of the Pringle judgment

129 It is not clarified yet to which extent these rights actually impose obligations on EU institutions and Member

States. They do eventually not give rise to directly enforceable rights; however, they can give rise to different types of obligation. The whole discussion is beyond the scope of this thesis, the difficulty of enforcing social rights will be further touched upon in the last Chapter. Costamagna has discussed this issue more extensively in Saving Europe ‘Under Strict Conditionality?’: A Threat for EU Social Dimension? Working Paper LPF no 7/2012.

130 See supra note 113

131 Belgium, Cyprus, Greece, Ireland, Italy, Spain and Portugal 132 European Parliament, (supra note 113), p. 165

133 The ILO’s Committee of Experts on the Application of Conventions and Recommendations (CEACR) issued

numerous observations concerning the application of several ILO Conventions, many of which concerned the impact of the austerity measures on the right to work, see for instance the following observation adopted in 2013; http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:13100:0::NO::P13100_COMMENT_ID:3150771

The ECSR has observed the impacts of numerous measures in the collective complaints and national reports procedures, available at; http://www.coe.int/en/web/turin-european-social-charter/national-reports

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