The Court of Justice approves the creation of the European Stability Mechanism outside the EU legal order: Pringle

Case law

A. Court of Justice

The Court of Justice approves the creation of the European StabilityMechanism outside the EU legal order: Pringle

Case C-370/12, Thomas Pringle v. Government of Ireland, Ireland, TheAttorney General, Judgment of the Court of Justice (Full Court) of 27November 2012.

1. Introduction

The case initiated by Thomas Pringle, a member of the Dáil Eireann (the lowerhouse of the Irish parliament), and referred by the Irish Supreme Court, provedto be an unusually important one for the Court of Justice. Its importance alsoappears from the fact that the Court decided to sit “as a full court”, that is: withall 27 judges, which is a very exceptional occurrence. The central legalquestion submitted to the Court was whether 17 Member States of the EU had,by concluding among themselves the Treaty establishing the EuropeanStability Mechanism (hereafter: ESM Treaty), acted in breach of EU law. Ifthe Court had given an affirmative answer to that question, it might havecaused a serious relapse in the sovereign debt crisis that has plagued theeurozone, and the European Union, since 2010. The importance which theMember States attached to the outcome of this case is shown by the fact thateleven governments (ten of them from the euro area, plus the UnitedKingdom), decided to intervene in the proceedings, whereas a twelfthgovernment, that of Ireland, was directly involved as the defendant party in thenational court case. In addition to the Commission and the EuropeanParliament, who are repeat players in Luxembourg, the European Council alsointervened,1 for the first time ever. The reason for the latter’s intervention wasthat the Pringle reference also raised a question about the validity of theEuropean Council Decision that had paved the way for the ESM Treaty. ThisDecision 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, sincethe European Council does not have its own specialized legal staff.

Common Market Law Review 50: 805–848, 2013.© 2013 Kluwer Law International. Printed in the United Kingdom.

new provision (Art. 136(3) TFEU) allowing for the creation of a financialrescue mechanism by the euro area countries.

It came as no surprise that the Court of Justice, after examining the case inan expedited procedure taking less than four months, rejected all thearguments challenging the validity or lawfulness of the financial rescueinstruments. In doing so, the Court was led to give an interpretation of anumber of provisions and principles of EU constitutional law and to addresssome entirely novel legal issues. It did so in a judgment which, despite theinvolvement of all 27 judges in its drafting, reads remarkably well and iscoherently argued on the whole. This was the first ECJ judgment dealing withthe legal consequences of the sovereign debt crisis, and it brings some legalcertainty and guidance for the future in respect of one group of instrumentsfrom the “Euro crisis toolbox”, namely the crisis management instrumentscreated since 2010. The EU institutions and the Member States have, at thesame time, developed a much more important and complex arsenal of crisisprevention instruments, consisting mainly in exercising stricter Europeancontrol on national budgetary and macro-economic policies.2 But those otherparts of the Euro crisis toolbox were only considered tangentially in thePringle case.

2. Background

The background part of this case note is unusually long. This can be explainedby the fact that the Pringle judgment appeared in a complex legal and politicalcontext that had built up since 2010, long before Mr Pringle decided tochallenge the Irish ratification of the ESM Treaty. In this background section,we first evoke the context in which the European Council decision amendingArticle136 TFEU came into being (section 2.1), secondly the context in whichthe ESM Treaty was adopted as an international agreement outside the EUframework (section 2.2), and finally the domestic ratification context in whichMr Pringle’s challenge of both these legal instruments originated(section 2.3).

2. See the recent survey in this journal by Adamski, “National power games and structuralfailures in the European macroeconomic governance”, 49 CML Rev. (2012) 1319. Seealso the detailed surveys by Allemand and Martucci, “La nouvelle gouvernanceéconomique européenne”, (2012) CDE, 17; by Antpöhler, “Emergenz der europäischenWirtschaftsregierung – Das Six Pack als Zeichen supranationaler Funktionsfähigkeit”, 72ZaöRV (2012), 353; and by Viterbo and Cisotta, “La crisi del debito sovrano e gli interventidell’UE: dai primi strumenti finanziari al Fiscal Compact”, (2012) Dir. Un. Eur., 323.

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2.1. The amendment of Article 136 TFEU

On 25 March 2011, the European Council adopted a Decision aiming at theamendment of the Treaty on the Functioning of the European Union throughthe addition of a new paragraph to Article 136 of that Treaty. The additionalparagraph, consisting of two short sentences, runs as follows:

“3. The Member States whose currency is the euro may establish astability mechanism to be activated if indispensable to safeguard thestability of the euro area as a whole. The granting of any required financialassistance under the mechanism will be made subject to strictconditionality.”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 EUaccording to their own constitutional requirements and procedures. TheEuropean Council indicated, in Article 2 of the Decision, that it would enterinto force on 1 January 2013, provided that all the national approvalprocedures were successfully accomplished by that time.

This Treaty amendment is the first use of one of the two so-called simplifiedrevision procedures that were introduced by the Lisbon Treaty.4 Thesimplified revision procedure used on this occasion, which is described inArticle 48(6) TEU, has a rather broad scope. It applies to all amendments of“PartThree of theTreaty on the Functioning of the European Union relating tothe internal policies and action of the Union”, which means all together some171 treaty articles – but subject to one major exception: if the proposedamendment of an internal policy provision leads to an increase in theEuropean Union’s competences, then the ordinary revision procedure has tobe used instead. The “simpler” nature of the procedure of Article 48(6) TEUconsists in the fact that, in contrast with the ordinary revision procedure, thereis no need for a Convention or an Intergovernmental Conference; theamendment is, rather, adopted directly by the European Council acting byunanimity of its members. But that unanimous Decision of the EuropeanCouncil is in turn subject to “approval”5 by each Member State under its ownconstitutional requirements. Thus, simplified revisions of the TFEU remain

3. European Council Decision of 25 March 2011 amending Article 136 of the Treaty on theFunctioning of the European Union with regard to a stability mechanism for Member Stateswhose 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 changesbrought 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 theMember 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 negotiationstage and at the approval stage.

Given the difficulty of accomplishing a Treaty amendment procedure, evenif “simplified”, one may wonder why the Member State governments decidedto 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 rapidlydeveloping sovereign debt crisis in the euro zone, the EU and a group of itsMember States decided to create two new legal instruments, called theEuropean Financial Stabilization Mechanism (EFSM) and the EuropeanFinancial Stability Facility (EFSF).6 On Sunday 9 May 2010, at a specialurgent 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 bygranting loans to euro area countries facing a sovereign debt crisis.7 In themargin of that meeting, the members of the Council from the 17 euro areacountries “switched hats” and transformed themselves into representatives oftheir States at an informal diplomatic conference; in that capacity, theyadopted a decision by which they committed themselves to establish aEuropean Financial Stability Facility (EFSF) outside the EU legal frameworkbut with the same essential function and purpose as the EFSM.8

Why was this strange bifurcated approach chosen in May 2010, leading tothe combination of the EU-law instrument of the EFSM with the extra-EU lawinstrument of the EFSF in the rescue operations that were set up for Irelandand 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 aterm of art of public international law.

6. For description and analysis of the legal developments in and around May 2010, seeLouis, “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 thedebt crisis: The mechanisms of financial assistance”, 49 CML Rev. (2012) 1613; Middleton,“Not bailing out . . . Legal aspects of the 2010 sovereign debt crisis”, in AMan forAll Treaties– Liber Amicorum en l’honneur de Jean-Claude Piris (Bruylant, 2012) 421; Viterbo andCisotta, “La crisi della Grecia, l’attacco speculativo all’euro e le risposte dell’Unione Europea”,(2010) Dir. Un. Eur., 961.

7. Council Regulation 407/2010 of 11 May 2010 establishing a European financialstabilization 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 isseriously threatened with severe difficulties caused by natural disasters or exceptionaloccurrences beyond its control.”

8. Decision of the Representatives of the Governments of the Euro Area Member StatesMeeting within the Council of the European Union, Council document 9614/10 of 10 May2010.

9. The financial rescue operation for Greece had, instead, been launched immediately priorto the adoption of the EFSM and EFSF and was based on a coordinated series of bilateral


been the perceived inability of the EU law instrument (the EFSM) to dealconclusively with the crisis. In view of its limited and strongly earmarkedbudgetary resources, the European Union itself did not possess sufficient“firepower” to deal with a massive sovereign debt crisis. The 60 billion euroearmarked for the EFSM was the upper limit available at that time,10 whereasthe EFSF’s financial capacity was made many times larger, since it could tapthe national budgetary resources of the participating countries rather than themeagre EU budget. Also, under the EFSM, non-euro countries are indirectlycalled to guarantee an operation that aims at ensuring the stability of the euroarea. This explains the decision taken in the crisis days of May 2010 to “gooutside” the institutional framework of the European Union, and to build amore powerful financial guarantee instrument by means of a separateinternational agreement between the euro area countries only, and withoutrequiring financial guarantees from the side of non-euro countries.

It would not have been practical, though, to start negotiating a fully-fledgedinternational agreement, in view of the perceived urgency of the policyresponse. Therefore, rather than concluding a formal treaty, the euro areaStates set in place a complex legal regime consisting of: first, an executiveagreement, namely the above-mentioned Decision of the Representatives;secondly, a private company established under Luxembourg law, of which the17 euro States are the only shareholders (this company was called theEFSF);11 thirdly, a Framework Agreement between the EFSF and its 17 “highshareholders” setting out the (very intergovernmental) decision-making rulesof the Facility and substantive guidance for its operation. In this manner, theEFSF could operate almost immediately without waiting for the nationalratifications which a formal international treaty would have required. It wasleft to each State to “sort out” the domestic legal conditions for its financialparticipation in the EFSF, subsequently to the start of the EFSF’s activity.

There were, however, two possible problems of EU constitutional law withthe package adopted in May 2010. On the one hand, it was not entirely certainwhether the creation of the EFSF complied with the primary law norm laiddown in Article 125 TFEU that prohibits EU States from being liable for orassuming 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 usedfor a second rescue operation for Greece.

10. See Art. 2(2) of Council Regulation 407/2010, referring to an upper limit of the loans orcredit lines constituted by “the margin available under the own resources ceiling for paymentappropriations.” What this sibylline phrase means is that only those 60 billion were available forserving as a loan guarantee, with all the rest of the EU budget being committed to otherpurposes under the multiannual budgetary framework. See Middleton, op. cit. supra note 6, at436.

