University of Amsterdam
Faculty of Law
International and European Law
European Union Law Master’s Programme
Master’s Thesis
CJEU and ECB: An open and loving relationship that should
(maybe) take a break now and then?
Research question/problem statement:
Should the CJEU scrutinize the ELA programme of the ECB
differently and more intensely than its other measures?
Supervisor: Prof. René Smits
Student: George Papazoglou
CJEU and ECB: An open and loving relationship that should (maybe) take a break now and then?
Research question/problem statement:
Should the CJEU scrutinize the ELA programme of the ECB differently and more intensely than its other measures?
Abstract
During the financial crisis the ECB undertook many new tasks that tested its monetary policy mandate. One of them, that pre-existed but has resurfaced under these circumstances, is the ELA programme. Due to its complex structure and peculiar function, ELA borderlines between monetary and economic policy, causing competence vagueness and devastating consequences in the economy of Member States and its peoples. We thus argue that its operation must be delimited and clarified by the only body capable and competent to do so, the CJEU. When dealing with complex economic assessments in its jurisprudence, the CJEU imposes a relatively lenient standard of review -only for manifest errors of judgment- and is reluctant to substitute its own substantive assessment with that of the institution that issued the contested act. We accordingly believe that the Court must in the context of its review delve deeper in the reasoning and substance of each contested act and apply strict scientific standards combined with logic, causality and coherence. This paper first attempts to identify the Court’s approach towards the EU institutions and mainly the ECB when dealing with complex economic situations. Chapter 2 provides an overview of the ECB’s mandate and its new duties during the Eurocrisis. The legal framework of ELA is then laid out and analysed through the specific example of Greece in 2015. Chapter 4 attempts to assess the validity of ELA and the ECB’s interference in the programme and argues that it deserves more attention and tighter review from the Court than the other tasks of the ECB. Chapter 5 proposes several suggestions on how to make that happen.
List of Abbreviations
CJEU Court of Justice of the EU ECB European Central Bank
EFSF European Financial Stability Facility
EFSM European Financial Stabilisation Mechanism ELA Emergency Liquidity Assistance
EMU Economic and Monetary Union EP European Parliament
EU European Union
ESCB European System of Central Banks GDP Gross Domestic Product
HICP Harmonised Index of Consumer Prices LTRO Long-Tern Refinancing Operations NCB National Central Bank
OLAF EU Anti-Fraud Office
OMT Outright Monetary Transactions PSPP Public Sector Purchase Programme SRB Single Resolution Board
SRM Single Resolution Mechanism SSM Single Supervisory Mechanism TFEU Treaty on the Functioning of the EU
Table of Contents
Introduction 5
Chapter 1 5
1.1 Discretion and judicial review in the context of complex economic assessments 5
Chapter 2 10
2.1 The vague lines the CJEU has set for the ECB 10
2.1.1 Judicial review of central bank discretion 10
2.1.2 The Olaf judgment 11
2.1.3 The Pringle case 12
2.1.4 Gauweiler / OMT decision 13
2.2 ECB’s mandate stretched? 15
Chapter 3 19
3.1 The legal framework of ELA 19
3.2 Greek borrowing under ELA 22
Chapter 4 25
4.1 Legal Assessment of ELA 25
4.2 Enter the CJEU 28
Chapter 5 30
5.1 Suggestions about the CJEU’s standard of review in complex economic assessments and
ELA in particular 30
Conclusion 34
Introduction
This paper provides a critical evaluation of the ELA programme of the ECB and identifies the characteristics that make it distinct from other ECB tasks and “judicially volatile”, so that it requires a deeper and stricter standard of judicial review than the one already established by the Court. Eventually, it aims to contribute ideas and methods on how to practically impose a more “legally sound” judicial review of ELA and ECB’s actions in general. Chapter 1 examines the Court’s case law in scrutiny of legal acts adopted by the EU institutions, deferring to their discretion in cases involving complex economic assessments. Chapter 2 focuses on the CJEU’s approach towards the ECB alone and how that fares with the ECB’s mandate and the new role it has adopted amidst the financial crisis. Chapter 3 identifies and analyses the legal framework of ELA and how it manifested in the specific example of Greece in 2015. Chapter 4 scrutinizes the ECB’s interference in ELA, assesses the validity of the programme and develops the reasons it requires special attention and scrutiny by the Court as compared to other ECB measures. Chapter 5 suggests alternative ways of approach and review of ELA and the ECB by the Court.
Chapter 1
1.1 Discretion and judicial review in the context of complex economic assessments
The Court of Justice is responsible for reviewing the acts of the EU institutions according to art. 19 TEU and 263 TFEU. When the CJEU performs that review, it provides the institutions with a considerable margin of discretion. The test that the Court imposes on the reviewed acts is one of “manifest errors of judgment”1, of infringement of procedural
guarantees, of excess of discretionary boundaries2 or of faulty factual or legal assessments.
What is really strange at the same time, is the fact that it seems unable or at least unwilling to provide specific guidelines on how to apply its standard of review3. Despite the Court’s role
as a ‘watchdog’ of the EU Treaties, it remains reluctant throughout its case law to substitute the institutions’ specialised reasoning and assessment with that of its own. Its most common
1 Case C 42/84, Judgment of the Court of 11 July 1985, Remia BV and others v Commission, ECLI:EU:C:1985:327, par. 34.
2 Case C-301/97, Judgment of the Court of 22 November 2001, Kingdom of Netherlands v Council of the European Union, par. 74.
3 Case T-380/94, Judgment of the Court of First Instance of 12 December 1996, AIUFFASS and AKT v. Commission of the European Communities, ECLI:EU:T:1996:195, par. 59.
answer is that “it is not for the Court to infer its opinion in such matters”4 and eventually it
does not interfere with the substance of a reviewed decision or act. This of course means limited judicial review.
Advocate General Leger refers to a “technical discretion”5, which is granted when an
institution acts as an administrative body and it is justified by the complexity of the economic, legal and political assessments to be made. He also observes that judicial review is stricter in such cases. In general, “the Court of Justice has been reluctant to interfere with legislative and administrative acts issued by other institutions when these involved the weighing of different interests and Community policies. Underlying this reluctance is the view that courts are primarily concerned with legal rather than political questions”6. Our
focus here lies of course on the appraisal of complex economic matters. On many occasions, the Court seems solely to point at the complex nature of the assessments to be made by the Commission to justify its discretion: “Since that discretion involves complex economic and social appraisals, the Court must … confine its review and …. it is not for the Court to substitute its own economic assessment for that of the author of the decision”7.
The matter spans through many EU policy areas, such as State aid, agriculture, competition, anti dumping. In a variety of cases the CJEU refers to “complex economic assessments” to justify discretion. According to A. Fritzsche, as a starting point, “the complexity the courts might refer to could be understood as requiring the discovery and examination of factual patterns and/or actual or potential causalities that are determined by multiple interdependent variables using social science techniques (mostly economics)”8. Of
course this is a broad definition and one that the CJEU has never indulged us with. “More importantly though, the connection between the necessity of complex economic assessments and a necessarily limited judicial review has also never been addressed by the Court9”.
