Electronic copy available at: https://ssrn.com/abstract=3131927
1
What Role for the Commission and the ECB in the European Stability
Mechanism?
Anastasia Karatzia and Menelaos Markakis
Abstract
This article examines the transformation of the role of the European Commission and the
European Central Bank (ECB) in the context of the Economic and Monetary Union (EMU),
from institutions acting within the EU institutional framework, to actors taking on new tasks
in the realm of international law as part of the structure of the European Stability Mechanism
(ESM). It expounds the legal framework applying to the two institutions in the ESM by
analysing the currently applicable legislation as well as recent case law of the Court of Justice
of the European Union (CJEU) (Ledra and Mallis). It argues that the applicable legal
framework remains underdeveloped and unclear, especially with regard to the obligations
incumbent on the ECB in the ESM, which have not yet been examined by the EU courts.
Exploring the main challenges resulting from the ambiguity of the tasks and obligations
conferred on the two EU institutions in the ESM, the article argues that all EU law applies in
principle to the activities of the EU institutions in the ESM. It then shifts the focus to political
and legal accountability, the emphasis being on direct and indirect actions before the CJEU,
including the vexed issue of liability of the EU institutions for damages caused by their
actions in the ESM. The article concludes with a forward-looking assessment in light of the
Five Presidents’ Report on Completing the EMU, which stipulates that the governance of the
ESM should be integrated within the framework of EU law. The article questions whether a
future incorporation of the ESM’s governance in EU law could address any of the challenges
resulting from the current uncertainty about the role and potential liability of the Commission
and the ECB for their actions in the ESM, and makes a number of recommendations as to
how the ESM should be incorporated into EU law.
Keywords: European Stability Mechanism; Economic and Monetary Union; Financial
Assistance; European Central Bank; Liability
1. Introduction
The European Stability Mechanism (ESM), which is the permanent mechanism for giving
financial assistance to Eurozone Member States, has been in existence for more than four
years. Although it is an intergovernmental organisation established under international law,
the ESM has ‘borrowed’ the European Commission and the European Central Bank (ECB)
Electronic copy available at: https://ssrn.com/abstract=3131927
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from the EU legal order. Both these EU institutions play a central role in the operation of the
ESM, notably in the negotiations for financial assistance packages. However, their exact
tasks, duties and obligations remain rather cryptic. What is more, the legitimacy of their
involvement in the ESM is uncertain despite the green light given by the Court of Justice of
the European Union (CJEU) to the establishment of the ESM in Pringle.
1
This contribution examines the transformation of the role of the Commission and the
ECB in the context of the Economic and Monetary Union (EMU), from institutions acting
within the EU institutional framework, to actors taking on new tasks in the realm of
international law as part of the ESM’s institutional structure. It presents an account of the
current legal framework applying to the two institutions in the ESM, taking into consideration
both the applicable legislation (i.e. EU law and the ESM Treaty) and recent case law of the
CJEU. It argues that the current body of law governing the actions of the two institutions in
the ESM is neither fully developed, nor clear, despite the recent clarifications by the CJEU in
the cases of Mallis and Ledra.
2
The article deals with the main challenges resulting from the
ambiguity of the tasks and obligations conferred on the two institutions in the ESM and
explores whether a future incorporation of the ESM’s governance in the EU Treaty, as
stipulated in the 2015 Five Presidents’ Report,
3
could address these challenges.
The article is divided in three parts. Firstly, it gives an overview of the legal
framework governing the activities of the two EU institutions in the ESM. It analyses the
applicable legislation and the lessons learnt from recent CJEU judgments concerning the
duties of the two EU institutions when acting in the ESM. It argues that the CJEU in Ledra
made a much broader point about the applicability of EU law to the actions of the
Commission and the ECB than simply declaring that the two institutions are bound by the
Charter when acting outside EU law. A host of questions arise as a result of the CJEU’s
approach, including whether all EU law should govern the actions of the EU institutions
Assistant Professor in EU Law, Erasmus University Rotterdam; and Postdoctoral Researcher, European
Research Centre for Economic and Financial Governance, Erasmus University Rotterdam respectively. We
would like to thank the anonymous reviewers, the participants of the conference held at Cambridge in March
2017, Professor Fabian Amtenbrink, Dr. René Repasi, and our colleagues at the Department of International and
EU Law, Erasmus School of Law for their valuable feedback. The usual disclaimer applies.