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 moneysubject to severe conditionality was not caught by the Treaty prohibition ongiving (direct) financial support, but this interpretation was controversial. Onthe other hand, it was not entirely certain that the EU Regulation creating theEFSM had correctly been based onArticle 122(2)TFEU. In particular, it couldbe argued that Greece, Ireland and Portugal, the most likely futurebeneficiaries of EFSM support, were not facing exceptional occurrencesbeyond their control (as the text of Art. 122 requires), since their governmentshad contributed to create the sovereign debt crises they were facing.12

Those legal controversies became politically important because theGerman government feared the outcome of complaints against the new rescuemechanisms that had been lodged before the German Constitutional Court.Given the existing case law of the court of Karlsruhe in European affairs, thegovernment did not feel entirely confident about the outcome of thosecomplaints.13 So, the German Government began to plead with its fellowMember State governments for an amendment of the TFEU that wouldprovide a clear cover in primary EU law for the creation of a permanent crisismechanism that would replace the legally fragile EFSM and EFSF. Indeed,such a Treaty amendment could seem to eliminate both legal problemsmentioned above. By the insertion of an explicit provision in the TFEUauthorizing the euro area Member States to put in place a financial supportmechanism for countries in budgetary and financial trouble, any impedimentcaused by the bailout prohibition of Article 125 TFEU would be neutralizedby a complementary norm with the same treaty rank. In addition, the futuremechanism could replace the EU Regulation on the EFSM, thus cutting shortany possible legal challenges of the conditions under which it had beenadopted and implemented.

The hypothesis of a limited Treaty amendment to confront the euro crisishad first been mooted by the German chancellor Merkel already in March2010 but had then been greeted with much scepticism by the other EUgovernments who were rather horrified by the prospect of engaging in a newtreaty 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 thesematters, see Thym, “Euro-Rettungsschirm: zwischenstaatliche Rechtskonstruktion undverfassungsgerichtliche Kontrolle”, (2011) EuZW, 167. When the Constitutional Court gave itsjudgment on 7 Sept. 2011, it criticized the way the German parliament was involved in theEuropean rescue operations but did not question the validity of those rescue operationsthemselves as regards Art. 122 or Art. 125 TFEU. However, by that time the amendment of theTFEU had already been adopted . . . For a comment of the September 2011 judgment, see VonUngern-Sternberg, in 8 EuConst (2012) 304.


Lisbon Treaty. However, by the autumn of 2010, the crisis had escalated somuch that the German Government managed to convince the FrenchGovernment, as emerged from a joint Franco-German declaration made inDeauville, on 18 October 2010, in which the two countries considered “that anamendment of the Treaties is needed and that the President of the EuropeanCouncil should be asked to present . . . concrete options allowing theestablishment of a robust crisis resolution framework before . . . March2011.”14

At the European Council meeting of 28–29 October 2010, some days afterDeauville, general agreement was found among all the participants on “theneed for Member States to establish a permanent crisis mechanism tosafeguard the financial stability of the euro area as a whole” and the Presidentof the European Council was invited “to undertake consultations with themembers of the European Council on a limited treaty change required to thateffect, not modifying article 125 TFEU (‘no bail-out’ clause).”15 Note that theformulation adopted by the European Council implied that the new crisismechanism was to be established by theMember States of the euro area ratherthan by the European Union itself. This choice paved the way for the use ofthe simplified revision procedure of Article 48(6) TEU. Since the amendmentwould relate to the “internal policies” part of the TFEU and since it would notincrease the competences of the Union, the conditions for the use of thesimplified procedure would prima facie be met.

Following this political agreement of 28–29 October, a draft amendingDecision was adopted by the next European Council meeting, on 16–17December 2000.16 This draft Decision then formed the basis for theconsultation of the EU institutions that is required by the text of Article 48(6)TEU.17 When examining the draft European Council decision, the EuropeanParliament proposed some changes which aimed at inscribing acomplementary role for the European Union institutions in the text of the newArticle 136(3), in particular through stating that the principles and rules forthe conditionality of financial assistance under the mechanism should be

14. See Kaczynski and ó Broin, From Lisbon to Deauville: Practicalities of the LisbonTreaty Revision(s), CEPS Policy Brief no.216, Oct. 2010.

15. Conclusions of the European Council of 28–29 Oct. 2010, EUCO 25/10, p.2.16. Conclusions of the European Council of 16–17 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 ofinstitutional changes in the monetary area”, but there is nothing in the text of Art. 48(6) thatprevents 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 competenceson the European Union and, hence, use of the simplified revision procedurewould no longer have been justified. In view of this, the European Councilstuck to its guns and, at its March 2011 meeting, adopted its draft Decisionwithout modifying a word of it, and in particular without mentioning the EUinstitutions 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 ESM’sfuture operation. In particular, the Commission was to act as an agent of theintergovernmental cooperation system.

Given this background, there is a surprising element in the sequencingbetween the amendment of the TFEU and the adoption of the Treatyestablishing the ESM. Since, at least from the perspective of the GermanGovernment, the amendment of Article 136 TFEU was meant to pave the wayfor the lawful creation of a permanent mechanism, one could have expectedthat the treaty establishing that mechanism (the ESM Treaty) would beadopted and signed only after the TFEU amendment had safely passed thenational approval hurdles and was ready to enter into force. But a differentscenario unfolded. The adoption and ratification of the ESM Treatyoverlapped in time with the domestic approvals of the TFEU amendment.More surprisingly even, the ESM Treaty entered into force in October 2012before the amendment of the TFEU, which, at the time of writing thiscomment, was still awaiting ratification by the last of the 27 Member States,namely the Czech Republic. This unorthodox sequencing became one of thecontentious 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 aninternational treaty followed logically from the TFEU amendment discussedabove. The fact that the amendment indicated that the mechanism would beestablished “by the Member States whose currency is the euro” left no otherchoice 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 aninformal 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 ofthe European Parliament of 23 March 2011, Amendment of theTreaty on the Functioning of theEuropean Union with regard to a stability mechanism for Member States whose currency is theeuro.

19. Those further particulars were called the “Term sheet on the ESM” and were publishedin Annex II of the European Council Conclusions of 24–25 March 2011.


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 11July 2011,20 but it was subsequently re-negotiated due to the unfolding of thecrisis, which convinced the euro area governments of the need to charge theESM 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 theeuro area,21 after which the domestic ratification procedures could start.22

The ESM takes the legal form of an international organization with strongintergovernmental features that are, in fact, largely inspired by the IMFmodel.23 The principal organs created by the treaty, namely the Board ofGovernors and the Board of Directors, are both composed of representativesof the governments of the 17 ESM Members. The Commission and the ECBcan 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 itsdecision-making rules. Some of the ESM’s decisions are to be adopted by aqualified majority of 80% (with the States being given a weighted vote inaccordance with their financial contributions to the Mechanism, as detailed inAnnex I of the treaty), but the most important decisions (in particular thedecision to provide financial support to a country facing a government debtcrisis) must be taken unanimously.

The reason why the ESM was established as a separate internationalorganization rather than as an EU agency is path-dependent on the precedingevents. As the ESM was constructed as the “natural successor” of theintergovernmental EFSF (which will now be discontinued), it followed closelythe latter’s mode of operation. A second very important reason is thecontinued insufficiency of EU budgetary resources in view of the vast amountof funds that was thought needed for the ESM; as well as the continuedunwillingness of the non-euro Member States of the EU to shoulder part of thefinancial contributions and the associated risks. However, the closeness of thenew organization to the European Union is expressed in various ways: bymeans of references in the Preamble to the EU’s economic governance rules

20. For a legal commentary of this first version, see Ohler, “The European StabilityMechanism: The long road to financial stability in the euro Area”, 54 German Yearbook ofInternational Law (2011), 47.

21. Treaty establishing the European Stability Mechanism, 2 Feb. 2012.The text is availableat: www.esm.europa.eu/pdf/esm_treaty_en.pdf.

22. Given the proximity in time and subject matter with the “Fiscal Compact”, which wassigned 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 twointernational treaties as a single political package.

23. This point is made by Louis, “The unexpected revision of the Lisbon Treaty and theestablishment of a European Stability Mechanism”, inAshiagbor, 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 theTreaty entrusting supporting roles to three EU institutions, the Commission,the ECB and the Court of Justice. Since this “borrowing” of EU institutions byan international organization became a central object of contention in thePringle case, we will discuss this feature in detail further on, in the Commentsection of this note. The governance system of the ESM thus forms a curioushybrid:24 all formal decision-making powers are entrusted to organscomposed of representatives of the Members; but those representativeshappen to be the same persons who represent their country in the EU’sinformal Eurogroup and Euro working group; and major tasks in preparingand implementing those decisions are entrusted to the supranational EUinstitutions, the Commission and the ECB.

2.3. Ratification debates and Mr Pringle’s legal challenge

The ESM treaty, like all treaties of some importance, had to be ratified after itssignature by the Contracting Parties before they became bound by it. This isnot a whimsical complication, but a requirement imposed by the nationalconstitutional law of most States. Indeed, most European constitutionsnowadays require that international treaties of some importance must beapproved by the national parliament before the government can actuallydeclare that the State will be bound by the treaty; this is to avoid governmentsundermining their parliaments’ legislative powers “through the backdoor” byagreeing legal obligations or transfers of sovereignty through the negotiationof an international treaty.

The hazardous nature of the national ratification process is well knownfrom the revisions of the EU Treaties. The ratification of the Treaty ofMaastricht, the Treaty of Nice, the Constitutional Treaty and the LisbonTreaty were all very laborious; three of them required a repetition of a popularreferendum in one country, and the Constitutional Treaty never came intobeing because of ratification problems.25 The amendment of Article 136TFEU was similarly subject to the separate approval by each of the 27 EUMember States, even though it was enacted by means of the new simplifiedrevision procedure.

Separate international agreements, which do not involve an amendment ofthe TEU and TFEU, can however define alternative requirements for their

24. The term of “hybridité institutionnelle” is used by Martucci, “La solidarité intéresséedans la zone euro: les mécanismes de stabilité”, Etudes européennes, <www.etudes-europeennes.eu> (posted on 3 Aug. 2012).

25. See the recent retrospective analysis proposed by Closa, The Politics of Ratification ofEU Treaties (Routledge, 2013).


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 aspectacular example of this flexibility in that it provided that it would enterinto force if ratified by merely 12 of the 25 signatory States, provided thatthose 12 were all part of the euro area. The text of the ESM Treaty was lessflexible, but it still eliminated the veto power of the smaller euro States byproviding 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 largesteuro area countries, which contribute more than 10% each, still possessed a“ratification veto”, but the smaller euro States did not. This may help toexplain the fact that the domestic legal challenges that tried to prevent oroverturn the ratification of the ESM Treaty attracted varying degrees ofattention, depending on the country concerned. Thus, the Estonian SupremeCourt was asked whether ratification of the ESM Treaty was compatible withthat country’s constitution, but even if its judgment had been negative (whichit was not),27 this would not have stopped the ESM Treaty from entering intoforce among the other 16 countries. Similarly, the post-ratification challengesthat are currently pending before the Austrian and Belgian ConstitutionalCourts will not affect the legal life of the ESM, since those countries’participation in the ESM is not indispensable.

