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Common Market Law Review 50: 805848, 2013. 2013 Kluwer Law International. Printed in the United Kingdom.

Case law

A.

Court of Justice

The Court of Justice approves the creation of the European Stability Mechanism outside the EU legal order: Pringle Case C-370/12, Thomas Pringle v. Government of Ireland, Ireland, The Attorney General, Judgment of the Court of Justice (Full Court) of 27 November 2012. 1. Introduction

The case initiated by Thomas Pringle, a member of the Dil Eireann (the lower house of the Irish parliament), and referred by the Irish Supreme Court, proved to be an unusually important one for the Court of Justice. Its importance also appears from the fact that the Court decided to sit as a full court, that is: with all 27 judges, which is a very exceptional occurrence. The central legal question submitted to the Court was whether 17 Member States of the EU had, by concluding among themselves the Treaty establishing the European Stability Mechanism (hereafter: ESM Treaty), acted in breach of EU law. If the Court had given an affirmative answer to that question, it might have caused a serious relapse in the sovereign debt crisis that has plagued the eurozone, and the European Union, since 2010. The importance which the Member States attached to the outcome of this case is shown by the fact that eleven governments (ten of them from the euro area, plus the United Kingdom), decided to intervene in the proceedings, whereas a twelfth government, that of Ireland, was directly involved as the defendant party in the national court case. In addition to the Commission and the European Parliament, who are repeat players in Luxembourg, the European Council also intervened,1 for the first time ever. The reason for the latters intervention was that the Pringle reference also raised a question about the validity of the European Council Decision that had paved the way for the ESM Treaty. This Decision had added to the Treaty on the Functioning of the European Union a
1. The European Council was represented by members of the Council legal service, since the European Council does not have its own specialized legal staff.

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new provision (Art. 136(3) TFEU) allowing for the creation of a financial rescue mechanism by the euro area countries. It came as no surprise that the Court of Justice, after examining the case in an expedited procedure taking less than four months, rejected all the arguments challenging the validity or lawfulness of the financial rescue instruments. In doing so, the Court was led to give an interpretation of a number of provisions and principles of EU constitutional law and to address some entirely novel legal issues. It did so in a judgment which, despite the involvement of all 27 judges in its drafting, reads remarkably well and is coherently argued on the whole. This was the first ECJ judgment dealing with the legal consequences of the sovereign debt crisis, and it brings some legal certainty and guidance for the future in respect of one group of instruments from the Euro crisis toolbox, namely the crisis management instruments created since 2010. The EU institutions and the Member States have, at the same time, developed a much more important and complex arsenal of crisis prevention instruments, consisting mainly in exercising stricter European control on national budgetary and macro-economic policies.2 But those other parts of the Euro crisis toolbox were only considered tangentially in the Pringle case. 2. Background

The background part of this case note is unusually long. This can be explained by the fact that the Pringle judgment appeared in a complex legal and political context that had built up since 2010, long before Mr Pringle decided to challenge the Irish ratification of the ESM Treaty. In this background section, we first evoke the context in which the European Council decision amending Article136 TFEU came into being (section 2.1), secondly the context in which the ESM Treaty was adopted as an international agreement outside the EU framework (section 2.2), and finally the domestic ratification context in which Mr Pringles challenge of both these legal instruments originated (section 2.3).

2. See the recent survey in this journal by Adamski, National power games and structural failures in the European macroeconomic governance, 49 CML Rev. (2012) 1319. See also the detailed surveys by Allemand and Martucci, La nouvelle gouvernance conomique europenne, (2012) CDE, 17; by Antphler, Emergenz der europischen Wirtschaftsregierung Das Six Pack als Zeichen supranationaler Funktionsfhigkeit, 72 ZaRV (2012), 353; and by Viterbo and Cisotta, La crisi del debito sovrano e gli interventi dellUE: dai primi strumenti finanziari al Fiscal Compact, (2012) Dir. Un. Eur., 323.

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On 25 March 2011, the European Council adopted a Decision aiming at the amendment of the Treaty on the Functioning of the European Union through the addition of a new paragraph to Article 136 of that Treaty. The additional paragraph, consisting of two short sentences, runs as follows: 3. 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.3 Since this is an amendment of the TFEU, it can according to Article 48 TEU enter into force only if approved by the 27 Member States of the EU according to their own constitutional requirements and procedures. The European Council indicated, in Article 2 of the Decision, that it would enter into force on 1 January 2013, provided that all the national approval procedures were successfully accomplished by that time. This Treaty amendment is the first use of one of the two so-called simplified revision procedures that were introduced by the Lisbon Treaty.4 The simplified revision procedure used on this occasion, which is described in Article 48(6) TEU, has a rather broad scope. It applies to all amendments of Part Three of the Treaty on the Functioning of the European Union relating to the internal policies and action of the Union, which means all together some 171 treaty articles but subject to one major exception: if the proposed amendment of an internal policy provision leads to an increase in the European Unions competences, then the ordinary revision procedure has to be used instead. The simpler nature of the procedure of Article 48(6) TEU consists in the fact that, in contrast with the ordinary revision procedure, there is no need for a Convention or an Intergovernmental Conference; the amendment is, rather, adopted directly by the European Council acting by unanimity of its members. But that unanimous Decision of the European Council is in turn subject to approval5 by each Member State under its own constitutional requirements. Thus, simplified revisions of the TFEU remain
3. European Council Decision of 25 March 2011 amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro, O.J. 2011, L 91/1 of 6 April 2011. 4. For a general discussion of the Treaty amendment procedures in the light of the changes brought by the Lisbon Treaty, see Peers, The Future of EU Treaty Amendments, (2012) YEL, 1; and De Witte, Treaty Revision Procedures after Lisbon, in Biondi, Eeckhout and Ripley (Eds), EU Law after Lisbon (OUP, 2012), p. 107. 5. Since the simplified revision does not involve the signature of a treaty between the Member States, the term ratification (which is generally reserved for the act of approval or

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subject to the veto power of every single EU State, both at the negotiation stage and at the approval stage. Given the difficulty of accomplishing a Treaty amendment procedure, even if simplified, one may wonder why the Member State governments decided to engage in this amendment of Article 136 TFEU. In order to understand this, we must return in time to May 2010, when, in the face of the rapidly developing sovereign debt crisis in the euro zone, the EU and a group of its Member States decided to create two new legal instruments, called the European Financial Stabilization Mechanism (EFSM) and the European Financial Stability Facility (EFSF).6 On Sunday 9 May 2010, at a special urgent meeting of the Council composed of ministers of economy or finance (the so-called Ecofin Council), a Regulation was adopted to create the EFSM, a new EU law instrument aimed at restoring the stability of the euro zone by granting loans to euro area countries facing a sovereign debt crisis.7 In the margin of that meeting, the members of the Council from the 17 euro area countries switched hats and transformed themselves into representatives of their States at an informal diplomatic conference; in that capacity, they adopted a decision by which they committed themselves to establish a European Financial Stability Facility (EFSF) outside the EU legal framework but with the same essential function and purpose as the EFSM.8 Why was this strange bifurcated approach chosen in May 2010, leading to the combination of the EU-law instrument of the EFSM with the extra-EU law instrument of the EFSF in the rescue operations that were set up for Ireland and Portugal, later on in 2010 and in 2011?9 The decisive reason seems to have
confirmation of an international treaty) was replaced by the term approval, which is not a term of art of public international law. 6. For description and analysis of the legal developments in and around May 2010, see Louis, Guest Editorial: The no-bailout clause and rescue packages, 47 CML Rev. (2010) 971; De Gregorio Merino, Legal developments in the Economic and Monetary Union during the debt crisis: The mechanisms of financial assistance, 49 CML Rev. (2012) 1613; Middleton, Not bailing out . . . Legal aspects of the 2010 sovereign debt crisis, in A Man for All Treaties Liber Amicorum en lhonneur de Jean-Claude Piris (Bruylant, 2012) 421; Viterbo and Cisotta, La crisi della Grecia, lattacco speculativo alleuro e le risposte dellUnione Europea, (2010) Dir. Un. Eur., 961. 7. Council Regulation 407/2010 of 11 May 2010 establishing a European financial stabilization mechanism, O.J. 2010, L 118/1. The Regulation was based on Art. 122(2) TFEU, which allows EU financial assistance to be given where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control. 8. Decision of the Representatives of the Governments of the Euro Area Member States Meeting within the Council of the European Union, Council document 9614/10 of 10 May 2010. 9. The financial rescue operation for Greece had, instead, been launched immediately prior to the adoption of the EFSM and EFSF and was based on a coordinated series of bilateral

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been the perceived inability of the EU law instrument (the EFSM) to deal conclusively with the crisis. In view of its limited and strongly earmarked budgetary resources, the European Union itself did not possess sufficient firepower to deal with a massive sovereign debt crisis. The 60 billion euro earmarked for the EFSM was the upper limit available at that time,10 whereas the EFSFs financial capacity was made many times larger, since it could tap the national budgetary resources of the participating countries rather than the meagre EU budget. Also, under the EFSM, non-euro countries are indirectly called to guarantee an operation that aims at ensuring the stability of the euro area. This explains the decision taken in the crisis days of May 2010 to go outside the institutional framework of the European Union, and to build a more powerful financial guarantee instrument by means of a separate international agreement between the euro area countries only, and without requiring financial guarantees from the side of non-euro countries. It would not have been practical, though, to start negotiating a fully-fledged international agreement, in view of the perceived urgency of the policy response. Therefore, rather than concluding a formal treaty, the euro area States set in place a complex legal regime consisting of: first, an executive agreement, namely the above-mentioned Decision of the Representatives; secondly, a private company established under Luxembourg law, of which the 17 euro States are the only shareholders (this company was called the EFSF);11 thirdly, a Framework Agreement between the EFSF and its 17 high shareholders setting out the (very intergovernmental) decision-making rules of the Facility and substantive guidance for its operation. In this manner, the EFSF could operate almost immediately without waiting for the national ratifications which a formal international treaty would have required. It was left to each State to sort out the domestic legal conditions for its financial participation in the EFSF, subsequently to the start of the EFSFs activity. There were, however, two possible problems of EU constitutional law with the package adopted in May 2010. On the one hand, it was not entirely certain whether the creation of the EFSF complied with the primary law norm laid down in Article 125 TFEU that prohibits EU States from being liable for or assuming commitments of other EU States (the so-called no-bailout rule).
agreements between Greece and the other euro area States; later on, in 2012, the EFSF was used for a second rescue operation for Greece. 10. See Art. 2(2) of Council Regulation 407/2010, referring to an upper limit of the loans or credit lines constituted by the margin available under the own resources ceiling for payment appropriations. What this sibylline phrase means is that only those 60 billion were available for serving as a loan guarantee, with all the rest of the EU budget being committed to other purposes under the multiannual budgetary framework. See Middleton, op. cit. supra note 6, at 436. 11. www.efsf.europa.eu/attachments/efsf_articles_of_incorporation_en.pdf.

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The governments considered that the EFSF mechanism of lending money subject to severe conditionality was not caught by the Treaty prohibition on giving (direct) financial support, but this interpretation was controversial. On the other hand, it was not entirely certain that the EU Regulation creating the EFSM had correctly been based on Article 122(2) TFEU. In particular, it could be argued that Greece, Ireland and Portugal, the most likely future beneficiaries of EFSM support, were not facing exceptional occurrences beyond their control (as the text of Art. 122 requires), since their governments had contributed to create the sovereign debt crises they were facing.12 Those legal controversies became politically important because the German government feared the outcome of complaints against the new rescue mechanisms that had been lodged before the German Constitutional Court. Given the existing case law of the court of Karlsruhe in European affairs, the government did not feel entirely confident about the outcome of those complaints.13 So, the German Government began to plead with its fellow Member State governments for an amendment of the TFEU that would provide a clear cover in primary EU law for the creation of a permanent crisis mechanism that would replace the legally fragile EFSM and EFSF. Indeed, such a Treaty amendment could seem to eliminate both legal problems mentioned above. By the insertion of an explicit provision in the TFEU authorizing the euro area Member States to put in place a financial support mechanism for countries in budgetary and financial trouble, any impediment caused by the bailout prohibition of Article 125 TFEU would be neutralized by a complementary norm with the same treaty rank. In addition, the future mechanism could replace the EU Regulation on the EFSM, thus cutting short any possible legal challenges of the conditions under which it had been adopted and implemented. The hypothesis of a limited Treaty amendment to confront the euro crisis had first been mooted by the German chancellor Merkel already in March 2010 but had then been greeted with much scepticism by the other EU governments who were rather horrified by the prospect of engaging in a new treaty revision process only a few months after the entry into force of the
12. This critical perspective on the legality of the May 2010 instruments is articulated, e.g., by Ruffert, The European debt crisis and European Union Law, 48 CML Rev. (2011), 1777. 13. For a contemporary discussion of the German constitutional law discussion on these matters, see Thym, Euro-Rettungsschirm: zwischenstaatliche Rechtskonstruktion und verfassungsgerichtliche Kontrolle, (2011) EuZW, 167. When the Constitutional Court gave its judgment on 7 Sept. 2011, it criticized the way the German parliament was involved in the European rescue operations but did not question the validity of those rescue operations themselves as regards Art. 122 or Art. 125 TFEU. However, by that time the amendment of the TFEU had already been adopted . . . For a comment of the September 2011 judgment, see Von Ungern-Sternberg, in 8 EuConst (2012) 304.