Instead, the Court chooses to just ascertain this connection in every related case, without further justification or reasoning behind this dictum. This ‘hands-off’ practice does not fare well with the judicial function of the Court and seems oddly formal.
4 Case T-110/97, Kneissl Dachstein Sportartikel AG v. Commission, [1999] ECR II-2881, par. 46.
5 Opinion of 17 Feb. 2005, Case C-40/03 P, Rica Foods (Free Zone) NV v. Commission, [2005] ECR I-6811, par 46.
6 A. Fritzsche – Discretion, Scope of judicial review and institutional balance in European law, Common Market Law Review 47, 2010, p. 368.
7 Kneissl Dachstein Sportartikel AG v. Commission, cited supra note 4, para 46. 8 Fritzsche, op. cit. Supra note 6, p. 374.
In the field of the common agricultural policy10, using purposive language and
provisions, the Treaty grants the Community legislator with a discretionary power which corresponds to the political responsibilities imposed by articles 40 and 43 TFEU. The Court interprets the authorizing Treaty provisions as conferring political power on the political institutions, which in turn serves as a justification for limited judicial review11. In such cases,
the CJEU confines itself to examining whether there are manifest errors or a misuse of power and whether the acting authority clearly exceeded the bounds of its discretion: “When the implementation by the Council of the agricultural policy … involves the need to evaluate a complex economic situation, the discretion which it has does not apply exclusively to the nature and scope of the measures … but also to some extent to the finding of the basis of facts …... In reviewing the exercise of such a power the Court must confine itself to examining whether it contains a manifest error or constitutes a misuse of power or whether the authority in question did not clearly exceed the bounds of its discretion’’12.
The standard of review established by the CJEU for judicial review of the European Commission’s exercise of discretion in the area of competition policy was most notably set with cases Telefónica SA13, Tetra Laval14 and Impala15, where the Court notes that judicial
review is indeed limited “to establishing the absence of a manifest error of assessment”16 and
mainly focuses on the accuracy and reliability of the facts that led to the contested decision. Moreover, the Court historically accepts that while “in areas giving rise to complex economic assessments, the Commission has a margin of discretion with regard to economic matters, that does not mean that the EU judicature must refrain from reviewing the Commission’s interpretation of information of an economic nature”17. Accordingly, in order to assess a
complex situation, the Court has to verify “whether the factual and legal elements upon
10 Case 265/87, Hermann Schräder HS Kraftfutter GmbH & Co. KG v. Hauptzollamt Gronau, [1989] ECR 2237, par. 22; Joined Cases C-37 & 58/06, Viamex Agrar Handels GmbH et al. v. Hauptzollamt Hamburg Jonas, [2008] ECR I-69, par. 34.
11 Netherlands v. Council, cited supra note 2, par. 65 and 75: “The Community court’s review must be limited in particular if, as in the present case, the Community institutions have to reconcile divergent interests and thus to select options within the context of the policy choices which are their own responsibility”.
12 Case 138/79, SA Roquette Frères v. Council, [1980] ECR 3333, par. 25; Case 166/78, Italian Republic v. Council, [1979] ECR 2575, par. 14; Case C-34/08, Azienda Agricola Disarò Antonio et al. v. Cooperativa Milka 2000, judgment of 14 May 2009, par. 37.
13 Telefónica SA Telefónica de España SAU v European Commission, C-295/12, ECLI:EU:C:2014:2062, par. 54.
14 Commission v Tetra Laval, C-12/03, ECLI:EU:C:2005:87, par. 39.
15 Bertelsmann and Sony Corporation of America v Impala, C-413/06, ECLI:EU:C:2008:392, par. 69. 16 Telefónica SA Telefónica de España SAU v European Commission, cited supra note13, par. 48. 17 Commission v Tetra Laval, cited supra note 14, par. 39.
which the exercise of the power of assessment depends were present and whether it is capable of substantiating the conclusions drawn from it”18.
Furthermore, in order to ascertain if competition in the common market has been in effect distorted due to a specific agreement19, the situation with the adopted agreement has to
be compared to the hypothetical economic situation without the agreement20. In Remia, the
Court indeed focused on this standard rather than on the direct provision of discretionary powers by the Treaty: “Although as a general rule the Court undertakes a comprehensive review of the question whether or not the conditions for the application of Article [101] (1) are met, it is clear that in determining the permissible duration of a non-competition clause incorporated in an agreement for the transfer of an undertaking the Commission has to appraise complex economic matters. The Court must therefore limit its review of such an appraisal to verifying whether the relevant procedural rules have been complied with, whether the statement of the reasons for the decision is adequate, whether the facts have been accurately stated and whether there has been any manifest error of appraisal or a misuse of powers”21.
With regard to antidumping protective measures (Art. 9(4) of the basic Regulation 384/9651) it is required that the interests of the various parties concerned are balanced against the public interest and the measures are therefore based on choices of economic policy22.
Judicial review is consequently limited to the standard cited above23. Moreover, the
determination of whether dumped imports have caused injury to the respective Community industry, for example, must be assessed after considering “all relevant economic factors and
18 Id.
19 Art. 101(1) TFEU.
20 Cases 56/65, Societe Technique Miniere v. Maschinenbau Ulm GmbH, [1966] ECR 235, 249–250; Remia BV and others v. Commission, cited supra note 1, par. 18; T-328/03, O2 ( Germany) GmbH & Co. OHG v. Commission, [2006] ECR II-1231, par. 71.
21 Remia BV and others v. Commission, cited supra note 1, par. 34; Case C-7/95 P, John Deere Ltd v. Commission, [1998] ECR I-3111, par.. 34–35 and T-65/98, Van den Bergh Foods Ltd. v. Commission, [2003] ECR II-4653, par. 80.
22 Case T-132/01, Euroalliages, Pechiney électrométallurgie, Vargön Alloys AB and Ferroatlántica, SL v. Commission, [2003] ECR II-2359, paras. 47–50, 48.
23 Case C-372/97, Italy v. Commission, [2004] ECR I-3679, para 83; similarly Cases C-225/91, Matra SA v. Commission, [1993] ECR I-3203, paras. 24–25, T-17/03, Schmitz-Gotha Fahrzeugwerke GmbH v. Commission, [2006] ECR II-1139, para 41 and C-333/07, Société Régie Networks v. Direction de contrôle fiscal Rhône-Alpes Bourgogne, judgment of 22. Dec. 2008, nyr, para 78.
indices having a bearing on the state of the industry”24 and also “known factors other than the
dumped imports”2526.
The Court also seems keen on accepting discretionary powers of the Commission in the field of State aid and according to Article 107(1) TFEU. A State action does not amount to a State aid, if a rationally behaving private investor would have acted in the same way under the circumstances of the case at hand. In this ‘private investor test’, what is required of the Commission is to establish the hypothetical conduct of a private investor in a reasoned way using accepted methodologies, such as i.e. accounting standards. The Court seems reluctant to substitute its own assessment of what a private investor would do for that of the Commission and rather refers to the complex economic appraisals involved27.