But Germany’s participation was of course essential, which explains theconsiderable public attention raised by the constitutional challenge of Germanratification of the ESM Treaty (and of the amendment of Art. 136 TFEU andof the Fiscal Compact). The elaborate interim order decided by the GermanConstitutional Court on 12 September 2012 rejected the arguments of theapplicants and cleared the way for Germany’s ratification of the ESM Treatyand, immediately afterwards, the entry into force of the Treaty.28 The ESMTreaty did indeed enter into force on 27 September 2012 after Germany hadsubmitted 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 formallycalled the Treaty on Stability, Coordination and Governance in the Economic and MonetaryUnion. The text of this treaty, signed by the 25 contracting parties on 2 March 2012, can befound on <www.european-council.europa.eu/eurozone-governance/treaty-on-stability>.

27. An English translation of the Estonian Supreme Court’s judgment of 12 July 2012 canbe found on that court’s website <www.riigikohus.ee/id=1347>.

28. First commentaries in English of that judgment include: Schmidt, “A sense of déja vu?The FCC’s Preliminary European Stability Mechanism Verdict”, 14 German Law Journal(2013), 1; Wendel, “Judicial restraint and the return to openness: The Decision of the GermanFederal Constitutional Court on the ESM and the Fiscal Treaty of 12 September 2012”, 14German Law Journal (2013), 21; and Schneider, “Yes, but… One more thing: Karlsruhe’sruling on the European Stability Mechanism”, 14 German Law Journal (2013) 53. Among themany 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 requirementsimposed by the German Constitutional Court in its judgment.29

Apparently, the ESM Members did not worry enough about the Irishratification challenge in the Pringle case to wait for its outcome beforestarting 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 thePringle case differs from the Estonian and German constitutional cases by thefact that the Irish Supreme Court did not limit itself to examine questions ofnational constitutional law but also openly addressed questions of EUconstitutional law; and, since the Irish Supreme Court had considerable doubtsabout how to interpret the relevant norms of EU constitutional law, it quiterightly decided to submit them to the Court of Justice.

The Pringle case originated in Spring 2012. At that time, the public debateon the euro crisis was dominated, in Ireland, by the referendum on ratificationof the Fiscal Compact, which was held on 31 May and which paved the wayfor Ireland’s ratification of that treaty.The Irish Government, in the meantime,had planned to deliver the “approval” of the amendment of Article 136 TFEUand the ratification of the ESM Treaty without submitting those texts to areferendum. It considered that those instruments did not necessitate a prioramendment of the Irish Constitution, in which case a referendum would havebeen mandatory. Mr Thomas Pringle, an independent member of the IrishParliament for Donegal South West, thought otherwise and brought a legalaction before the High Court to try to stop the approval and ratification of thetwo instruments. The generous Irish standing rules allowed him to bring theclaim for a court injunction by which the government would be prohibitedfrom pursuing the (merely) parliamentary approval of the TFEU amendmentand of the ESM Treaty, on the ground that this would be in violation of theIrish Constitution. He also argued that both legal instruments were anyway inbreach of primary EU law.

The case was heard, at first instance, by Justice Marty Laffoy in the HighCourt. She delivered her judgment on 17 July 2012 and rejected most of theapplicant’s claims. The appeal brought by Pringle before the Supreme Courtwas dealt with very rapidly. Already on 31 July 2012 the Supreme Court gaveits decision in which it rejected the arguments based on Irish constitutionallaw but decided to refer several questions of EU law to the Court of Justice. Italso rejected the injunction claim made by Pringle, which consisted inrestraining the government from ratifying the ESM Treaty whilst the case waspending. In view of the rejection of that part of Mr Pringle’s claim, the Irish

29. Declaration on the European Stability Mechanism, made by the Representatives of theParties to the ESM Treaty, 27 Sept. 2012, available at <www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/132615.pdf>.


Government and Parliament went ahead and the ESM Treaty was ratified byIreland on 1 August 2012.30

The Supreme Court formulated three preliminary questions for the Court ofJustice (the second of the three containing a number of sub-questions). Theycan be summarized as follows.31 By its first question, it sought to ascertainwhether European Council Decision 2011/199 was valid in so far as itamended Article 136 TFEU by providing for the insertion, on the basis of thesimplified revision procedure under Article 48(6) TEU, of an Article 136(3)relating to the establishment of a stability mechanism. The second questionconcerned the interpretation of Articles 2, 3, 4(3) and 13 TEU, and of Articles2(3), 3(1)(c) and (2), 119 to 123, and 125 to 127 TFEU, and of the generalprinciples of effective judicial protection and legal certainty. The SupremeCourt sought to ascertain whether those articles and principles preclude aMember State whose currency is the euro from concluding and ratifying anagreement such as the ESM Treaty. By its third question, the Supreme Courtasked whether the Member States were entitled to conclude and ratify theESM Treaty before the entry into force of Decision 2011/199.

3. TheView of theAdvocate General

At the request of the referring court, the president of the Court of Justicedecided to deal with the Pringle case through the expedited procedure.32 Inthis procedure, there is no formal Opinion of an Advocate General, but it isnevertheless stated that “the Court shall rule after hearing the AdvocateGeneral”.33 Given the constitutional importance of this case, the “hearing”took the form of an elaborate written analysis presented by Advocate GeneralKokott on 26 October which was called “View” because it is not, formallyspeaking, an “Opinion”. Kokott’s View foreshadows many of the argumentsmade in the Court’s judgment, and she comes to the same overall conclusionas 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, theAdvocate 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, 22May 2012; “Pringle begins ESM legal challenge”, Irish Times, 19 June 2012; “EU court isasked 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 thejudgment. 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 contentconsists in a Treaty amendment. That is something different from jurisdictionto give preliminary rulings on the validity of the Treaties, which the Courtdoes not have according to Article 267 TFEU. The criteria by which thesubstantive validity of a Treaty amending decision is to be assessed are that itmay not increase the competences of the Union and that it must be restrictedto amendments of provisions of Part Three of the TFEU. The latter conditionalso implies that a formal amendment of Part Three may not have as aconsequence a substantive amendment of primary law outside Part Three ofthe TFEU.34

According to the Advocate General, Decision 2011/199 does not increasethe competences of the Union. The amendment is directed solely to theMember States and neither regulates powers of the Union, nor imposes onMember States an obligation under European Union law to act. Also, thedecision is restricted to an amendment of provisions of PartThree of theTFEUin the sense that it does not substantively alter those relating to the Union’sexclusive competence under Articles 2(1) and 3(1)(c) TFEU.35 It is notnecessary to decide whether Decision 2011/199 confers competence in thearea of monetary policy on Member States. Even in areas where the Union hasan exclusive competence, the Member States may act if empowered to do so bythe Union.36 It is imperative that the future Article 136(3) TFEU is interpretedin a way that satisfies both criteria.37

The largest part of the Advocate General’s View is devoted to the IrishSupreme Court’s second question, whether Member States may conclude andratify the ESM Treaty. The relevant Treaty provisions on the division ofpowers between the Union and the Member States do not preclude this. In theabsence of an explicit definition of monetary policy in the Treaties, such adefinition must be found in the Treaty provisions. More specifically the scopeof monetary policy within the meaning of Article 3(1)(c) is found in the tasksof the European System of Central Banks (ESCB) listed in Article 127(2)TFEU. The activity of the ESM – providing credit facilities – does not comewithin these tasks.38 In fact, the ESM does not affect the exclusive competenceof the Union in monetary policy. It also does not infringeArticles 2(3) and 5(1)TFEU on the coordination of economic policies within the Union, because theconditions imposed under an ESM financial assistance operation do not

34. View, para 28.35. Ibid., para 52.36. Ibid., para 51.37. Ibid., para 61.38. Ibid., para 82.


constitute coordination of economic policies.39 Moreover, Article 3(2) TFEUon the exclusive competence of the Union to conclude agreements with thirdcountries and international organizations, does not prohibit the conclusion ofagreements 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 isbound by that Treaty provision, because the Member States can be in breachof it also when acting through the ESM. And it is even possible that they are inbreach not only through an actual grant of financial assistance, but also by theprior conclusion and ratification of the treaty, if any grant of assistance underthe ESM Treaty would necessarily violate Article 125 TFEU.41

A voluntary assumption of liability for the commitments of anotherMember State would be in breach of Article 125 TFEU. The ESM instrumentshowever do not constitute such guarantees of commitments.42 Are MemberStates then prohibited from granting loans? To answer this question, theAdvocate General looked at the wording, scheme and objective of Article 125TFEU as well as at basic structural principles of the Union. Granting loansdoes not mean assumption or discharge of an existing commitment of anotherMember State, but the imposition of a new commitment. Moreover, theexistence 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 otherwiseprohibits any granting of loans to Member States”.43 The objectives ofArticle 125 TFEU are to ensure “that neither debtor Member States nor thecapital 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 prohibitedfrom providing any financial support to other Member States”.45 However,such a broad reading of the prohibition would go against two basic principlesof the Union “which rank as of at least equal importance to Article 125TFEU”,46 namely sovereignty of the Member States and solidarity. Aprohibition of direct support is enough to prevent circumvention of theobjectives of Article 125 TFEU; loans under the ESM Treaty are thereforepermitted. The other instruments of the ESM, namely bond buying on the

39. Ibid., paras. 91–92.40. Ibid., para 98.41. Ibid., para 111.42. Ibid., para 116.43. Ibid., para 124.44. Ibid., para 133.45. Ibid., para 133.46. 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 anassumption of the commitments of another Member State (secondary market).

The fact that the ESM Treaty provides tasks for the Commission, theEuropean Central Bank and the European Court of Justice also does notpreclude its conclusion and ratification. It follows from the Court’s case lawthat the Commission may also act outside the tasks conferred on it in theTreaties on the initiative of the Member States. And even though the decisionby representatives of all governments of 20 June 2011 on the tasks to beperformed by the Commission and ECB goes beyond the previous case law, itdemonstrates sufficient collective action on the part of the Member States andthe 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 completelyindependent in carrying them out. Only if the ESM Treaty would require theCommission to perform tasks prohibited by the Treaties would there be aninfringement of European Union law. The same reasoning applies to theEuropean Central Bank, which in comparison with the Commission isentrusted with relatively minor tasks by the ESM Treaty. The role for theCourt of Justice, finally, can be based on Article 273 TFEU, since disputesare related to the subject matter of the Treaties and concern disputes betweenMember States within the meaning of this article. Disputes between an ESMmember and the ESM itself can in fact be assimilated to a dispute betweenMember States.49

The Advocate General leaves unanswered the question whether the Charterof Fundamental Rights, which provides for a right to an effective legal remedyunder Article 47, is applicable to the activity of the ESM. In any event, “theright of individuals to an effective legal remedy in respect of the activity of theESM is sufficiently protected”,50 in light of the ordinary procedure of Article267 TFEU. Conclusion and ratification is furthermore not in breach of theprinciple of sincere cooperation of Article 4(3) TFEU. The tasks conferred onthe Commission and ECB are evidence to the contrary.51

With regard to the third question, the Advocate General’s view is that theright to conclude and ratify the ESM Treaty is not dependent on the entryinto force of Decision 2011/199, since Member States may conclude it alreadyon the basis of current EU law.