1
For a critique see P Craig ‘Pringle and the Use of EU Institutions Outside the EU Legal Framework:
Foundations, Procedure and Substance’ (2013) 9 EuConst 263.
2
Joined Cases C-105/15 P to C-109/15 P Mallis and Malli v Commission and ECB [2016]
ECLI:EU:C:2016:702; Joined Cases C-8/15 P to C-10/15 P Ledra Advertising Ltd v Commission and ECB
[2016] ECLI:EU:C:2016:701.
3
J-C Juncker and others, ‘The Five Presidents’ Report: Completing Europe’s Economic and Monetary Union’
(22 June 2015) <ec.europa.eu/commission/publications/five-presidents-report-completing-europes-economic-
and-monetary-union_en > accessed 6 May 2017.
Electronic copy available at: https://ssrn.com/abstract=3131927
3
within the framework of the ESM, and what the confines of the duties of the two institutions
are. The second part of this contribution attempts to tackle these questions and argues that it
is easier to identify the tasks conferred on the Commission in the context of the ESM than
those incumbent on the ECB. Moreover, it is argued that, even assuming that the full scope of
EU law applies in principle to the two EU institutions when acting under the ESM, further
questions are raised concerning judicial protection and the availability of avenues to
challenge the actions of the Commission and the ECB. Finally, the article engages in a
forward-looking assessment of possible changes to the governance of the ESM if and when it
is incorporated into EU law. More specifically, it assesses the implications of a future
incorporation of the ESM into the EU legal framework, which was suggested in the Five
Presidents’ Report. The said Report is light on details as it does not specify the way(s) in
which the ESM can or should be brought under the full scope of EU law. The third part of
this contribution examines the intricacies of this future scenario and inquires whether the
implementation of this proposal would address any of the challenges resulting from the
current uncertainty about the role and potential liability of the Commission and the ECB for
their actions in the ESM.
2. Mapping the legal framework
In its four years of existence, the ESM has provided financial support of EUR 9 billion to
Cyprus in 2013 in addition to EUR 1 billion made available to the country by the
International Monetary Fund (IMF), and up to EUR 86 billion to Greece in 2015 as part of
the third economic adjustment programme for the country.
4
Established as an intergovernmental organisation governed by public international
law, the ESM was given a host of instruments including the ability to grant precautionary
financial assistance, financial assistance for the re-capitalisation of financial institutions of an
ESM Member,
5
and the power to resort to primary market bond purchases as part of an
overall financial assistance programme strategy.
6
Most notably, Article 16(1) of the ESM
Treaty (ESMT) stipulates that the ESM may grant financial assistance ‘in the form of a loan
to an ESM Member’, while Article 12(1) ESMT, which is the basis for such support, refers to
4
For details see the ESM website: <www.esm.europa.eu/> accessed 8 May 2017.
5
See the financial assistance for the recapitalisation of the Spanish banking sector:
<www.esm.europa.eu/assistance/spain#programme_timeline_for_spain> accessed 8 May 2017.
6
See arts 14-18 ESMT.
4
the ‘strict conditionality’ that must be attached to any grant of financial aid.
7
2.1.The role of the two institutions according to the ESM Treaty and By-
Laws
The Commission and the ECB do not constitute part of the ESM’s governance structure per
se, since ESM decisions can only be adopted by the Board of Governors or the Board of
Directors. The ESMT (Article 5(f)) specifically states that the Board of Governors, which
consists of the finance ministers of the Eurozone Member States, takes the decision to
provide stability support, ‘including the economic policy conditionality as stated in the
memorandum of understanding (…)’, and the terms of this conditionality.
8
The Board of
Directors consists of ‘people of high competence in economic and financial matters’ from
each Member State, who are appointed by each Governor (Article 6(1)) and have the
authority to ‘call in authorised unpaid capital’ (Article 9(2)) and take decisions inter alia as
delegated by the Board of Governors.