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Lisbon Treaty. However, by the autumn of 2010, the crisis had escalated so much that the German Government managed to convince the French Government, as emerged from a joint Franco-German declaration made in Deauville, on 18 October 2010, in which the two countries considered that an amendment of the Treaties is needed and that the President of the European Council should be asked to present . . . concrete options allowing the establishment of a robust crisis resolution framework before . . . March 2011.14 At the European Council meeting of 2829 October 2010, some days after Deauville, general agreement was found among all the participants on the need for Member States to establish a permanent crisis mechanism to safeguard the financial stability of the euro area as a whole and the President of the European Council was invited to undertake consultations with the members of the European Council on a limited treaty change required to that effect, not modifying article 125 TFEU (no bail-out clause).15 Note that the formulation adopted by the European Council implied that the new crisis mechanism was to be established by the Member States of the euro area rather than by the European Union itself. This choice paved the way for the use of the simplified revision procedure of Article 48(6) TEU. Since the amendment would relate to the internal policies part of the TFEU and since it would not increase the competences of the Union, the conditions for the use of the simplified procedure would prima facie be met. Following this political agreement of 2829 October, a draft amending Decision was adopted by the next European Council meeting, on 1617 December 2000.16 This draft Decision then formed the basis for the consultation of the EU institutions that is required by the text of Article 48(6) TEU.17 When examining the draft European Council decision, the European Parliament proposed some changes which aimed at inscribing a complementary role for the European Union institutions in the text of the new Article 136(3), in particular through stating that the principles and rules for the conditionality of financial assistance under the mechanism should be

14. See Kaczynski and Broin, From Lisbon to Deauville: Practicalities of the Lisbon Treaty Revision(s), CEPS Policy Brief no.216, Oct. 2010. 15. Conclusions of the European Council of 2829 Oct. 2010, EUCO 25/10, p.2. 16. Conclusions of the European Council of 1617 Dec. 2010, EUCO 30/10, Annex 1. 17. Consultation of the Commission and the EP is required in all cases of recourse to the procedure of Art. 48(6). Consultation of the ECB is required by Art. 48(6) only in the case of institutional changes in the monetary area, but there is nothing in the text of Art. 48(6) that prevents the ECB from being consulted also in other cases, as happened in this case.

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determined by an EU regulation adopted under co-decision.18 This, however, would have meant that the Treaty amendment would confer new competences on the European Union and, hence, use of the simplified revision procedure would no longer have been justified. In view of this, the European Council stuck to its guns and, at its March 2011 meeting, adopted its draft Decision without modifying a word of it, and in particular without mentioning the EU institutions at all. At the same time, though, the euro area States adopted further particulars relating to their future European Stability Mechanism19 which promised a close involvement of some EU institutions in the ESMs future operation. In particular, the Commission was to act as an agent of the intergovernmental cooperation system. Given this background, there is a surprising element in the sequencing between the amendment of the TFEU and the adoption of the Treaty establishing the ESM. Since, at least from the perspective of the German Government, the amendment of Article 136 TFEU was meant to pave the way for the lawful creation of a permanent mechanism, one could have expected that the treaty establishing that mechanism (the ESM Treaty) would be adopted and signed only after the TFEU amendment had safely passed the national approval hurdles and was ready to enter into force. But a different scenario unfolded. The adoption and ratification of the ESM Treaty overlapped in time with the domestic approvals of the TFEU amendment. More surprisingly even, the ESM Treaty entered into force in October 2012 before the amendment of the TFEU, which, at the time of writing this comment, was still awaiting ratification by the last of the 27 Member States, namely the Czech Republic. This unorthodox sequencing became one of the contentious issues in the Pringle case, as we shall see. 2.2. The Treaty Establishing a European Stability Mechanism

The choice of establishing the permanent stability mechanism by means of an international treaty followed logically from the TFEU amendment discussed above. The fact that the amendment indicated that the mechanism would be established by the Member States whose currency is the euro left no other choice than the use of an international agreement. In contrast with the EFSF, the ESM was created by a fully-fledged international treaty rather than by an informal executive agreement. Negotiations started shortly after the March
18. For the text of the amendments proposed by the EP, see the annex to the Resolution of the European Parliament of 23 March 2011, 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. 19. Those further particulars were called the Term sheet on the ESM and were published in Annex II of the European Council Conclusions of 2425 March 2011.

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2011 meeting of the European Council, at which a provisional Term Sheet on the ESM had been agreed. A first treaty text was agreed and signed on 11 July 2011,20 but it was subsequently re-negotiated due to the unfolding of the crisis, which convinced the euro area governments of the need to charge the ESM with additional tasks and to adapt its decision-making rules. Eventually, a new version was signed on 2 February 2012 by the 17 governments of the euro area,21 after which the domestic ratification procedures could start.22 The ESM takes the legal form of an international organization with strong intergovernmental features that are, in fact, largely inspired by the IMF model.23 The principal organs created by the treaty, namely the Board of Governors and the Board of Directors, are both composed of representatives of the governments of the 17 ESM Members. The Commission and the ECB can send observers to their meetings but those observers have no voting rights. The Treaty describes the tasks of each of the organs, as well as its decision-making rules. Some of the ESMs decisions are to be adopted by a qualified majority of 80% (with the States being given a weighted vote in accordance with their financial contributions to the Mechanism, as detailed in Annex I of the treaty), but the most important decisions (in particular the decision to provide financial support to a country facing a government debt crisis) must be taken unanimously. The reason why the ESM was established as a separate international organization rather than as an EU agency is path-dependent on the preceding events. As the ESM was constructed as the natural successor of the intergovernmental EFSF (which will now be discontinued), it followed closely the latters mode of operation. A second very important reason is the continued insufficiency of EU budgetary resources in view of the vast amount of funds that was thought needed for the ESM; as well as the continued unwillingness of the non-euro Member States of the EU to shoulder part of the financial contributions and the associated risks. However, the closeness of the new organization to the European Union is expressed in various ways: by means of references in the Preamble to the EUs economic governance rules
20. For a legal commentary of this first version, see Ohler, The European Stability Mechanism: The long road to financial stability in the euro Area, 54 German Yearbook of International Law (2011), 47. 21. Treaty establishing the European Stability Mechanism, 2 Feb. 2012. The text is available at: www.esm.europa.eu/pdf/esm_treaty_en.pdf. 22. Given the proximity in time and subject matter with the Fiscal Compact, which was signed in March 2012 by all those countries that had signed the ESM Treaty (and, in addition, by 8 non-euro area countries), most of those countries parliaments decided to examine the two international treaties as a single political package. 23. This point is made by Louis, The unexpected revision of the Lisbon Treaty and the establishment of a European Stability Mechanism, in Ashiagbor, Countouris and Lianos (Eds), The European Union after the Treaty of Lisbon (Cambridge UP, 2012) 284, at 298.

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and to the amendment of Article 136 TFEU, and by several provisions of the Treaty entrusting supporting roles to three EU institutions, the Commission, the ECB and the Court of Justice. Since this borrowing of EU institutions by an international organization became a central object of contention in the Pringle case, we will discuss this feature in detail further on, in the Comment section of this note. The governance system of the ESM thus forms a curious hybrid:24 all formal decision-making powers are entrusted to organs composed of representatives of the Members; but those representatives happen to be the same persons who represent their country in the EUs informal Eurogroup and Euro working group; and major tasks in preparing and implementing those decisions are entrusted to the supranational EU institutions, the Commission and the ECB. 2.3. Ratification debates and Mr Pringles legal challenge

The ESM treaty, like all treaties of some importance, had to be ratified after its signature by the Contracting Parties before they became bound by it. This is not a whimsical complication, but a requirement imposed by the national constitutional law of most States. Indeed, most European constitutions nowadays require that international treaties of some importance must be approved by the national parliament before the government can actually declare that the State will be bound by the treaty; this is to avoid governments undermining their parliaments legislative powers through the backdoor by agreeing legal obligations or transfers of sovereignty through the negotiation of an international treaty. The hazardous nature of the national ratification process is well known from the revisions of the EU Treaties. The ratification of the Treaty of Maastricht, the Treaty of Nice, the Constitutional Treaty and the Lisbon Treaty were all very laborious; three of them required a repetition of a popular referendum in one country, and the Constitutional Treaty never came into being because of ratification problems.25 The amendment of Article 136 TFEU was similarly subject to the separate approval by each of the 27 EU Member States, even though it was enacted by means of the new simplified revision procedure. Separate international agreements, which do not involve an amendment of the TEU and TFEU, can however define alternative requirements for their
24. The term of hybridit institutionnelle is used by Martucci, La solidarit intresse dans la zone euro: les mcanismes de stabilit, Etudes europennes, <www.etudeseuropeennes.eu> (posted on 3 Aug. 2012). 25. See the recent retrospective analysis proposed by Closa, The Politics of Ratification of EU Treaties (Routledge, 2013).

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entry into force, which can be much more flexible. The Fiscal Compact,26 which came into being at around the same time as the ESM Treaty, offered a spectacular example of this flexibility in that it provided that it would enter into force if ratified by merely 12 of the 25 signatory States, provided that those 12 were all part of the euro area. The text of the ESM Treaty was less flexible, but it still eliminated the veto power of the smaller euro States by providing that it would enter into force if ratified by States that, together, contribute 90% of the funds for the Mechanism. In this way, the four largest euro area countries, which contribute more than 10% each, still possessed a ratification veto, but the smaller euro States did not. This may help to explain the fact that the domestic legal challenges that tried to prevent or overturn the ratification of the ESM Treaty attracted varying degrees of attention, depending on the country concerned. Thus, the Estonian Supreme Court was asked whether ratification of the ESM Treaty was compatible with that countrys constitution, but even if its judgment had been negative (which it was not),27 this would not have stopped the ESM Treaty from entering into force among the other 16 countries. Similarly, the post-ratification challenges that are currently pending before the Austrian and Belgian Constitutional Courts will not affect the legal life of the ESM, since those countries participation in the ESM is not indispensable. But Germanys participation was of course essential, which explains the considerable public attention raised by the constitutional challenge of German ratification of the ESM Treaty (and of the amendment of Art. 136 TFEU and of the Fiscal Compact). The elaborate interim order decided by the German Constitutional Court on 12 September 2012 rejected the arguments of the applicants and cleared the way for Germanys ratification of the ESM Treaty and, immediately afterwards, the entry into force of the Treaty.28 The ESM Treaty did indeed enter into force on 27 September 2012 after Germany had submitted its ratification act and after all the Contracting Parties had issued an
26. We here use the common informal denomination of the instrument, which is formally called the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. The text of this treaty, signed by the 25 contracting parties on 2 March 2012, can be found on <www.european-council.europa.eu/eurozone-governance/treaty-on-stability>. 27. An English translation of the Estonian Supreme Courts judgment of 12 July 2012 can be found on that courts website <www.riigikohus.ee/id=1347>. 28. First commentaries in English of that judgment include: Schmidt, A sense of dja vu? The FCCs Preliminary European Stability Mechanism Verdict, 14 German Law Journal (2013), 1; Wendel, Judicial restraint and the return to openness: The Decision of the German Federal Constitutional Court on the ESM and the Fiscal Treaty of 12 September 2012, 14 German Law Journal (2013), 21; and Schneider, Yes, but One more thing: Karlsruhes ruling on the European Stability Mechanism, 14 German Law Journal (2013) 53. Among the many case comments published in German, see Tomuschat, 127 DVBL (2012) 1431, and Kahl, 128 DVBL (2013) 197.