47. Bond buying on the primary market entails a purchase directly from the State issuing thebond; buying on the secondary market means buying a bond that is already on the market.

48. Ibid., paras. 172–173.49. Ibid., para 189.50. Ibid,, para 193.51. Ibid., para 199.


4. The Judgment of the Court of Justice

The Pringle judgment was given by the Full Court, something that happens inthe rare instance where it decides on the dismissal of (a member of) anindependent EU institution (Commission, Ombudsman, Court of Auditors),or where it considers – as in the present circumstances – that a case before it isof exceptional importance.52 At the request of the referring court, it wasmoreover the result of an expedited procedure.53 There is no reference on theopening page of the judgment to the existence of the Advocate General’sView, as would normally be the case with an Opinion. Also, there is noreference 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 General’sreasoning.

The first preliminary question by the Irish Supreme Court – about thevalidity of European Council Decision 2011/199 as part of the simplifiedrevision procedure of Article 48(6) EU – was challenged both for lack ofjurisdiction and inadmissibility. The Court had no problem with eitherchallenge. Examining whether the decision complies with the conditions ofthe simplified revision procedure is part of the Court’s mandate under Article19(1) EU to ensure that the law is observed. And since it is not evident that MrPringle had standing to bring an action for annulment against the EuropeanCouncil decision,54 the question can be found admissible without theprocedure of Article 263 TFEU being circumvented.

Substantively, the first question was answered in three steps. Firstly, theCourt found that Decision 2011/199 does not affect the exclusive competenceheld by the Union under Article 3(1)(c) TFEU in the area of monetarypolicy.55 Neither the objective of the stability mechanism envisaged –safeguarding the stability of the euro area as a whole – nor the instrumentsused – the grant of financial assistance – fall within EU monetary policy.Instead, the establishment of the mechanism falls within the area of economicpolicy. Secondly, the Court found that Decision 2011/199 does not affect theUnion’s competence in the area of the coordination of the Member States’economic policies.TheTreaties do not confer any specific power on the Unionto establish a stability mechanism of the kind envisaged by Decision2011/199; 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. Art. 16 Statute of the Court of Justice of the European Union.53. Art. 105 Rules of Procedure of the Court of Justice of the European Union.54. Case C-188/92, TWD Textilwerke Deggendorf, [1994] ECR I-833.55. Judgment, para 63.

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TFEU.56 Therefore, the Member States of the euro area are entitled toconclude an agreement between themselves for the establishment of thismechanism as long as they do not disregard their duty to comply withEuropean Union law.57 It follows from these first two steps that Decision2011/199 only concerns provisions of Part Three of the TFEU, which is one ofthe conditions for the use of the simplified revision procedure. Thirdly, theCourt 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 theMember States have the power to establish a stability instrument.58

The second question by the Irish Supreme Court asked the Court tointerpret a number of Treaty provisions to see whether they preclude aMember State from the euro area from concluding and ratifying an agreementsuch as the ESM Treaty.That is not the case for any of the provisions analysed.

With regard to the provisions relating to the Union’s exclusive competence,the Court found that the activities of the ESM do not fall within the monetarypolicy of Articles 3(1)(c) and 127 TFEU. Nor does the ESM Treaty affectcommon rules or alter their scope, including the rule laid down in Article122(2) TFEU, so that the Union does not have exclusive competence toconclude a treaty such as the ESM Treaty under Article 3(2) TFEU. Withregard to provisions relating to economic policy, the Court first found thatneither the financing mechanism of the ESM Treaty, nor the conditionalityprescribed, constitutes an instrument for the coordination of economicpolicies of the Member States.59 It then found that Article 122 TFEU does notpreclude conclusion or ratification of the ESM Treaty, since nothing in it“indicates that the Union has exclusive competence to grant financialassistance 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 123TFEU, “is not intended to prohibit either the Union or the Member States fromgranting any form of financial assistance whatever to another MemberState.”61 How then to know what forms of financial assistance are compatiblewith Article 125 TFEU? The answer, said the Court, is to be found in theobjective pursued by the article. The aim of this provision is to ensure that theMember States follow a sound budgetary policy, while compliance “with suchdiscipline contributes at Union level to the attainment of a higher objective,namely maintaining the financial stability of the monetary union.”62 From thisinterpretation follow three requirements for compatibility: 1) Member States

56. Ibid., para 67.57. Case C-55/00, Gottardo, [2002] ECR I-413, para 32.58. Judgment, para 72.59. Ibid., paras. 110–111.60. Ibid., para 120.61. Ibid., para 130.62. Ibid., para 135.


must remain responsible for their commitments; 2) financial assistance mayonly be granted when indispensable for the safeguarding of the financialstability of the euro area as a whole; and 3) financial assistance must besubject to strict conditions.63 The ESM Treaty satisfies these requirements,so that Article 125 TFEU does not preclude its conclusion or ratification. Withregard 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 andbond-buying on the secondary market does not make the ESM responsible forthe Member State’s debt.66 Moreover, since the ESM Treaty containsprovisions which ensure that, in carrying out its tasks, the ESM will complywith European Union law, it also does not violate Article 4(3) TEU.

Considerable attention was also given to the compatibility of the tasksgiven to EU institutions in the ESM Treaty with Article 13 TEU. The Courtfirst examined the role allocated to the Commission and the ECB. It made acombined reference to its case law on the use of institutions outside theframework of the Union,67 and its case law on the use of institutions underinternational treaties concluded by the Union.68 The following conditionsmust be satisfied here: we must be dealing with an area which does not fallwithin the exclusive competence of the Union, we must be dealing with“tasks”, and these tasks may “not alter the essential character of the powersconferred on those institutions by the EU and FEU Treaties”.69 The dutiesallocated to the Commission and to the ECB fulfil these conditions. Withregard to the role allocated to the Court itself in the ESM Treaty, the Courtfound that the allocation of jurisdiction by the ESM Treaty to the Court tointerpret and apply that treaty satisfies the conditions laid down in Article 273TFEU.

In the final part of its answer to the second question, the Court examinedwhether the ESM Treaty is in breach of Article 47 of the Charter ofFundamental Rights, which guarantees that everyone has a right to effectivejudicial protection. Under Article 51(1) of the Charter, its provisions areaddressed 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. 136–137.64. Ibid., para 139; Similarly View, paras. 121–122.65. Judgment, para 140; Similarly View, para 155.66. Judgment, para 141; Similarly View, paras. 156–159.67. 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 notimplementing Union law within the meaning of Article 51(1) of the Charter.70

The Court’s discussion of the third preliminary question was short. Theamendment of Article 136 TFEU by Article 1 of Decision 2011/199 onlyconfirms 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 theentry into force of that decision.71 On the basis of the above, the Full Courtruled:

“1. Examination of the first question referred has disclosed nothingcapable of affecting the validity of European Council Decision2011/199/EU of 25 March 2011 amending Article 136 of the Treaty onthe Functioning of the European Union with regard to a stabilitymechanism 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 thegeneral principle of effective judicial protection do not preclude theconclusion between the Member States whose currency is the euro of anagreement such as the Treaty establishing the European stabilitymechanism . . .concluded at Brussels on 2 February 2012, or theratification of that treaty by those Member States.

3. The right of a Member State to conclude and ratify that Treaty isnot subject to the entry into force of Decision 2011/199.”

5. Comment

The Pringle judgment raises a wealth of interesting legal issues, which willprovide much food for legal thought and discussion in the years to come. Inthis comment, we will only briefly expose and discuss what appear to be theessential 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 ESMand the Court’s predicament in Pringle”, 14 German Law Journal (2013), 113; VanMalleghem, “Pringle: A paradigm shift in the European Union’s monetary constitution”, 14German Law Journal (2013), 141; Tomkin, “Contradiction, circumvention and conceptualgymnastics: The impact of the adoption of the ESM Treaty on the state of Europeandemocracy”, 14German Law Journal (2013), 169; Thym and Wendel, “Préserver le respect dudroit dans la crise: la Cour de Justice, le MES et le mythe du déclin de la communauté dedroit”, (2012) CDE, 733; Nettesheim, “Europarechtskonformität des EuropäischenStabilitätsmechanismus”, (2013) NJW, 14; notes by Ruffert and Thym in 68 JZ (2013) 257and 259.


examine in turn: the unusual fact that the Court was asked to review a legal actthrough which the TFEU (part of the EU’s 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 treatyrelates, in its content, to monetary policy or to economic policy – a questionwhich had a direct bearing on the compatibility of that treaty with EU law; thequestion whether the ESM treaty was compatible with the so-calledno-bail-out clause of Article 125 TFEU; and, finally, the question whether itwas permissible for Member States to “borrow” EU institutions whenimplementing a separate international agreement, as they did in the ESMtreaty.

5.1. Judicial review of Treaty revision

Could the Court of Justice review the legality of European Council Decision2011/199 amending Article 136 TFEU? Most governments intervening in thecase had proposed a negative answer to that question.73 The problem did notarise 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 EuropeanCouncil is one of the Union’s institutions listed in Article 13(1) TEUand since the Court has jurisdiction . . .‘to give preliminary rulingsconcerning…the validity . . .of acts of the institutions’, the Court has, inprinciple, jurisdiction to examine the validity of a decision of the EuropeanCouncil.” This extension of the Court’s review powers to acts of the EuropeanCouncil happened through the Treaty of Lisbon (which listed the EuropeanCouncil among the institutions of the Union) and responded to the fact that theEuropean Council’s formal decision-making powers were increased by theTreaty of Lisbon.74

One of those new decision-making powers of the European Council, andpossibly the most important one, is the power to adopt amendments of theTFEU according to the two simplified procedures for Treaty amendmentintroduced by the Lisbon Treaty. By bringing European Council decisions ofthis nature within its jurisdiction, the Court of Justice for the first timeassesses the legality of Treaty amendments, and this legal feature was thereason why the intervening governments contested the jurisdiction of theCourt 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 legalityof Treaty amendments for the simple reason that those amendments weremade by means of an international treaty between the Member States, andsince the Court has no jurisdiction to examine the legality of such agreements,either under the direct action for annulment or under the preliminary referencefor validity, it rejected those challenges.75 What happened in Pringle wastherefore the first example, in the EU legal order, of the judicial control of theconstitutionality of constitutional change. Even in national constitutional law,this happens very rarely and, and when it happens it is mostly because the textof the Constitution contains an “eternity clause” which intends to protect somecore content of the Constitution against later amendments. Since there is nosuch eternity clause in the European Treaties, it has been assumed in the pastthat there were no substantive limits to the amendment powers of the MemberStates.76

Yet, the Court of Justice had affirmed, in its earlier case law, that there wereprocedural conditions that the Member States must respect when amendingthe Treaties. In the Defrenne case (which was a preliminary reference oninterpretation), the Court of Justice had excluded the possibility that theMember States could modify the EEC Treaty by means of an informalagreement: “apart from any specific provision, the Treaty can only bemodified by means of the amendment procedure carried out in accordancewith Art. 236” (the provision of the EEC Treaty corresponding to the currentArt. 48TEU).77 TheDefrenne ruling was tacitly accepted by the Member Stategovernments, and they never, since then, purported to change the EuropeanTreaties in ways not provided for by the Treaties’ “official” amendmentclauses.

