34 An Overview of Litigation in the Context
of Financial Assistance to Eurozone
Member States
Anastasia Karatzia
*
Crisis-driven austerity measures adopted by some Eurozone Member States to satisfy the
conditions for receiving financial assistance have raised concerns over the level of protection
of fundamental rights afforded to individuals, and have thrown into sharp relief the
problems surrounding the efficiency and the lack of transparency of crisis management
mechanisms at the national and EU level. This contribution provides an overview of some
of the most prominent litigation arising in the context of financial assistance given to
Portugal, Greece, and Cyprus. Growing literature has examined the macroeconomic
adjustment programmes of these countries from a constitutional (viz. the legal competence
of the EU bailouts/bail-ins) and a social policy perspective (viz. the impact of the pro-
grammes on labour and employment social rights). Taking stock of these accounts, this
article seeks to provide an updated picture of the most relevant case law, focusing on the
position of the individual as a litigant.
The article does not purport to provide an all-encompassing or comparative analysis
of the litigation concerning the Eurozone bailouts. Such a challenging task would require
extensive analysis not only of cases brought before numerous national courts, but also of
the specifics of the national judicial systems of the three Eurozone Member States.
1
Instead,
this contribution aims to bring together the main attempts that have taken place so far to
challenge measures adopted by the three Eurozone Member States in order to fulfill the
conditions for receiving financial assistance. To this effect, the article first explains the
concept of conditionality in the context of financial assistance (i). It then outlines some
of the most pertinent cases at the national level (ii) and discusses the litigation before the
Court of Justice of the EU (CJEU), focusing on recent developments in the case law con-
* Assistant Professor in EU law, Department of International and European Union Law, Erasmus School of
Law, Erasmus University Rotterdam, karatzia@law.eur.nl.
The article is based on an on-going project about the role of the courts in the crisis, and on the presentation:
A. Karatzia, T. Konstadinides, “Who is responsible? The issue of liability in the context of the EU macro-
economic adjustment programmes and austerity measures”, delivered by the author in the XXVII FIDE
Congress Doctoral Workshop in May 2016.
1 For an example of discussion about country-specific case law see M. Canotilho, T. Violante, R. Lanceiro,
‘Austerity measures under judicial scrutiny: the Portuguese constitutional case law’, Vol. 11(1) E.C.L.Rev.,
2015, p. 155.
573
cerning financial assistance by the European Stability Mechanism (ESM) (iii). It concludes
with an outlook on future developments in this saga of litigation. As a concise account of
relevant case law, the article could be of interest to anyone who wishes to follow the
development of the judicial responses to the Eurozone bailouts.
34.1 Introduction
A host of key crisis management mechanisms have been adopted at the supranational level
during the Eurozone financial and economic crisis with the aim of improving the economic
governance framework of the Economic and Monetary Union (EMU). Besides the reforms
in the EMU budgetary constraints, mechanisms of financial stabilization that could provide
financial assistance to troubled Member States were also established.
2
These include the
European Financial Stabilisation Mechanism (EFSM) and the European Financial Stability
Facility (EFSF), both of which have been replaced by the European Stability Mechanism
(ESM). Whilst the EFSM was adopted on the basis of EU law (Art. 122(2) TFEU) in
accordance with a Council Regulation, the EFSF was established by an agreement of the
Heads of State and Government of the Eurozone as a private company incorporated under
Luxembourg law, and the ESM on the basis of an international Treaty adopted by the
Eurozone Member States.
3
As a result of the EMU’s legal overhaul, numerous judicial challenges concerning the
Eurozone crisis response mechanisms have been brought before both EU and national
courts. These cases can be categorised into two groups.
4
Firstly, there are cases disputing the constitutionality of the revised construction of the
EMU. Inter alia, these include the seminal Pringle
5
and Gauweiler (OMT)
6
judgments of
the European Court of Justice (ECJ). It is well known by now that the cases started off as
domestic claims and reached the ECJ via preliminary reference requests from the Irish
and the German courts respectively. In this category of cases we can also include, among
2 For an overview see R. Smits, ‘The Crisis Response in Europe’s Economic and Monetary Union: Overview
of Legal Developments’, Fordham Int’l L.J. 38(4), 2015, 1135.
3 See respectively: Consolidated Version of the European Financial Stability Facility Framework Agreement
(adopted 7 June 2010, entered into force 18 October 2011); Council Regulation 407/2010 OJ 2010 L118/1;
Consolidated Version of the Treaty establishing the European Stability Mechanism (adopted 2 February
2012, entered into force 27 September 2012) (hereinafter ESMT) and Council Decision No. 2011/199/EU
OJ 2011 L 91/1.
4 For a slightly different categorisation see A. Hinarejos, The Euro Area Crisis in Constitutional Perspective,
OUP, Oxford 2015, p. 122.
5 Judgment of 27 November 2012, Case C-370/12, Pringle v. Government of Ireland, Ireland and the Attorney
General, [2012] ECR I-756.