At the same time, Advocate General Jacobs has been critical against assuming Commission discretion, noting that a comprehensive review is necessary since the Court shares the application of State aid rules with the courts of the Member States28. A limited
review would be at odds with its requirement of national courts to apply a full economic analysis of all relevant factors when applying Article 107(1) TFEU29. Maybe the reason
behind the reduced scope of judicial review in such cases lies in the supposed complexity involved. But why does that necessarily call for more discretion? The Court has not yet provided us with a reasoned answer.
In Technische Universitat Munchen30 in a preliminary ruling on the legality of a
Commission decision denying customs duty exemption, the referring German court had restraints about the compatibility of the Court’s usual limited judicial review in such cases with the general EU principle of effective judicial protection31. Nevertheless, the Court found
24 Art. 3(5) Regulation 384/1996. 25 Art. 3(7) of the above Regulation.
26 Similarly, with regard to the discretion provided to the Commission, also see Art. 8(5) and (7) of Council Regulation (EC) No. 2026/97 of 6 Oct. 1997 on protection against subsidized imports from countries not members of the European Community (O.J. 1997, L 288/1) and Case C-398/05, AGST Draht- und Biegetechnik GmbH v. Hauptzollamt Aachen, [2008] ECR I-1057, par. 31–34.
27 Cases C-56/93, Belgium v. Commission, [1996] ECR I-723, par. 10 et seq.;Joined Cases T-126/96 & 127/96, BFM and EFIM v. Commission, [1998] ECR II-3437, par. 81; C-328/99 & C-399/00, Italy and SIM v. Commission, [2003] ECR I-4035, para 39; C-341/06 P & C-342/06 P, Chronopost SA and La Poste v. UFEX et al., judgment of 1 July 2008, para 143; T-196/04, Ryanair Ltd. v. Commission, judgment of 17 Dec. 2008, nyr, para 41; A.G. Kokott, Opinion of 1 Feb. 2007, Case C-525/04 P, Spain v. Commission, [2007] ECRI-9947, paras. 70 et seq.
28 Opinion of 27 Oct. 2005 in Case C-222/04, Ministero dell’Economia e delle Finanze v. Cassa di Risparmio di Firenze, [2006] ECR I-289, par. 111–112.
29 Id., citing Case C-39/94, SFEI v. La Poste, [1996] ECR I-3547, par. 60–62.
30 Case C-269/90 Technische Universität München [1991] ECR I-5469, paragraph 14.
31 Mentioned by A.G. Jacobs in his Opinion of 11 July 1991, Technische Universitat Munchen v. Hauptzollamt Munchen, par. 11.
that “since an administrative procedure entailing complex technical evaluations is involved, the Commission must have a power of appraisal in order to be able to fulfill its tasks. However, where the Community institutions have such a power of appraisal, respect for the rights guaranteed by the Community legal order in administrative procedures is of even more fundamental importance.32” To justify the Commission’s discretion, the Court referred to the
nature of the assessments involved and the ability of the Commission to act according to the competences it has been vested with.
In summary, in many fields of EU law, the CJEU limits its judicial review to respect the political and technical economic choices and weighing already performed by the institutions. This applies to the Council and the Commission regardless of whether they act in the form of a regulation or decision, as their discretionary power is conferred on them by EU law. ‘This (within certain limits) freedom of choice corresponds with the political responsibility of the institutions’33.
Chapter 2
2.1 The vague lines the CJEU has set for the ECB
Against the backdrop of what was examined above, the position of the CJEU towards the ECB seems somewhat different and more nuanced as compared to the other institutions. There are not many judgments of the Court concerning the ECB, as most relevant applications have been rejected due to lack of standing. In this chapter we shall examine the view of the Court as regards the place of the ECB in the EMU and the nature of its actions. But first a few points about central bank discretion in connection to judicial review.
2.1.1 Judicial review of central bank discretion
Central bank discretion is the freedom to act within a legal framework. Judicial review does not extend to the ‘content of the decision’, but rather to the parameters and legal framework that accompany such decision in order to ascertain if the central bank mandate has been exceeded. Discretion in the context of monetary policy means that the central bank can choose whichever monetary policy instrument it finds necessary for the achievement of its objectives and also define those objectives (such as price stability). The content of such discretionary decision is not reviewable. There are however, procedural elements that
32 Technische Universität München, cited supra note 30, par.13-14. 33 Fritzsche, op. cit. supra note 6, p.372.
determine the legality of such an act, i.e. the competence of the entity that issues the act, the procedure to prepare and approve it, the existence of a public interest. The difficult part lies in the standard of review by the Court. As a general rule the Court performs a comprehensive judicial review, assessing both the facts and the legality of the procedure. However as already mentioned above, when faced with a complex economic assessment, a technical assessment or the exercise of discretion, the scope of the review becomes inexplicably limited.
2.1.2 The Olaf judgment
Starting with the Olaf judgment34, it is an ‘important precedent in the constitutional
law of EMU’, and thus of the Union alike, as it clarifies the status of the ECB as an institution, rejects an expansive ECB claim of autonomy from the Community framework and sets the parameters of the ECB's independence35. It is a seminal decision, where the Court
of Justice of the European Union (CJEU) stated that the ECB’s independence is “strictly functional and is limited to the performance of the specific tasks conferred upon the ECB by the EC Treaty and the ESCB Statute”36 and thus to achieving the primary objective of price
stability37. The ECB independence is thus not an end in itself38, but a tool, as the fact that it is
independent does not have the consequence of placing the ECB beyond the reach of the rules of the Treaty.
The CJEU following the AG’s opinion also held that the Treaty principle of independence “seeks, in essence, to shield the ECB from all political pressure in order to enable it effectively to pursue the objectives attributed to its tasks, through the independent exercise of the specific powers conferred on it for that purpose by the EC Treaty and the ESCB Statute”39. The principle of central bank independence is enshrined directly at the
constitutional level in Article 130 TFEU40, meaning that “the Union legislator cannot amend
34 Case C-11/00, Judgment of 10 July 2003, Commission of the European Communities v European Central Bank “OLAF judgment”, ECLI:EU:C:2003:395.
35 Roger J. Goebel - Court of Justice Oversight Over the European Central Bank: Delimiting the ECB’s Constitutional Autonomy and Independence in the OLAF Judgment, Fordham International Law Journal, 2005, p. 610.
36 Commission of the European Communities v European Central Bank “OLAF judgment”, cited supra note 34, par. 126.
37 Articles 127(1) TFEU and Article 2 of the Statute of the ESCB.
38 Zilioli, Chiara and Riso, Antonio Luca, (2018), New tasks and central bank independence: the Eurosystem experience, ch. 9, p. 155-183 in, Research Handbook on Central Banking, Edward Elgar Publishing,
https://EconPapers.repec.org/RePEc:elg:eechap:16612_9, p. 158.
39 Commission of the European Communities v European Central Bank “OLAF judgment”, op. cit. supra note 31, par. 134.
it without a Treaty change (thereby avoiding that short-term preferences of politicians prevail over long-term interests of the polity)”41.