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, theTreaties can only be amended by means of the ordinary revision procedure ofArticle 48(2 to 5). Indeed, the greater variety of Treaty amendment procedurescreated by the Lisbon Treaty was obviously not meant to offer to the MemberStates 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 ifthe 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 throughinternational law”, 25 Netherlands Yearbook of International Law (2004) 51, at 56–57.

77. Case 43/75, Gabrielle Defrenne v. Sabena, [1976] ECR 455, para58.


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 lattermust involve deliberation by a Convention, unless the European Parliamentagrees to waive this step, and thus ensures a broader and more transparentdebate than the relatively narrow and confidential procedure applicable underArticle 48(6) TEU.

From the perspective of the rule of law and the protection of the institutionalbalance, it is therefore logical that the European Council decisions adoptingsimplifiedTreaty 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 ofparliament. The Court of Justice is obviously the appropriate body forexercising 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 “shallensure that in the interpretation and application of the Treaties the law isobserved.” The Court thus adds a new item to the long list of constitutionalfunctions it performs in the EU legal order. One should be clear, though, aboutthe limits of this review function: it only involves checking whether the EUinstitutions or the Member States, as the case may be, have chosen the correctprocedure for Treaty amendment given the kind of amendments they want toenact. It does not involve posing any limits to the content of the Treaty reformitself.

Having established its jurisdiction to review the European Council’s Treatyamendment, the Court then verified the two conditions for use of thesimplified amendment procedure. The “no new competence” condition wasrelatively easily satisfied, since the amendment of Article 136 TFEU took theform of an authorization for the Member States (and not for the EuropeanUnion) to set up a permanent stability mechanism. The “internal policychapters” 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 theinternal policy chapters, of course. But Mr Pringle’s lawyers had argued thatthe amendment indirectly affected other parts of primary law.

It seems plausible, indeed, that Article 48(6) TEU should not be used tomake 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 isnominally placed in Part Three TFEU but which de facto amends otherprimary 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 thegeneral provisions on EU competence which one finds in the opening articlesof the TFEU. In particular, Mr Pringle’s 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 rescuemechanism, affected the Union’s exclusive competence in monetary affairs,stated in Article 3(1)(c) TFEU. By allowing the Member States to set up arescue fund, so the argument of Mr Pringle went, the exclusivity of monetarypolicy is affected, and therefore this Treaty amendment has legalconsequences beyond Part Three of the TFEU and should have been enactedthrough the ordinary revision procedure. In order to counter this argument, theCourt had to show that the creation of a rescue fund belongs to economicpolicy rather than monetary policy, and since economic policy is not definedas an exclusive EU competence, the opening provisions of the TFEU werenot affected by the permission given to the Member States to create the rescuefund. We will comment in greater detail on this part of the Court’s reasoningin 5.3 below.

5.2. The Court’s jurisdiction to examine international agreements of theMember 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 theCourt of Justice can establish, either in a direct action for annulment or in apreliminary reference on validity. Indeed, the Irish Supreme Court did notsubmit a preliminary question on the validity of the ESM Treaty but rather onwhether, by concluding that treaty, Ireland (and the other 16 euro areacountries) had acted in breach of its (and their) EU law obligations.Preliminary references enquiring about the interpretation of EU law are oftenformulated in terms of the compatibility of national law with EU lawobligations; the distinctive feature of this case is that the contested act was notone of national law, but an inter se treaty concluded between a group ofMember States.

In the framework of a reference for interpretation of EU law, the Court ofJustice could not give a direct answer to the question of compatibility; it ratheruses the usual circumlocutory and slightly hypocritical formula that “theCourt has jurisdiction to provide the national court with all the criteria for theinterpretation of European Union law which may enable it to assess whetherthe provisions of the ESM Treaty are compatible with European Union law”.79

The fact that the question referred to an international agreement rather thanto an act of domestic Irish law does not make any difference in this context. Inits case law, the Court of Justice has consistently held that the primacy of EUlaw extends not only to measures of national law but also to agreementsbetween two or more Member States, which must be disapplied by national

79. Judgment, para 80.


courts if they are inconsistent with EU law. Similarly, in direct actions forinfringement, the Court has not distinguished between infringements causedby a State acting on its own and infringements caused by a bi- or multilateralagreement concluded between several Member States.80 This is entirelylogical. It would otherwise be easy for the Member States to escape from theirEU law obligations by concluding a conflicting treaty between each other. Inthis respect, the EU legal order is more radical than the rules of generalinternational law, as laid down in the Vienna Convention on the Law ofTreaties which allow two or more States parties to a multilateral agreement tomodify the obligations under that agreement between themselves, as long asthe 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, butthere is a major distinction to be made, depending on the area of EU law thatis involved: in certain areas, the very fact that an inter se agreement isconcluded is in breach of the European Union’s exclusive competence; inother areas – those outside the EU’s exclusive competence – inter seagreements are permissible in principle. Indeed, if Member States havepreserved the competence to make domestic law in a given area, they canlogically also exercise that competence together, by concluding aninternational agreement between themselves. These agreements should not,however, contain institutional or substantive provisions that are incompatiblewith specific norms of EU law.82

In its Pringle judgment, the Court basically follows this distinction indealing with the complex preliminary question relating to the ESM treaty: itfirst examines those EU Treaty provisions that were argued, by Mr Pringle, topreclude the very possibility for the Member States to conclude an agreementsuch as the ESM treaty,83 and after having rejected those arguments, it turns toexamine the various provisions of EU law which were, still according to theapplicant, 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. 42–44.

81. For an analysis of the contrasting ways in which treaty conflicts are dealt with in EU lawand 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 arepermissible, and of the requirement of substantive compatibility with EU law, see De Witte,“Old-Fashioned flexibility: International agreements between Member States of the EuropeanUnion “, in de Búrca and Scott (Eds), Constitutional Change in the EU: From Uniformity toFlexibility (Hart, 2000), p. 31; and Schütze, “EC law and international agreements of theMember States – An ambivalent relationship”?”, 9 Cambridge Yearbook of European LegalStudies (2008), 387.

83. Judgment, paras. 93–107.

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various contentious issues in the three following sub-sections of thisComment.

5.3. Monetary or economic policy

The Court’s approach to the relationship between the permanent stabilitymechanism and the Treaty provisions on economic and monetary policy canbe summarized in three steps. Firstly, the Court had to decide whether thepermanent mechanism falls within monetary or economic policy. Secondly,after finding that it falls within the area of economic policy, it had to decide onthe division of power between the Union and the Member States in this policyarea. Finally, having concluded that the Member States have the power toestablish a permanent mechanism, it had to decide on the compatibility of themechanism with the economic policy chapter of the TFEU.

5.3.1. Not EU monetary policy, but economic policyIn the absence of a definition of the EU’s monetary policy in the Treaties, theCourt and the Advocate General take a different approach on how to establishthe scope of this exclusive EU competence of Article 3(1)(c)TFEU.The Courtstarts off from the objectives of the EU’s monetary policy, the primary onebeing price stability. Viewed against this objective, neither the permanentmechanism’s objective of safeguarding financial stability,84 nor theinstrument of granting financial assistance falls within the scope of monetarypolicy.85 This does not mean that financial stability is not a concern within thecontext of the EMU, but rather that no direct responsibility for achievingfinancial stability is attributed to any institution by the EU Treaties.86

The Advocate General instead looks at the tasks – as opposed to theobjectives – of the European System of Central Banks (ESCB) to describe thescope of monetary policy within the meaning of Article 3(1)(c) TFEU. Shelists foreign-exchange operations consistent with the exchange-rate policy,management of foreign reserves of the Member States and promotion of thesmooth operation of payment systems. That the first task of Article 127(2)TFEU, defining and implementing monetary policy, is not mentioned isunderstandable, as it does not tell us anything about what monetary policy is.But it does conceal further specific tasks relating to the control of moneysupply, relating for example to the key interest rates. In any event, providingcredit 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.


of the tasks of the ESCB.87 And even though the ESM might directly affectmoney supply, the activity of the ESM does not therefore constitute monetarypolicy.88

A further indication of what EU monetary policy involves is given by theCourt in its examination of the ESM, where it considers that “the ESM is notentitled either to set the key interest rates for the euro area or to issue eurocurrency”.89 Here the Court gets closer to the heart of monetary policy, byidentifying two of its main tools.90 It is not clear though why the Court refersto these instruments only here, and not when assessing Decision 2011/199.Also, the Court could have added, for example, the conduct of creditoperations with credit institutions (Art. 18(1) ESCB statute) and explainedhow 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 theestablishment of a stability mechanism is not part of EU monetary policy isconvincing, independently from whether one looks at the objectives, tasks orinstruments of EU monetary policy. The same holds for the argument made byboth that a measure of economic policy does not constitute (also) a measure ofmonetary policy, simply because it may have an effect on price stability.91

5.3.2. Economic policy: Between the Union and the Member StatesIf the establishment of the stability mechanism does not affect the Union’scompetences in the area of monetary policy, but instead falls within the scopeof economic policy, that leads the Court to discuss the relationship betweenthe mechanism and the Union’s competences and provisions in the latterpolicy area. The relevant parts of the judgment raise interesting questionsabout, for example, the relationship between the coordination of economicpolicies as referred to in Articles 3(2) and 5(1) TFEU and the specific Chapterin that Treaty on economic policy (Arts. 120–126 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 theinstruments 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 firstquestion 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 coordinatingmeasures” (Judgment, para 64), suggesting that all provisions on economic policy relate to thecoordination of national economic policies. On the other hand, in answering the secondquestion of the Irish Court, the ECJ follows the logic of the applicant in taking Arts. 119–121

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nature of the Union’s powers in this area.93 Within the limited scope of thiscomment it is not possible to exhaustively deal with these complex issues.Here we focus on the way the Court deals with the relationship between thepermanent mechanism and the Union policy area of economic policy. Afterfinding that there is no Union power to establish a permanent stabilitymechanism, the Court examines the compatibility of such a mechanism withUnion law. In the analysis that follows, note the different elements: providingfinancial assistance, setting up a permanent mechanism for this, and theconditionality attached to it.

