The Court of Justice’s Self-restraint of Reviewing Financial Assistance Conditionality in the Chrysostomides Case

Abstract: In the Chrysostomides case (joined cases C-597/18 P, C-598/18 P, C-603/18 P and C-604/18 P Council v Chrysostomides & Co. and Others ECLI:EU:C:2020:1028), the Court of Justice (ECJ) confirmed its previous finding that the Eurogroup has only an informal and intergovernmental nature. Building on the cases Ledra and Mallis, the ECJ finally denied the respective possibilities of EU legal protection against acts and conduct of the Eurogroup. Moreover, the ECJ denied the binding nature of art. 2(6)(b) of Council Decision (EU) 2013/236, a decision with which the conditionality of the macro-economic adjustment programme had been brought under the auspices of EU law. As a consequence, the Eurogroup’s acts and conduct as well as conditionality measures cannot be reviewed on the EU level.

Keywords: financial assistance conditionality – Eurogroup – accountability – action for damages – Economic and Monetary Union – Cyprus.
 

I. Introduction

In December 2020, the Court of Justice (ECJ) delivered a long-awaited judgment in the case Chrysostomides[1] where it once more addressed the Cypriot measures adopted in the course of the European sovereign debt crisis of the last decade.[2]

Several idiosyncrasies of the Cypriot banking sector[3] have led to the crisis: a) the Cypriot banking sector was considerably large compared to the economy (the domestic sector was over six times the gross domestic product (GDP).[4] b) The two largest lenders, Bank of Cyprus and Laiki (covering two thirds of the banking sector and four times GDP) invested in high risk and eventually non-performing loans: Greek government bonds.[5] Thus the Greek haircut spread contagion to the Cypriot banking sector, as the two banks lost nearly 80 percent of the capital base, which caused the necessity of external resources.[6] Financial assistance provided by the European Stability Mechanism (ESM) was made conditional on the compliance with certain adjustment measures.[7]

Two questions were most central for the case: 1) Does the Eurogroup form a body of EU law in sense of art. 340(2) TFEU? 2) Did art. 2(6)(b) of Council Decision (EU) 2013/236[8] impose specific measures on Cyprus to restore financial stability and sustainable growth, without any margin of discretion? When dealing with appeals and cross-appeals relating to several actions for damages in the cases Chrysostomides and Bourdouvali,[9] the ECJ in Chrysostomides revoked the General Court (GC)’s finding to qualify the Eurogroup as an EU body. Both the Advocate General (AG) Pitruzzella and the ECJ upheld the informal and intergovernmental nature of the Eurogroup. Besides, Council Decision (EU) 2013/236 supposedly only set a target, but left the specific means open for Cyprus’ discretion. The ECJ’s findings (section III) must be discussed against the background of limited accountability of the EU institutions and bodies in the governance of the euro area crisis (section II) and the implications which can be drawn for legal protection against conditionality measures (section IV).

II. Background: the EU Courts and the Euro crisis

Two Cypriot cases have become synonyms for the answers to the most pertinent questions on the EU institutions’ accountability for their role in the financial crisis: Ledra and Mallis.[10] In both cases, the ECJ denied legal protection under art. 263(4) TFEU (non-privileged action for annulment) and respectively art. 340(2) TFEU (action for damages).

II.1. Ledra: applicability of the Charter of Fundamental Rights of the EU

On 20 September 2016, the Ledra case[11] brought insights on the Union’s non-contractual liability. The ECJ found that the EU institutions must abide by the Charter of Fundamental Rights of the EU (the Charter), even when acting outside the scope of EU law.[12] The fact that the Commission’s actions within the Treaty Establishing the European Stability Mechanism (TESM) fall outside of the EU legal order would, however, exclude the possibility of bringing an action for annulment.[13] The ECJ explained that claiming damages would not per se be excluded: “However, whilst such a finding [that ESM acts do not form part of the Union legal order] is liable to have an effect in relation to the conditions governing the admissibility of an action for annulment that may be brought on the basis of Article 263 TFEU, it cannot prevent unlawful conduct linked, as the case may be, to the adoption of a memorandum of understanding on behalf of the ESM from being raised against the Commission and the ECB [European Central Bank] in an action for compensation under Article 268 TFEU and the second and third paragraphs of Article 340 TFEU”.[14]