9
From an organisational perspective, members of the
European Commission and the President of the ECB may observe the meetings of the Board
of Governors (Article 5(3)) and of the Board of Directors (Article 6(2)).
Even though –formally speaking– the Commission and the ECB are not part of the
ESM’s governance structure, their role in the context of financial assistance packages is not
at all negligible. According to Articles 5(6)(g) and 13(3) ESMT, the Board of Directors gives
a mandate to the Commission to undertake certain tasks, including an assessment of the
existence of risk to the financial stability of the euro area, an assessment of the sustainability
of public debt, an assessment of the financing needs of the troubled ESM Member State, and
–crucially– the negotiation of the economic policy conditionality attached to a financial
assistance package. The Commission undertakes these tasks in liaison with the ECB, and
finally signs the Memorandum of Understanding (MoU) on behalf of the ESM after approval
by the Board of Governors (Article 13(3) and (4) ESMT). When the Commission and the
ECB find that a failure to grant financial assistance would threaten the economic and
7
For a detailed discussion on conditionality see M Ioannidis, ‘EU Financial Assistance Conditionality after
“Two Pack”’ (2014) <ssrn.com/abstract=2398914> accessed 6 May 2017.
8
It should be noted here that the members of the Board of Governors are the same persons as those sitting in the
Eurogroup.
9
See also the ESM By-Laws (8 December 2014) <www.esm.europa.eu/sites/default/files/esm_by-laws.pdf>
accessed 2 May 2017.
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financial stability of the euro area, they have the task of ‘promptly’ advising the Chairperson
and the Managing Director accordingly, and requesting the ‘application of the emergency
voting procedure’ (Article 4(4)).
10
An assessment by the Commission and the ECB is also the
basis on which the Board of Directors may decide whether any additional form of financial
assistance is needed (Article 14(6)).
With regard to tasks that belong to the Commission, Article 13(7) ESMT entrusts the
Commission –in liaison with the ECB and, whenever possible, together with the IMF– with
monitoring compliance with the conditionality attached to the financial assistance
programmes. The Commission is responsible for reporting on the payment of the tranches of
financial assistance to the recipient Member State, and its reports are the basis for decisions
by the Board of Directors concerning the recapitalisation of financial institutions of ESM
Member States (Article 15(5)), ESM loans (Article 16(5)), and primary market facilities
(Article 17(5)).
In addition to working with the Commission and the IMF for tasks previously
mentioned, the ECB is responsible for undertaking an analysis in order to recognise the
existence of ‘exceptional financial market circumstances and risks to financial stability’
which could constitute the basis for decisions on interventions on the secondary market
(Article 18(2)).
The ESMT does not provide any further details about the respective roles of the
Commission and the ECB or about the way in which the two institutions are to fulfil their
tasks. Furthermore, to the best of our knowledge, there are no other publicly accessible
documents or guidelines on the positions of the two institutions in previous bailout
negotiations either. This lack of information as to the specifics of the role of the two
institutions can be seen in light of the already identified lack of transparency in the ESM.
11
Article 34 ESMT imposes a broad obligation of confidentiality, prohibiting not only those
who work or have worked for the ESM, but also anyone who works or has worked in
10
Ibid art 8(1); see also ESM General Terms for ESM Financial Assistance Facility Agreements
<www.esm.europa.eu/legal-documents?field_documents_category_tid[]=273#legal-preselect> accessed 5 May
2017.
11
MP Maduro, ‘A New Governance for the European Union and the Euro: Democracy and Justice’ [2012]
Robert Schuman Centre for Advanced Studies Policy Paper No 11. Generally speaking, from 2012-2016 the
ESM issued a number of soft laws such as codes, guidelines, and lending documentation in an attempt to
provide further details as to its operation and to enhance the openness of its governance and decision-making
processes. This attempt received a mixed reaction from the academic literature, with some authors
characterising it as ‘modest in substance’: see L Daniele and others, Democracy in the EMU in the Aftermath of
the Crisis (Springer, Cham 2017) 207-08; M De Nes, ‘The ESM and the Principle of Transparency’ (2015) 7
Perspectives on Federalism 128, and the literature cited therein.