Weekend Edition Nº50 by eulawlive

Nº50

MARCH 6

2021

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ALBERTO DE GREGORIO MERINO

THE RECOVERY PLAN: SOLIDARITY AND THE LIVING CONSTITUTION ANDREA WESTERHOF LÖFFLEROVÁ

REFORM OF THE EUROPEAN STABILITY MECHANISM SIGNED: A LANDMARK ACHIEVEMENT FULLY RESPECTFUL OF EU CONSTITUTIONAL AND INSTITUTIONAL LIMITS

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The Recovery Plan: Solidarity and the living constitution Alberto de Gregorio Merino

1. Introduction for future contingencies as they may happen’ as he explained in the Federalist Papers (3). In a similar vein, as will be shown below, a dynamic reading of the relevant provisions of the Treaties - especially those that relate to the EU budget - is possible to cater for the dramatic social and economic contingencies of COVID-19. at dynamic reading, which informs the Recovery plan, is fuelled by the principles of solidarity and responsibility.

e EU’s response to the COVID-19 crisis can be quali ed as historic and commensurate to the gravity of the circumstances. As will be explained later in this Long Read, it consists of a very innovative legal architecture. Yet, however historic and unprecedented it may be, the so-called recovery plan, also known as the Next Generation EU (NGEU) is solidly founded in the Treaties. Some politicians have referred to the recovery plan as a Hamiltonian moment of the EU (2). If by that we understand the creation of a federal Treasury where the debt of the States would be consolidated as single federal one, as the rst US Secretary of the Treasury proposed and pushed through his ‘Report on Public Debt’ (1790), the recovery plan is far from that moment, as this Long Read will show.

is Long Read is divided into three parts. e rst descriptive part will oﬀer a short account of the most important measures to address the economic consequences of the pandemic. e second part will examine the nancial architecture of the recovery plan, founded on borrowing for spending, against the background of some of the most fundamental Treaty rules on budget and on the system of own resources. e third part will explain the recovery plan from the viewpoint of the principles of solidarity and of responsibility.

Notwithstanding the above, we will not depart from Hamilton so hastily. e American founding father, as opposed to Jeﬀerson (who advocated for a more static and State-friendly reading of the Constitution), always regarded that Constitution as a living document which ‘ought to have a capacity to provide

1. Director at the Legal Service of the Council of the European Union. e views expressed by the author are personal and do not engage the institution for which he works. 2. Ben Hall, Sam Fleming, and Guy Chazan, ‘Is the Franco-German plan Europe’s ‘Hamiltonian’ moment?’, Financial Times, 21 May 2020, referring to statements by the German Minister of Finance Olaf Scholz. 3. Alexander Hamilton, e Federalist Papers (No. 34), Pocket Books, 2004.

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200 billion euros, 65% of which consist of credits earmarked to small and medium companies (8). Finally, for the euro area Member States, the European Stability Mechanism (ESM) agreed on 15 May 2020 on a credit line in favour of its members earmarked to the nancing of direct and indirect healthcare, and cure and prevention related costs due to the COVID-19 crisis for an amount which can go up to the 2% of the GDP of each Member State (9).

2. e EU COVID-19 Recovery partita: crescendo to fortissimo: the making of NGEU was preceded by other economic measures adopted between the end of March to the end of July of last year. First, in the monetary eld, on 24 March 2020 the ECB adopted the Pandemic Emergency Programme (PEPP), which allows it to acquire public and private assets for a total value of 750 billion euros (eventually increased to 1.85 trillion euros) (4). In the scal eld, the ministers of nance of the 27 Member States politically agreed on 20 March to activate the so-called ‘escape clause’ of the Stability and Growth Pact, which allows for the suspension, in exceptional situations that are out of the control of the Member States, of some of their budget obligations under the EU Treaties and secondary law (5).

ere is an important additional element of context that should be taken into account when understanding the EU response to the pandemic. It is the judgment of the German Constitutional Court on the ECB’s Public Sector Purchase Programme of 5 May 2020, the content and consequences of which exceed the purpose and length of this contribution (10). It suﬃces to say that the judgment engendered serious institutional and constitutional tensions which are still looming over the EU judicial landscape - of which the reader is perfectly aware. Only a few days a erwards, on 18 May, German Chancellor Merkel and French President Macron appeared together to provide a joint statement on the establishment of a rescue fund, which constituted the real antechamber of the Commission's NGEU proposals, eventually presented at the end of May. e Karlsruhe judgment may have led to re ections in some capitals (most notably Berlin) on the fragility

Together with these monetary and scal measures, the EU and its Member States agreed on safety nets for workers, citizens and States themselves (6). In May 2020 the Council adopted the so-called SURE Regulation, an instrument of temporary nancial support of national short-time work schemes aimed at protecting the employees and the self-employed, which may mobilise loans to the bene t of Member States up to 100 billion euros (7). e European Investment Bank (EIB) created in May a new pandemic guarantee fund which may mobilise up to

4. Decision (EU) 2020/440 of the European Central Bank on a temporary pandemic emergency purchase programme (ECB/2020/17) [OJ L 91, 25.3.2020, p. 1]. 5. Council of the EU, ‘Statement of EU ministers of nance on the Stability and Growth Pact in light of the COVID-19 crisis’, press release of 23 March 2020. 6. ese ‘safety nets’ were discussed and politically agreed at diﬀerent meetings of the Euro Group in inclusive format (thus with the participation of the Member States whose currency is not the euro). See the Report on the comprehensive economic policy response to the Covid-19 pandemic, adopted by the Euro Group on 9 April 2020. 7. Council Regulation (EU) 2020/672 on the establishment of a European instrument for temporary support to mitigate unemployment risks in an emergency (SURE) following the COVID-19 outbreak [OJ L 159, 20.5.2020, p. 1]. 8. See EIB, ‘EIB Board approves €25 billion Pan-European Guarantee Fund in response to COVID-19 crisis’, press release of 26 May 2020. 9. See here. 10. Judgment of the German Federal Constitutional Court (Second Senate) of 7 September 2011 (2 BvR 987/10).

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are addressed to nance a large number of programof relying too much on technical and independent mes, most of which are cohesion related, linked to institutions, such as the European Central Bank to the COVID-19 crisis. e most important of those address nancial and economic crisis, such as the programmes is the Recovery and Resilience Facility one of public debt of the early 2010s, where the (RRF), endowed with 672 billion euros, payment ECB under the lead of Mario Draghi o en appeared of which depends on compliance by the recipient as Deus ex machina. It would not be too far-fetched Member States of a plan of economic reforms subto think that the German Constitutional Court judgmi ed by it, and approved by the Council. e conment and the constitutional and institutional tentent of the national Recovery and Resilience plans sions it gave rise to, may have largely contributed to (NRRPs) will build on the European Semester rethe German willingness towards the NGEU. One commendations (11). can say that this time political institutions have taken the responsibility for solving e legislative architecture of crises that politicians had preNGEU consists of a building of is time political viously outsourced to technical three oors. On the top oor we ones, such as the ECB. institutions have nd the Own Resources Decie main features of NGEU wetaken responsibility sion, which provides for an exceptional and temporary increare agreed at the July 2020 Eurofor crises that politise of the own resources ceiling by pean Council a er ve days of 0.6% of the GNI of all the Memextenuating negotiations. It is cians had previously ber States which is reserved upconceived on top of the normal outsourced front to pay back the NGEU debt Multiannual Financial Frame(12). e Own Resources Deciwork (MFF) of the EU. NGEU sion also empowers the Commisis endowed with 750 billion eusion to borrow funds on capital markets on behalf of ros, a huge amount, representing the 57% of the tothe EU and provides for the overall volume of the tal MFF money (1,300 billion euros). Of the 750 biEU's liabilities, the part to be used as subsidies and llion euros, 390 billion (52%) will be used as subsias loans, and the essential nancial conditions for redies and 360 billion (48%) as loans. NGEU is to be payment (13). ere is an intermediate oor, the nanced through the long term issuance of debt in Recovery Instrument Regulation (founded on Artithe markets by the Commission on behalf of the cle 122 TFEU) which works as a ‘control room’, conEU. It consists of long term borrowings where the duit or channel that allocates the proceeds of borroEU is held to pay oﬀ to the markets by the end of wings in the markets to diﬀerent measures and pro2058. e legal commitments under NGEU should grammes that it identi es (including the recovery be entered in three years, by the end of 2023. Funds