Subsequently, the ECJ assessed whether the conditions for the EU’s non-contractual liability were fulfilled, “the unlawfulness of the conduct alleged against the EU institution, the fact of damage and the existence of a causal link between the conduct of the institution and the damage complained of”.[15] For the fulfilment of the first condition, ”a sufficiently serious breach of a rule of law intended to confer rights on individuals must be established”.[16] Those were alleged restrictions to the right to property (art. 17 of the Charter) imposed by the Memorandum of Understanding (MoU) of 26 April 2013 detailing the conversion of “uninsured bank deposits in Bank of Cyprus into class A shares with full voting and dividend rights”,[17] as well as the temporary freezing of another part of these uninsured deposits and related measures,[18] and weighed them against the objective of ensuring the stability of the banking system in the euro area.[19] Eventually, the ECJ did not find a “disproportionate and intolerable interference impairing the very substance of the appellants’ right to property”,[20] and, therefore, dismissed the claim for damages caused by the Commission.

II.2. Mallis: no action for annulment of a Eurogroup statement

On the same day, the ECJ proclaimed its judgment in the Mallis case,[21] where non-privileged actions for annulment based on art. 263(4) TFEU[22] were brought against a statement of the Eurogroup but eventually dismissed by the ECJ.[23] The ECJ acknowledged that while the TESM entrusted the Commission and the ECB with certain tasks, such as negotiating and signing the MoU on behalf of the ESM (art. 13(3) and (4) TESM), these Articles did not confer any decision-making powers on the institutions.[24] Also, the ECJ argued that the Eurogroup “statement, of a purely informative nature, was intended to inform the general public of the existence of a political agreement between the Eurogroup and the Cypriot authorities reflecting a common intention to pursue the negotiations in accordance with the statement’s terms”.[25]

It should be noted not only that the term “informally” is used in the wording of Protocol No 14 on the Eurogroup, annexed to the TFEU Treaty, but also that the Eurogroup is not among the different configurations of the Council of the European Union:[26] “[…] accordingly, […] the Eurogroup cannot be equated with a configuration of the Council or be classified as a body, office or agency of the European Union within the meaning of art. 263 TFEU”.[27]

III. The Chrysostomides case

In December 2020, the ECJ built on both Ledra and Mallis, when it revoked the GC’s finding to qualify the Eurogroup as an EU body in the case Chrysostomides. That question arose in the course of dealing appeals against the GC’s judgments on two actions for damages brought against the involved EU institutions in both the cases Chrysostomides and Bourdouvali.

III.1. The judgment of the General Court

Compared to the ECJ, the GC delivered fundamentally different opinions on the legal nature of 1) the Eurogroup and 2) Council Decision (EU) 2013/236. Regarding the former, the GC noted that the Eurogroup did not take any definite decisions with regard to financial assistance, but that the authority for decision-making “came within the competence of the ESM Board of Governors”.[28] The term institution would, however, not only cover those institutions “listed in art. 13(1) TEU, but also all other EU bodies established by the Treaty and intended to contribute to the achievement of the EU’s objectives”.[29] On the one hand, the GC acknowledged the ECJ’s main finding in the Mallis case, where it had argued that the Eurogroup “could not be classified as a body, office or agency of the EU ‘within the meaning of art. 263 TFEU’”.[30] On the other hand, the GC, emphasised that arts 263 and 268 TFEU in conjunction with art. 340(2) TFEU would serve different purposes, the non-contractual liability remedy has been established independently from the other remedies, and thus, a determination of the concept of an EU institution would not necessarily have to be the same for both types of remedies.[31] Then, the GC derived from art. 137 TFEU and Protocol No.14[32] that the Eurogroup: “is a body of the Union formally established by the Treaties and intended to contribute to achieving the objectives of the Union. The acts and conduct of the Euro Group in the exercise of its powers under EU law are therefore attributable to the European Union.[33] Any contrary solution would clash with the principle of the Union based on the rule of law, in so far as it would allow the establishment, within the legal system of the European Union itself, of entities whose acts and conduct could not result in the European Union incurring liability”.[34]