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interpretative declaration which reflected some additional requirements imposed by the German Constitutional Court in its judgment.29 Apparently, the ESM Members did not worry enough about the Irish ratification challenge in the Pringle case to wait for its outcome before starting the activities of the ESM. Certainly, the defection of Ireland could not, by itself, have prevented the entry into force of the ESM Treaty. But the Pringle case differs from the Estonian and German constitutional cases by the fact that the Irish Supreme Court did not limit itself to examine questions of national constitutional law but also openly addressed questions of EU constitutional law; and, since the Irish Supreme Court had considerable doubts about how to interpret the relevant norms of EU constitutional law, it quite rightly decided to submit them to the Court of Justice. The Pringle case originated in Spring 2012. At that time, the public debate on the euro crisis was dominated, in Ireland, by the referendum on ratification of the Fiscal Compact, which was held on 31 May and which paved the way for Irelands ratification of that treaty. The Irish Government, in the meantime, had planned to deliver the approval of the amendment of Article 136 TFEU and the ratification of the ESM Treaty without submitting those texts to a referendum. It considered that those instruments did not necessitate a prior amendment of the Irish Constitution, in which case a referendum would have been mandatory. Mr Thomas Pringle, an independent member of the Irish Parliament for Donegal South West, thought otherwise and brought a legal action before the High Court to try to stop the approval and ratification of the two instruments. The generous Irish standing rules allowed him to bring the claim for a court injunction by which the government would be prohibited from pursuing the (merely) parliamentary approval of the TFEU amendment and of the ESM Treaty, on the ground that this would be in violation of the Irish Constitution. He also argued that both legal instruments were anyway in breach of primary EU law. The case was heard, at first instance, by Justice Marty Laffoy in the High Court. She delivered her judgment on 17 July 2012 and rejected most of the applicants claims. The appeal brought by Pringle before the Supreme Court was dealt with very rapidly. Already on 31 July 2012 the Supreme Court gave its decision in which it rejected the arguments based on Irish constitutional law but decided to refer several questions of EU law to the Court of Justice. It also rejected the injunction claim made by Pringle, which consisted in restraining the government from ratifying the ESM Treaty whilst the case was pending. In view of the rejection of that part of Mr Pringles claim, the Irish
29. Declaration on the European Stability Mechanism, made by the Representatives of the Parties to the ESM Treaty, 27 Sept. 2012, available at <www.consilium.europa.eu/uedocs/ cms_data/docs/pressdata/en/ecofin/132615.pdf>.

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Government and Parliament went ahead and the ESM Treaty was ratified by Ireland on 1 August 2012.30 The Supreme Court formulated three preliminary questions for the Court of Justice (the second of the three containing a number of sub-questions). They can be summarized as follows.31 By its first question, it sought to ascertain whether European Council Decision 2011/199 was valid in so far as it amended Article 136 TFEU by providing for the insertion, on the basis of the simplified revision procedure under Article 48(6) TEU, of an Article 136(3) relating to the establishment of a stability mechanism. The second question concerned the interpretation of Articles 2, 3, 4(3) and 13 TEU, and of Articles 2(3), 3(1)(c) and (2), 119 to 123, and 125 to 127 TFEU, and of the general principles of effective judicial protection and legal certainty. The Supreme Court sought to ascertain whether those articles and principles preclude a Member State whose currency is the euro from concluding and ratifying an agreement such as the ESM Treaty. By its third question, the Supreme Court asked whether the Member States were entitled to conclude and ratify the ESM Treaty before the entry into force of Decision 2011/199. 3. The View of the Advocate General

At the request of the referring court, the president of the Court of Justice decided to deal with the Pringle case through the expedited procedure.32 In this procedure, there is no formal Opinion of an Advocate General, but it is nevertheless stated that the Court shall rule after hearing the Advocate General.33 Given the constitutional importance of this case, the hearing took the form of an elaborate written analysis presented by Advocate General Kokott on 26 October which was called View because it is not, formally speaking, an Opinion. Kokotts View foreshadows many of the arguments made in the Courts judgment, and she comes to the same overall conclusion as the Court, although the detailed analysis is, on some points, rather different (as we will note in the Comment, below). In reaction to challenges of the admissibility of the first question, the Advocate General examined to what extent the Court of Justice can review the
30. For the various stages of the Irish court cases, see the following newspaper reports: Independent TD takes legal action over far-reaching effects of referendum, Irish Times, 22 May 2012; Pringle begins ESM legal challenge, Irish Times, 19 June 2012; EU court is asked for quick decision over treaty lawfulness, Irish Times, 27 July 2012. 31. For this summary, we use the (re-)formulation by the ECJ, in paras. 29, 77 and 183 of the judgment. For the complete text of the preliminary questions, see para 28 of the judgment. 32. This procedure is provided by Art. 105 of the Rules of Procedure of the Court of Justice. 33. Art. 105 (5), Rules of Procedure of the Court of Justice.

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validity of a decision (European Council Decision 2011/199) whose content consists in a Treaty amendment. That is something different from jurisdiction to give preliminary rulings on the validity of the Treaties, which the Court does not have according to Article 267 TFEU. The criteria by which the substantive validity of a Treaty amending decision is to be assessed are that it may not increase the competences of the Union and that it must be restricted to amendments of provisions of Part Three of the TFEU. The latter condition also implies that a formal amendment of Part Three may not have as a consequence a substantive amendment of primary law outside Part Three of the TFEU.34 According to the Advocate General, Decision 2011/199 does not increase the competences of the Union. The amendment is directed solely to the Member States and neither regulates powers of the Union, nor imposes on Member States an obligation under European Union law to act. Also, the decision is restricted to an amendment of provisions of Part Three of the TFEU in the sense that it does not substantively alter those relating to the Unions exclusive competence under Articles 2(1) and 3(1)(c) TFEU.35 It is not necessary to decide whether Decision 2011/199 confers competence in the area of monetary policy on Member States. Even in areas where the Union has an exclusive competence, the Member States may act if empowered to do so by the Union.36 It is imperative that the future Article 136(3) TFEU is interpreted in a way that satisfies both criteria.37 The largest part of the Advocate Generals View is devoted to the Irish Supreme Courts second question, whether Member States may conclude and ratify the ESM Treaty. The relevant Treaty provisions on the division of powers between the Union and the Member States do not preclude this. In the absence of an explicit definition of monetary policy in the Treaties, such a definition must be found in the Treaty provisions. More specifically the scope of monetary policy within the meaning of Article 3(1)(c) is found in the tasks of the European System of Central Banks (ESCB) listed in Article 127(2) TFEU. The activity of the ESM providing credit facilities does not come within these tasks.38 In fact, the ESM does not affect the exclusive competence of the Union in monetary policy. It also does not infringe Articles 2(3) and 5(1) TFEU on the coordination of economic policies within the Union, because the conditions imposed under an ESM financial assistance operation do not

34. 35. 36. 37. 38.

View, para 28. Ibid., para 52. Ibid., para 51. Ibid., para 61. Ibid., para 82.

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constitute coordination of economic policies.39 Moreover, Article 3(2) TFEU on the exclusive competence of the Union to conclude agreements with third countries and international organizations, does not prohibit the conclusion of agreements exclusively between Member States.40 Does Article 125 TFEU then preclude the conclusion of the ESM Treaty? The answer to this sub-question does not depend on whether the ESM itself is bound by that Treaty provision, because the Member States can be in breach of it also when acting through the ESM. And it is even possible that they are in breach not only through an actual grant of financial assistance, but also by the prior conclusion and ratification of the treaty, if any grant of assistance under the ESM Treaty would necessarily violate Article 125 TFEU.41 A voluntary assumption of liability for the commitments of another Member State would be in breach of Article 125 TFEU. The ESM instruments however do not constitute such guarantees of commitments.42 Are Member States then prohibited from granting loans? To answer this question, the Advocate General looked at the wording, scheme and objective of Article 125 TFEU as well as at basic structural principles of the Union. Granting loans does not mean assumption or discharge of an existing commitment of another Member State, but the imposition of a new commitment. Moreover, the existence of provisions in the Treaty that allow for the granting of loans (Arts. 122(2) and 143(2)(c) TFEU) does not mean that European law otherwise prohibits any granting of loans to Member States.43 The objectives of Article 125 TFEU are to ensure that neither debtor Member States nor the capital markets can rely on the financial capacity of other Member States, thus leading to budgetary discipline by the Member States.44 These objectives would be achieved to the greatest extent if Member States were prohibited from providing any financial support to other Member States.45 However, such a broad reading of the prohibition would go against two basic principles of the Union which rank as of at least equal importance to Article 125 TFEU,46 namely sovereignty of the Member States and solidarity. A prohibition of direct support is enough to prevent circumvention of the objectives of Article 125 TFEU; loans under the ESM Treaty are therefore permitted. The other instruments of the ESM, namely bond buying on the

39. 40. 41. 42. 43. 44. 45. 46.

Ibid., paras. 9192. Ibid., para 98. Ibid., para 111. Ibid., para 116. Ibid., para 124. Ibid., para 133. Ibid., para 133. Ibid., para 136.

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primary and secondary market,47 are also not in breach of Article 125 TFEU, because they are respectively similar to loans (primary market) and not an assumption of the commitments of another Member State (secondary market). The fact that the ESM Treaty provides tasks for the Commission, the European Central Bank and the European Court of Justice also does not preclude its conclusion and ratification. It follows from the Courts case law that the Commission may also act outside the tasks conferred on it in the Treaties on the initiative of the Member States. And even though the decision by representatives of all governments of 20 June 2011 on the tasks to be performed by the Commission and ECB goes beyond the previous case law, it demonstrates sufficient collective action on the part of the Member States and the essential content of the ESM Treaty was known.48 The Commission can, however, not be obliged to carry out tasks and it is to be completely independent in carrying them out. Only if the ESM Treaty would require the Commission to perform tasks prohibited by the Treaties would there be an infringement of European Union law. The same reasoning applies to the European Central Bank, which in comparison with the Commission is entrusted with relatively minor tasks by the ESM Treaty. The role for the Court of Justice, finally, can be based on Article 273 TFEU, since disputes are related to the subject matter of the Treaties and concern disputes between Member States within the meaning of this article. Disputes between an ESM member and the ESM itself can in fact be assimilated to a dispute between Member States.49 The Advocate General leaves unanswered the question whether the Charter of Fundamental Rights, which provides for a right to an effective legal remedy under Article 47, is applicable to the activity of the ESM. In any event, the right of individuals to an effective legal remedy in respect of the activity of the ESM is sufficiently protected,50 in light of the ordinary procedure of Article 267 TFEU. Conclusion and ratification is furthermore not in breach of the principle of sincere cooperation of Article 4(3) TFEU. The tasks conferred on the Commission and ECB are evidence to the contrary.51 With regard to the third question, the Advocate Generals view is that the right to conclude and ratify the ESM Treaty is not dependent on the entry into force of Decision 2011/199, since Member States may conclude it already on the basis of current EU law.
47. Bond buying on the primary market entails a purchase directly from the State issuing the bond; buying on the secondary market means buying a bond that is already on the market. 48. Ibid., paras. 172173. 49. Ibid., para 189. 50. Ibid,, para 193. 51. Ibid., para 199.

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The Pringle judgment was given by the Full Court, something that happens in the rare instance where it decides on the dismissal of (a member of) an independent EU institution (Commission, Ombudsman, Court of Auditors), or where it considers as in the present circumstances that a case before it is of exceptional importance.52 At the request of the referring court, it was moreover the result of an expedited procedure.53 There is no reference on the opening page of the judgment to the existence of the Advocate Generals View, as would normally be the case with an Opinion. Also, there is no reference to the View in the text of the judgment itself, which does not exclude obviously that the Court did in fact draw upon the Advocate Generals reasoning. The first preliminary question by the Irish Supreme Court about the validity of European Council Decision 2011/199 as part of the simplified revision procedure of Article 48(6) EU was challenged both for lack of jurisdiction and inadmissibility. The Court had no problem with either challenge. Examining whether the decision complies with the conditions of the simplified revision procedure is part of the Courts mandate under Article 19(1) EU to ensure that the law is observed. And since it is not evident that Mr Pringle had standing to bring an action for annulment against the European Council decision,54 the question can be found admissible without the procedure of Article 263 TFEU being circumvented. Substantively, the first question was answered in three steps. Firstly, the Court found that Decision 2011/199 does not affect the exclusive competence held by the Union under Article 3(1)(c) TFEU in the area of monetary policy.55 Neither the objective of the stability mechanism envisaged safeguarding the stability of the euro area as a whole nor the instruments used the grant of financial assistance fall within EU monetary policy. Instead, the establishment of the mechanism falls within the area of economic policy. Secondly, the Court found that Decision 2011/199 does not affect the Unions competence in the area of the coordination of the Member States economic policies. The Treaties do not confer any specific power on the Union to establish a stability mechanism of the kind envisaged by Decision 2011/199; Article 122(2) TFEU in particular cannot be used for this. Moreover, there is no obligation for the Union to use the powers of Article 352

52. 53. 54. 55.