The Court’s approach to the granting of assistance is that, in view ofArticle 122 TFEU, this is not an exclusive power of the Union.94 This is notsurprising and the same conclusion can be deduced from the AdvocateGeneral’s reasoning.95 However, the Court distinguishes providing supportfrom establishing a permanent mechanism to this end and goes a step furtherwhen it comes to the latter. It concludes that an ESM type of mechanismcannot be adopted by the Union on the basis ofArticle 122(2)TFEU.96 In otherwords, it falls outside the scope of the powers of the Union in the area ofeconomic policy. Since the Treaties confer no specific power on the Union toestablish a permanent mechanism in order to maintain the financial stability ofthe euro area, the Member States are entitled to conclude an agreementbetween themselves to this end, as long as they do not disregard their duty tocomply with EU law.97

It is true that there is no explicit conferral of a power to establish apermanent mechanism in Article 122 TFEU. But it did serve as the legal basisfor the European Financial Stabilization Mechanism (EFSM) in 2010, and wemay remember that the Commission President could not agree with theconclusion 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 ofeconomic 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 thePringle case)and A.G. Kokott in her View on the Pringle Case. According to Lenaerts, coordination ofeconomic policies is a shared power as it is not listed in Arts. 3 or 6 TFEU, see Lenaerts and VanNuffel, European Union Law (Sweet & Maxwell, 2011), p. 128; Kokott argues that the specificwording of the Treaty provisions, according to which it is not theUnion that has competence forthe coordination of economic policies, but it is for the Member States to coordinate theireconomic 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, 68–69.


TFEU should not be used for a mechanism designed to safeguard the financialstability of the euro area as a whole.98 Is it convincing to exclude the use ofArticle 122(2) TFEU for the setting up of a permanent mechanism to providefinancial assistance? The Court finds three arguments for its conclusion.Firstly, the role of the Union in the area of economic policy is restricted to theadoption of coordinating measures. This in itself is not conclusive, as thepowers in the area of economic policy seem to go beyond mere coordination inseveral instances (in the first place in Art. 122 TFEU itself!). Secondly, thepermanent character of the mechanism is problematic in light of the wordingof Article 122(2) TFEU, which prescribes that financial assistance may begranted in the case of “exceptional occurrences”. Borger however is rightwhen he points out that permanent capital flows go against the exceptionalcircumstances condition prescribed by Article 122(2) TFEU, but that neither atemporary mechanism nor permanent mechanism are necessarily in conflictwith this.99 Thirdly, the Court finds the objective of safeguarding the financialstability of the euro area as a whole problematic. If having the financialstability not of just one Member State but the eurozone as a whole as anobjective is problematic, the same could be argued for the EFSM’s objectiveof preserving the financial stability of the Union.100 It is not necessarilyproblematic though, as long as for each financial assistance operation – eitherthrough a temporary or permanent mechanism – the conditions of “theMember State experiencing, or seriously being threatened with severedifficulties caused by exceptional occurrences beyond its control” of Article122 TFEU are satisfied.101 Limiting the scope of financial assistance of oneparticular instrument to a specific objective is not necessarily in conflict withthis.

It seems that not so much the objective, but the use of Article 122 TFEU toestablish 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 nolonger be needed for such purposes. Heads of State or Government therefore agreed that itshould 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 toDecision 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 stabilizationmechanism (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 Councilunder 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 againstthe requirements of EU primary law”, 37 EL Rev. (2012), 771–784 at 780.

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can be considered problematic. This article obviously is not prima facie meantfor rule setting only for the eurozone, as is for example Article 136 TFEU. Butthat could be solved by using Article 122 TFEU in combination with theenhanced cooperation of Article 326 TFEU, obviously after establishing thatthe objective cannot be attained by the Union as a whole within a reasonableperiod (Art. 20(2) TEU).

All in all, it does not seem obvious that Article 122 TFEU is sufficient as alegal basis for the establishment of a permanent mechanism for financialassistance for the euro area. The consequence of the Court’s finding is that, ifthe Member States want to incorporate the ESM in the Union framework inthe future, they will have to amend the Treaties through the ordinaryamendment procedure or use Article 352 TFEU to incorporate it.

5.3.3. The compatibility of the ESM Treaty with the TFEU EconomicPolicy Chapter

It is clear from the above that the establishment of a stability mechanism forproviding financial support falls outside the scope of the competences of theUnion. Member States are therefore free to conclude the ESM Treaty, but onlyas long as it is compatible with EU law. We will come back to Article 125TFEU in detail below, as we believe it merits a separate treatment. Here wediscuss Articles 122 and 123 TFEU, and the provisions in the area ofcoordination of economic policies (Arts. 2(3), 119, 121 and 126 TFEU).

In relation to Article 122(2) TFEU the Court concludes that it confers noexclusive power on the EU to grant assistance,102 and that the ESM Treatydoes not affect the powers of the Council.103 The establishment of a permanentstability mechanism is therefore compatible with this article. Similarly,Article 122 TFEU read in combination with Article 3(2) TFEU does not vestin the EU an exclusive competence to conclude international agreementswhich would be affected by the conclusion of the ESM treaty. On thisparticular point, we respectfully submit that the Court has misread the Treatytext: Article 3(2) TFEU is about the EU’s exclusive power to concludeinternational agreements with third States and has nothing to do with thequestion whether the Member States can conclude inter se agreements ornot.104

102. Judgment, paras. 120–121.103. 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 powerfor the Union to grant financial assistance and the Union competence under this article is notaffected by the establishment of the ESM.

104. Compare View, para 98.


As regards Article 123 TFEU, the Court finds that “there is no basis for theview that the funds provided by the ESM Members to the ESM might bederived from financial instruments prohibited by Article 123(1) TFEU”.105 Isthis to be read as a warning that a banking licence for the ESM – which isunlikely at the moment, but was suggested by a number of Member Statesincluding Italy and France – may be considered problematic in light of thisarticle? According to the European Central Bank, becoming a counterparty ofthe Eurosystem under Article 18 of the ESCB Statute (obtaining a bankinglicence) would be incompatible with the monetary financing prohibition inArticle 123 TFEU.106 The German Constitutional Court came to the sameconclusion in its decision of 12 September 2012 relating to the ESM Treatyand the Fiscal Compact.107

How does the ESM Treaty relate to the provisions on the coordination ofeconomic policies (Arts. 2(3), 119, 121 and 126 TFEU)? The Court finds thatthe ESM as a financing mechanism is not concerned with coordination ofeconomic policies, and that conditionality is not an instrument forcoordination.108 Also, the powers of the Union under the excessive deficitprocedure of Article 126 TFEU are not affected. In other words, the ESMTreaty is compatible with these provisions. The Advocate General’s strugglewith the relationship is more apparent. She looks at the extent to whichconditionality – which is to be categorized as relating to economic policy(though not in the sense of the TFEU chapter)109 – also constitutescoordination of economic policies. Her view is that this is not the case. To theextent that the conditions operate outside the coordination achieved at Unionlevel, there is no coordination since no harmonization of the individualeconomic policies of the Member States takes place.110 It is not clear why itwould make sense to equate coordination and harmonization. Moreover,although it is obvious that no harmonization of the individual economicpolicies of the Member States takes place through ESM conditionality, neitherdoes harmonization take place under the Union competences in this area.

Is the conclusion that ESM conditionality is not about coordinating theeconomic 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 toa 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. 110–111.109. View, para 83.110. Ibid., para 92. Interestingly also, in paras. 44–45 of the View, conditionality and the

Union competences for economic policy seem to be less far apart.

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especially the Advocate General’s view does no justice to the complexrelationship between ESM conditionality and measures adopted under theTFEU economic policy Chapter. How should we understand this relationship?The following offers only a beginning of this understanding. It is true that theMemoranda of Understanding containing conditionality often prescribe inmuch greater detail which far-reaching national measures are to be taken toaddress “weaknesses”,111 compared with the Council measures adopted underArticle 126 TFEU to correct an excessive deficit.112 But not only can a partialoverlap between the two be expected, as the Advocate General’s reasoningalso suggests, and as has been the case under EFSF conditionality.113 Also, inboth cases the measures have the objective of sustainable public finance orsound budgetary policy of the Member States (maybe even more so than ofsubstantively coordinating policies, the core of which seems to be themultilateral surveillance procedure of Art. 121 TFEU).

Finally, the close relationship between ESM conditionality and measuresadopted under the TFEU economic policy chapter is illustrated by elementsof the “Two-Pack,” on which political agreement was reached on 20 February2012 between the European Parliament and the Council. The newMacroeconomic adjustment programme, to be prepared by Member Statesrequesting financial assistance in agreement with the Commission and to beapproved by the Council,114 can be seen as a way to bring (ESM)conditionality directly within the sphere of European Union law. Theprogramme in fact not only “shall take due account of the recommendationsaddressed 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 anddeepen fiscal surveillance of 4 Dec. 2012.

113. EFSF conditionality in relation to Ireland includes e.g. fiscal adjustment, including thecorrection of the excessive deficit by 2015 (next to an overhaul of the banking sector and growthenhancing reforms, in particular of the labour market). EFSF conditionality in relation toPortugal includes fiscal adjustment, including the correction of the excessive deficit by 2013respecting the original deadline set by the Council (next to growth enhancing reforms andmeasures relating to the financial sector).

114. See for now, Art. 6(1) of the text of Regulation (EU) No . . . /2013 of the EuropeanParliament and of the Council on the strengthening of economic and budgetary surveillance ofMember States experiencing or threatened with serious difficulties with respect to theirfinancial stability in the euro area, as adopted by the European Parliament in first reading on 12March 2013. Interestingly, the Programme will be approved by the Council acting by qualifiedmajority, whereas the Board of Governors under the ESM Treaty decides with unanimity onthe economic policy conditionality as stated in the memorandum of understanding (Art. 5(6)(f)ESM Treaty).


148 TFEU as well as its actions to comply with them,” but also aim “atbroadening, strengthening and deepening the required policy measures.”115

It makes sense to ensure, as the Macroeconomic adjustment programmeintends to do, “full consistency between the Union multilateral surveillanceframework established by the TFEU and the possible policy conditionsattached to . . . financial assistance.”116 But does EU law provide a legal basisfor this programme? Interestingly in light of the Court’s finding thatconditionality is not an instrument of coordination, the EU institutions defendthe power of the Council to approve the programme (together with the otherpowers included in the “Two-Pack” adopted on the basis of Arts. 121 and 136TFEU) by arguing that it is a measure “of particular relevance for the policy ofeconomic coordination ofMember States, that according toArticle 121 TFEUshall take place within the Council”.117 Importantly, the continued separateconditionality measures adopted in the context of the ESM Treaty will notbecome problematic after entry into force of the “Two-Pack”, as we are notdealing with an exclusive competence of the Union.