Concerning the legal nature of Council Decision 2013/236/EU, the GC claimed that it would constitute a Decision in the sense of art. 288(4) TFEU and that it was “mandatory […] in its entirety”.[35] To that end, the GC examined the wording and substance of the decisions and found that “its provisions are entirely worded in mandatory terms, as is evidenced by the systematic use of the word ’shall’ in arts 1 and 2”.[36] The Council’s written submissions would demonstrate that “Decision 2013/236 was intended to produce legally binding effects and that the Council is intended to grant it such effects”.[37] Besides, “according to the Council’s response to the Court’s measures of organisation of procedure, Decision 2013/236 reflects ‘a common practice that has developed since the beginning of the crisis of the euro area, according to which conditionality attached to assistance – that has been agreed intergovernmentally between the beneficiary Member State and the ESM – is coupled with Council Decisions based on art. 136 TFEU’ for the purpose of ‘ensur[ing] the correspondence and consistency between the intergovernmental and Union spheres of action’”.[38]

III.2. The judgement of the ECJ

The ECJ brought together the Council’s appeals and cross-appeals and meticulously assessed them step by step. As abovementioned, two aspects are particularly worth highlighting: first, opposed to the GC, the ECJ found that the Eurogroup is of pure intergovernmental and informal nature and does not fall under the concept of an EU institution within the meaning of art. 13(1) TEU.[39] The ECJ seized the Opinion of AG Pitruzella who had delivered a detailed analysis of the Eurogroup’s legal nature.[40] Besides, it loosely followed the lead of the AG, who perused all the means of legal interpretation.[41] The ECJ began its analysis by noting that the wordings of art. 137 TFEU and Protocol n. 14 would only recognise the right of the Euro area Member States to meet informally.[42] The ECJ referred to the AG’s historical interpretation of the Eurogroup as an informal intergovernmental body established outside EU law, serving as a ”bridge between the national level and the EU level for the purpose of coordinating the economic policies”.[43] The recognition by the Treaties did allegedly not alter the intergovernmental nature of the Eurogroup,[44] hence it ”cannot be equated with a configuration of the Council”.[45] Publicly announced written statements of the Eurogroup would serve nothing more than making ”known the outcome of any informal political agreement reached on questions debated within the Euro Group”.[46] However, Pitruzella had ascribed a ”semi-intergovernmental method” to the Eurogroup, meaning that it would operate at the crossroads of the EU and the intergovernmental level.[47] The ECJ did not take up the AG’s neologism, but highlighted the Eurogroup’s informal character, which ”can be explained by the purpose pursued by its creation of endowing economic and monetary union with an instrument of intergovernmental coordination but without affecting the role of the Council – which is the fulcrum of the European Union’s decision-making process in economic matters – or the independence of the ECB”.[48]

Contrary to the GC’s findings,[49] the ECJ re-emphasised that the Eurogroup would not have competences of its own.[50] Thus, art. 340(2) TFEU could not be invoked against Eurogroup statements.[51] On the matter that lacking legal protection would threaten the rule of law in the EU,[52] the AG had found that the possibility of claiming compensation from the Eurogroup would add only very little to the remedies available to challenge the adoption and implementation of Decision 2013/236/EU of the Council.[53] The ECJ did not specifically address the rule of law argument, but merely argued that “individuals may bring […] an action to establish non-contractual liability of the European Union against the Council, the Commission and the ECB in respect of the acts or conduct that those EU institutions adopt following such political agreements”.[54]