Art. 16 Statute of the Court of Justice of the European Union. Art. 105 Rules of Procedure of the Court of Justice of the European Union. Case C-188/92, TWD Textilwerke Deggendorf, [1994] ECR I-833. Judgment, para 63.

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TFEU.56 Therefore, the Member States of the euro area are entitled to conclude an agreement between themselves for the establishment of this mechanism as long as they do not disregard their duty to comply with European Union law.57 It follows from these first two steps that Decision 2011/199 only concerns provisions of Part Three of the TFEU, which is one of the conditions for the use of the simplified revision procedure. Thirdly, the Court found that this decision does not increase the competence of the Union, another condition posed by Article 48(6) TEU, as it only confirms that the Member States have the power to establish a stability instrument.58 The second question by the Irish Supreme Court asked the Court to interpret a number of Treaty provisions to see whether they preclude a Member State from the euro area from concluding and ratifying an agreement such as the ESM Treaty. That is not the case for any of the provisions analysed. With regard to the provisions relating to the Unions exclusive competence, the Court found that the activities of the ESM do not fall within the monetary policy of Articles 3(1)(c) and 127 TFEU. Nor does the ESM Treaty affect common rules or alter their scope, including the rule laid down in Article 122(2) TFEU, so that the Union does not have exclusive competence to conclude a treaty such as the ESM Treaty under Article 3(2) TFEU. With regard to provisions relating to economic policy, the Court first found that neither the financing mechanism of the ESM Treaty, nor the conditionality prescribed, constitutes an instrument for the coordination of economic policies of the Member States.59 It then found that Article 122 TFEU does not preclude conclusion or ratification of the ESM Treaty, since nothing in it indicates that the Union has exclusive competence to grant financial assistance to a Member State.60 The Court elaborated extensively on its interpretation of Article 125 TFEU. This article, considering its wording and relation with Articles 122 and 123 TFEU, is not intended to prohibit either the Union or the Member States from granting any form of financial assistance whatever to another Member State.61 How then to know what forms of financial assistance are compatible with Article 125 TFEU? The answer, said the Court, is to be found in the objective pursued by the article. The aim of this provision is to ensure that the Member States follow a sound budgetary policy, while compliance with such discipline contributes at Union level to the attainment of a higher objective, namely maintaining the financial stability of the monetary union.62 From this interpretation follow three requirements for compatibility: 1) Member States
56. 57. 58. 59. 60. 61. 62. Ibid., para 67. Case C-55/00, Gottardo, [2002] ECR I-413, para 32. Judgment, para 72. Ibid., paras. 110111. Ibid., para 120. Ibid., para 130. Ibid., para 135.

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must remain responsible for their commitments; 2) financial assistance may only be granted when indispensable for the safeguarding of the financial stability of the euro area as a whole; and 3) financial assistance must be subject to strict conditions.63 The ESM Treaty satisfies these requirements, so that Article 125 TFEU does not preclude its conclusion or ratification. With regard to the first requirement, the Court held that loans are not problematic,64 bond-buying on the primary market is like providing a loan,65 and bond-buying on the secondary market does not make the ESM responsible for the Member States debt.66 Moreover, since the ESM Treaty contains provisions which ensure that, in carrying out its tasks, the ESM will comply with European Union law, it also does not violate Article 4(3) TEU. Considerable attention was also given to the compatibility of the tasks given to EU institutions in the ESM Treaty with Article 13 TEU. The Court first examined the role allocated to the Commission and the ECB. It made a combined reference to its case law on the use of institutions outside the framework of the Union,67 and its case law on the use of institutions under international treaties concluded by the Union.68 The following conditions must be satisfied here: we must be dealing with an area which does not fall within the exclusive competence of the Union, we must be dealing with tasks, and these tasks may not alter the essential character of the powers conferred on those institutions by the EU and FEU Treaties.69 The duties allocated to the Commission and to the ECB fulfil these conditions. With regard to the role allocated to the Court itself in the ESM Treaty, the Court found that the allocation of jurisdiction by the ESM Treaty to the Court to interpret and apply that treaty satisfies the conditions laid down in Article 273 TFEU. In the final part of its answer to the second question, the Court examined whether the ESM Treaty is in breach of Article 47 of the Charter of Fundamental Rights, which guarantees that everyone has a right to effective judicial protection. Under Article 51(1) of the Charter, its provisions are addressed to the Member States only when they are implementing Union law. When establishing a stability mechanism such as the ESM, for which no

63. Ibid., paras. 136137. 64. Ibid., para 139; Similarly View, paras. 121122. 65. Judgment, para 140; Similarly View, para 155. 66. Judgment, para 141; Similarly View, paras. 156159. 67. Joined Cases C-181 & 248/91, Parliament v. Council and Commission [1993] ECR I-3685; Case C-316/91, Parliament v. Council [1994] ECR I-625. 68. Opinion 1/92, [1992] ECR I-2821; Opinion 1/00, [2002] ECR I-3493; and Opinion 1/09, [2011] ECR I-1137. 69. Judgment, para 158.

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competence is conferred on the Union, the Member States are however not implementing Union law within the meaning of Article 51(1) of the Charter.70 The Courts discussion of the third preliminary question was short. The amendment of Article 136 TFEU by Article 1 of Decision 2011/199 only confirms the existence of a power already possessed by the Member States. Decision 2011/199 does not confer any new power on the Member States. Therefore, the right to conclude and ratify the ESM Treaty is not subject to the entry into force of that decision.71 On the basis of the above, the Full Court ruled: 1. Examination of the first question referred has disclosed nothing capable of affecting the validity of European Council Decision 2011/199/EU of 25 March 2011 amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro. 2. Articles 4(3) TEU and 13 TEU, Articles 2(3) TFEU, 3(1)(c) and (2) TFEU, 119 TFEU to 123 TFEU and 125 TFEU to 127 TFEU, and the general principle of effective judicial protection do not preclude the conclusion between the Member States whose currency is the euro of an agreement such as the Treaty establishing the European stability mechanism . . .concluded at Brussels on 2 February 2012, or the ratification of that treaty by those Member States. 3. The right of a Member State to conclude and ratify that Treaty is not subject to the entry into force of Decision 2011/199.

5.

Comment

The Pringle judgment raises a wealth of interesting legal issues, which will provide much food for legal thought and discussion in the years to come. In this comment, we will only briefly expose and discuss what appear to be the essential legal questions that the Court had to tackle in its judgment.72 We will
70. Ibid., para 180. 71. Ibid., para 185. 72. These central questions, as well as some other points raised by the judgment, are discussed also in other case comments which include (at the time of writing) Borger, The ESM and the Courts predicament in Pringle, 14 German Law Journal (2013), 113; Van Malleghem, Pringle: A paradigm shift in the European Unions monetary constitution, 14 German Law Journal (2013), 141; Tomkin, Contradiction, circumvention and conceptual gymnastics: The impact of the adoption of the ESM Treaty on the state of European democracy, 14 German Law Journal (2013), 169; Thym and Wendel, Prserver le respect du droit dans la crise: la Cour de Justice, le MES et le mythe du dclin de la communaut de droit, (2012) CDE, 733; Nettesheim, Europarechtskonformitt des Europischen Stabilittsmechanismus, (2013) NJW, 14; notes by Ruffert and Thym in 68 JZ (2013) 257 and 259.

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examine in turn: the unusual fact that the Court was asked to review a legal act through which the TFEU (part of the EUs primary law) had been amended; the way in which the Court chose to deal with a legal act (the ESM treaty) which is not formally part of EU law; the question whether the ESM treaty relates, in its content, to monetary policy or to economic policy a question which had a direct bearing on the compatibility of that treaty with EU law; the question whether the ESM treaty was compatible with the so-called no-bail-out clause of Article 125 TFEU; and, finally, the question whether it was permissible for Member States to borrow EU institutions when implementing a separate international agreement, as they did in the ESM treaty. 5.1. Judicial review of Treaty revision Could the Court of Justice review the legality of European Council Decision 2011/199 amending Article 136 TFEU? Most governments intervening in the case had proposed a negative answer to that question.73 The problem did not arise just from the fact that the Decision was taken by the European Council. Indeed, as the Court notes in para 31 of the judgment: Since the European Council is one of the Unions institutions listed in Article 13(1) TEU and since the Court has jurisdiction . . .to give preliminary rulings concerningthe validity . . .of acts of the institutions, the Court has, in principle, jurisdiction to examine the validity of a decision of the European Council. This extension of the Courts review powers to acts of the European Council happened through the Treaty of Lisbon (which listed the European Council among the institutions of the Union) and responded to the fact that the European Councils formal decision-making powers were increased by the Treaty of Lisbon.74 One of those new decision-making powers of the European Council, and possibly the most important one, is the power to adopt amendments of the TFEU according to the two simplified procedures for Treaty amendment introduced by the Lisbon Treaty. By bringing European Council decisions of this nature within its jurisdiction, the Court of Justice for the first time assesses the legality of Treaty amendments, and this legal feature was the reason why the intervening governments contested the jurisdiction of the Court to deal with Decision 2011/199.

73. Judgment, para 30. 74. For a list of formal decision-making powers of the European Council after the Lisbon amendments, see Piris, The Lisbon Treaty: A Legal and Political Analysis (Cambridge UP, 2010), Appendix 6.

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On earlier occasions, the Court had refused to directly examine the legality of Treaty amendments for the simple reason that those amendments were made by means of an international treaty between the Member States, and since the Court has no jurisdiction to examine the legality of such agreements, either under the direct action for annulment or under the preliminary reference for validity, it rejected those challenges.75 What happened in Pringle was therefore the first example, in the EU legal order, of the judicial control of the constitutionality of constitutional change. Even in national constitutional law, this happens very rarely and, and when it happens it is mostly because the text of the Constitution contains an eternity clause which intends to protect some core content of the Constitution against later amendments. Since there is no such eternity clause in the European Treaties, it has been assumed in the past that there were no substantive limits to the amendment powers of the Member States.76 Yet, the Court of Justice had affirmed, in its earlier case law, that there were procedural conditions that the Member States must respect when amending the Treaties. In the Defrenne case (which was a preliminary reference on interpretation), the Court of Justice had excluded the possibility that the Member States could modify the EEC Treaty by means of an informal agreement: apart from any specific provision, the Treaty can only be modified by means of the amendment procedure carried out in accordance with Art. 236 (the provision of the EEC Treaty corresponding to the current Art. 48 TEU).77 The Defrenne ruling was tacitly accepted by the Member State governments, and they never, since then, purported to change the European Treaties in ways not provided for by the Treaties official amendment clauses. The significance of the Defrenne ruling in the post-Lisbon context is that, except for the cases covered by the two simplified procedures of Article 48(6) and (7) TEU, and other specific provisions elsewhere in the Treaties, the Treaties can only be amended by means of the ordinary revision procedure of Article 48(2 to 5). Indeed, the greater variety of Treaty amendment procedures created by the Lisbon Treaty was obviously not meant to offer to the Member States a free choice among the various types of ordinary and simplified procedures. In particular, the simplified revision procedure of Article 48(6), which was used for the amendment of Article 136 TFEU, may only be used if the amendment relates to the internal policy chapters of Part Three of the
75. See in particular Case C-253/94 P, Olivier Roujansky v. Council, [1995] ECR I-7, para 11. 76. De Witte, Treaty revision in the European Union: Constitutional change through international law, 25 Netherlands Yearbook of International Law (2004) 51, at 5657. 77. Case 43/75, Gabrielle Defrenne v. Sabena, [1976] ECR 455, para58.