The Court has implicitly, and the Advocate General expressly, rejected an absolutist view of ECB independence rooted in any highly autonomous "Community within the Community" theory of the ECB's nature and status42. Moreover, the Advocate General has
directly, and the Court implicitly, stressed the ECB's subordination to the rule of law within the Community and “to various kinds of Community controls, notably review by the Court of Justice and control by the Court of Auditors”43.
2.1.3 The Pringle case
In Pringle44, the European Court of Justice addressed for the first time the concern
that having responsibility in the crisis management procedures could put the ECB independence at risk. The applicant had complained that the Treaty establishing the European Stability Mechanism (ESM Treaty), as well as the related Decision 2011/199 amending Article 136 TFEU, would encroach on the exclusive competences of the Union in the field of monetary policy.
At first, the CJEU attempted to define monetary policy by referring to its objectives and how they differ from those of economic policy in a rather strange legal argument that seems weak and hasty to us: “….the objective pursued by that mechanism (ESM), which is to safeguard the stability of the euro area as a whole,... is clearly distinct from the objective of maintaining price stability, which is the primary objective of the Union’s monetary policy. Even though the stability of the euro area may have repercussions on the stability of the currency used within that area, an economic policy measure cannot be treated as equivalent to a monetary policy measure for the sole reason that it may have indirect effects on the stability of the euro45”.
It then turned to monetary policy instruments and found that financial assistance is not one of them: “…. the stability mechanism will grant any required financial assistance……
41 Zilioli, Chiara and Riso, Antonio Luca, op. cit. supra note 38, p. 159.
42 Commission of the European Communities v European Central Bank “OLAF judgment”, cited supra note 34, par. 135: “such independence does not have the consequence of separating it entirely from the European Community and exempting it from every rule of Community law”.
43 Id.
44 Case C-370/12, Judgment of the Court of 27 November 2012, Thomas Pringle v Government of Ireland and others, ECLI:EU:C:2012:756.
The grant of financial assistance to a Member State however clearly does not fall within monetary policy.46”
After taking into account the “objectives to be attained by the stability mechanism, the instruments provided in order to achieve those objectives and the close link between that mechanism, the provisions of the FEU Treaty relating to economic policy and the regulatory framework for strengthened economic governance of the Union”47, the CJEU concluded that
the ESM falls within the area of economic policy.
Moreover, the Court engaged in quite an extensive analysis of the role of the ECB and the Commission: “the duties conferred on the Commission and ECB within the ESM Treaty, important as they are, do not entail any power to make decisions of their own. Further, the activities pursued by those two institutions within the ESM Treaty solely commit the ESM48”.
These tasks “do not alter the essential character of the powers conferred on those institutions by the EU and FEU Treaties”49.
As regards the specific duties of the ECB, the Court found that “they are in line with the various tasks which the FEU Treaty and the Statute of the ESCB [and of the ECB] confer on that institution. By virtue of its duties within the ESM Treaty, the ECB supports the general economic policies in the Union, in accordance with Article 282(2) TFEU.50” It also
referred to articles 6.2 and 23 of the Statute of the ESCB, which confirm that the ECB is “entitled to participate in international monetary institutions” and “may establish relations … with organisations51”, respectively.
2.1.4 Gauweiler / OMT decision
In Gauweiler52, in response to the first ever preliminary reference of the
Bundesverfassungsgericht, the CJEU approved the OMT programme so that the ECB can selectively purchase Eurozone government bonds in secondary markets. The case enabled the Court to scrutinize any potential overreach of the ECB’s mandate and to clarify the delimitation between monetary and economic policy. Both opportunities were notably
46 Id, par. 57. 47 Id, par. 60. 48 Id, par. 161. 49 Id, par. 162. 50 Id, par. 165. 51 Id.
missed, as the Court chose to avoid these questions using a completely different focus in order to reach to its judgment.
The applicants claimed that the ECB, by announcing the Outright Monetary Transactions (OMT) programme, had exceeded its competence, since they considered it amounted to economic policy, which is an exclusive competence of the Member States according to the Treaties. The Advocate General reaffirmed the ECB’s discretion and classified OMT as a monetary policy instrument. He also noted that due to the “significant, not to say decisive role of the ECB in the design, adoption and regular monitoring of those programmes, it should have thus relinquished its oversight function upon activation of OMT in respect of an individual Member State, in order to remain independent in the exercise of its monetary policy tasks”53. According to C. Zilioli, the AG relied on the two dimensional
character of the principle of independence; “the negative dimension, shielding central banks from interferences of politics, which should be complemented by a positive dimension, compelling central banks to abstain from actively participating in politics”54.
While the Court agreed in principle about the character of OMT, it approached the the legality of the OMT’s announcement in a different manner to find that making the OMT programme conditional to compliance with an adjustment programme, is fully compliant with the ECB’s secondary objective of support for the economic policies in the Union and thus indirectly that the new role of the ECB in the economic governance is also fully compliant with the principle of independence. Therefore, the Court made clear that a positive dimension of independence is not included in the Treaties, meaning that the ECB is free to interact and participate in the political arena. It then focused on the objectives rather than the effects of the programme in order to distinguish it from the similar operations conducted by the ESM and to conclude that the aim of OMT is to maintain price stability whereas that of the ESM is to safeguard the stability of the euro area.
According to Pr. Smits, “the Court’s appraisal of the ECB’s discretion to adopt policy measures it sees appropriate for the situation confirms its general approach to allow the institutions to make technical decisions on complex economic issues”55. Similarly in this
53 Opinion of Advocate General Cruz Villalon of 14 January 2015 in Case C-62/14 (Gauweiler and Others vs. Deutscher Bundestag), par. 143.
54 Zilioli, Chiara and Riso, Antonio Luca, op. cit. supra note 38, p. 168.
55 Smits, René, (2018), A central bank at a time of crisis: the ECB’s developing role in the EU’s currency union, ch. 10, p. 184-207 in, Research Handbook on Central Banking, Edward Elgar Publishing,
case, the CJEU adopts the view of the ECB, it “does not superimpose its own analysis on that of the central bank”56 and concludes, that the adoption of the OMT programme “was not
vitiated by a manifest error of assessment”57. While it sets some limits to the ECB’s authority
using the “golden standard of proportionality”, the discretion awarded to it remains broad thus making the judgment one of ‘institutional empowerment”58. The Court highlights the
“fundamental importance of a review of compliance with procedural guarantees”59, yet it does
not address how these were met in this case when neither the contested announcement nor the draft legal acts were made available to the public.
According to Tridimas and Xanthoulis, with the OMT judgment “the tensions and instability arising from the separation of competences in monetary and economic policy gravitated to the advantage of the Union and the Court granted the ECB a distinct role not only in monetary policy but also in shaping the general economic policy of the Union”60.
2.2 ECB’s mandate stretched?
Under Article 282(1) TFEU, the ECB and the central banks of the Member States whose currency is the euro, which constitute the Eurosystem, are to conduct the monetary policy of the Union. Article 3(1)(c) TFEU states that the Union is to have exclusive competence in the area of monetary policy for the Member States whose currency is the euro. Moreover, under Article 119(1) TFEU, the activities of the Member States and the Union are to include the adoption of an economic policy based on the close coordination of Member States’ economic policies, on the internal market and on the definition of common objectives, conducted in accordance with the principle of an open market economy with free competition. The Union’s economic policy is the subject of Articles 2(3) TFEU, 5(1) TFEU and 120 TFEU to 126 TFEU.