Concerning the second major aspect of the legal nature of art. 2(6)(b) of Decision (EU) 2013/236, the ECJ denoted that it would merely require: “in general terms, that the Cypriot authorities maintain or continue to implement the conversion, without defining in any way the specific rules for that operation, the General Court was wrong in concluding […] that the Cypriot authorities had no margin of discretion for the purpose of laying down such rules […]”.[55]

IV. Implications for legal protection against financial assistance conditionality

The ECJ’s judgment raises several issues concerning legal protection against reform measures adopted to comply with financial assistance conditionality. First, the exclusion of the Eurogroup as an EU body leads to the fact that only the legality acts and conduct of the Commission, the ECB, and the Council can be challenged on the EU level.[56] While the ECJ found that the Eurogroup does not form a configuration of the Council,[57] its ministerial members[58] are the same Member State representative who are part of the Ecofin Council,[59] the ESM Board of Governors,[60] and, in some cases, also the IMF Board of Governors.[61] AG Pitruzzella particularly highlighted the personal overlap of the Eurogroup and the ESM Board of Governors.[62] Besides, when deciding on measures to ensure the proper functioning of the Economic and Monetary Union, only the euro area representatives take part in the Council’s vote (art. 136(1) TFEU). Decision (EU) 2013/236 was such a measure.

Second, Decision (EU) 2013/236 would only be challengeable if it had legal effects, which the ECJ denied.[63] Actions for annulment under art. 263 TFEU would only be admissible if there were legal effects.[64] Indeed, the wording of art. 2(6)(b) of Decision 2013/236/EU would allow for another means to reach the outcome of “establishing an independent valuation of the assets of Bank of Cyprus and Cyprus Popular Bank and quickly integrating the operations of Cyprus Popular Bank into Bank of Cyprus”. In theory, Cyprus could have opted for another solution. However, in practice,[65] it seems questionable why Cyprus should have changed the respective measures after they had been welcomed by the Eurogroup and had been documented in Annex I of the Eurogroup Statement of 25 March 2013.[66] Decision (EU) 2013/236 has then been adopted on 25 April 2013. The MoU of 24 April 2013 negotiated by the Commission, the ECB and the IMF, and Cyprus has also mentioned the conversion of the respective deposits.[67] On 8 May 2013, the ESM Board of Governors decided to approve the disbursement of the first tranche. The Eurogroup then welcomed that decision on 13 May 2013 and even confirmed that “Cyprus has implemented all prior actions as agreed in the MoU preceding the decision by the ESM on the first disbursement”.[68] Repasi emphasised that the ESM MoU would not intend to have any legal effects, having the effect of excluding an application of art. 263 TFEU.[69] A remaining problem is that not all elements of the Eurogroup statements are mirrored in Council Decisions and vice versa.[70] Besides, also in other cases, the relationship of the said Council Decisions with the so-called MoU complicated access to and the effectiveness of legal remedies.[71] The ECJ found that ESM acts are not covered by EU law.[72] Opposed to that, in a case from Romania, Florescu, the ECJ qualified the MoU as “mandatory” and qualified it as EU law.[73] In that case, the MoU contained the conditions for Medium-Term Financial Assistance, governed by Council Regulation (EU) 332/2002,[74] which is based on art. 143(1) TFEU and, hence, covered by a completely different legal regime applicable to non-euro area Member States. Moreover, the ECJ mentioned – but neither confirmed nor denied – that the “Council states that Decision 2013/236 reflects a common practice that had developed since the beginning of the euro area crisis, under which conditionality attached to financial assistance granted to an MSCE [Member State whose currency is the euro] is coupled with Council decisions based on art. 136 TFEU, thereby ensuring consistency between the intergovernmental and EU spheres of action”.[75]