11. See Regulation (EU) 2021/241 establishing the Recovery and Resilience Facility [OJ L 57, 18.2.2021, p. 17]. 12. Council Decision (EU, Euratom) 2020/2053 on the system of own resources of the European Union [OJ L 424, 15.12.2020, p. 1] (‘the Own Resources Decision’). 13. See Articles 5(1)a and 6 and the Own Resources Decision.

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From a constitutional perspective NGEU is a novel and unprecedented construction

and resilience facility referred to previously) (14). On the ground oor we have the diﬀerent programmes to which the resources are allocated - most notably cohesion based, as stated before - which lay down the rules for their implementation, including programming, eligibility and allocation criteria.

Member State was an asset which rendered the operation budgetary neutral. But never before had recourse been had to borrowing for spending in such large amounts (the EU had nanced building acquisition projects through loans, but in much more modest amounts).

3. NGEU: New Financial Architecture, ma non troppo

is raised many concerns and reluctance from a number of Member States, some of which were echoed in diﬀerent video conferences of the Heads of State or Government, especially the one that took place on 19 June 2020. Is NGEU a new European Treasury? Is borrowing for spending a change of budgetary paradigm through the back door? Can the EU nance today's actions on the basis of tomorrow's revenues? Is this a mutualisation of the national debt of Member States, the birth of Eurobonds? Is the EU going beyond its conferred powers in the area of nance and budget?

From a constitutional perspective NGEU is a novel and unprecedented construction. Borrowing on the markets to nance EU actions has been a relatively common feature of the EU nancing strategy for many years. Yet, up to now, borrowing took place through back-to-back operations where the EU went to the markets to lend-on the proceeds to Member States - for instance the European Financial Stability Mechanism (EFSM) (15), the Balance of Payments Facility (16), Macro-Financial Assistance (17) and, more recently, the SURE instrument. e commitment to repay by the recipient

ese concerns were also the object of misgivings expressed in debates in several national parliaments,

14. Council Regulation (EU) 2020/2094 establishing a European Union Recovery Instrument to support the recovery in the a ermath of the COVID-19 crisis [OJ L 433I , 22.12.2020, p. 23] (‘the Recovery Instrument Regulation’). 15. See Council Regulation (EU) No 407/2010 establishing a European nancial stabilisation mechanism [OJ L 118, 12.5.2010, p. 1]. 16. See Council Regulation (EC) No 332/2002 establishing a facility providing medium-term nancial assistance for Member States' balances of payments [OJ L 53, 23.2.2002, p. 1]. 17. Adopted in accordance with Article 212 TFEU (see, by way of example, Decision (EU) 2020/33 providing further macro- nancial assistance to the Hashemite Kingdom of Jordan [OJ L 14, 17.1.2020, p. 1]).

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getary discipline, ‘(…) the Union shall not adopt any act which is likely to have appreciable implications for the budget without providing an assurance that the expenditure arising from such an act is capable of being nanced within the limit of the Union's own resources and in compliance with the MFF (…)’. Article 17 of the Financial Regulation (the general act se ing out the rules on the establishment and implementation of the EU budget) is also relevant (18) . A er stating the principle of budgetary balance, paragraph (2) thereof lays down that the EU shall not raise loans within the framework of the budget.

such as the Dutch and Finnish ones. ey are rather comprehensible. Not only for nancial reasons linked to the appearance of a new very large stock of public debt whose payment will eventually fall on the shoulders of the Member States. Most fundamentally because the creation of an EU Treasury could mark a new level of EU nancial autonomy (beyond the system of own resources) with a potential federalisation strength. It may ultimately raise democratic legitimacy questions. us, the question of compatibility of NGEU with the Treaties is not only one of budgetary technique but, most notably, a question of fundamental constitutional importance, at the bo om of which lies the principle of conferral.

Is NGEU compatible with the principles of budgetary balance, discipline, and the system of own resources?

e principles of budgetary balance and discipline are at the core of the EU budgetary and nancing system. As a diﬀerence to the national budgets, which can incur de cits (subject to the Stability and Growth Pact limitations and applicable national debt brakes), the EU budget must be in balance at the end of each year. e EU is prohibited from adopting a budget in de cit. e EU is not allowed to run an operating de cit. Eventual de cits must be carried over the next year and be nanced through the own resources of the EU, and not through public debt.

And what are those questions of compatibility? ey are essentially two that we will in turn examine. e rst one is whether NGEU is compatible with the principles of budgetary balance and discipline enshrined in Article 310 TFEU (section 3.1). e second one is whether NGEU is compatible with the system of own resources of the Treaties, enshrined in Article 311 TFEU (section 3.2).

Let's now focus on a literal reading of Article 310(1) TFEU. First, this provision refers to the revenue and expenditure ‘shown in the budget’. Second, it does not explicitly prohibit (or allow) nancing by means of loans. For its part, the Financial Regulation excludes recourse to loans ‘in the framework of the budget’.

3.1. Budgetary balance and discipline Article 310(1) TFEU sets out the principle of budgetary balance by stating ‘ e revenue and expenditure shown in the budget shall be in balance’. Article 310(4) sets out a ‘brother’ principle, the one of bud-

18. Regulation (EU, Euratom) 2018/1046 on the nancial rules applicable to the general budget of the Union[OJ L 193, 30.7.2018, p. 1] (‘the Financial Regulation’).

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annual perspective, the eﬀects of borrowing for spending must be budgetarily neutral, for which borrowing should be duly counterbalanced by an asset that responds to that liability. at asset does actually constitute the ‘assurance’ that the EU may face its liabilities before the markets in the sense of Article 310(4) TFEU and that, in the end, borrowing will not engender an operating de cit (22).

Now, proceeds from borrowings under NGEU are to be used as ‘external assigned revenue’, namely revenue earmarked to a speci c purpose ( nancing the COVID-19 relevant programmes) (19) . Yet, in accordance with the Financial Regulation, external assigned revenues consist of oﬀ-budget operations: the proceeds from the borrowing are not recorded as budgetary revenue. ey are not provided in the budget and are not decided upon during the annual budget procedure (20) . ey are intended to be additional in nature and come on top of the appropriations voted on in the annual budget (21) . ey are thus not ‘shown in the budget’ in the literal sense of Article 310(1) TFEU and thus by their very nature cannot jeopardize the principle of budgetary balance.