Several other euro area crisis instruments raise similar questions about theirrelationship to Union coordination of economic policies. The Euro Plus Pactagreed by 23 Member States in March 2011, for example, includescommitments in areas that fall under national competence in order to achievea “new quality of economic policy coordination”.118 These new commitmentswill be partly included in the existing framework of Article 121 TFEU, andpartly monitored politically by the Heads of State or Government involved.This political assessment does not seem to be legally problematic. The samecan be argued for the substantive elements of the Fiscal Compact that closelyrelate to the multilateral surveillance procedure of Article 121 TFEU.119

Nothing seems to preclude a number of Member States from agreeing onstricter 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 ECBexpects that “the macro-economic adjustment programme will de facto reflect the economicpolicy conditions agreed between all parties in the context of granting access to such financialassistance.”, Opinion of the European Central Bank of 7 March 2012 on strengthened economicgovernance 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, theMacroeconomic adjustment programme will replace the Macroeconomic imbalancesprocedure and elements of the Stability and Growth Pact (Arts. 7–9). It will be the task of theCommission to “ensure that the memorandum of understanding signed by the Commission onbehalf of the EFSF or ESM is fully consistent with the macroeconomic adjustment programmeapproved 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 gegenüber Art. 126 AEUV verschärften Disziplin unterwerfen, istunschädlich.”

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5.4. The interpretation of Article 125 TFEU

In its interpretation of Article 125 TFEU, the Court combines several methodsof interpretation. A textual or literal interpretation leads to the conclusion thatArticle 125 TFEU is not intended to prohibit any form of financial assistanceto another Member State.120 A contextual or systematic interpretation findssupport for this reading in the wording of Article 122 TFEU (which is notformulated as an exception) and 123 TFEU (which applies stricterlanguage).121 From a historical interpretation it follows that the prohibition ofArticle 125 TFEU was included in the Maastricht Treaty to ensurethat Member States follow a sound budgetary policy.122 The teleologicalinterpretation of Article 125 TFEU (sound budgetary policy) iscomplemented by an ultima ratio interpretation,123 namely that thecompliance with budgetary discipline contributes to the higher objective ofmaintaining the financial stability of the monetary union.124 The reference tothe preparatory works of the Maastricht Treaty, and especially the ultima ratiointerpretation are exceptional, but methodologically all this can be very welldefended.125

Based on this interpretation the Court sets three requirements that have tobe met for assistance to be compatible with Article 125 TFEU: 1) MemberStates must remain responsible for their commitments to creditors,126 2) theactivation of financial assistance must be subject to strict conditionality and 3)this activation must be indispensable for the safeguarding of financial stabilityof the euro area as a whole.127 The first condition is not surprising, as it can beseen to follow directly from the text of Article 125 TFEU, which proscribesassuming commitments of other Member States.

The finding on the requirements of strict conditionality andindispensability for the safeguarding of the financial stability of the euro areaas a whole is arguably the most interesting aspect of the Court’s interpretationof Article 125 TFEU. Each of the two requirements raises the questionwhether it is convincing to set it and what consequences follow from thischoice.

5.4.1. The conditionality requirementIt seems that strictly speaking neither of the two requirements necessarilyfollows from Article 125TFEU. In fact, theAdvocate General takes a different

120. Judgment, para 130; similarly View, para 134.121. Judgment, para 131–132; similarly View, para 124, 141.122. Judgment, para 135; similarly View, para 131.123. Similarly, Borger, op. cit. supra note 72, at 131.124. Judgment, para 135; no such interpretation is found with the A.G.125. Similarly, Thym, op. cit. supra note 72, at 262.126. Judgment, para 137.127. Ibid., para 136.


view from the Court on this point as she does not set any requirement forcompatibility with Article 125 TFEU other than that there may not be directsupport, meaning that Member States may not directly meet the demands ofcreditors of another Member State.128 She does not find it problematic forloans from and to the euro Member States to be “subject to no restrictionsunder European Union law” in comparison with the conditions set by Articles122(2) and 143(2) TFEU for Union measures of support.129 As to strictconditionality, she explicitly avoids an answer to the question whether this is arequirement for compatibility with Article 125 TFEU,130 considering thatprohibiting direct support is enough to prevent the circumvention of theobjectives of Article 125 TFEU.131 This implies that in her view it is not anecessary requirement.

Is the Court’s requirement of strict conditionality for compatibility withArticle 125 TFEU convincing? Even if it does not follow directly from thetext, a basis can convincingly be found in the objective of Article 125 TFEUof sound budgetary policy, an objective that is not, we believe,controversial.132 Moreover, by requiring strict conditionality the Court showsthat it is aware of the very delicate context of Article 125 TFEU in especiallyGermany, 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 addressconcerns about the “no-bailout” clause, even though it leaves us with somequestions.

What consequences follow from the conditionality requirement? The Courtdid not leave any opportunity unused to emphasize that the envisaged ESMconditionality serves to ensure compatibility with EU law.133 It was lessconcerned with the consequences of what it set as a requirement. How doesESM conditionality relate to EU coordination measures? In practice, theMemoranda of Understanding adopted in the context of the other financialassistance mechanisms “mirror and expand the measures on budgetarydiscipline contained in the different Council Decisions”.134

What ESM conditionality measures beyond EU coordination are actuallyallowed or required? Clearly, ESM conditionality cannot modify, in particularweaken, 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 decideon 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 Unionmeasures? The answer must obviously be yes. One might have expected theconclusion that Member States can complement the Union power to adoptcoordinating measures by requiring further measures on budgetary disciplinefrom Member States in the context of the ESM, but both the Court andAdvocate General instead choose to consider that ESM conditionality is adifferent animal.136

Must ESM conditionality then necessarily go further? The Court nowherecomes to this finding. But if the answer is no, why then put it as an extrarequirement for compatibility with Article 125 TFEU, being foundednecessarily on that article? It may therefore be assumed that further strict ESMconditionality measures are required. Nonetheless, it can be expected that theCourt will leave considerable discretion to the Member States in theirjudgment of what specific level and form of conditionality is required in eachindividual case, if that question is submitted to it in the future.

5.4.2. The indispensability requirementStrictly speaking, the requirement of indispensability for the financialstability of the euro area as a whole does not necessarily follow from the textof Article 125 TFEU. In this sense, its necessity can be doubted, and not manyhad anticipated this surprising aspect of the judgment. In fact, the AdvocateGeneral does not seem to adopt this indispensability requirement. The reasonfor this can be found in the interesting part of her View that deals with thebasic structural EU law principles of sovereignty and solidarity, which preventa broad reading of the prohibition of Article 125 TFEU.137 A broadinterpretation would deprive the Member States of the power to avert thebankruptcy of a State and the possibly substantial damage to other States. Thatdamage might be so extensive as to endanger the survival of monetary union,although the Advocate General hastens to add that “there is no question hereof 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 byMember 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 ofthe euro area is a requirement.

135. Judgment, para 121.136. Ibid., para 111; View, para 92.137. View, paras. 136–144.138. Ibid., para 140.139. Ibid., para 143.


Is the requirement of safeguarding the financial stability of the euro area asa whole convincing? Maybe it is, but if this is the higher objective of Article125 TFEU, it is arguably the higher objective of many other provisions as well,notably those on economic policy including Articles 121 and 126 TFEU onthe coordination of economic policies. It would in fact be difficult to argue thatany of the articles had the contrary objective. Why, then, is not the financialstability of the Union the higher objective? After all, Article 125 TFEUprohibits not only the euro area States from being liable for, or assumingcommitments of, other Member States. And most other rules on economicpolicy apply to the entire Union.140

Even though this requirement does not necessarily follow from the text ofArticle 125 TFEU, it was arguably still “necessary” for the Court to read it inArticle 125. Borger notes that the Court could not present the objective ofsafeguarding the financial stability of the monetary union as a newinterpretation of Article 125 TFEU following from Decision 2011/199, as thatwould have led to an implicit modification of Article 125 TFEU.141

Conclusion and ratification of the ESM Treaty would then only have beenpossible after the Treaty amendment was completed.142 It could even beargued that the simplified revision procedure would not have been available ifthe requirement was “new”. This depends on how you interpret the conditionof the use of the simplified revision procedure that it “shall not increase thecompetences conferred on the Union in the Treaties” (Art. 48(6) TEU).

The Advocate General took an interesting position on this, even though notnecessarily the right one. According to her, “it is certainly true that obligationswhich European Union law imposes on the Member States could, dependingon their subject matter, constitute a substantive increase in the competences ofthe Union.”143 Another interpretation of an increase in the competences of theUnion is that it is limited only to powers of the Union to act. If the position ofthe Advocate General were accepted, then Article 136(3) TFEU by imposingon the Member States of the euro area the obligation to limit financialassistance through the permanent mechanism to cases where it isindispensable to safeguard the stability of the euro area as a whole and understrict conditionality, would lead to a substantive increase in the competencesof the Union, unless these requirements already follow from European Unionlaw. 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 provisionsrelating 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 125TFEU.

The Court’s findings mean that from a legal perspective, both objectives ofArticle 125 TFEU have been present from the beginning. However, thesequence of the events of the eurozone crisis gives a better understanding ofwhat happened. The Member States were the ones who established anddeveloped the requirements of (strict) conditionality144 and indispensabilityfor safeguarding financial stability145 for the provision of financial support inwhat De Gregorio Merino calls a “law of evolution” as opposed to apreconceived plan, leading to ever more sophisticated instruments.146 Theydid so at least partly for political reasons,147 as it is hard to imagine thatproviding support would be acceptable to some Member States without theseconditions. The Court in a sense “confirmed” these requirements under EUlaw, by considering them also requirements for compatibility with Article 125TFEU.148

What are the consequences of the indispensability requirement? Therequirement is not only a way to reconcile Decision 2011/199 and the ESMTreaty with the prohibition of Article 125 TFEU, but also a way to limit whatMember States can do under a separate Treaty. Financial assistance throughthe ESM is only compatible if indispensable for safeguarding the financialstability of the euro area as a whole. Does this mean that ESM assistancecannot be provided in case of a “mere” macro-economic shock affecting oneMember State? That would now be in violation of both the ESM Treaty andArticle 125 TFEU (and arguably also the future Art. 136(3) TFEU).Interestingly, Louis has argued that Article 122(2) TFEU, also an exception tothe prohibition of Article 125 TFEU, does not exclude the possibility ofassistance in the case of such an asymmetric shock.149 Also, there may be buta thin line between financial stability of a Member State and that of the euroarea as a whole. Add to this the difficulty to define financial stability,150 and itis 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 stabilizationmechanism (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 stabilizationmechanism; not explicit in EFSF Framework Agreement; Art. 1 of Decision 2011/199; Art. 3ESM 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 diesbezüglichen Passagen

lesen sich, als ob sie nicht aus dem AEUV heraus entwickelt, sondern zur Rechtfertigung desESM passgenau zugeschnitten wurden.”