According to Article 127(1) TFEU and Article 2 ESCB Statute, the ESCB is responsible for maintaining price stability and “without prejudice to the objective of price stability, supporting the general economic policies in the Union, with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on
56 Id, p. 200.
57 Gauweiler and Others vs. Deutscher Bundestag, cited supra note 52, par. 74.
58 Takis Tridimas - Napoleon Xanthoulis, "A Legal Analysis of the Gauweiler Case", in Federico Fabbrini (ed), "The European Court of Justice, the European Central Bank and the Supremacy of EU Law" Special Issue (2016) 23 Maastricht Journal of European & Comparative Law 1, p. 31.
59 Gauweiler and Others vs. Deutscher Bundestag, cited supra note 52, par. 69. 60 Takis Tridimas - Napoleon Xanthoulis, op. cit. supra note 58, p. 39.
European Union’’. Article 3 TEU lists the Union objectives such as peace, the well-being of its peoples, the internal market and sustainable development, economic growth and price stability, and “a highly competitive social market economy, aiming at full employment and social progress”. The Eurosystem went on to interpret the mandate on its own as “a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%”61. The aim is to maintain price stability over the medium term instead of headline
inflation. In a nutshell, the ECB is exclusively competent over the monetary policy of the Union.
When the global financial crisis erupted in 2007, coupled with the subsequent European sovereign debt crisis in 2010, the institutional and legal framework of EMU was not in the slightest prepared for such a multi layered and asymmetrical hit. The ECB, being the only institution capable and equipped to deal with it and not unlike the practice of other central banks before it, started to implement unconventional monetary policy measures, also labeled as “non-standard” against the strictly legal limits of its mandate. The legal developments during and after the crisis have been described as “a paradigm shift for the constitution of the EMU”62. Under normal circumstances all the new competences would
have been the subject of a Treaty amendment, but given the recent failure of such negotiations, Member States chose to engage in a “complex patchwork”63 instead of a proper
new EMU framework. Absent a specific legal basis in the Treaties, new tasks were attributed to the ECB in the field of microprudential supervision and of crisis management and also at national level to the NCBs. Many believe that prudential supervision is inextricably linked to the central banking function and that still applies to the case of the ECB (within its mandate and not affecting its independence). However, others note the potential risk of a conflict of interests between these two functions with further implications to the ECB’s independence.
With regard to the appreciation of the ECB’s discretion on prudential supervisory issues, in the L Bank judgment the Court again sides with the ECB and highlights that “the assessment of the proportionality of a measure must be reconciled with compliance with the discretion that may have been conferred on the EU institutions at the time it was adopted”64.
61See the ECB’s Press Release of 13 October 1998, at:
https://www.ecb.europa.eu/press/pr/date/1998/html/pr981013_1.en.html, its first Monthly Bulletin of January 1999 (page 46), at: https://www.ecb.europa.eu/pub/pdf/mobu/mb199901en.pdf and the ECB’s website at: https://www.ecb.europa.eu/mopo/strategy/pricestab/html/index.en.html.
62 Zilioli, Chiara and Riso, Antonio Luca, op. cit. supra note 38, p. 165. 63 Id.
64 Case T-122/15, Landeskreditbank Baden-Württemberg – Förderbank vs. ECB, judgment of 16 May 2017, ECLI:EU:T:2017:337, par. 68.
It also qualifies the ECB as especially “well placed to perform as the euro area’s central bank with extensive expertise in macroeconomic and financial stability issues the duty of protecting the stability of the financial system of the Union through specific tasks concerning policies relating to the supervision of credit institutions”65. As in monetary policy judgments,
the Court focuses on the application of a sound administrative procedure when the institutions have a power of appraisal and its standard of review lies in the principle of proportionality and in finding a manifest error of assessment by the ECB.
Similarly, in the Arkea judgment, the error of assessment test imposed on the ECB as regards taking into account the supposedly very improbable split in the Crédit Mutuel group, is dealt with the Court’s “usual deference to EU institutions faced with complex appraisals”66.
Judicial review again focuses on “whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it”67. The motivation of the decision is also put to
the test. The Court then applies its standard proportionality test in balance with the discretion accorded to the ECB and finds that the ECB requirement and imposition of further own funds for Arkéa is not the result of a manifest error nor is it manifestly disproportionate.
However, in the Espirito Santo case68, with regard to transparency of ECB’s actions in
the context of ELA operations, the General Court was more stringent on the ECB. Despite recognizing considerable latitude on its refusal to disclose sensitive information69, provided
there were sufficient reasons, the GC argued that these reasons must nevertheless be fully substantiated and not merely stated by the ECB70.
During the crisis, the ECB has indeed seen its mandate stretched to the limit and the the dividing lines between monetary and economic policy and its level of involvement in the latter have become extremely muddled. According to Pr. Smits, for the ECB, “amidst fierce speculation against, the continuity of the currency it is the guardian of, ….. the crisis became
65 Id, par. 78.
66 Smits René, Short note on the Arkea judgments,
https://ebi-europa.eu/wp-content/uploads/2018/01/Note-on-the-Arkéa-judgments-for-publication-final.pdf.
67 Case T-712/15, Crédit Mutuel Arkéa v ECB, Judgment of 13 December 2017; ECLI:EU:T:2017:900, par. 179.
68 Case T-251/15, Judgment of the General Court of 26 April 2018 (Espirito Santo v ECB), ECLI:EU:T:2018:234.
69 Id, par. 90.
70 Id, par. 187: “…. given the wide discretion enjoyed by the ECB …. and the subsequent limited scope of the review conducted by the European Union judicature ...., the ECB’s compliance with its obligation to provide a statement of reasons in relation to those exceptions takes on even more fundamental importance, …. there is reason to find fault with the ECB’s incomplete statement of reasons as regards its partial refusal to disclose the proposals …”.
more existential because it operates in a multi-national environment”71. The ECB explicitly
and implicitly started urging governments and EU institutions to strengthen the economic governance of the Euro Area. Through its involvement in the ESM it obtained an informal role in the drafting of economic adjustment programmes for Member States and in policy-setting and compliance testing together with the EU executive and the IMF. Consequently, it adopted an institutional role as co-overseer of enhanced surveillance and adjustment.
Moreover, the ECB overstepped monetary policy lines when it provided intrusive economic policy advice to Ireland and Italy via letters addressed to their governments. As regards Ireland, the letters became public after pressure from the European Ombudsman, while in the case of Italy, the letter to the Prime Minister was leaked. Such practices might seem indifferent on their own at first, but not if they are considered in conjunction with the ECB’s role as a major creditor of these sovereigns and their banking systems. For Pr. Smits, “although in normal times, such an exercise of economic-policy discretion would not seem to be within the confines of its competences”72, considering the ECB’s “legitimate concern for
its exposure to individual sovereigns and their connected banking systems”73, the dire and
extreme circumstances of the crisis as what he calls “the perfect storm raging”74 and the ECB
being the only body with the means and expertise to face it, he believes that the actions of the ECB were not ultra vires75.