It is here where the yearly increase of the ceiling of 0.6% of the GNI of all the Member States provided in the Own Resources Decision to which reference was made previously is of essence: such increase works as a compartment which is exclusively allocated to the repayment of NGEU borrowings. It is a credible and solid asset (a de nitive, irrevocable and enforceable commitment of payment by Member States) which ensures the budget neutrality of the operation and that hence guarantees that an operating de cit will not arise. is closed compartment earmarked to the payment of debt is a fundamental diﬀerence in relation to national debt issuance, where States do not create this kind of upfront guarantee of payment to the markets. In the case of States, the guarantee of payment lies in the creditworthiness of each of them.

However we cannot con ne our examination to a literal or purely technical reading of Article 310(1) TFEU: otherwise, it would be very easy for the EU legislator to circumvent the principle of budgetary balance by simply establishing multiple programmes that provide funding through loans. is could ultimately lead to running an operating de cit, which is what the principle of budgetary balance is addressed to avoid. A nalistic interpretation of that provision is also needed. A reading which actually brings in the scene the principle of budgetary discipline under Article 310(4) TFEU - a corollary of budgetary balance - whereby there must be an assurance that the expenditure arising from any EU act is capable of being nanced within the limit of own resources. Assessed overall, and from a multi-

3.2.

e integrity of the own resources system

e second question is whether NGEU respects the integrity of the own resources system of the EU. Article 311, second subparagraph, TFEU sets out that ‘without prejudice to other revenue, the budget

19. See recital (9) of the Recovery Instrument Regulation. 20. In accordance with Article 7(2)(e) of the Financial Regulation, external assigned revenues constitute authorised spending (‘appropriations’) but they do not form part of the appropriations ‘provided’ in the budget. e budget contains a structure for accommodating assigned revenue but this does not entail pu ing amounts on the relevant budget lines. 21. See Article 21 of the Financial Regulation. 22. e link between the availability of own resources and the budgetary balance has also been con rmed by the Court: see judgment of the Court of Justice, Commission v Kingdom of Denmark (C-392/02, EU:C2005:683), para. 54.

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sources Decision is one of the few acts of secondary law whose entry into force depends on an act of further approval by Member States (this underlines its quasi-constitutional nature). e existence of a selfstanding capacity of the EU to nance itself through the issuance of debt outside the system of own resources would threaten to deconstruct that system.

shall be nanced wholly from own resources’ (emphasis added). Now, the proceeds of borrowings are not own resources of the EU (the la er notion being understood as irrevocable, de nitive and enforceable payments rights to the bene t of the EU). ose proceeds are rather ‘other revenue’ from the markets which constitute a liability. By establishing a mechanism of nancing through the markets in such large amounts (as referred to previously, 57% of the overall MFF expenditure), is NGEU pu ing at jeopardy the integrity of the system of own resources of the Union, which must be the preponderant source of nance of EU budget, in accordance with Article 311 TFEU?

Respect of the integrity of the system of own resources is also related to the respect of the principles of universality of the EU budget (23) - whereby all revenues nance indistinctly all items of expenditure of the EU - and unity - where all items of expenditure and of revenue are to be re ected in one single document, the EU budget (24). Under the Financial Regulation the principles of universality (and of unity) admits some exceptions such as external assigned revenue (as NGEU proceeds are), provided it remains additional.

Again, this is not a mere budgetary nicety but a constitutional question which goes to the core of the nancing system of the EU. at system is based on the preponderance of own resources as the quasiexclusive source of nance of the EU. is in turn underscores two elements: one of nancial autonomy or suﬃciency, that is, the EU must provide itself with own resources that are suﬃcient to carry through the EU’s policies (see Article 311, rst subparagraph, TFEU). e second element quali es that nancial autonomy: the EU cannot decide itself on the manner in which it will nance its actions as it sees t without a previous act of acceptance of each Member State. e Own Resources Decision can only enter into force upon approval by all Member States in accordance with their national constitutional requirements (see Article 311, third subparagraph, TFEU). is idea is in turn rooted in national budget sovereignty. Remarkably, the Own Re-

It is actually the idea of additionality or complementarity which is of utmost importance when examining this question. Whilst Article 311 TFEU set out that the EU shall be nanced ‘wholly’ from own resources, it admits the existence of ‘other revenues’ outside the own resources system. Yet, these ‘other revenues’ (as NGEU proceeds of borrowings are) must not call into question the preponderance of own resources. Accordingly, revenues generated under NGEU would respect the integrity of the own resources system, as well as the principles of unity and universality, if the said revenues were supplementary to the normal EU own resources source of nancing. When examining the additional character of NGEU, the EU legislature disposes of a wide margin of discretion.

23. Enshrined in the rst subparagraph of Article 310(1) TFEU and in Article 8(1) of the Financial Regulation. 24. Enshrined in Article 7 of the 2020 Own Resources Decision.

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tion to what is necessary to that end.

is is not a question to be assessed only from a purely quantitative perspective (are 750 billion euros a top up in relation to the 1.3 trillion euros of the normal MFF nancing for 2021-28?). A qualitative examination of the speci c economic circumstances, needs and context of the mechanism, as well as of the safeguards put in place to preserve the integrity of the EU own resources, is of essence.

e Recovery Instrument Regulation, the ‘middle oor’ instrument which operates as the ‘control room’ of NGEU by establishing the general rules on its allocation, has a special meaning and value in this context. It is based on Article 122 TFEU, paragraph 1 of which empowers the Council to decide on a spirit of solidarity between Member States upon the measures appropriate to the economic situation. As con rmed by the Court of Justice, Article 122 TFEU allows for the adoption of emergency measures which as such are of an exceptional and temporary character (25). Such exceptional and temporary character must be respected by each and every of the diﬀerent individual programmes on which NGEU funding is poured, whichever their legal basis. To give an example, the NGEU nancing of environmental actions through the Just Transition Fund or of research actions under Horizon 2020 must be COVID-19 relevant and its implementation limited to three years. NGEU could not be used to nance regular actions under those programmes or used beyond the limit of time for which they are foreseen.

First, the exceptional situation of COVID-19 and the ensuing urgent need of a swi recovery: NGEU is not a normal spending programme. It is an instrument to help economic recovery in a spirit of solidarity. e preamble of the TEU refers to the desire to deepen solidarity between the peoples of the EU. Solidarity is listed in Article 2 as one of the societal values common to the Member States. e spirit of solidarity is also an element expressly mentioned in Article 122(1) TFEU, namely the legal basis of the Recovery Instrument Regulation (the middle oor of the construction to which reference was made earlier). Second, and more importantly, NGEU is accompanied by a large number of guarantees which underscore its complementary nature and the respect for the integrity of the own resources system. Article 4 of the Own Resources Decision lays down the general principle that the EU shall not use funds borrowed on the capital market for the nancing of operational expenditure. Under Article 5 of that Decision, NGEU is an exception to this principle, the use of which must be strictly limited to the sole purpose of addressing the consequences of the COVID-19 pandemic. It is a temporary and one-oﬀ mechanism (borrowings are limited in time - up to 2026 maximum NGEU legal commitments are to be entered in a maximum of three years). It is limited in size and dura-

To sum up, borrowing for spending under NGEU comes with a large number of guarantees which make it compatible with the Treaties, be it the principle of budgetary balance, or be it the integrity of the own resources system. It is designed to be budgetary neutral and not to engender de cits. Bearing in mind its special characteristics and the very particular needs it intends to address, it can be regarded as complementary to the own resources system of the EU, and respectful of its integrity. NGEU does not constitute a new budgetary paradigm of the EU called to be consolidated throughout time. Borrowing for spending cannot become a permanent feature of

25. See judgment of the Court of Justice, Balkan Import Export GmbH / Hauptzollamt Berlin Packhof (C-5/73, EU:C:1973:109), paras. 13 to 17.