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TFEU (that is, Arts. 26 to 197) and if it does not increase EU competences. The essential difference with the ordinary revision procedure is that the latter must involve deliberation by a Convention, unless the European Parliament agrees to waive this step, and thus ensures a broader and more transparent debate than the relatively narrow and confidential procedure applicable under Article 48(6) TEU. From the perspective of the rule of law and the protection of the institutional balance, it is therefore logical that the European Council decisions adopting simplified Treaty amendments should be subject to judicial review; otherwise, the European Council could be tempted to by-pass the Convention with its cumbersome involvement of national and European members of parliament. The Court of Justice is obviously the appropriate body for exercising this judicial review since it is described in Article 19(1) TEU recalled by the Court in para 35 of the judgment as the institution that shall ensure that in the interpretation and application of the Treaties the law is observed. The Court thus adds a new item to the long list of constitutional functions it performs in the EU legal order. One should be clear, though, about the limits of this review function: it only involves checking whether the EU institutions or the Member States, as the case may be, have chosen the correct procedure for Treaty amendment given the kind of amendments they want to enact. It does not involve posing any limits to the content of the Treaty reform itself. Having established its jurisdiction to review the European Councils Treaty amendment, the Court then verified the two conditions for use of the simplified amendment procedure. The no new competence condition was relatively easily satisfied, since the amendment of Article 136 TFEU took the form of an authorization for the Member States (and not for the European Union) to set up a permanent stability mechanism. The internal policy chapters condition was trickier and the Court took much pain to examine it. On the face of it, the amendment of Article 136 TFEU clearly concerned the internal policy chapters, of course. But Mr Pringles lawyers had argued that the amendment indirectly affected other parts of primary law. It seems plausible, indeed, that Article 48(6) TEU should not be used to make implied amendments to other parts of the Treaties; as Steve Peers puts it, it would not be possible to use Article 48(6) to adopt an amendment which is nominally placed in Part Three TFEU but which de facto amends other primary law provisions.78 The potential overlap arose, in the present case, from the fact that many legal bases in Part Three form the expression of the general provisions on EU competence which one finds in the opening articles of the TFEU. In particular, Mr Pringles lawyers focused on the fact that
78. Peers, op cit. supra note 4, at 22.

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Article 136(3), by authorizing the euro States to create a financial rescue mechanism, affected the Unions exclusive competence in monetary affairs, stated in Article 3(1)(c) TFEU. By allowing the Member States to set up a rescue fund, so the argument of Mr Pringle went, the exclusivity of monetary policy is affected, and therefore this Treaty amendment has legal consequences beyond Part Three of the TFEU and should have been enacted through the ordinary revision procedure. In order to counter this argument, the Court had to show that the creation of a rescue fund belongs to economic policy rather than monetary policy, and since economic policy is not defined as an exclusive EU competence, the opening provisions of the TFEU were not affected by the permission given to the Member States to create the rescue fund. We will comment in greater detail on this part of the Courts reasoning in 5.3 below. 5.2. The Courts jurisdiction to examine international agreements of the Member States

International treaties concluded between two or more EU Member States, such as the ESM Treaty, do not figure among the acts whose (in)validity the Court of Justice can establish, either in a direct action for annulment or in a preliminary reference on validity. Indeed, the Irish Supreme Court did not submit a preliminary question on the validity of the ESM Treaty but rather on whether, by concluding that treaty, Ireland (and the other 16 euro area countries) had acted in breach of its (and their) EU law obligations. Preliminary references enquiring about the interpretation of EU law are often formulated in terms of the compatibility of national law with EU law obligations; the distinctive feature of this case is that the contested act was not one of national law, but an inter se treaty concluded between a group of Member States. In the framework of a reference for interpretation of EU law, the Court of Justice could not give a direct answer to the question of compatibility; it rather uses the usual circumlocutory and slightly hypocritical formula that the Court has jurisdiction to provide the national court with all the criteria for the interpretation of European Union law which may enable it to assess whether the provisions of the ESM Treaty are compatible with European Union law.79 The fact that the question referred to an international agreement rather than to an act of domestic Irish law does not make any difference in this context. In its case law, the Court of Justice has consistently held that the primacy of EU law extends not only to measures of national law but also to agreements between two or more Member States, which must be disapplied by national
79. Judgment, para 80.

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courts if they are inconsistent with EU law. Similarly, in direct actions for infringement, the Court has not distinguished between infringements caused by a State acting on its own and infringements caused by a bi- or multilateral agreement concluded between several Member States.80 This is entirely logical. It would otherwise be easy for the Member States to escape from their EU law obligations by concluding a conflicting treaty between each other. In this respect, the EU legal order is more radical than the rules of general international law, as laid down in the Vienna Convention on the Law of Treaties which allow two or more States parties to a multilateral agreement to modify the obligations under that agreement between themselves, as long as the rights of other parties to the original treaties are not affected.81 Inter se agreements can conflict with EU law for a variety of reasons, but there is a major distinction to be made, depending on the area of EU law that is involved: in certain areas, the very fact that an inter se agreement is concluded is in breach of the European Unions exclusive competence; in other areas those outside the EUs exclusive competence inter se agreements are permissible in principle. Indeed, if Member States have preserved the competence to make domestic law in a given area, they can logically also exercise that competence together, by concluding an international agreement between themselves. These agreements should not, however, contain institutional or substantive provisions that are incompatible with specific norms of EU law.82 In its Pringle judgment, the Court basically follows this distinction in dealing with the complex preliminary question relating to the ESM treaty: it first examines those EU Treaty provisions that were argued, by Mr Pringle, to preclude the very possibility for the Member States to conclude an agreement such as the ESM treaty,83 and after having rejected those arguments, it turns to examine the various provisions of EU law which were, still according to the applicant, breached by the content of the ESM treaty. We will examine those

80. See, for a recent confirmation of this view, Case C-546/07, Commission v. Germany, [2010] ECR I-439, paras. 4244. 81. For an analysis of the contrasting ways in which treaty conflicts are dealt with in EU law and general international law, see Klabbers, Treaty Conflict and the European Union (Cambridge UP, 2009). 82. For a more elaborate discussion of the conditions under which inter se agreements are permissible, and of the requirement of substantive compatibility with EU law, see De Witte, Old-Fashioned flexibility: International agreements between Member States of the European Union , in de Brca and Scott (Eds), Constitutional Change in the EU: From Uniformity to Flexibility (Hart, 2000), p. 31; and Schtze, EC law and international agreements of the Member States An ambivalent relationship?, 9 Cambridge Yearbook of European Legal Studies (2008), 387. 83. Judgment, paras. 93107.

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various contentious issues in the three following sub-sections of this Comment. 5.3. Monetary or economic policy

The Courts approach to the relationship between the permanent stability mechanism and the Treaty provisions on economic and monetary policy can be summarized in three steps. Firstly, the Court had to decide whether the permanent mechanism falls within monetary or economic policy. Secondly, after finding that it falls within the area of economic policy, it had to decide on the division of power between the Union and the Member States in this policy area. Finally, having concluded that the Member States have the power to establish a permanent mechanism, it had to decide on the compatibility of the mechanism with the economic policy chapter of the TFEU. 5.3.1. Not EU monetary policy, but economic policy In the absence of a definition of the EUs monetary policy in the Treaties, the Court and the Advocate General take a different approach on how to establish the scope of this exclusive EU competence of Article 3(1)(c) TFEU. The Court starts off from the objectives of the EUs monetary policy, the primary one being price stability. Viewed against this objective, neither the permanent mechanisms objective of safeguarding financial stability,84 nor the instrument of granting financial assistance falls within the scope of monetary policy.85 This does not mean that financial stability is not a concern within the context of the EMU, but rather that no direct responsibility for achieving financial stability is attributed to any institution by the EU Treaties.86 The Advocate General instead looks at the tasks as opposed to the objectives of the European System of Central Banks (ESCB) to describe the scope of monetary policy within the meaning of Article 3(1)(c) TFEU. She lists foreign-exchange operations consistent with the exchange-rate policy, management of foreign reserves of the Member States and promotion of the smooth operation of payment systems. That the first task of Article 127(2) TFEU, defining and implementing monetary policy, is not mentioned is understandable, as it does not tell us anything about what monetary policy is. But it does conceal further specific tasks relating to the control of money supply, relating for example to the key interest rates. In any event, providing credit facilities to Member States, the task of the ESM, does not fall under any
84. Judgment, para 56. 85. Ibid., para 57. 86. Compare Bini Smaghi, Who takes care of financial stability in Europe?, in Goodhart (Ed.), Which Lender of Last Resort for Europe? (London, 2000), p. 227.

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of the tasks of the ESCB.87 And even though the ESM might directly affect money supply, the activity of the ESM does not therefore constitute monetary policy.88 A further indication of what EU monetary policy involves is given by the Court in its examination of the ESM, where it considers that the ESM is not entitled either to set the key interest rates for the euro area or to issue euro currency.89 Here the Court gets closer to the heart of monetary policy, by identifying two of its main tools.90 It is not clear though why the Court refers to these instruments only here, and not when assessing Decision 2011/199. Also, the Court could have added, for example, the conduct of credit operations with credit institutions (Art. 18(1) ESCB statute) and explained how the activities of the ESM providing credit facilities to Member States are different also from this. The conclusion of both the Court and the Advocate General that the establishment of a stability mechanism is not part of EU monetary policy is convincing, independently from whether one looks at the objectives, tasks or instruments of EU monetary policy. The same holds for the argument made by both that a measure of economic policy does not constitute (also) a measure of monetary policy, simply because it may have an effect on price stability.91 5.3.2. Economic policy: Between the Union and the Member States If the establishment of the stability mechanism does not affect the Unions competences in the area of monetary policy, but instead falls within the scope of economic policy, that leads the Court to discuss the relationship between the mechanism and the Unions competences and provisions in the latter policy area. The relevant parts of the judgment raise interesting questions about, for example, the relationship between the coordination of economic policies as referred to in Articles 3(2) and 5(1) TFEU and the specific Chapter in that Treaty on economic policy (Arts. 120126 TFEU),92 and about the
87. View, para 82. 88. Ibid., para 84. 89. Judgment, para 96. 90. The first instrument can be found in Art. 128(1) TFEU, the second in Art. 12(1) of the ESCB statute, which probably explains why the Court finds that the TFEU refers less to the instruments than to the objectives of monetary policy; Judgment, para 53. 91. Judgment, para 97; View, para 85. 92. The Court takes a somewhat ambiguous approach to the relation between economic policy and the coordination of economic policies. On the one hand, in answering the first question of the Irish Supreme Court, the ECJ not entirely convincingly finds that the Treaties restrict the role of the Union in the area of economic policy to the adoption of coordinating measures (Judgment, para 64), suggesting that all provisions on economic policy relate to the coordination of national economic policies. On the other hand, in answering the second question of the Irish Court, the ECJ follows the logic of the applicant in taking Arts. 119121

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nature of the Unions powers in this area.93 Within the limited scope of this comment it is not possible to exhaustively deal with these complex issues. Here we focus on the way the Court deals with the relationship between the permanent mechanism and the Union policy area of economic policy. After finding that there is no Union power to establish a permanent stability mechanism, the Court examines the compatibility of such a mechanism with Union law. In the analysis that follows, note the different elements: providing financial assistance, setting up a permanent mechanism for this, and the conditionality attached to it. The Courts approach to the granting of assistance is that, in view of Article 122 TFEU, this is not an exclusive power of the Union.94 This is not surprising and the same conclusion can be deduced from the Advocate Generals reasoning.95 However, the Court distinguishes providing support from establishing a permanent mechanism to this end and goes a step further when it comes to the latter. It concludes that an ESM type of mechanism cannot be adopted by the Union on the basis of Article 122(2) TFEU.96 In other words, it falls outside the scope of the powers of the Union in the area of economic policy. Since the Treaties confer no specific power on the Union to establish a permanent mechanism in order to maintain the financial stability of the euro area, the Member States are entitled to conclude an agreement between themselves to this end, as long as they do not disregard their duty to comply with EU law.97 It is true that there is no explicit conferral of a power to establish a permanent mechanism in Article 122 TFEU. But it did serve as the legal basis for the European Financial Stabilization Mechanism (EFSM) in 2010, and we may remember that the Commission President could not agree with the conclusion of the other members of the European Council that Article 122
TFEU and 126 TFEU apart as conferring on the Union the competence for the coordination of economic policies (Judgment, paras. 108 and following). 93. This debate can be summarized by referring to the positions taken by Judge Lenaerts (writing extra-judicially, although one may note that he acted as Rapporteur in the Pringle case) and A.G. Kokott in her View on the Pringle Case. According to Lenaerts, coordination of economic policies is a shared power as it is not listed in Arts. 3 or 6 TFEU, see Lenaerts and Van Nuffel, European Union Law (Sweet & Maxwell, 2011), p. 128; Kokott argues that the specific wording of the Treaty provisions, according to which it is not the Union that has competence for the coordination of economic policies, but it is for the Member States to coordinate their economic policies within the Union, suggests that we are not dealing with shared powers (View, para 93). 94. Judgment, para 120. 95. View, para 125. 96. Judgment, para 65. A similar argument is made by De Gregorio Merino, op. cit. supra note 6, at 1635 and Louis, op. cit. supra note 6, at 986. 97. Judgment, paras. 64, 6869.