At the same time, standing from a different/opposite perspective, we would argue that from a strictly legal point of view, some of these new ECB tasks do not fare well with the principle of conferral as it was envisaged or intended by the masters of the Treaties76, the
Member States, especially considering the controversy and debate they have caused throughout the EU. They seem to overstep its price stability objective by also pursuing economic policy. But how legal is this broad interpretation of the ECB's mandate as regards to its precise legal basis? As we have already argued above, central bank discretion enables the ECB to define its own mandate and objectives. However, there should accordingly be limits and accountability mechanisms in order to prevent abuse of power and destabilization of the institutional balance of the EU. In our view, the CJEU being the guardian of the sound implementation of EU law and of the Treaties should be the final arbitrator of the ECB’s
71 Smits, René, op. cit. supra note 55, p.185. 72 Id, p.206.
73 Id. 74 Id. 75 Id.
actions, since the ECB itself is an EU institution whose power derives from the text of the Treaties and the Court is responsible for reviewing the acts of the institutions.
Chapter 3
3.1 The legal framework of ELA
One of those ‘new’ ECB activities is the provision of Emergency Liquidity Assistance (ELA), also referred to as Lender of Last Resort (LOLR) assistance. ELA is not actually a new programme. It has been around since 1999, but it was only explained in 200777 and
formulated in 201378. In its 2007 publication, “the ECB highlighted that ELA constituted
exceptional and temporary liquidity provision, which should respect the prohibition of monetary financing”79. Taking into account the very exceptional nature of ELA, the ECB
stated that a private sector solution is preferable whenever possible. It also declared that the provision of ELA is within the discretion of the national central bank, which will consider the relevant factors that may justify the access to this lending of last resort80. Furthermore, in
2013 in what Pr. Smits highlighted as “a remarkable act of auto-limitation”81, the ECB
qualified ELA as a “function other than those specified” that NCBs perform according to article 14.4 of the ESCB Statute. “Such national tasks may continue to be performed unless the Governing Council, by a two-thirds majority, finds that they interfere with the objectives and tasks of the ESCB and they are for the account of the NCB which undertakes them”82.
The ECB also provided extensive insight into the information that a NCB is to provide for the Governing Council to give its assessment of the provision of ELA, quantifying the levels of assistance beyond which there will be deeper scrutiny. Until then, the only glimpse of the ESCB-internal approach to ELA offered was that “the Eurosystem also has procedures in place regarding the provision of ELA to individual credit institutions in the euro area, which are under the responsibility of NCBs”83. On 17 May 2017, the ECB finally published the ELA
Agreement84.
77 Monthly Bulletin article of February 2007, The EU arrangements for financial crisis management, notably pages 80–81. See: https://www.ecb.europa.eu/pub/pdf/mobu/mb200707en.pdf
78 ELA Procedures, 17 October 2013, at: https://www.ecb.europa.eu/pub/pdf/other/201402_ elaprocedures.en.pdf?10cc0e926699a1984161dc21722ca841.
79 Smits, René, op. cit. supra note 55, p.204. 80 Id.
81 Id, p. 203. 82 Id.
83 Monthly Bulletin article of February 2007 cited supra note 77.
84Agreement on emergency liquidity assistance, 17 May 2017, at:
In the Espirito Santo case mentioned above85, the ECB offered an overall assessment
of the nature and substance of ELA. In a nutshell, “the provision of emergency liquidity consists in the exceptional provision, under national law, by the central bank of a Member State whose currency is the euro (‘the NCB’) of central bank money and any other form of assistance which may lead to an increase in central bank money to a solvent financial institution that is facing temporary liquidity problems, although such operations do not form part of the European Union’s single monetary policy. However, under Article 14.4 of Protocol (No 4) on the Statute of the European system of central banks and of the ECB (OJ 2012 C 326, p. 230, ‘the ESCB and ECB Statute’), the Governing Council may assess whether such national operations interfere in any way with the objectives and tasks of the European system of central banks (‘the ESCB’). Although the Governing Council does not decide whether emergency liquidity assistance should in fact be given, it has the power to prohibit ex ante the provision of emergency liquidity by an NCB or to make it subject to certain conditions, if the provision of such assistance interferes with the objectives or tasks of the ESCB”86.
We have already mentioned that ELA and its function are not expressly present in the text of the Treaties, but through the ECB’s interpretation of its Statute (Article 14.4 ESCB Statute). However, this reinforces the ECB with greater power and risk of involvement with economic policy. The peculiar architecture of the monetary and financial system of the euro area has the self-evident consequence that the ultimate decision maker with regard to ELA, defines in an almost dominant level the conditions of the euro-area membership of the country in question. “No other central bank in the world holds that power. No decision by the US Fed could result in the ejection of a state from the Union”87.
“Neither the general provision of liquidity to the banking system, which the ECB was the first to engage in when the financial crisis erupted in 2007, nor the provision of liquidity to individual solvent commercial banks, has been exhaustively regulated at ESCB level”88.
The semi-decentralised structure of ELA introduces a two-tiered lender-of-last-resort function that is unique to the euro area. “Although not formally mandated to do so, the ECB
85 Case T-251/15, cited supra note 68. 86 Id, par. 44.
87Transparency International EU – Two sides of the same coin? Independence and accountability of the European Central Bank, 2017, p. 49.
has acted as the lender of last resort to the banking system of the euro area”89, especially in
the wake of the crisis. In that context of decentralisation and exclusive competences, Pr. Smits again believes that the ECB is competent to provide LOLR assistance itself and that “the auto-limitation of qualifying ELA a ‘national competence’ amounts to an ‘erroneous interpretation’ of the law”90. For him, “this ‘incorrect reading of the legal provisions’ should
be remedied, with direct ECB responsibility for ELA acknowledged, initially at least for the significant banks under its direct supervision”91.
Another point that needs to be shortly addressed is that, ELA may also be qualified as state aid, unless certain conditions are met: “The credit institution, albeit temporarily illiquid, must be solvent; the liquidity provisions occur in exceptional circumstances and are not part of a larger aid package; the facility is fully secured by collateral with appropriate haircuts; the national central bank charges a penal interest rate; and the measure is taken at the central bank’s own initiative, without any counterguarantee of the state”92.