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the EU budget to nance regular EU policies, unless the Treaties were to be changed. It is from this perspective that we stated previously that we are not in a Hamiltonian moment. NGEU is far from constituting a genuine European Treasury with a vocation of permanence.

NGEU is far from constituting a genuine European Treasury with a vocation of permanence

4. Solidarity and Responsibility, the everlasting tango ere is an idea of constitutional importance to which reference has been made previously. NGEU is a construction at the core of which lies the value of solidarity (26). But recent crises show us that processes of integration are made with a trade oﬀ of solidarity and responsibility: forms of nancial assistance for Member States with liquidity or solvency problems such as the ESM or the European Financial Stability Mechanism were accompanied by measures of budgetary responsibility, such as the six- and two-pack legislative packages, the Treaty on Stability, Coordination and Governance, which contained the so-called scal compact, or the conclusion of Memoranda of Understanding to be concluded with Member States in favour of which assistance is provided. Likewise, in the banking union the mutualisation of banking risks through a single resolution fund or through a common backstop is accompanied by a mutualisation of the control of those banking risks (most notably through the Single Supervision Mechanism) and by measures of risk reduction in the banks themselves (27).

26. On the principle of solidarity see Jenő Czuczai, ‘ e Principle of solidarity in the EU Legal order - some practical examples a er Lisbon’, in Jenő Czuczai and Frederik Naert (eds), e EU as global actor - bridging legal theory and practice, Brill Nijhoﬀ, 2017. 27. In relation to risk reduction of banks, see Statement of the Euro Group in inclusive format of 30 November 2020 on the ESM reform and the early introduction of the backstop to the Single Resolution Fund

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the EU is going to provide 750 billion euros to nance reforms, a good part of which will be subsidies, that is non-repayable funds, what guarantees are there that those reforms will be eﬀectively implemented? ose Member States wanted an eﬀective mechanism that would subject the payment of funds to the successful implementation of economic reforms by the recipient Member States. In particular they wanted the decision-making on the payment of funds to be subject to unanimity, so that any Member State could block a payment if not satis ed with the achievement of targets and milestones. However, the Recovery and Resilience Facility is an instrument of cohesion, for which the Council decides by quali ed majority. at voting rule cannot be replaced by unanimity through an act of secondary legislation (28). At the other side of the spectrum, there were Member States - most notably Italy which did not want the implementation of the Recovery and Resilience Facility to become a sort of ‘Greek like troika’: in their view unanimity would eventually give rise to a strong interference in national economies. Unanimity would take the principle of responsibility to a degree that would con ict with the democratic legitimacy of decisions which belong to the core of national sovereignty, such as those that regard economic policy.

e convergence of solidarity and responsibility arises in other EU policies where a common good is shared. I refer notably to the area of Schengen (probably, together with the single currency, the most successful experience of integration). It is not by coincidence that Article 80 TFEU, on asylum and immigration, refers to the two principles of solidarity and responsibility on equal footing. Now, NGEU, which no doubt constitutes a paramount step of integration, is not alien to this ‘tango’ of solidarity and responsibility. e most important program for spending NGEU money is the Recovery and Resilience Facility, addressed at nancing reforms and investments in Member States. Money is delivered upon veri cation of compliance with milestones and targets xed in plans to be approved previously by the Council. ose plans are embedded in the European Semester, which identi es the reforms and investments to be undertaken by each Member State with a view to bring about economic convergence in the EU.

NGEU is not alien to the 'tango' of solidarity and responsibility

Reconciling solidarity and responsibility in the Recovery and Resilience Facility was one of the reasons why the July 2020 European Council took such a long time (5 days, the second longest European Council ever): some Member States wanted sound guarantees on the manner in which this proposal would be applied in the future. It was most notably the case of the Prime Minister of the Netherlands. If

e nal agreement at the European Council consisted of an ‘emergency brake’, whereby Member States that consider that there is a serious deviation

28. In particular, the Court has pointed out that: ‘ e rules regarding the manner in which the Community institutions arrive at their decisions are laid down in the Treaty and are not at the disposal of the Member States or of the institutions themselves’. See judgment of the Court of Justice, United Kingdom of Great Britain and Northern Ireland v Council (C-68/86, EU:C:1988:85), para. 38.

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On a more general token, it must be underlined that the conjugation of solidarity and responsibility has impregnated the last MFF discussion, more than ever before, around the notion of ‘conditionality’. Conditionality is the nexus between solidarity and responsibility. Conditionality of EU funding means, in general, that the allocation of nance is contingent upon compliance by the recipient Member States with some conditions which are essential for the very eﬃciency of the funds. Conditionality has been displayed in diﬀerent forms (for instance, compliance with Stability and Growth Pact rules (32), with tax fairness rules, with gender equality principles (33)), but certainly the most remarkable one (and the one which has been politically most challenging to articulate) is the one laid down in the Regulation on the general regime of conditionality adopted in December 2020, which establishes rules for the protection of the EU budget in the case of breaches of the principles of the rule of law in Member States (34).

from the satisfactory ful lment of the reforms may request the president of the European Council to refer the ma er to the next meeting of the European Council in order to discuss exhaustively the ma er before a payment to the Member State concerned has taken place (29). e mechanism is devised in a manner such that it remains a political one, thus reected in the recitals of the Recovery and Resilience Facility Regulation, but not in its enacting terms (30). e emergency break cannot prevent the Commission from ultimately going ahead with the payments even if the European Council conclusions were unsuccessful. Actually, whilst the European Council may provide the necessary impetus for the development of the Union as well as de ne the general political directions and priorities thereof (Article 15(1) TEU), it cannot become an instance of implementation of the law of the EU or interfere with the implementation powers that the Treaties confer on the Commission or on the Council, as the case may be (see Article 291 (2) TFEU) (31).

29. See point A19 of the conclusions of the special European Council of 17 to 21 July 2020. 30. See recital (52) of the Regulation establishing the Recovery and Resilience Facility. 31. According to the Court, ‘[u]nder Article 13(2) TEU, each EU institution is to act within the limits of the powers conferred on it in the Treaties, and in conformity with the procedures, conditions and objectives set out in them. at provision re ects the principle of institutional balance, characteristic of the institutional structure of the European Union (…), a principle which requires that each of the institutions must exercise its powers with due regard for the powers of the other institutions (…)’. Judgment of the Court of Justice, Council v. Commission (C-409/13, EU:C:2015:217), para. 64. 32. See Article 23 of the Common Provisions Regulation (Regulation (EU) No 1303/2013 laying down common provisions on the ERFD, ESF, Cohesion Fund, EAFRD and EMFF and laying down general provisions on the ERDF, ESF, Cohesion Fund and EMFF [OJ L 347, 20.12.2013, p. 320]). 33. See Article 155(2)b of the Financial Regulation. 34. Regulation (EU, Euratom) 2020/2092 on a general regime of conditionality for the protection of the Union budget [OJ L 433I , 22.12.2020, p. 1].