149. Louis, op. cit supra note 6, at 985.150. Similarly Borger, op. cit. supra note 72, at 135.


discretion to the Member States of the euro area in their judgment of whetherassistance is indispensable for the financial stability of the euro area as awhole.

In practice Cyprus is already providing an interesting case, with ECBPresident Draghi and German Finance Minister Schäuble in January 2013openly disagreeing on whether the financial problems of Cyprus can be seenas a threat to the financial stability of the euro area (Draghi) or not(Schäuble).151 Excluding this possibility a priori would lead to the politicallyunacceptable conclusion that some Member States contribute to the ESMemergency fund, but will not be able to benefit from it. This, however, wouldnot only be a consequence of the indispensability requirement of the Pringlejudgment,152 but would also follow from the indispensability requirement setby 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 ESMfinancial assistance to Cyprus in March 2013, in our view rightly taken theopposite position that the financial problems of Cyprus can form a threat tothe financial stability of the euro area as a whole.153

In finding the ESM Treaty compatible with Article 125 TFEU and with thebroader TFEU Chapter on economic policy, the Court has accepted that theconstitution of the European economic and monetary union, which is based onthe concept of monetary stability and focused on the prevention of crises, canbe reconciled with an intergovernmental rescue fund that provides forfinancial stability and crisis management.154 Even within the EU legal orderthe Court reconciles both concepts of stability – monetary and financial – inits interpretation of Article 125 TFEU. Article 136(3) TFEU is only aconfirmation of this.155

5.5. “Borrowing” EU institutions

One of the most controversial issues in Pringle was whether the EUinstitutions can be “borrowed” by the Member States when implementing an

151. “Streit über Zypern-Hilfe: EZB-Chef Draghi kanzelt Schäuble ab”, Spiegelonline, 27Jan. 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 note142, at 355.

153. Eurogroup Statement on Cyprus of 25 March 2013: “Against this background, theEurogroup reconfirms, as stated already on 16 March, that –.in principle – financial assistanceto Cyprus is warranted to safeguard financial stability in Cyprus and the euro area as a wholeby 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 theEU institutions. The Court of Justice is mentioned only once, namely inArticle 37, which states that disputes between ESM members about theinterpretation of the ESM treaty that cannot be resolved by the ESM organsthemselves will be submitted to the Court of Justice. The Commission and theECB figure more prominently, in several articles of the treaty. They are givenimportant roles as “agents” of the ESM organs, both in preparing theoperations of the ESM (in particular, through the negotiation of amemorandum of understanding with the country applying for ESM financialassistance), and in coordinating the implementation of the rescue operation.

In examining whether it is consistent with EU law to “use” the EUinstitutions outside the natural habitat of the EU legal order, the Court ofJustice rightly distinguished between the case of the Court itself, and the caseof the other institutions.

Indeed, as far as the Court of Justice is concerned, there is an odd littleTreaty article that conclusively solves the problem. Article 273 TFEU, whosetext had figured in the EEC Treaty from the very beginning, allows theMember States to submit to the Court “under a special agreement between theparties”, “any dispute between Member States which relates to the subjectmatter of the Treaties”. The subject matter of the ESM treaty is indeed closelyconnected 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 itspreamble. This possibility of giving extra tasks to the Court of Justice, basedon what is now Article 273 TFEU, had already been used occasionally in thepast, but never, it seems, in such a high-profile agreement as the ESM Treaty.

Things are more complicated with respect to the “borrowing” of theCommission and the Central Bank. The applicant invoked Article 13(2) TEUin this context. According to this provision, the EU institutions shall act withinthe limits of the powers given to them under “the Treaties” (meaning: the TEUand the TFEU, and no other treaties). On a literal interpretation, this couldmean that it is not possible to give any additional functions to the Commissionor the ECB (or indeed the Parliament and the Council) under separateinternational agreements such as the ESM Treaty.

Yet, the Court of Justice had accepted, in a couple of low profile judgmentsof the 1990s, that the Commission could perform tasks entrusted to it by allthe Member States under a separate international agreement. The EC Treaty, itheld in the Bangladesh case, “does not prevent the Member States fromentrusting 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 EUlaw? The use of EU Institutions outside the EU Legal Framework”, 9 EuConst (2013), 37.


undertaken by them on the basis of an act of their representatives meeting inthe Council.”157 And it repeated shortly afterwards, in the Lomé case that “noprovision of the Treaty prevents the Member State from using, outside itsframework, procedural steps drawing on the rules applicable to Communityexpenditure and from associating the Community institutions with theprocedure thus set up”.158

The case of the ESM treaty is different from those earlier cases in that theattribution of new tasks was made, not by all the Member States actingtogether, but by a limited group of 17. This is a hypothesis which the Court ofJustice had not yet addressed prior to the Pringle case. However, thenon-participating Member States had, in fact, given their agreement for theuse of the EU institutions. Already at the time the EFSF was created, in May2010, the Council legal service, probably in consideration of the Court’sBangladesh judgment, had prepared a short text which was adopted as aDecision of the representatives of the governments of the 27 EU MemberStates and simply stated: “The 27 Member States agree that the Commissionwill 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 mentionedin recital 10 of the preamble of the ESM Treaty: “On 20 June 2011, therepresentatives of the Governments of the Member States of the EuropeanUnion authorized the Contracting Parties of this Treaty to request theEuropean Commission and the European Central Bank to perform the tasksprovided for in this Treaty.”

The importance of the tasks entrusted to the Commission and the ECB inthe ESM treaty, compared to the rather anodyne administrative tasks of theCommission which had been challenged by the Parliament in the Bangladeshand Lomé cases, prompted the Court to add an extra condition for anyinstitutional borrowing; the extra tasks should not “alter the essentialcharacter of the powers conferred on those institutions by the EU and FEUTreaties”.160 This formula stems from some Opinions given by the Court in thecontext of the conclusion of international agreements by the EC, in which ithad emphasized, by the use of that formula, that such agreements should notalter 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 euroState 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 EU’s external relations to the context of inter seagreements between the Member States. In applying the test, the Court finds– without surprise – that the ESM tasks entrusted to the Commission and theECB do not affect the essential character of those institutions’ powers.

One way to understand and justify the Court’s rather liberal attitude towardsthe 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 powersof the institutions are fixed by the Treaties; it does not exclude that extra tasksmay be given to the institutions as long as those tasks fit within their existingcompetences, and as long as all EU Member States agree to “lend” the EUinstitutions. To explain this difference, a parallel can be made with secondaryEU legislation, in which new tasks are often given to the Commission, e.g. tofurther implement a piece of legislation. Those tasks fit within the generalconstitutional mandate of the Commission, and do not affect the position ofthe other institutions, but they are extra tasks, in the sense that they are notspecified with so many words in the Treaties but are being gradually definedas EU law develops. In the case of the ESM Treaty, this does not happenthrough secondary legislation but through a separate international agreement.Do those extra tasks fit within the institutions’ competences, as defined inparticular by the TFEU chapter on economic policy? The Court of Justicethought so, and rightly in our view. In particular, the role given to theCommission and the ECB by Article 13 ESM treaty, to negotiate and monitorthe Memorandum of Understanding with countries benefiting from financialsupport by the ESM, were modelled on the existing mode of operation underthe EFSM Regulation, where the Commission and the ECB are called tocoordinate the rescue operations, forming together with the IMF the so-calledtroika.

Crucially, the Court notes that “the duties conferred on the Commission andECB within the ESM Treaty, important as they are, do not entail any power tomake decisions of their own. Further, the activities pursued by those twoinstitutions within the ESM Treaty solely commit the ESM”.162 Thus, theintegrity of the EU legal and institutional order is preserved in two cumulativeways. First: because of the absence of decision-making powers under the ESMtreaty there is no danger that the Commission and ECB will resort tolaw-making outside the constitutional constraints imposed by EU law (such astransparency, democratic accountability and respect for fundamental rights).And secondly, as the ESM-related activities of the Commission and ECB willhave no effects within the EU legal order, but only within the separate legal

162. Judgment, para 161.


order of the ESM, the EU acquis (and its primacy over ESM law) will not beaffected.

A borrowing of EU institutions also took place in the Fiscal Compact, theother inter se agreement concluded between 25 Member States at around thesame time as the ESM treaty. One major difference, in that case, is that noformal text was adopted through which the two non-participating States, theUnited Kingdom and the Czech Republic, gave their authorization to the useof the EU institutions. Whether such an authorization, either explicit orimplied, is a necessary requirement, is still unclear.163 The Court of Justicesaw 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 choiceto establish the ESM as a separate international organization rather than as anEU agency. The criticism can be summarized by the following citation from apaper by Tuori: “Stability mechanisms, such as the EFSF and the ESM,operate as separate financial institutions outside the Treaty framework, withtheir own intergovernmental decision-making bodies and behind the shieldof far-going immunity and confidentiality. Intergovernmental stabilitymechanisms remain outside the scope of application of both Treaty provisionson the principle of transparency and complementary secondary legislation.Such an institutional development makes any control by the Europeanparliament or national parliaments, not to mention civil society and thecitizenry, extremely difficult.”164

This is very true, but the fact remains that, when the euro area countrieswanted to set up a major rescue fund in order to preserve the stability of theeuro area (a decision which seems very reasonable), EU law did not providethem with sufficient legal and financial resources, so that “going outside” andsetting up a separate international organization was the only availablesolution. The creation of the ESM should, therefore, not be seen as an“intergovernmental plot” through which the euro area governments sought toescape 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, politicsand pragmatism”, 37 EL Rev. (2012) 231, at 240–247; and Borger and Cuyvers, “Het Verdraginzake Stabiliteit, Coördinatie en Bestuur in de Economische en Monetaire Unie: de juridischeen constitutionele complicaties van de eurocrisis”, 60 SEW (2012) 370, at 381–387.

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 oflinks with the EU legal order through the borrowing of EU institutions.165

More fundamentally, even if a mechanism like the ESM could have beenestablished on the basis of EU law and with funds allocated under the EUbudget, this would not have been a sufficient reason to exclude the conclusionof a separate international agreement. Inter se agreements between EUMember States remain permissible in principle, and useful in practice, in thefields that do not come within the EU’s exclusive competence, and the Courtof Justice has pragmatically accepted this legal reality. At the same time, it hasreaffirmed the primacy of EU law over such separate agreements, and its ownjurisdiction to control whether the Member States respect their EU lawobligations when concluding separate international agreements. All in all, theCourt has given, in Pringle, a well-reasoned judgment expressing a goodmixture 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, at1644; Thym and Wendel, op. cit. supra note 72.

* Bruno de Witte is professor of European Union law at Maastricht University, andpart-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 isgrateful to the Dutch Niels Stensen Stichting for providing financial support to conductpostdoctoral research at the EUI.


The Court of Justice approves the creation of the European Stability Mechanism outside the EU legal order: Pringle

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