Third, the limited reviewability of Council Decision (EU) 2013/236 reopens of holding the Eurogroup responsible under art. 340(2) TFEU. The rationae personae of the provision encompasses damages caused by the EU institutions. As mentioned, the term EU institution does not only cover those listed in art. 13(1) TEU, but also all other EU bodies, offices and agencies “established by or under the Treaties and are intended to contribute to the achievement of the European Union’s objectives”.[76] The literature was divided as regards the classification of the Eurogroup as an EU institution.[77] Like the ECJ, Selmayr had argued that, at the very “foundation” in 1997, the Eurogroup was merely introduced as the possibility of informal meetings among the Ministers of the Euro area Member States.[78] Until today, the Eurogroup would not replace the Ecofin Council, not even in the case when only the Euro area Member States are entitled to vote in the Council.[79] Even a changed political reality as a consequence of the Euro crisis, where the Eurogroup de facto made the decisions subsequently to be approved by the Council, would not make a difference.[80] Kadelbach called the Eurogroup a special meeting of the parties with a governing and working level.[81] Potacs merely highlighted that the codification of the Eurogroup would put more emphasis on its president.[82] Opposed to that, Palm claimed that although the Eurogroup would neither have the competence to adopt legal acts, nor would it be possible to consider it an organ in the sense of art. 13(1)(2) TEU, nor would the Eurogroup have legal personality, its mere recognition under primary EU law would make it a Union body.[83] Another aspect in favour of extending the personal scope of application of art. 340(2) TFEU to the Eurogroup has been mentioned by the GC: the rule of law.[84] The ECJ has not addressed this aspect in its judgment. In the past, the ECJ, allowed the European Parliament to bring an action for annulment even if back then, the Parliament had not been mentioned in art. 173 EEC Treaty.[85] With that in mind, it would have been possible, to qualify the Eurogroup as an EU body within the meaning of art. 340(2) TFEU. Then, however, the ECJ would have been forced to adapt its findings on the exclusion of art. 263 TFEU in order to avoid the qualification of non-challengeable but binding statements of the Eurogroup as non-acts.

Finally, there are two more options left to be explored and brought before the ECJ. First, questions on the interpretation of the respective Council Decisions could be brought under art. 267 TFEU. In that case, the Member States’ courts could ask the ECJ for a binding interpretation or the validity of conditionality measures in the course of applying national implementing measures. Second, after the adoption of Regulation (EU) 472/2013[86] the Macroeconomic Adjustment Programme detailed in Council Implementing Decisions.[87] Hence, like Regulation (EU) 472/2013, these decisions are based on art. 136 in combination with art. 121(6) TFEU, which might re-open some questions as regards the legal nature of the decisions’ provisions-depending on their respective wording.

V. Conclusions

In the Chrysostomides case, the ECJ built on its case law (Ledra and Mallis) and re-confirmed the Eurogroup’s informal and intergovernmental nature. As a consequence, the Eurogroup cannot be held accountable for its acts and conducts before the EU courts, since neither an action for annulment (art. 263(4) TFEU), nor an action for damages (art. 340(2) TFEU) can be invoked. Even by challenging the acts and conduct of the Council, the Commission or the ECB, that lacuna cannot not be compensated entirely. While informal discussion forums certainly have their raison d'être, in the present circumstances, the Council could trial run its plans in the Eurogroup without facing any consequences and later adopt the least opposed option.

Before, the Chrysostomides case, it has regularly been mentioned in the literature that even if MoUs adopted with euro area Member States cannot be contested on the EU level, at least, the validity of the respective Council Decisions repeating the gist of the MoU can be challenged. Now, concerning art. 2(6)(b) of Decision (EU) 2013/236 even that option has been excluded by the ECJ.

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European Papers, Vol. 6, 2021, No 1, European Forum, Insight of 28 May 2021, pp. 177-188
ISSN 2499-8249 - doi: 10.15166/2499-8249/462

* Postdoctoral Researcher, Department of Public Law, Public International and European Law, University of Salzburg; Postdoctoral Researcher for the European Constitutional Court Network research project, isabel.staudinger@sbg.ac.at. I am thankful to the anonymous reviewer and to András Jakab, Lando Kirchmair and Rainer Palmstorfer for their valuable comments and suggestions. All remaining errors are my own.