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TFEU should not be used for a mechanism designed to safeguard the financial stability of the euro area as a whole.98 Is it convincing to exclude the use of Article 122(2) TFEU for the setting up of a permanent mechanism to provide financial assistance? The Court finds three arguments for its conclusion. Firstly, the role of the Union in the area of economic policy is restricted to the adoption of coordinating measures. This in itself is not conclusive, as the powers in the area of economic policy seem to go beyond mere coordination in several instances (in the first place in Art. 122 TFEU itself!). Secondly, the permanent character of the mechanism is problematic in light of the wording of Article 122(2) TFEU, which prescribes that financial assistance may be granted in the case of exceptional occurrences. Borger however is right when he points out that permanent capital flows go against the exceptional circumstances condition prescribed by Article 122(2) TFEU, but that neither a temporary mechanism nor permanent mechanism are necessarily in conflict with this.99 Thirdly, the Court finds the objective of safeguarding the financial stability of the euro area as a whole problematic. If having the financial stability not of just one Member State but the eurozone as a whole as an objective is problematic, the same could be argued for the EFSMs objective of preserving the financial stability of the Union.100 It is not necessarily problematic though, as long as for each financial assistance operation either through a temporary or permanent mechanism the conditions of the Member State experiencing, or seriously being threatened with severe difficulties caused by exceptional occurrences beyond its control of Article 122 TFEU are satisfied.101 Limiting the scope of financial assistance of one particular instrument to a specific objective is not necessarily in conflict with this. It seems that not so much the objective, but the use of Article 122 TFEU to establish a stability mechanism only by and for the eurozone Member States
98. In December 2010 the European Council agreed that Article 122(2) TFEU will no longer be needed for such purposes. Heads of State or Government therefore agreed that it should not be used for such purposes. See European Council Conclusions, December 2010, point 1. Italics added. The different positions are also reflected in recital 4 of the preamble to Decision 2011/199, to which the Court refers in para 65 of the judgment. 99. Borger, op. cit. supra note 72, at 128. For the argument that exceptional under Art. 122(2) TFEU means temporary see Louis, op. cit. supra note 6, at 985. 100. Art. 1 of Regulation 407/2010 establishing a European financial stabilization mechanism (supra note 7). 101. Similarly Borger, op. cit. supra note 72, at 129 and with regard to the EFSM Ruffert, op. cit. supra note 12, at 1787. For emphasis on a discretionary power of the Council under Art. 122(2) TFEU, see Louis, op. cit. supra note 6, at 983; De Gregorio Merino, op. cit. supra note 6, at 1634; For the contrary argument see Palmstorfer, To bail out or not to bail out? The current framework of financial assistance for euro area Member States measured against the requirements of EU primary law, 37 EL Rev. (2012), 771784 at 780.

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can be considered problematic. This article obviously is not prima facie meant for rule setting only for the eurozone, as is for example Article 136 TFEU. But that could be solved by using Article 122 TFEU in combination with the enhanced cooperation of Article 326 TFEU, obviously after establishing that the objective cannot be attained by the Union as a whole within a reasonable period (Art. 20(2) TEU). All in all, it does not seem obvious that Article 122 TFEU is sufficient as a legal basis for the establishment of a permanent mechanism for financial assistance for the euro area. The consequence of the Courts finding is that, if the Member States want to incorporate the ESM in the Union framework in the future, they will have to amend the Treaties through the ordinary amendment procedure or use Article 352 TFEU to incorporate it. 5.3.3. The compatibility of the ESM Treaty with the TFEU Economic Policy Chapter It is clear from the above that the establishment of a stability mechanism for providing financial support falls outside the scope of the competences of the Union. Member States are therefore free to conclude the ESM Treaty, but only as long as it is compatible with EU law. We will come back to Article 125 TFEU in detail below, as we believe it merits a separate treatment. Here we discuss Articles 122 and 123 TFEU, and the provisions in the area of coordination of economic policies (Arts. 2(3), 119, 121 and 126 TFEU). In relation to Article 122(2) TFEU the Court concludes that it confers no exclusive power on the EU to grant assistance,102 and that the ESM Treaty does not affect the powers of the Council.103 The establishment of a permanent stability mechanism is therefore compatible with this article. Similarly, Article 122 TFEU read in combination with Article 3(2) TFEU does not vest in the EU an exclusive competence to conclude international agreements which would be affected by the conclusion of the ESM treaty. On this particular point, we respectfully submit that the Court has misread the Treaty text: Article 3(2) TFEU is about the EUs exclusive power to conclude international agreements with third States and has nothing to do with the question whether the Member States can conclude inter se agreements or not.104

102. Judgment, paras. 120121. 103. Ibid., para 119. It can be argued that this conclusion would have been sufficient also to answer the first preliminary question: Art. 122 TFEU does not constitute an exclusive power for the Union to grant financial assistance and the Union competence under this article is not affected by the establishment of the ESM. 104. Compare View, para 98.

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As regards Article 123 TFEU, the Court finds that there is no basis for the view that the funds provided by the ESM Members to the ESM might be derived from financial instruments prohibited by Article 123(1) TFEU.105 Is this to be read as a warning that a banking licence for the ESM which is unlikely at the moment, but was suggested by a number of Member States including Italy and France may be considered problematic in light of this article? According to the European Central Bank, becoming a counterparty of the Eurosystem under Article 18 of the ESCB Statute (obtaining a banking licence) would be incompatible with the monetary financing prohibition in Article 123 TFEU.106 The German Constitutional Court came to the same conclusion in its decision of 12 September 2012 relating to the ESM Treaty and the Fiscal Compact.107 How does the ESM Treaty relate to the provisions on the coordination of economic policies (Arts. 2(3), 119, 121 and 126 TFEU)? The Court finds that the ESM as a financing mechanism is not concerned with coordination of economic policies, and that conditionality is not an instrument for coordination.108 Also, the powers of the Union under the excessive deficit procedure of Article 126 TFEU are not affected. In other words, the ESM Treaty is compatible with these provisions. The Advocate Generals struggle with the relationship is more apparent. She looks at the extent to which conditionality which is to be categorized as relating to economic policy (though not in the sense of the TFEU chapter)109 also constitutes coordination of economic policies. Her view is that this is not the case. To the extent that the conditions operate outside the coordination achieved at Union level, there is no coordination since no harmonization of the individual economic policies of the Member States takes place.110 It is not clear why it would make sense to equate coordination and harmonization. Moreover, although it is obvious that no harmonization of the individual economic policies of the Member States takes place through ESM conditionality, neither does harmonization take place under the Union competences in this area. Is the conclusion that ESM conditionality is not about coordinating the economic policies of Member States convincing? We believe that it is, but
105. Judgment, para 127. 106. Opinion of the European Central Bank on a Draft European Council Decision Amending Article 136 of the Treaty on the Functioning of the European Union with Regard to a Stability Mechanism for Member States Whose Currency is the Euro, O.J. 2011, C 140/8, recital 9. 107. BVerfG, 2 BvR 1390/12 of 12.9.2012, English extracts, para 245. 108. Judgment, paras. 110111. 109. View, para 83. 110. Ibid., para 92. Interestingly also, in paras. 4445 of the View, conditionality and the Union competences for economic policy seem to be less far apart.

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especially the Advocate Generals view does no justice to the complex relationship between ESM conditionality and measures adopted under the TFEU economic policy Chapter. How should we understand this relationship? The following offers only a beginning of this understanding. It is true that the Memoranda of Understanding containing conditionality often prescribe in much greater detail which far-reaching national measures are to be taken to address weaknesses,111 compared with the Council measures adopted under Article 126 TFEU to correct an excessive deficit.112 But not only can a partial overlap between the two be expected, as the Advocate Generals reasoning also suggests, and as has been the case under EFSF conditionality.113 Also, in both cases the measures have the objective of sustainable public finance or sound budgetary policy of the Member States (maybe even more so than of substantively coordinating policies, the core of which seems to be the multilateral surveillance procedure of Art. 121 TFEU). Finally, the close relationship between ESM conditionality and measures adopted under the TFEU economic policy chapter is illustrated by elements of the Two-Pack, on which political agreement was reached on 20 February 2012 between the European Parliament and the Council. The new Macroeconomic adjustment programme, to be prepared by Member States requesting financial assistance in agreement with the Commission and to be approved by the Council,114 can be seen as a way to bring (ESM) conditionality directly within the sphere of European Union law. The programme in fact not only shall take due account of the recommendations addressed to the Member State concerned under Articles 121, 126, 136 and/or

111. Art. 13(3) ESM Treaty. 112. But note the detail of Council Decisions adopted under Art. 126(9) read with 136 TFEU regarding Greece. See e.g. the Council decision to give notice and to reinforce and deepen fiscal surveillance of 4 Dec. 2012. 113. EFSF conditionality in relation to Ireland includes e.g. fiscal adjustment, including the correction of the excessive deficit by 2015 (next to an overhaul of the banking sector and growth enhancing reforms, in particular of the labour market). EFSF conditionality in relation to Portugal includes fiscal adjustment, including the correction of the excessive deficit by 2013 respecting the original deadline set by the Council (next to growth enhancing reforms and measures relating to the financial sector). 114. See for now, Art. 6(1) of the text of Regulation (EU) No . . . /2013 of the European Parliament and of the Council on the strengthening of economic and budgetary surveillance of Member States experiencing or threatened with serious difficulties with respect to their financial stability in the euro area, as adopted by the European Parliament in first reading on 12 March 2013. Interestingly, the Programme will be approved by the Council acting by qualified majority, whereas the Board of Governors under the ESM Treaty decides with unanimity on the economic policy conditionality as stated in the memorandum of understanding (Art. 5(6)(f) ESM Treaty).

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148 TFEU as well as its actions to comply with them, but also aim at broadening, strengthening and deepening the required policy measures.115 It makes sense to ensure, as the Macroeconomic adjustment programme intends to do, full consistency between the Union multilateral surveillance framework established by the TFEU and the possible policy conditions attached to . . . financial assistance.116 But does EU law provide a legal basis for this programme? Interestingly in light of the Courts finding that conditionality is not an instrument of coordination, the EU institutions defend the power of the Council to approve the programme (together with the other powers included in the Two-Pack adopted on the basis of Arts. 121 and 136 TFEU) by arguing that it is a measure of particular relevance for the policy of economic coordination of Member States, that according to Article 121 TFEU shall take place within the Council.117 Importantly, the continued separate conditionality measures adopted in the context of the ESM Treaty will not become problematic after entry into force of the Two-Pack, as we are not dealing with an exclusive competence of the Union. Several other euro area crisis instruments raise similar questions about their relationship to Union coordination of economic policies. The Euro Plus Pact agreed by 23 Member States in March 2011, for example, includes commitments in areas that fall under national competence in order to achieve a new quality of economic policy coordination.118 These new commitments will be partly included in the existing framework of Article 121 TFEU, and partly monitored politically by the Heads of State or Government involved. This political assessment does not seem to be legally problematic. The same can be argued for the substantive elements of the Fiscal Compact that closely relate to the multilateral surveillance procedure of Article 121 TFEU.119 Nothing seems to preclude a number of Member States from agreeing on stricter rules on budgetary discipline through a balanced budget rule, complementing the European rules at national level.
115. Art. 6(1) of the text as adopted by the EP on 12 March 2013. Emphasis added. The ECB expects that the macro-economic adjustment programme will de facto reflect the economic policy conditions agreed between all parties in the context of granting access to such financial assistance., Opinion of the European Central Bank of 7 March 2012 on strengthened economic governance of the euro are (CON/2012/18), point II.10. 116. Recital 2 of the text as adopted by the EP on 12 March 2013. To this end also, the Macroeconomic adjustment programme will replace the Macroeconomic imbalances procedure and elements of the Stability and Growth Pact (Arts. 79). It will be the task of the Commission to ensure that the memorandum of understanding signed by the Commission on behalf of the EFSF or ESM is fully consistent with the macroeconomic adjustment programme approved by the Council (Art. 6(2)). 117. Ibid., recital 7(f). Emphasis added. 118. See Annex I of the European Council Presidency Conclusions of the 24/25 March 2011 European Council. 119. In this sense Nettesheim, op. cit. supra note 72, at 16: Das sich die Mitgliedstaaten des Fiskalpakts einer gegenber Art. 126 AEUV verschrften Disziplin unterwerfen, ist unschdlich.