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Reform of the European Stability Mechanism signed: A landmark achievement fully respectful of EU constitutional and institutional limits Andrea Westerhof Löﬄerová

1. Introduction

e date of 27 January 2021 represents a fundamental milestone for the further development of the Economic and Monetary Union (EMU). On that day, a er several years of intensive negotiations, representatives of the EU Member States signed two international treaties of great importance. First, the 19 Eurozone Member States signed the Agreement amending the Treaty Establishing the European Stability Mechanism (ESM Treaty). Second, the EU Member States signed the Agreement amending the intergovernmental Agreement on the Transfer and Mutualisation of Contributions to the Single Resolution Fund (IGA/SRF).

What are, in a nutshell, the key innovations brought about by these two amending agreements?

e key innovations

As regards the amendment to the ESM Treaty, it will, rst of all, allow the European Stability Mechanism (ESM) to provide not only nancial assistance to the Member States - the ESM Members, but also to provide a common backstop to support resolution of signi cant EU banks. Such common backstop may be provided to the Single Resolution Board (SRB), the EU agency for resolution of banks, in the form of a revolving credit line. e common backstop is conceived as a last-resort safety net to be used if the SRB does not have suﬃcient means in its Single Resolution Fund (SRF) that are necessary for it to resolve (that is, save) a signi cant EU bank. Second, the ESM reform streamlines the access to the ESM’s precautionary credit line to ESM Members that, while needing nancial assistance, are not yet in such dire straits as to have lost access to nancing on the markets. ird, the reform brings about an important recalibration of the roles of the ESM and of the Commission in the design, negotiation and monitoring of future nancial assistance programmes and in crisis preparedness. Finally, the reformed ESM Treaty foresees be er tools to promote debt sustainability of the Member States.

e signatures formalise the political agreement reached on 30 November 2020 at the Euro Group on an ESM reform package, designed to strengthen the crisis prevention and crisis resolution capacities of the Eurozone and of the (Banking) Union as a whole. e purpose of this contribution is to present the main elements of the reformed ESM Treaty and to show that the ESM, even a er the revision of its founding document, continues to orbit the EU in a manner that is loyal to it, in full respect of the powers of EU institutions and of the primacy and autonomy of the EU legal framework.

1. Legal Adviser in Directorate for Economic and Financial Aﬀairs, Budget and Structural Funds in the Legal Service of the Council of the EU (CLS). Any views expressed in this Long Read are purely personal and cannot be a ributed to the Council of the European Union.

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ments with the aim of making the new features of Given the traditional interlinkages in the discusthe ESM, including the common backstop, operasions on the deepening of the EMU between risk tional. sharing and risk reduction, the fact that suﬃcient progress had been achieved in reducing risks in the e Council Legal Service has been closely involbanking sector paved the way for an agreement to ved in the entire process in their capacity as legal admake the common backstop available already as of visers to the Member States that are acting inter se as the beginning of 2022, namely two years ahead of Contracting Parties to those two international schedule. at is why a targeted amendment to the agreements (4). e discussions involved numerous IGA/SRF has been negotiated and signed, together legal challenges and innovations. with the amendment to the ESM As both the ESM Treaty and the Treaty, in order to bring forward the mutualisation of ex-post cone ESM and IGA/SRF IGA/SRF are intergovernmental agreements concluded by their tributions from the banking secare intergovernmental respective Signatories outside of tor within the SRF (2). agreements - so the key the EU legal framework, the key legal concern was the need to ensuIn addition to the two amending legal concern was the re – continued - consistency of international agreements, an enneed to ensure consisthe ESM Treaty with EU law and, tire set of ESM secondary level ultimately, to preserve the prirules (such as resolutions of the tency with EU law and macy of EU law and the autoESM Board of Governors thus its primacy and nomy of the EU legal order and of (BOG), guidelines by the ESM EU decision-making. Two of the Board of Directors (BOD), dra autonomy most interesting constitutional isloan agreements) has been negosues this fascinating exercise tiated and politically agreed, as a brought about concerned: (i) the package, ready to be adopted by relationship between the ESM and the Union instithe relevant ESM bodies once the Amending agreetutions, and (ii) the relationship between EU law, ment to the ESM Treaty enters into force. the ESM rules and the constitutional requirements of the Member States. e Member States that are Signatories to these amending agreements (3) have, in accordance with their national constitutional requirements, started the process of rati cation of both amending agree-

2. Such targeted agreement concerns exclusively the famous ‘waterfall’ set out in Article 5(1) of the IGA/SRF. According to its Article 5(1), the Agreement amending the IGA/SRF enters into force once rati ed by all (21) Member States participating in the Banking Union. 3. Estonia was, despite the fall of its government and thanks to its continuous commitment to the reform of the ESM Treaty, able to sign both agreements a couple of days later, on 8 February 2021. 4. In addition, the Council’s Treaty and Agreement Oﬃce acts as the Depositary for both the original international agreements and their amending agreements. Similarly, Council Legal Service’s Directorate for Quality of Legislation ensured the excellent quality of all 17 and 24 linguistic versions of both amending agreements.

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3. Relationship between the ESM and the Union institutions: the Commission remains a central actor Some of the most important legal discussions on the reformed ESM Treaty centred, without exaggeration, around the correct calibration of the roles of the ESM, on the one hand, and of the Commission, the European Central Bank (ECB) and the SRB, on the other. It has been asserted or implied that the reform of the ESM had signi cantly expanded the role of the ESM in the EU economic governance (5). However, as will be shown below, the ESM has neither been endowed with a role in the economic governance of the EU, nor does the amendment to the ESM Treaty lead to an alteration of the institutional architecture of the EU economic governance. It is true that (some) Member States would have liked to see the ESM transformed into an European version of the International Monetary Fund and vested with powers of economic surveillance in respect of the Eurozone. At the root of those aspirations was the reform of the EMU operated since 2010 through successive instruments known as the six-Pack and the two-Pack. at reform has reinforced the role of the Commission in the economic governance of the EU in the hope that, unlike the Council (which has been perceived as responding too much to political, rather than legal or economic, criteria (6)), would exercise the task of economic surveillance in a technical, non-political manner. However, the opposite became true: as the task remained political, the Commission as a technical institution was politicised (7). It was this development that has led some Member States to require that the ESM, seen as a purely technical body, acts as an alternative enforcer of the rules of economic governance.

5. For instance in the European Parliament´s internal analysis. 6. Let us recall that, in 2004, the Council of the EU failed to apply the excessive de cit procedure rules to France and Germany. See also Commission v Council (C27/04). 7. e Commission immediately adopted a highly politicised ‘Flexibility communication’ and, in the summer 2016, decided not to apply sanctions to Spain and Portugal.