Historically and in practice, ELA was provided to individual institutions. As the crisis raged on, the scope of assistance was extended to entire banking systems. “This evolution was proportional to the severity of the circumstances and has proven to be effective. In the case of Greece, provision of ELA was certainly necessary in order to ensure the functioning of the Greek banking system and the continuation of lending to businesses and households. A discontinuation of ELA would have thrown all Greek banks into default and would have forced the country to leave the currency union, a decision the Eurosystem could not have taken without violating the Treaty. ELA provision was proportional as it was disciplined and justified by rules”93. “We granted ELA for as long as the Governing Council judged that
prospects were favourable for a positive outcome to the negotiations between the government
89 Transparency International EU, op. cit. supra note 87, p. 51.
90 Smits, René, Competences and alignment in an emerging future - After L-Bank: how the Eurosystem and the Single Supervisory Mechanism may develop, Ademu working paper series, October 2017, WP 2017/077, http://ademu-project.eu/wp-content/uploads/2017/12/0077-Competences-and-alignment-in-an-emerging-future.pdf , p. 28. and European supervisors in the credit crisis: issues of competence and competition, chapter 15 in Mario Giovanoli and Diego Devos (eds.), International Monetary an Financial Law in the light of the Global Crisis, 2010, pp. 305-327
91 Id, p. 28-29.
92 “Banking Communication” from the Commission on the application, from 1 August 2013, of State aid rules to support measures in favour of banks in the context of the financial crisis, OJ C 216/1, 30 July 2013.), par. 62: “ordinary activities of central banks related to monetary policy, such as open market operations and standing facilities” to fall outside the scope of the state aid rules.”
93 Speech by Mr Peter Praet, Member of the Executive Board of the European Central Bank, at “The Lender of Last Resort: An International Perspective”, a conference sponsored by the Committee on Capital Markets Regulation, Washington DC, 10 February 2016 - The European Central Bank and its role as lender of last resort during the crisis, p. 6.
of Greece and the European institutions. Its expansion was suspended when it appeared that these conditions were no longer confirmed”94.
3.2 Greek borrowing under ELA
In 2015, Greece was right in the eye of the storm of the Eurocrisis. The ECB, as the lender-of-last-resort stopped accepting Greek government bonds as collateral, prompting Greek banks to borrow from their NCB under ELA. With the Governing Council being in control over the maximum lending ceilings, it could exert significant pressure on the Greek government in its negotiations with the Troika. All ECB’s related decisions at the time, were not publically communicated until many months thereafter. “The fact that the ECB is part of the Troika, alongside the European Commission and the IMF, while being responsible for Greece’s monetary policy, reinforces the political dimension of these ‘technical’ tasks’”95.
But let’s take things from the beginning. In May 2010, the ECB temporarily suspended the application of the minimum-rating threshold for “debt instruments issued or guaranteed by the Greek government”96, granting in essence, a waiver for Greek government
bonds. This decision was based on the positive assessment of the adjustment programme that Greece had negotiated with the Troika and of the commitment of the Greek government to implement it. Greek banks were thus permitted to use Greek government bonds as collateral in ECB refinancing operations “at a time when rating agencies had downgraded Greek debt to junk- bond status”97.
From February of 2012 to February of 2015, the Governing Council of the ECB revoked and reinstated the waiver for Greek sovereign bonds numerous times, on the basis of Article 18.1 of the ESCB Statute, which requires that ECB lending to credit institutions be “based on adequate collateral”98. This caused serious uncertainty and confusion in Greek
economy and society. On February 2015, after revoking the waiver once again, the ECB explained that banks that lacked sufficient collateral for standard monetary policy operations could obtain liquidity from their respective NCBs by means of ELA99. In practice, this
statement applied mostly to Greek banks, which at that point held the majority of Greek
94 Speech by Mario Draghi, President of the ECB to mark the opening of the academic year at the Università Cattolica del Sacro Cuore, Milan, 5 November 2015
95 Transparency International EU, op. cit. supra note 87, p. 4. 96 Decision ECB/2010/3.
97 Transparency International EU, op. cit. supra note 87, p. 50. 98 Decision ECB/2012/2.
government bonds that remained in private ownership. In a statement that appears to be at odds with the narrative that ELA is, at base, a national responsibility, the ECB also announced that “the Governing Council decided that the liquidity needs of affected Eurosystem counterparties can be satisfied by the relevant national central banks, in line with relevant Eurosystem arrangements (emergency liquidity assistance)”100.
When the Greek Government threatened to leave the programme due to concerns over the conclusion of the ongoing review in the context of the second adjustment programme, the waiver was already due to expire on the 28th of February101. It has been since hinted that the
decision to have the waiver expire two weeks earlier was a “warning shot to Athens, and to euro zone leaders, to agree on a new deal as soon as possible”102. At the time, the Governing
Council was also reportedly “fairly evenly split”, as under the system of rotating votes, the non-voting central bank governors were those of Greece, Cyprus, Ireland, and France, which arguably shifted the balance against Greece. By then, Greek banks were already borrowing under ELA to cover their liquidity needs. Under those circumstances, the decision could only be seen as highly political.
Over the following months, Greek banks borrowed from their national central bank by means of ELA. “ELA borrowing steadily increased in step with continuous capital flight. In fear of the currency depreciation that would inevitably follow a potential ‘Grexit’, depositors withdrew cash and transferred deposits abroad in what became a slow ‘run’ on the Greek banking system”103. The total volume of borrowing eventually exceeded €500 million. Thus
the Governing Council had to decide whether to set a ceiling, beneath which it would not object to intended ELA operations for a specified period of time. The ceiling was raised repeatedly during the following months. However, these decisions were not publicly announced by the ECB at the time and were made available only by press reports based on information from sources at either the ECB or the Bank of Greece. “The lack of transparency and the resulting uncertainty for Greece, which gave the ECB and the other institutions considerable leverage, constitute the most problematic aspect of the Greek ELA episode. They are a direct consequence of the decentralised architecture of ELA”104.
100 ECB, ‘Eligibility of Greek bonds used as collateral in Eurosystem monetary policy operations, Press Release 28 February’ (2012c), https://www.ecb.europa. eu/press/pr/date/2012/html/pr120228.en.html.
101 According to the ECB’s Annual Report of 2015.
102 Claire Jones and Ferdinando Giugliano, ‘ECB split points to sensitivity of Greek liquidity curbs’, Financial Times, 5 February 2015, https://www.ft.com/content/8f36e752-ad5d-11e4-97c1-00144feab7de.
103 Transparency International EU, op. cit. supra note 87, p. 51. 104 Id.
By the end of June 2015, the macroeconomic adjustment programme was off-track. After a new Troika proposal on June 25th, the Greek government interrupted the negotiations immediately and announced a referendum on the fate of the proposal, to be held on the 5th of July. The Greek stock market closed on June 27th. A day later, the Governing Council, using its veto right under Art 14.4 of the Statute, decided not to increase the ELA ceiling for Greek banks. In its annual report, published many months thereafter, the ECB justified its decision in the context of “the decision by the Greek authorities to hold a referendum and the non-prolongation of Greece’s second macroeconomic adjustment programme … [having] a negative impact on the adequacy and sufficiency of assets used by Greek banks as collateral for ELA operations with the Bank of Greece”105. With increasingly rapid capital flight and
without a new EU/IMF adjustment programme, the Greek Government and the Greek banking system were at an imminent risk of becoming insolvent. As we know, ELA cannot be provided to insolvent financial institutions. Thus, on June 28th the Greek government
imposed a bank holiday. On the 6th of July, the Governing Council, citing Article 14.4 re-affirmed that the ceiling would stay put, since the financial situation in Greece kept deteriorating. On 16 July, four days after a Euro Summit had agreed on a third macroeconomic adjustment programme for Greece, the Governing Council decided not to object to an increase of the ELA ceiling. The liquidity situation of the Greek banking system stabilised, but even after banks reopened on 20 July, Greek authorities only gradually reduced restrictions on cash withdrawals and capital transfers. One year later, in June 2016, the ECB reinstated the waiver of minimum credit rating requirements for Greek government debt, acknowledging “the commitment of the Greek government to implementing [the] current ESM programme”106.