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In its interpretation of Article 125 TFEU, the Court combines several methods of interpretation. A textual or literal interpretation leads to the conclusion that Article 125 TFEU is not intended to prohibit any form of financial assistance to another Member State.120 A contextual or systematic interpretation finds support for this reading in the wording of Article 122 TFEU (which is not formulated as an exception) and 123 TFEU (which applies stricter language).121 From a historical interpretation it follows that the prohibition of Article 125 TFEU was included in the Maastricht Treaty to ensure that Member States follow a sound budgetary policy.122 The teleological interpretation of Article 125 TFEU (sound budgetary policy) is complemented by an ultima ratio interpretation,123 namely that the compliance with budgetary discipline contributes to the higher objective of maintaining the financial stability of the monetary union.124 The reference to the preparatory works of the Maastricht Treaty, and especially the ultima ratio interpretation are exceptional, but methodologically all this can be very well defended.125 Based on this interpretation the Court sets three requirements that have to be met for assistance to be compatible with Article 125 TFEU: 1) Member States must remain responsible for their commitments to creditors,126 2) the activation of financial assistance must be subject to strict conditionality and 3) this activation must be indispensable for the safeguarding of financial stability of the euro area as a whole.127 The first condition is not surprising, as it can be seen to follow directly from the text of Article 125 TFEU, which proscribes assuming commitments of other Member States. The finding on the requirements of strict conditionality and indispensability for the safeguarding of the financial stability of the euro area as a whole is arguably the most interesting aspect of the Courts interpretation of Article 125 TFEU. Each of the two requirements raises the question whether it is convincing to set it and what consequences follow from this choice. 5.4.1. The conditionality requirement It seems that strictly speaking neither of the two requirements necessarily follows from Article 125 TFEU. In fact, the Advocate General takes a different
120. 121. 122. 123. 124. 125. 126. 127. Judgment, para 130; similarly View, para 134. Judgment, para 131132; similarly View, para 124, 141. Judgment, para 135; similarly View, para 131. Similarly, Borger, op. cit. supra note 72, at 131. Judgment, para 135; no such interpretation is found with the A.G. Similarly, Thym, op. cit. supra note 72, at 262. Judgment, para 137. Ibid., para 136.

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view from the Court on this point as she does not set any requirement for compatibility with Article 125 TFEU other than that there may not be direct support, meaning that Member States may not directly meet the demands of creditors of another Member State.128 She does not find it problematic for loans from and to the euro Member States to be subject to no restrictions under European Union law in comparison with the conditions set by Articles 122(2) and 143(2) TFEU for Union measures of support.129 As to strict conditionality, she explicitly avoids an answer to the question whether this is a requirement for compatibility with Article 125 TFEU,130 considering that prohibiting direct support is enough to prevent the circumvention of the objectives of Article 125 TFEU.131 This implies that in her view it is not a necessary requirement. Is the Courts requirement of strict conditionality for compatibility with Article 125 TFEU convincing? Even if it does not follow directly from the text, a basis can convincingly be found in the objective of Article 125 TFEU of sound budgetary policy, an objective that is not, we believe, controversial.132 Moreover, by requiring strict conditionality the Court shows that it is aware of the very delicate context of Article 125 TFEU in especially Germany, illustrated by the fact that it is best known not only in Germany as the no-bailout clause. The Court has found an elegant way to address concerns about the no-bailout clause, even though it leaves us with some questions. What consequences follow from the conditionality requirement? The Court did not leave any opportunity unused to emphasize that the envisaged ESM conditionality serves to ensure compatibility with EU law.133 It was less concerned with the consequences of what it set as a requirement. How does ESM conditionality relate to EU coordination measures? In practice, the Memoranda of Understanding adopted in the context of the other financial assistance mechanisms mirror and expand the measures on budgetary discipline contained in the different Council Decisions.134 What ESM conditionality measures beyond EU coordination are actually allowed or required? Clearly, ESM conditionality cannot modify, in particular weaken, Union measures adopted under the excessive deficit procedure of
128. View, para 148. 129. Ibid., para 124. 130. Ibid., para 150. 131. Ibid., para 148. 132. A similar argument is made by Louis with regard to Art. 122(2) TFEU, Louis, op. cit. supra note 6, at 985: While the Council has, as we have seen, a margin of discretion to decide on the assistance, it has to be conditional. 133. Judgment, paras. 69, 72, 111, 121, 143, 151. 134. De Gregorio Merino, op. cit. supra note 6, at 1637.

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Article 126 TFEU.135 May ESM conditionality go further than these Union measures? The answer must obviously be yes. One might have expected the conclusion that Member States can complement the Union power to adopt coordinating measures by requiring further measures on budgetary discipline from Member States in the context of the ESM, but both the Court and Advocate General instead choose to consider that ESM conditionality is a different animal.136 Must ESM conditionality then necessarily go further? The Court nowhere comes to this finding. But if the answer is no, why then put it as an extra requirement for compatibility with Article 125 TFEU, being founded necessarily on that article? It may therefore be assumed that further strict ESM conditionality measures are required. Nonetheless, it can be expected that the Court will leave considerable discretion to the Member States in their judgment of what specific level and form of conditionality is required in each individual case, if that question is submitted to it in the future. 5.4.2. The indispensability requirement Strictly speaking, the requirement of indispensability for the financial stability of the euro area as a whole does not necessarily follow from the text of Article 125 TFEU. In this sense, its necessity can be doubted, and not many had anticipated this surprising aspect of the judgment. In fact, the Advocate General does not seem to adopt this indispensability requirement. The reason for this can be found in the interesting part of her View that deals with the basic structural EU law principles of sovereignty and solidarity, which prevent a broad reading of the prohibition of Article 125 TFEU.137 A broad interpretation would deprive the Member States of the power to avert the bankruptcy of a State and the possibly substantial damage to other States. That damage might be so extensive as to endanger the survival of monetary union, although the Advocate General hastens to add that there is no question here of finding that such a danger to the stability of the monetary union exists.138 Similarly, but now in light of Union solidarity, prohibiting the prevention by Member States of the serious economic and social effects of bankruptcy would call into question the very purpose and objective of a Union.139 Nowhere does she suggest that indispensability for the financial stability of the euro area is a requirement.

135. 136. 137. 138. 139.

Judgment, para 121. Ibid., para 111; View, para 92. View, paras. 136144. Ibid., para 140. Ibid., para 143.

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Is the requirement of safeguarding the financial stability of the euro area as a whole convincing? Maybe it is, but if this is the higher objective of Article 125 TFEU, it is arguably the higher objective of many other provisions as well, notably those on economic policy including Articles 121 and 126 TFEU on the coordination of economic policies. It would in fact be difficult to argue that any of the articles had the contrary objective. Why, then, is not the financial stability of the Union the higher objective? After all, Article 125 TFEU prohibits not only the euro area States from being liable for, or assuming commitments of, other Member States. And most other rules on economic policy apply to the entire Union.140 Even though this requirement does not necessarily follow from the text of Article 125 TFEU, it was arguably still necessary for the Court to read it in Article 125. Borger notes that the Court could not present the objective of safeguarding the financial stability of the monetary union as a new interpretation of Article 125 TFEU following from Decision 2011/199, as that would have led to an implicit modification of Article 125 TFEU.141 Conclusion and ratification of the ESM Treaty would then only have been possible after the Treaty amendment was completed.142 It could even be argued that the simplified revision procedure would not have been available if the requirement was new. This depends on how you interpret the condition of the use of the simplified revision procedure that it shall not increase the competences conferred on the Union in the Treaties (Art. 48(6) TEU). The Advocate General took an interesting position on this, even though not necessarily the right one. According to her, it is certainly true that obligations which European Union law imposes on the Member States could, depending on their subject matter, constitute a substantive increase in the competences of the Union.143 Another interpretation of an increase in the competences of the Union is that it is limited only to powers of the Union to act. If the position of the Advocate General were accepted, then Article 136(3) TFEU by imposing on the Member States of the euro area the obligation to limit financial assistance through the permanent mechanism to cases where it is indispensable to safeguard the stability of the euro area as a whole and under strict conditionality, would lead to a substantive increase in the competences of the Union, unless these requirements already follow from European Union law. The Court elegantly prevented problematic findings on the use of the
140. The UK has a special position among the outs, see Protocol 15 on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland. 141. Borger, op. cit. supra note 72, at 135. 142. Ibid, at 135. Similarly, Editorial comments: Reflections on the state of the Union 50 years after Van Gend en Loos, 50 CML Rev. (2013), 356. 143. View, para 44.

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simplified revision procedure by reading both requirements in Article 125 TFEU. The Courts findings mean that from a legal perspective, both objectives of Article 125 TFEU have been present from the beginning. However, the sequence of the events of the eurozone crisis gives a better understanding of what happened. The Member States were the ones who established and developed the requirements of (strict) conditionality144 and indispensability for safeguarding financial stability145 for the provision of financial support in what De Gregorio Merino calls a law of evolution as opposed to a preconceived plan, leading to ever more sophisticated instruments.146 They did so at least partly for political reasons,147 as it is hard to imagine that providing support would be acceptable to some Member States without these conditions. The Court in a sense confirmed these requirements under EU law, by considering them also requirements for compatibility with Article 125 TFEU.148 What are the consequences of the indispensability requirement? The requirement is not only a way to reconcile Decision 2011/199 and the ESM Treaty with the prohibition of Article 125 TFEU, but also a way to limit what Member States can do under a separate Treaty. Financial assistance through the ESM is only compatible if indispensable for safeguarding the financial stability of the euro area as a whole. Does this mean that ESM assistance cannot be provided in case of a mere macro-economic shock affecting one Member State? That would now be in violation of both the ESM Treaty and Article 125 TFEU (and arguably also the future Art. 136(3) TFEU). Interestingly, Louis has argued that Article 122(2) TFEU, also an exception to the prohibition of Article 125 TFEU, does not exclude the possibility of assistance in the case of such an asymmetric shock.149 Also, there may be but a thin line between financial stability of a Member State and that of the euro area as a whole. Add to this the difficulty to define financial stability,150 and it is clear that it may be expected that also here the Court will leave considerable
144. Cf. Art. 4 Regulation 407/2010 establishing a European financial stabilization mechanism (supra note 7), Arts. 2 and 3 of the EFSF Framework Agreement of 7 June 2010; Art. 1 of Decision 2011/199; Art. 3 ESM Treaty. 145. Cf. Art. 1 Regulation 407/2010 establishing a European financial stabilization mechanism; not explicit in EFSF Framework Agreement; Art. 1 of Decision 2011/199; Art. 3 ESM Treaty. 146. De Gregorio Merino, op. cit. supra note 6, at 1615. 147. Similarly with regard to indispensability, Louis, op. cit supra note 6, at 985. 148. Similarly Nettesheim, op. cit. supra note 72, at 16: Die diesbezglichen Passagen lesen sich, als ob sie nicht aus dem AEUV heraus entwickelt, sondern zur Rechtfertigung des ESM passgenau zugeschnitten wurden. 149. Louis, op. cit supra note 6, at 985. 150. Similarly Borger, op. cit. supra note 72, at 135.