6 Judgment of 16 June 2015, Case C-62/14, Peter Gauweiler and Others v. Deutscher Bundestag, [2015] ECR
I-400.
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Anastasia Karatzia
others, the Estonian challenge to the constitutionality of the ESM Treaty (ESMT), and the
French challenge to the ratification of the Fiscal Compact.
7
Secondly, there are cases adjudicated at the national and EU level concerning the
adoption and implementation of macroeconomic adjustment programmes (i.e. of the
programmes establishing the conditions for financial assistance), in which applicants
contested some of the measures that were adopted by Member States for implementing
these programmes. This category includes cases brought by individuals, and associations
of individuals, regarding the Greek, Portuguese, and Cyprus bailouts (or ‘bail-in’ in the
case of Cyprus).
8
The three Member States received financial assistance in different forms;
either as a bilateral loan complemented by arrangements with the International Monetary
Fund (IMF), or through the EFSM, EFSF, or ESM.
This article focuses on the second set of cases, which concern the implementation of
the macroeconomic adjustment programmes by the Member States in need of financial
assistance. It begins by explaining the procedure for the provision of financial assistance
to the Member State requesting assistance, and the reasons why individuals may wish to
contest the legality of the macroeconomic adjustment programmes. It will then briefly
discuss the most prominent case law from national courts in Portugal, Greece, and Cyprus,
highlighting some of the similarities or differences in their approach. Subsequently, it will
turn to the (currently) limited yet significant litigation at the EU level to explain the most
pertinent questions currently facing the CJEU in the context of financial assistance under
the ESM. Since the ESM is the EU’s permanent crisis resolution mechanism for Eurozone
Member States, questions concerning its function, scope, and reach are not only apposite
to the pending cases, but also with regard to future financial assistance packages.
7 Estonian Supreme Court, Constitutional Case No. 3-4-1-6-12, judgment of 12 July 2012; France Constitu-
tional Court Decision no 2012-653 DC, judgment of 9 August 2012; For an analysis see S. Bardutzsky and
E. Fahey, ‘Who got to adjudicate the EU’s financial crisis and why? Judicial review of the instruments of a
postnational legal order: adjudicating the practices of the Eurozone’ in M. Adams, F. Fabbrini, P. Larouche
(Eds.), The Constitutionalization of European Budgetary Constraints, Hart, Oxford 2014; F. Fabbrini, ‘The
Euro-Crisis and the Courts: Judicial Review and the Political Process in Comparative Perspective’, Berkeley
J. Int’l Law, Vol. 32, 2014.
8 Ireland was also a recipient of a financial assistance package, see http://ec.europa.eu/economy_finance/assis-
tance_eu_ms/ireland/index_en.htm; Spain received only partial financial assistance by the ESM for the
purpose of recapitalising its banking system and thus the details of its agreement with the ESM are different
in nature than those of the other four Member States. With regard to the distinction between ‘bailout’ and
‘bail-in’, this has been explained as follows: “The term bail-out describes a rescue operation in which the
onus is placed on external investors or the taxpayer. The term ‘bail-in’ refers to a rescue operation in which
the bank’s creditors are obliged to agree to have a portion of their debt written off.” See Advocate General
Wathelet in Joined Cases C-105/15 P to C-109/15 P, Mallis and Malli v. Commission and Central Bank,
delivered on 21 April 2016, para. 34 (hereinafter AG Wathelet).
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34 An Overview of Litigation in the Context of Financial Assistance to
Eurozone Member States
34.1.1 Conditionality and Liability
The starting point of the subsequent discussion is that financial assistance to Eurozone
Member States in need can be provided only on the basis of strict conditionality. Such
conditionality was attached to assistance given under the 2010 Greek bilateral loan, the
EFSF and the EFSM, and applies also to assistance given under the ESM. The EFSF
Framework Agreement, the Regulation establishing the EFSM, and the ESM Treaty (ESMT)
all require that financial assistance is conditional upon the implementation of certain
economic policy conditions by the Member State. These economic policies are contained
in the so-called ‘macroeconomic adjustment programmes.’
9
In a nutshell, the process of negotiating and agreeing on conditionality was similar
under the EFSF and the EFSM:
10
the national authorities of the recipient Member State
negotiated the adjustment programme with officials from the Commission, the ECB, and
the IMF (i.e. the ‘Troika’) and submitted their Memorandums of Understanding (MoUs)
which then needed to be formally approved by the competent body for each programme.
For EFSM assistance this was the Council, and for EFSF assistance it was the Eurogroup
Working Group. The terms of the conditionality were included in a Memorandum of
Understanding (MoU), and the most important terms were repeated in a Council Imple-
menting Decision adopted under Articles 126(6), 126(9), and 136 TFEU and addressed to
the borrowing Member State.