Chapter 4
4.1 Legal Assessment of ELA
We must also not forget that there is certain discretion even in the context of ELA. When NCBs act as LOLR in bilateral lending operations, they can choose to provide assistance or not (baring their own risk and liability), but always in accordance with the Treaty provisions (Article 123 TFEU). Under ELA, NCBs are the lender of ultimate resort in the euro area and not the ECB. They act on their own risk but within the limits of Art 14.4,
105 European Central Bank, ‘Annual Report 2015’ at 55.
106 ECB, ‘ECB reinstates waiver affecting the eligibility of Greek bonds used as collateral in Eurosystem monetary policy operations, Press Release 22 June’ (2016b), https://www.ecb.europa.eu/press/pr/date/2016/ html/pr160622_1.en.html.
which allows the Governing Council to object to activities that it deems interfere with the tasks and objectives of the ESCB. In practice, however, such interference will often be a realistic scenario, as the need to resort to ELA arises only when national banks lose access to the official refinancing operations of the Eurosystem, generally because the assets on their balance sheets do not meet the latter’s collateral eligibility criteria.
After that point, there is a risk that ELA is granted to banks that are actually insolvent. Such lending would both pose a threat to financial stability and constitute a breach of the Treaty obligation to “act in accordance with the principle of an open market economy with free competition”107, which applies to both ECB and NCBs. The provision in the “ELA
Procedures” that ELA can only be granted to solvent credit institutions is therefore not at the discretion of the Governing Council, but follows directly from the Treaties.
Therefore, from the moment it had suspended the waiver for Greek government-related marketable assets, the ECB faced an irresolvable dilemma. In order to be able to continue raising the ELA ceiling in the context of the rapidly deteriorating Greek economic and financial situation, the Governing Council would have had to make the case that Greece’s banking system and its government were solvent and that Greek banks had enough collateral of sufficient quality for increased ELA borrowing. On the other hand, maintaining the ceiling on ELA for just a few days longer (beyond 16 July 2015) would likely have forced Greece out of the euro area. With neither of these alternatives acceptable to the Governing Council, the ECB was at a very awkward and difficult position until a new adjustment programme was agreed, which stabilised the financial situation of the Greek government and banking sector. This case demonstrated that the reasons of the high-profile involvement of the ECB in the political negotiations over the Greek adjustment programme lie not in Greece but in the legal framework of ELA. Thus a similar repetition of an ELA crisis in the EU is not far from reality. In order to prevent it, the entire ELA framework has to be reassessed and restructured. While we have not adopted a definitive opinion about the validity and nature of all the ECB’s actions during the Eurocrisis, since we believe that it is always a matter of perspective plus all the variables that will be taken into account and definitely not the aim of this paper. We will though, make a specific case about the validity and nature of ELA and how it differs from all the other ECB measures.
In our view, ELA is really a distinct practice of EMU law, due to its strange architecture and complex legal framework, explained above. In the case of ELA, the lines between monetary and economic policy become vague and blurred. Those same lines determine the competences between the Union and the Member States in EMU law. It is quite difficult to place ELA in either side. While considered as a monetary policy measure, it also provides the ECB with a volatile power; the power to cast a Member State out of the Eurozone. The prime example of this possibility was elaborated above in the case of Greece. The initial decisions of the Governing Council of 28 June and of 6 July 2015 to maintain the ceiling to the provision of emergency liquidity assistance to Greek banks exerted an insurmountable level of political pressure and tested the limits of the Greek banking system and of Greek economy overall. If the Governing Council refused to raise the ceiling on ELA on the 16th of July 2015, Greece would have likely been forced out of the euro area and
readopted the former national currency, drachma, seriously devaluated and with devastating consequences.
After the activation of ELA, every decision on its fate and continuity shifts the balance in the economy of the affected Member State. It goes without saying that there should be a limit to the provision of ELA, so that it does not negatively affect the entire Eurosystem and that is exactly why and with good reason the Governing Council has the final word on this. In practice though, this two-tiered layout of ELA raises too many concerns and creates competence vagueness.
While ELA is a task for the NCBs, it is quite apparent that the ECB through its Governing council remains the final arbitrator on its provision and continuity on the basis of a set of rules concerning its assessment of possible interference with the Eurosystem’s monetary policy. But, how can ELA be defined either as a monetary policy instrument or an economic policy one if those two are equally intertwined in its structure and function? Many argue in favor of its centralization; that the ECB in its central bank function should directly be competent for ELA, thus excluding the NCBs which would only act as its local nexuses. It seems natural to Pr. Smits, “for the ECB to assume an ELA function of its own now that banking union has attributed to the ECB direct supervisory functions in respect of significant credit institutions. Such a direct role would certainly be natural in respect of the significant institutions it directly supervises”108. That would solve the issue from a legal point of view.
At the very least, strict safeguards should be arranged to its provision coupled with an explicit
acknowledgment that under exceptional circumstances, a decision to restrict or revoke ELA may threaten to end a MS’s membership in the euro area.
But what would “being cast out of the euro zone” have meant in legal terms? In the current state of affairs, a Member State cannot legally exit the euro area. There is neither a legal provision nor a Treaty basis for this. A member State can only exit the European Union at its own will according to art. 50 TEU. Even then, this is a voluntary exit. It cannot be forced out of the Union. This scenario was never considered on a EU level and was thus never envisaged even as a remote possibility in the Treaties.
But an expulsion from the Eurozone is even more complex and introduces many practical problems. Can a Member State remain in the Union if it exits the euro area? Can it leave the Union but stay within the Eurozone? These issues are nowhere regulated and seem more topical than ever with Brexit and its ramifications. Legal documentation is scarce. Considering the years-long legal preparation in the original MS and those that acceded subsequently for the adoption of the Euro, it is quite peculiar that the reverse wan never even suggested. Is then the adoption of the euro legally irreversible? De facto, a MS could abandon the euro and go back to its former national currency. But what does this mean on a legal and economical scale? Greece was just days away from doing so. At the same time, there is no mechanism or procedure for anything similar. Neither on a compulsory nor on a voluntary way could this have happened in that case, as there is no such option available legally. Only a Treaty revision or amendment would have allowed that, which does not seem feasible at the moment and would nevertheless pose as a unprecedented feat for the Union. For such a significant task with unlimited implications at the core of member state’s being, its economy, negotiations and actions cannot be expected to happen informally under the table.
4.2 Enter the CJEU
Of course, this discussion about ELA lies again on theory. On a realistic and practical level, the question arises whether ELA, granted by an EU institution enjoying special independence safeguards such as the ECB, should be notified at all to the Commission or rather be subject exclusively to the potential ex post review exercised by the Court of Justice of the European Union on the basis of article 119(1) TFEU). In our view and according to the Treaties, the CJEU is the only body competent to go beyond the labyrinth of its legal