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However, an a ribution of powers in the area of economic governance to the ESM faces major legal obstacles that stem from the fact that the ESM is an intergovernmental body outside of the EU legal framework. Compatibility of the current ESM Treaty with EU law has already been famously veri ed by the Court of Justice in Pringle (C-370/12). For the Court, the ESM Treaty quali ed as an instrument ancillary to the achievement of Union’s objectives which ‘serves to complement the new regulatory framework for strengthened economic governance of the Union, rather than as a mechanism that would encroach upon the competencies of the Union’ (Pringle, paragraph 58). e Court-blessed intergovernmental instruments concluded by the Member States inter se provided that they do not interfere or put in jeopardy the competences of the EU and of its institutions (8). To put it brie y, the ESM may not become a new institution of economic governance of the Eurozone, replacing the Commission and the Council, and its powers may not overlap with the powers of these EU institutions.

e ESM may not become a new institution of economic governance of the Eurozone, replacing the Commission and the Council, and its powers may not overlap with the powers of these EU institutions

pliance of such Member State with the conditionality requirements set out in such Memorandum of Understanding. However, the ESM never acts alone and the ESM actions are always subject to a consistency check by the Commission. e revised ESM Treaty explicitly provides that the ESM exercises its enhanced role ‘together’ with the Commission (which, in turn, acts in liaison with the ECB). is is fundamental in order to ensure that the ESM and the Commission always act within their respective competences. It is in this manner that the Commission maintains the eﬀective power to vet the conditions associated with any ESM nancial assistance programme, provided, of course, that these are consistent with the measures of economic governance

While the revised ESM Treaty incontestably foresees an enhanced role of the ESM, it must be emphasised that, in view of the above fundamental legal limitations, such role is limited to issues concerning ESM´s own governance. As a result, the ESM may carry out debt sustainability assessment of the Member States that are (to become) bene ciaries of the ESM nancial assistance; the ESM may for that purpose negotiate the Memorandum of Understanding with such a Member State and sign it; the ESM may to this end monitor com-

ESM actions are always subject to a consistency check by the Commission

8. More speci cally, an intergovernmental instrument must respect the principles of autonomy and of primacy of the Union legal order, by most notably including consistency clauses (see Pringle, in particular paragraphs 68 and 69, 109 and 121) and mechanisms that anchor the intergovernmental action to EU law (such as a ribution of certain tasks of management and jurisdiction to EU institutions). Finally, the intergovernmental agreement must not encroach upon the competences of the EU or of its institutions. When negotiating, concluding and implementing an intergovernmental agreement, the Member States have to comply with the principle of sincere cooperation set out in Article 4(3) TEU (see paragraphs 148 et seq.).

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revised ESM Treaty). It follows that these are not self-standing powers but powers that must be understood as subsumed to the already existing tasks of the ESM. Moreover, in exercising such analytical functions, the ESM must again collaborate with the Commission (and, by that token, with the ECB) to ensure full consistency with the EU framework for As the ESM may not, and will not, assume functions economic policy coordination. Recital 15a makes it and tasks conferred on EU institutions under the clear that the ESM does not serve the purpose of ecoTreaties, the ESM does not have a role of general economic polic y coordination nomic surveillance vis-à-vis the among ESM Members, a role economic policies of Member which is reserved by the Treaties States - a role which is reserved Rather than adding for the EU institutions. Conseto the Commission and the brand new a ributions quently, rather than adding brand Council. To this end, the revised ESM Treaty contains a ra of pro- to the ESM, the revised new a ributions to the ESM, the revised ESM Treaty clari es what visions that should be read in ESM Treaty clari es the ESM is permi ed to do under conjunction and that provide what the ESM is permithe existing legal framework. guarantees essential for distinguishing between, on the one ed to do under the Furthermore, Article 12(5) of the hand, the rules applicable under existing legal revised ESM Treaty contains a gethe Stability and Growth Pact and, on the other hand, the rules neral consistency clause (9) which framework for the purpose of granting the makes it clear that it is for the ESM nancial assistance to the Commission to ensure that all ESM Members. ESM nancial assistance operations are consistent with EU law, in particular with the measures of ecois distinction of competences and powers also nomic policy coordination (see recitals 5b and 16, applies when it comes to the role of the ESM outside Articles 3(1), 12(1a) and (4), 14(2) of the revised the ESM programmes. e ESM will be able to exaESM Treaty). is important role of the Commismine the macroeconomic and nancial situation of sion as the Guardian of the Treaties was also most rethe ESM Members, including the sustainability of cently underlined by the Court in the context of their public debt, and it will be able to carry out nancial assistance to Cyprus in Chrysostomides ( Joianalysis of the relevant information and data. Howened cases C-597/18 P, C-598/18 P, C-603/18 P ver, the purpose of such actions is only internal. Naand C-604/18 P, paragraph 96). mely, the ESM is endowed with such powers only ‘in order to internally prepare and enable it to approIt follows that the Commission maintains its role as priately and in a timely manner pursue the tasks conthe Guardian of the Treaties, in particular the role of ferred on it by the ESM Treaty’ (Article 3(1) of the ensuring consistency of the ESM actions with the adopted under EU law (paragraphs 109, 112-113, and 121). Indeed, even under the revised ESM Treaty, the Commission is still required to (co)sign the Memorandum of Understanding (co)negotiated together with the ESM.

9. In addition to the speci c one in Article 13(3) ESM Treaty, see also paragraph 121 of Pringle.

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dispose of sufficient information. Indeed, in some Member States, a prior approval by the national parliament is necessary before the representative of that Member State can take a part in a vote in the relevant ESM decision-making bodies (11), as the activation of the common backstop is considered as potentially affecting the national budgetary sovereignty of which national parliaments are the holders. As a result, some Member States required an enhanced system of information sharing where the SRB, when submi ing a request for a loan under the common backstop facility, would provide as much information as possible so that the national parliaments could effectively exercise their budgetary control. It is worth recalling that the German Constitutional Court ruled in 2012 that, as regards decisions to be taken by the ESM bodies, the respect of national budgetary sovereignty entailed providing the Bundestag with ‘effective and comprehensive information’ in order for it to be able to develop an informed opinion (12). is judgment prompted the Signatories of the ESM Treaty to make an interpretative declaration clarifying that the provisions of professional secrecy in the ESM Treaty do not prevent providing comprehensive information to the national parliaments, as foreseen by national regulation, and declaring that this element constitutes an essential basis for their consent, as the contracting parties, to be bound by the ESM Treaty.

EU economic policy coordination framework, and the ESM performs its - enhanced - analytical and assessment roles from the perspective of a lender.

4. Autonomy of the EU legal framework: a delicate balance between EU law, ESM rules and constitutional requirements of the Member States In addition to ensuring that the intergovernmental action by the Member States does not encroach upon the competences of the EU institutions, another diﬃculty consisted in nding a delicate balance between the constitutional requirements of the Member States and the limits imposed by EU law (10). Tensions were particularly present in discussions on the conditions for access to, and use of, the common backstop to the SRB and concerned in particular (i) the sharing of information, and (ii) the permanence of the legal framework. (i) Information sharing As regards the information sharing, the issue concerned the scope and the conditions under which the SRB would provide information to the ESM for the purpose of obtaining the backstop facility from the ESM. Two potentially con icting interests needed to be reconciled.