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discretion to the Member States of the euro area in their judgment of whether assistance is indispensable for the financial stability of the euro area as a whole. In practice Cyprus is already providing an interesting case, with ECB President Draghi and German Finance Minister Schuble in January 2013 openly disagreeing on whether the financial problems of Cyprus can be seen as a threat to the financial stability of the euro area (Draghi) or not (Schuble).151 Excluding this possibility a priori would lead to the politically unacceptable conclusion that some Member States contribute to the ESM emergency fund, but will not be able to benefit from it. This, however, would not only be a consequence of the indispensability requirement of the Pringle judgment,152 but would also follow from the indispensability requirement set by the ESM Treaty itself (Art. 3) and equally from the future Article 136(3) TFEU. The Eurogroup has, during the most recent events relating to ESM financial assistance to Cyprus in March 2013, in our view rightly taken the opposite position that the financial problems of Cyprus can form a threat to the financial stability of the euro area as a whole.153 In finding the ESM Treaty compatible with Article 125 TFEU and with the broader TFEU Chapter on economic policy, the Court has accepted that the constitution of the European economic and monetary union, which is based on the concept of monetary stability and focused on the prevention of crises, can be reconciled with an intergovernmental rescue fund that provides for financial stability and crisis management.154 Even within the EU legal order the Court reconciles both concepts of stability monetary and financial in its interpretation of Article 125 TFEU. Article 136(3) TFEU is only a confirmation of this.155 5.5. Borrowing EU institutions

One of the most controversial issues in Pringle was whether the EU institutions can be borrowed by the Member States when implementing an
151. Streit ber Zypern-Hilfe: EZB-Chef Draghi kanzelt Schuble ab, Spiegelonline, 27 Jan. 2013: www.spiegel.de/wirtschaft/unternehmen/finanzhilfen-fuer-zypern-ezb-chef-draghi -geht-schaeuble-an-a-879884.html. 152. A different suggestion seems to be made in: Editorial Comments, op. cit. supra note 142, at 355. 153. Eurogroup Statement on Cyprus of 25 March 2013: Against this background, the Eurogroup reconfirms, as stated already on 16 March, that .in principle financial assistance to Cyprus is warranted to safeguard financial stability in Cyprus and the euro area as a whole by providing financial assistance for an amount of up to EUR 10bn. Our emphasis. 154. Similarly, Van Malleghem, op. cit. supra note 72, at 162. 155. Cf. De Gregorio Merino, op. cit. supra note 6, at 1629.

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international agreement concluded outside the EU legal framework.156 Indeed, the text of the ESM treaty repeatedly refers to action to be taken by the EU institutions. The Court of Justice is mentioned only once, namely in Article 37, which states that disputes between ESM members about the interpretation of the ESM treaty that cannot be resolved by the ESM organs themselves will be submitted to the Court of Justice. The Commission and the ECB figure more prominently, in several articles of the treaty. They are given important roles as agents of the ESM organs, both in preparing the operations of the ESM (in particular, through the negotiation of a memorandum of understanding with the country applying for ESM financial assistance), and in coordinating the implementation of the rescue operation. In examining whether it is consistent with EU law to use the EU institutions outside the natural habitat of the EU legal order, the Court of Justice rightly distinguished between the case of the Court itself, and the case of the other institutions. Indeed, as far as the Court of Justice is concerned, there is an odd little Treaty article that conclusively solves the problem. Article 273 TFEU, whose text had figured in the EEC Treaty from the very beginning, allows the Member States to submit to the Court under a special agreement between the parties, any dispute between Member States which relates to the subject matter of the Treaties. The subject matter of the ESM treaty is indeed closely connected to the TFEU, and the ESM treaty is expressly declared to be a special agreement in the sense of Article 273 TFEU in recital 16 of its preamble. This possibility of giving extra tasks to the Court of Justice, based on what is now Article 273 TFEU, had already been used occasionally in the past, but never, it seems, in such a high-profile agreement as the ESM Treaty. Things are more complicated with respect to the borrowing of the Commission and the Central Bank. The applicant invoked Article 13(2) TEU in this context. According to this provision, the EU institutions shall act within the limits of the powers given to them under the Treaties (meaning: the TEU and the TFEU, and no other treaties). On a literal interpretation, this could mean that it is not possible to give any additional functions to the Commission or the ECB (or indeed the Parliament and the Council) under separate international agreements such as the ESM Treaty. Yet, the Court of Justice had accepted, in a couple of low profile judgments of the 1990s, that the Commission could perform tasks entrusted to it by all the Member States under a separate international agreement. The EC Treaty, it held in the Bangladesh case, does not prevent the Member States from entrusting the Commission with the task of coordinating a collective action
156. See the detailed examination of this question by Peers, Towards a new form of EU law? The use of EU Institutions outside the EU Legal Framework, 9 EuConst (2013), 37.

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undertaken by them on the basis of an act of their representatives meeting in the Council.157 And it repeated shortly afterwards, in the Lom case that no provision of the Treaty prevents the Member State from using, outside its framework, procedural steps drawing on the rules applicable to Community expenditure and from associating the Community institutions with the procedure thus set up.158 The case of the ESM treaty is different from those earlier cases in that the attribution of new tasks was made, not by all the Member States acting together, but by a limited group of 17. This is a hypothesis which the Court of Justice had not yet addressed prior to the Pringle case. However, the non-participating Member States had, in fact, given their agreement for the use of the EU institutions. Already at the time the EFSF was created, in May 2010, the Council legal service, probably in consideration of the Courts Bangladesh judgment, had prepared a short text which was adopted as a Decision of the representatives of the governments of the 27 EU Member States and simply stated: The 27 Member States agree that the Commission will be allowed to be tasked by the euro area Member States in this context.159 The same thing happened when the ESM Treaty was signed, as is mentioned in recital 10 of the preamble of the ESM Treaty: On 20 June 2011, the representatives of the Governments of the Member States of the European Union authorized the Contracting Parties of this Treaty to request the European Commission and the European Central Bank to perform the tasks provided for in this Treaty. The importance of the tasks entrusted to the Commission and the ECB in the ESM treaty, compared to the rather anodyne administrative tasks of the Commission which had been challenged by the Parliament in the Bangladesh and Lom cases, prompted the Court to add an extra condition for any institutional borrowing; the extra tasks should not alter the essential character of the powers conferred on those institutions by the EU and FEU Treaties.160 This formula stems from some Opinions given by the Court in the context of the conclusion of international agreements by the EC, in which it had emphasized, by the use of that formula, that such agreements should not alter the institutional identity of the EU.161 The formula is here transposed
157. Joined Cases C-181 & 248/91, Parliament v. Council and Parliament v. Commission, [1993] ECR I-3685, para 20. 158. Case C-316/91, Parliament v. Council, [1994] ECR I-625, para 41. 159. Council document 9614/10 of 10 May 2010. The words in this context refer to the other Decision of the same day, and published in the same document, through which the euro State governments (rather than all 27 governments) had agreed to set up the EFSF. 160. Judgment, para 158. 161. Opinions 1/92, 1/00 and 1/09, referred to by the Court in the same para 158 of the Pringle judgment.

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from the context of the EUs external relations to the context of inter se agreements between the Member States. In applying the test, the Court finds without surprise that the ESM tasks entrusted to the Commission and the ECB do not affect the essential character of those institutions powers. One way to understand and justify the Courts rather liberal attitude towards the ancillary use of EU institutions in an intergovernmental framework, despite the strict language used by Article 13 TEU, is to distinguish between powers and tasks. What Article 13 TEU seeks to convey is that the powers of the institutions are fixed by the Treaties; it does not exclude that extra tasks may be given to the institutions as long as those tasks fit within their existing competences, and as long as all EU Member States agree to lend the EU institutions. To explain this difference, a parallel can be made with secondary EU legislation, in which new tasks are often given to the Commission, e.g. to further implement a piece of legislation. Those tasks fit within the general constitutional mandate of the Commission, and do not affect the position of the other institutions, but they are extra tasks, in the sense that they are not specified with so many words in the Treaties but are being gradually defined as EU law develops. In the case of the ESM Treaty, this does not happen through secondary legislation but through a separate international agreement. Do those extra tasks fit within the institutions competences, as defined in particular by the TFEU chapter on economic policy? The Court of Justice thought so, and rightly in our view. In particular, the role given to the Commission and the ECB by Article 13 ESM treaty, to negotiate and monitor the Memorandum of Understanding with countries benefiting from financial support by the ESM, were modelled on the existing mode of operation under the EFSM Regulation, where the Commission and the ECB are called to coordinate the rescue operations, forming together with the IMF the so-called troika. Crucially, the Court notes that 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 ESM.162 Thus, the integrity of the EU legal and institutional order is preserved in two cumulative ways. First: because of the absence of decision-making powers under the ESM treaty there is no danger that the Commission and ECB will resort to law-making outside the constitutional constraints imposed by EU law (such as transparency, democratic accountability and respect for fundamental rights). And secondly, as the ESM-related activities of the Commission and ECB will have no effects within the EU legal order, but only within the separate legal
162. Judgment, para 161.

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order of the ESM, the EU acquis (and its primacy over ESM law) will not be affected. A borrowing of EU institutions also took place in the Fiscal Compact, the other inter se agreement concluded between 25 Member States at around the same time as the ESM treaty. One major difference, in that case, is that no formal text was adopted through which the two non-participating States, the United Kingdom and the Czech Republic, gave their authorization to the use of the EU institutions. Whether such an authorization, either explicit or implied, is a necessary requirement, is still unclear.163 The Court of Justice saw no need to address that question in its Pringle judgment. 6. Conclusion: Constitutional implications of the judgment

Many authors have noted the constitutional deficiencies caused by the choice to establish the ESM as a separate international organization rather than as an EU agency. The criticism can be summarized by the following citation from a paper by Tuori: Stability mechanisms, such as the EFSF and the ESM, operate as separate financial institutions outside the Treaty framework, with their own intergovernmental decision-making bodies and behind the shield of far-going immunity and confidentiality. Intergovernmental stability mechanisms remain outside the scope of application of both Treaty provisions on the principle of transparency and complementary secondary legislation. Such an institutional development makes any control by the European parliament or national parliaments, not to mention civil society and the citizenry, extremely difficult.164 This is very true, but the fact remains that, when the euro area countries wanted to set up a major rescue fund in order to preserve the stability of the euro area (a decision which seems very reasonable), EU law did not provide them with sufficient legal and financial resources, so that going outside and setting up a separate international organization was the only available solution. The creation of the ESM should, therefore, not be seen as an intergovernmental plot through which the euro area governments sought to escape from the constraints of EU law and to exclude any involvement of the

163. See, for discussion of that question in the context of the Fiscal Compact: Peers, op. cit. supra note 156; Craig, The Stability, Coordination and Governance Treaty: Principle, politics and pragmatism, 37 EL Rev. (2012) 231, at 240247; and Borger and Cuyvers, Het Verdrag inzake Stabiliteit, Cordinatie en Bestuur in de Economische en Monetaire Unie: de juridische en constitutionele complicaties van de eurocrisis, 60 SEW (2012) 370, at 381387. 164. Tuori, The European Financial Crisis Constitutional Aspects and Implications, EUI Working Papers, LAW 2012/28, at 47.

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Commission and the Parliament. Indeed, they sought to preserve a number of links with the EU legal order through the borrowing of EU institutions.165 More fundamentally, even if a mechanism like the ESM could have been established on the basis of EU law and with funds allocated under the EU budget, this would not have been a sufficient reason to exclude the conclusion of a separate international agreement. Inter se agreements between EU Member States remain permissible in principle, and useful in practice, in the fields that do not come within the EUs exclusive competence, and the Court of Justice has pragmatically accepted this legal reality. At the same time, it has reaffirmed the primacy of EU law over such separate agreements, and its own jurisdiction to control whether the Member States respect their EU law obligations when concluding separate international agreements. All in all, the Court has given, in Pringle, a well-reasoned judgment expressing a good mixture of legal principle and political pragmatism. Bruno de Witte and Thomas Beukers*

165. For similar general assessments, see De Gregorio Merino, op. cit. supra note 6, at 1644; Thym and Wendel, op. cit. supra note 72. * Bruno de Witte is professor of European Union law at Maastricht University, and part-time professor at the Robert Schuman Centre of the European University Institute (EUI). Thomas Beukers is Max Weber Postdoctoral Fellow in Law at the EUI. Thomas Beukers is grateful to the Dutch Niels Stensen Stichting for providing financial support to conduct postdoctoral research at the EUI.