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An overview of litigation in the context of financial assistance to Eurozone Member States

01 Dec 2016-Vol. 4, Iss: 1, pp 573-590

AbstractCrisis-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, Greece, and Cyprus. Growing literature has examined the macroeconomic 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 programmes 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. 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 concerning 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.

Topics: Conditionality (53%), Common law (53%), Fundamental rights (53%), Social rights (52%), Austerity (51%)

Summary (2 min read)

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).
  • 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).
  • Inter alia, these include the seminal Pringle5 and Gauweiler (OMT)6 judgments of the European Court of Justice (ECJ).
  • 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.

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.
  • ”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.

34.1.2 Litigation at the National Level

  • Attempts to claim redress have taken place at the national level, where the most prominent case law has come from Greek and Portuguese courts, and concerned reductions in salaries and pensions.
  • The applicants had argued that the contested Decrees impinged on their constitutionally guaranteed rights to property (Art. 23) and were violating the constitutional principle of equality and non-discrimination (Art. 28).

34.1.3 Litigation at the EU Level

  • Some of the applicants in the above mentioned cases found their way before the CJEU to challenge the measures arising from the conditionality measures or claim damages for financial losses allegedly resulting from such measures.
  • The link between EU law and MoUs or, more generally, between EU law and the conditionality for financial assistance to Eurozone Member States, has come to the spotlight more recently after recent judgments of the General Court (GC) in two sets of cases initiated by Cypriot depositors who suffered monetary losses as a result of the bail-in described previously.
  • Five cases from this group are currently on appeal: Cases C-105/15P, Mallis and Malli v. Commission and ECB; C-106/15P Tameio Pronoias Prosopikou Trapezas Kyprou v. Commission and ECB; C-107/15P Chatzithoma v. Commission and ECB; C-108/15P Chatziioannou v. Commission and ECB, C109/15P Nikolaou v. Commission and ECB.
  • According to the GC, the adoption of the MoU did not originate from the Commission and the ECB, since the two institutions do not have any powers to make decisions of their own under the ESMT.59 161.
  • Eurozone Member States to guarantee that the MoU is in conformity with EU law” which allegedly arose out of the Commission’s role as the guardian of the Treaties under Article 17 TEU (Para. 49).

34.2 Concluding Remarks

  • The two AG Opinions in Mallis and Ledra raise interesting points regarding the extent to which individuals can challenge the conditionality attached to financial assistance under the ESM.
  • There is little value in speculating about the outcome of the appeals.
  • The differences between the macroeconomic adjustment programmes designed for each 74 For a discussion of the two dimensions see A. Poulou, 2014, p. 1159.

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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 EMUs 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 Europes Economic and Monetary Union: Overview
of Legal Developments, Fordham Intl 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.
574
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 EUs 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 EUs 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. Intl 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 banks 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).
575
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 countrys public debt and financing needs, and of the risk posed by the
countrys 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.
576
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 States 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 countrys 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.
577
34 An Overview of Litigation in the Context of Financial Assistance to
Eurozone Member States

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Abstract: The AGET Iraklis case (C-201/15) revisits the Viking/Laval case law and sheds new light on the uneasy relationship between labour law and the EU’s fundamental economic freedoms. This article examines three sets of issues: the balance between the economic and the social in AGET Iraklis; the interplay between freedom to conduct a business (Article 16 of the EU Charter) and labour rights; and the Economic and Monetary Union dimension of the Court’s ruling in AGET Iraklis. The article makes three key claims. First, it is argued that the Court’s ruling marks a step towards a reconciliation between EU free movement law and labour law. Second, it is argued that Article 16 of the EU Charter of Fundamental Rights can be more ‘dangerous’ to labour rights when EU secondary law is interpreted in the light of that provision (such as in Alemo-Herron). In cases where both EU free movement law and Article 16 are engaged, the latter may not be equally influential. Third, it is noted that the margin of appreciation left to the domestic authorities might lead to further deregulation of the national labour law concerned, as Greece is subject to an economic adjustment programme.

6 citations


Frequently Asked Questions (2)
Q1. What have the authors contributed in "34 anoverviewoflitigation inthecontext of financial assistance to eurozone member states" ?

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. 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. To this effect, the article first explains the concept of conditionality in the context of financial assistance ( i ). 

In spite of this ‘ cautionary note ’, future country-by-country case studies mapping in depth the development of the national-, and EU-level case law could assist in drawing conclusions regarding the extent of judicial protection afforded to individuals by national and EU courts when it comes to challenging financial assistance conditionality. Future CJEU judgments could therefore further illustrate the role of the EU vis-à-vis conditionality for financial assistance, and especially the links, and the dividing lines, between the EU legal order and the ESMT.