On the other hand, information that could be shared by the SRB as an EU agency was subject to serious constraints, bearing in mind the principles of primacy of EU law and autonomy of the EU legal order. Given that the common backstop would be

On the one hand, there was a need for the national parliaments of (some) Member States to be able to

10. See also Jean-Paul Keppenne, Tim Rusche, Laura Estrella Blaya, ‘An ESM Backstop Facility to the Single Resolution Board: e Diﬃcult Marriage of an EU Mechanism and an Intergovernmental Institution’ in Diane Fromage and Bruno de Wi e, ‘Recent Evolutions in the Economic and Monetary Union and the European Banking Union: A Re ection’, Maastricht Law Faculty Working Paper Series, 2019/03, pp. 43-45. 11. According to the revised ESM Treaty, the ESM BOG and the ESM BOD take all decisions relevant to the common backstop by mutual agreement. 12. See paragraph 153, as well as 152 and 156.

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ere were essentially three constraints to any information sharing by the SRB in the context of the common backstop

granted to the SRB in respect of a resolution of a speci c bank, sharing of bank-speci c information was extremely sensitive.

tion framework (13). ird, any information sharing by the SRB with the ESM must be subject to respect for the con dentiality requirements of EU law.

ere were essentially three constraints to any information sharing by the SRB in the context of the common backstop.

In view of the above constraints, Article 18a(5) of the revised ESM Treaty speci es that the request for a loan by the SRB contains all the relevant information while respecting con dentiality requirements of EU law. is basic premise is then further spelled out in the Backstop Guideline. Article 1(3) recalls that the Backstop Guideline is to be applied in accordance with the already interpretative declaration, mentioned above. A two-step approach for the provision of information is foreseen in Article 4. First, a de ned list of items is presumed to allow the ESM to take informed decisions on loans and respective disbursements under the backstop facility (14). Second, a possibility is foreseen for the ESM Managing Director to ask for additional relevant explanations which the SRB would provide unless its disclosure would interfere with the exercise of its functions. Any information is provided subject to its con dential treatment, as spelled out in Article 10 of the Backstop Guideline (15). Article 4(1c) of the Backstop Guideline also clari es that the use of any

First, the SRB would be allowed to share information with the ESM provided this would fall within the exercise of the SRB functions, as de ned in the Single Resolution Mechanism Regulation (SRMR). Since, in the context of the common backstop, the SRB would exercise its borrowing mandate in accordance with Article 74 SRMR, any information shared with the ESM (and, subsequently, by the members of the ESM bodies with their parliaments) would have to be con ned to information that is relevant for the borrowing mandate. Second, information is shared with the ESM for the purpose of its evaluation of the borrowing transaction and of the repayment capacity of the SRB. e provision of information thus cannot lead to the ESM or the national parliaments becoming a ‘second chamber of control’ of SRB´s actions under the Union bank resolu-

13. In line with the CJEU´s Meroni doctrine, the policy-making aspects of the SRB decision-making are subject to the Commission’s and/or the Council’s approval. See recital 24 and Article 18(7) of the SRMR. 14. Article 4(1a) of the Backstop Guideline. 15. ‘ e treatment of con dential information exchanged between the ESM and SRB in accordance with Article 4 is subject to professional secrecy obligations in accordance with Article 34 ESMT and EU law and shall be subject to appropriate mechanisms for maintaining con dentiality.’

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certain conditions, some of its obligations under the international treaty. In the common backstop context, on the other hand, the POLF has a diﬀerent function: it constitutes a condition for the ESM to be able to grant the backstop facility to the SRB and to approve loans and disbursements under such facility (19). In case of non-compliance with the POLF, a comprehensive review is initiated and an explicit decision by the ESM BOG is required to continue the backstop facility. Such POLF does not therefore allow an ESM Member to suspend its obligations under the ESM Treaty.

information thus provided shall respect the tasks and powers conferred by EU law on the EU institutions and agencies, including the speci c merits of each resolution action, and shall be used for the purpose of ensuring the ESM functions as laid down in Article 18a and Annex IV to the ESM Treaty, most notably for determining the SRB capacity of servicing the loan within the relevant maturity. (ii) Permanence of the legal amework e second issue where possible tensions between the respective ESM and EU legal orders were discussed is the requirement of the permanence of the legal framework (POLF) for bank resolution, set out in Article 18a(8) and (9) of the revised ESM Treaty.

e second diﬀerence lies in the scope of the legal framework whose permanence is sought a er. Given that, in May 2019, an important set of amendments (the so called ‘Banking Package’) has been adopted inter alia to the SRMR and the BRRD, some Member States required that key elements brought about by the Banking Package formed a part of the POLF under the revised ESM Treaty.

ose provisions were inspired by Article 9(1) IGA/SRF according to which the use of the SRF on a mutual basis and the transfer of contributions to the SRF is contingent upon the permanence of the legal framework on resolution consisting of the core provisions of the EU bank resolution regulations, namely the SRMR and the BRRD (16). However, the POLF in the IGA/SRF and the POLF for the ESM backstop are fundamentally diﬀerent in two aspects.

is requirement brought about concerns – already discussed in the context of the IGA/SRF - about the autonomy of the EU legal framework and of its decision-making. More speci cally, it has been argued that including the extended POLF in the revised ESM Treaty would constitute an impediment for any legislative changes of the EU legal framework for bank resolution to be adopted in the Council by the applicable majority of votes (20), as any outvoted ESM Member would be able to threaten to disable the common backstop to the SRB.

First, in the IGA/SRF, the POLF represented a rebus sic stantibus clause (17), or a fundamental change of circumstances clause that constituted an essential basis of the consent of the contracting parties to be bound by the IGA/SRF (18). It would allow a contracting party to the IGA/SRF to suspend, under

16. Directive (EU) 2014/59 establishing a framework for the recovery and resolution of credit institutions and investment rms (BRRD). 17. A customary law principle codi ed in Article 62 of the Vienna Convention on the Law of Treaties. 18. See recital 17 of the IGA/SRF. 19. See Article 18a(8) and (9) of the revised ESM Treaty and Annex IV thereto. 20. e legal basis for the adoption of both the SRMR and BRRD and of their Banking Package amendments is Article 114 TFEU according to which the Council acts by a quali ed majority of votes.

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a Court of Justice judgment in respect of the ‘Banking Package-related’ POLF aﬀects performance or executive of obligations under the IGA/SRF (26). As a result, any nding concerning the extended scope of the POLF may have no unintended consequences on the IGA/SRF and, thus, on the use of the SRF that is intended to fund a resolution action under EU law.

It should, however, be observed that the relationship between the common backstop and the EU legal framework is more remote than that between the IGA/SRF. While the IGA/SRF (21) and the SRMR are clearly intertwined as the use of the SRF and its built-up is made dependent on the entry into force of the IGA/SRF, the use of the SRF and its lling up is, in purely legal terms, not conditional on the existence of the common backstop.