Under the provisions for financial assistance by the ESM, the negotiation and signing
of the programmes is a task of the Commission acting on behalf of the ESM Board of
Governors (Art. 13 ESMT).
11
Article 13 of the ESMT describes the process for granting
stability support to ESM Members. After receiving a request from a Member State, the
Board of Governors entrusts the Commission and the ECB to undertake the necessary
assessments of the country’s public debt and financing needs, and of the risk posed by the
country’s financial situation to euro area as a whole. On the basis of that assessment, the
ESM Board of Governors decides whether to grant stability support to the said State in the
form of a ‘financial assistance facility.’ If the ESM Board of Governors decides to grant
stability support to a requesting Member State, it entrusts the Commission and the ECB
“with the task of negotiating with the ESM Member concerned, [an MoU] detailing the
9 See generally European Parliament, DG for Internal Policies, Committee Study on the State of Play in
Implementing Macroeconomic Adjustment Programmes in the Euro Area: www.europarl.europa.eu/doc-
ument/activities/cont/201402/20140219ATT79589/20140219ATT79589EN.pdf.
10 For this explanation and a detailed analysis of conditionality see M. Ioannidis, ‘EU Financial Assistance
Conditionality after “Two Pack”’ 2014 p. 12 http://ssrn.com/abstract=2398914; M. Ioannidis, ‘How Strict
is “Strict Conditionality”? The New Eurozone Agreement on Greece’ 2015 http://europeanlaw-
blog.eu/?p=2716.
11 The ESM Board of Governors is a body currently comprised of the finance ministers of the Eurozone
countries i.e. currently the same actors as those formulating the Eurogroup.
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Anastasia Karatzia
conditionality attached to the financial assistance facility” (Art. 13(3) ESMT). In other
words, the conditions of such ‘financial assistance facility’ are negotiated and agreed
between, on the one hand, the Commission and the ECB and, on the other hand, the bor-
rowing Member State – and in some cases the IMF (Art. 3 ESMT).
12
The two EU Institu-
tions, however, are not acting under the EU legal order, but rather as agents of the ESM.
13
In addition, Regulation 472/2013, which is discussed later in this article, sets out the pro-
cedure for the approval of the macroeconomic adjustment programmes by the Council,
and gives to the Commission the role of ensuring that “the [MoU] signed by the Commis-
sion on behalf of the ESM is fully consistent with the macroeconomic adjustment pro-
gramme approved by the Council.”
14
Although Portugal, Greece, and Cyprus received assistance under different mechanisms,
they all committed to fulfilling the economic policy conditions set out in the macroeconomic
adjustment programme prepared for each country. To refresh the memory of the reader,
while the loan conditions for Portugal and Ireland were based both on the EFSM and the
EFSF, Greece received funding from the wholly bilateral Greek Loan Facility (the first
bailout), then exclusively from the intergovernmental EFSF (the second bailout), and the
third time from the ESM (the third bailout), whilst Cyprus received financial assistance
from the ESM. Even though the specific objectives of each State’s programme differed, the
overall aim of the programmes was “to return Member States to sound macroeconomic
or financial health and restore their capacity to meet their public-sector obligations.”
15
Since a primary target of the adjustment programmes concerns fiscal consolidation vis-à-
vis government deficits, the programmes include measures that aim to reduce public
spending and reform social benefits and pensions, thus potentially affecting matters
“ranging from that country’s financial system and labour market, to the judiciary.”
16
The measures adopted by the Member States in receipt of financial assistance are said
to have come at the expense of fundamental and social rights’ protection not only because
of their content but also because of the procedures in which they were adopted.
17
Procedu-
rally, for example, the negotiation and conclusion of financial assistance programmes for
12 Case C-370/12, Pringle para. 72.
13 For a detailed analysis of the constitutional issues regarding the role of the EU Institutions in the functioning
of the ESM arising from the case of Pringle see P. Craig, ‘Pringle and the Nature of Legal Reasoning’,
Maastricht Journal of European and Comparative Law, 2014, p. 205; and S. Peers, ‘Towards a New Form
of EU Law? The Use of EU Institutions outside the EU Legal Framework’, Vol. 9 E.C.L.Rev., 2013 p. 38.
14 Art. 7(2) of Regulation 472/2013 on the strengthening of economic and budgetary surveillance of Member
States in the euro area experiencing or threatened with serious difficulties with respect to their financial
stability, 2013, OJ L 140/1.
15 Court of Auditors Special Report on Financial assistance provided to countries in difficulties, 2015,
www.eca.europa.eu/Lists/ECADocuments/SR15_18/SR_CRISIS_SUPPORT_EN.pdf p. 11.
16 M. Ioannides, 2014, p. 17.
17 A. Baraggia, ‘Conditionality measures within the euro area crisis’, Vol. 4(2), C.J.I.C.L. 2015, pp. 268-288;
M. Ioannidis, 2014, p. 14.
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34 An Overview of Litigation in the Context of Financial Assistance to
Eurozone Member States