5. Conclusion: e ESM remains loyal and complementary to the EU legal order

If the enlargement of the scope of the POLF in the revised ESM Treaty was considered legally acceptable, it was still necessary to devise a procedure that would allow the veri cation of the compliance with the thus extended POLF, yet to limit the consequences to the ESM realm only and, more speci cally, to avoid – because of its intertwined relationship with the EU legal framework - any spill-over eﬀect on the IGA/SRF. It was these considerations that shaped the design of the POLF, the procedure for its veri cation and its consequences for the backstop facility and its use. e relevant provisions will be de ned in the Board of Governors Resolution. e procedure is designed in two parallel strands (22), one for the POLF that corresponds in its scope to that in the IGA/SRF (23) and the other for the ‘Banking Package-related’ POLF (24). If an ESM Member submits an application for the veri cation of the compliance with the POLF to the Court of Justice (25), it is required to specify that the Court of Justice’s veri cation is to be made separately in respect of each of the two ‘legs’ of POLF. In the same vein, it is explicitly excluded that

It can be concluded that the ESM is - and under the revised ESM Treaty remains - an instrument that is loyal and complementary to the EU legal order. e ESM pursues EU objectives by safeguarding the stability of the Eurozone and it supplements EU policies by assisting in the coordination of economic policies of the Member States. It is respectful of the autonomy of the EU legal framework and does not deconstruct the powers of EU institutions. By including a set of consistency clauses, the revised ESM Treaty highlights the ESM´s respect for primacy of

e ESM is loyal and complementary to the EU legal order and, despite its intergovernmental nature, belongs to the EU legal order in a wider sense

21. It is recalled that, in the Uni ed Patent Regulation case (C-146/13), the CJEU dismissed the arguments based on the principle of autonomy of the EU legal framework in respect of a situation of mutual dependence analogous to that between SRMR and IGA/SRF. 22. See Clauses 2(1)(a) and (b) of the BOG Resolution. 23. As de ned in Article 18a(9)(a) of the revised ESM Treaty. 24. As de ned in Article 18a(9)(b) of the revised ESM Treaty. 25. Under Article 37(4) of the revised ESM Treaty and Article 273 TFEU. 26. See Clause 2(1)© of the BOG Resolution.

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ESM does not need to be an alien construction to the EU, rather to the contrary. If properly designed and in accordance with the requirements enunciated by the Court in Pringle, it forti es the EU by furthering its objectives, rather than clashing with it (29). It is uncontested that the ESM functioning has not been detrimental to the EU legal order, but also that it has fundamentally strengthened the EU in the area of economic governance and enhanced the role of the EU institutions, in particular of the European Commission.

EU law and features mechanisms that continue to rmly anchor the intergovernmental action to EU law, by reserving a key role within the ESM to the European Commission. Recent developments have shown that the intergovernmental method has not become the new paradigm of the EU integration, as some have feared in the light of the intensely intergovernmental response to the euro crisis (27). It is indeed a fact that the legal construction that underlies the Next Generation EU, the EU’s agship innovative recovery plan as a reaction to the COVID-19 crisis, is rmly anchored in the EU legal order (28).

For these reasons, the ESM can be regarded as an instrument that, in spite of its intergovernmental nature, belongs to the EU legal order in a wider sense.

On the other hand, the ESM story shows that, in those cases where the intergovernmental method is – for any reason – retained, an instrument such as the

27. See for a well balanced assessment and overview for example Bruno de Wi e: Euro Crisis Responses and the EU Legal Order, EuConst 11 (2015), pp. 434–457. 28. Although, initially, intergovernmental montages have also been considered. 29. See Alberto de Gregorio Merino, ‘Institutional report’ in Bándi et al. (Eds.), European Banking Union. Congress Proceedings Vol. 1. e XXVII FIDE Congress in Budapest, 2016 (Wolters Kluwer, 2016), pp. 185-186.

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News Highlights Week 1 to 5 March 2021

Commission opens in-depth investigation into €400 million Italian loan to Alitalia Monday 1 March

Commission approves Danish State aid for or oﬀshore wind farm project Monday 1 March

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e European Commission approved a Danish State aid scheme to support the or oﬀshore wind farm project in the North Sea.

e European Commission opened an in-depth investigation into whether an Italian loan to Alitalia constitutes lawful State aid.

State aid Guidelines for greenhouse gas emission allowance trading system challenged before General Court: action published Monday 1 March

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EU closer to formalising adoption of EU-UK Trade and Cooperation Agreement Monday 1 March

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Last week the Council of the EU requested the European Parliament’s consent to its decision on the conclusion of the post-Brexit EU-UK Trade and Cooperation Agreement (TCA), and the Security of Information Agreement.

Oﬃcial publication was made of the action brought by fertiliser companies before the General Court (Grupa Azoty and Others v Commission, T-726/20), seeking partial annulment of the Commission’s State aid Guidelines for greenhouse gas emission allowance trading post-2021.

EU-Armenia Comprehensive and Enhanced Partnership Agreement enters into force

Amazon challenges Italy’s exclusion from e-commerce business practices investigation

Monday 1 March

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e EU-Armenia Comprehensive and Enhanced Partnership Agreement (CEPA) entered into force, now rati ed by Armenia, all EU Member States and the European Parliament.

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Amazon’s action before the General Court (T-19/21) was published, seeking the partial annulment of the European Commission’s decision to investigate its e-commerce business practices in the European Economic Area with the exception of Italy.

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ECtHR: rights of asylum-seeking family breached due to poor conditions of con nement in the Röszke transit zone and insuﬃcient mechanisms of review thereof

Polish law excluding appeals in cases on appointment of Supreme Court judges may be contrary to EU law, says Court of Justice Tuesday 2 March

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e Grand Chamber of the Court of Justice of the EU ruled in A.B. and Others (C-824/18), that successive amendments to the Polish law on the National Council of the Judiciary are contrary to EU law, subject to veri cation of the national court.

Tuesday 2 March

Authorities cannot access location data for criminal investigation purposes unless for serious crime and serious threats to public security, Court of Justice rules

Board of Appeal: ECHA decisions on testing proposals must be addressed to all registrants of the same substance

Tuesday 2 March

e European Court of Human Rights ruled in R.R. and Others v. Hungary (application no. 36037/17) that Hungary breached several provisions of the ECHR by con ning an asylum-seeking family in the Röszke transit zone on the border with Serbia.

Tuesday 2 March

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e European Chemicals Agency’s Board of Appeal delivered its decision in a number of joined cases in which several lead registrants challenged the respective contested decisions that the ECHA had adopted in relation to their testing strategy.

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e Grand Chamber of the Court of Justice ruled in Prokuratuur (C-746/18) that allowing authorities to access location data is generally not permi ed under Article 15(1) of the ePrivacy Directive 2002/58, read in the light of the Charter.

Eurojust: stronger cooperation with third countries on international crime Tuesday 2 March

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State aid: in-depth investigation into compensation for early closure of power plants in Germany

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Tuesday 2 March

Negotiating mandates were approved by the Council of the EU for the Commission to work on strengthening the exchange of information with several third countries through EU agency Eurojust, to ght international crime and terrorism.

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e European Commission opened an in-depth investigation to assess whether German plans to compensate lignite- red power plants for closing earlier than foreseen are in line with EU State aid rules, considering preliminarily that this is likely to constitute State aid.

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Court of Justice dismisses appeal against ruling that Italian bank consortium’s support measures are not State aid

Experienced Legal Counsel sought to join European Stability Mechanism Tuesday 2 March

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e European Stability Mechanism posted a vacancy announcement for the position of ‘Experienced Legal Counsel (Institutional Aﬀairs)’ to join its Legal Department, in the context of its mandate being extended through a recent amendment to the ESM Treaty.

Tuesday 2 March

In Commission v Italy (C-425/19 P) the Grand Chamber of the Court of Justice has dismissed an appeal brought by the European Commission against a General Court judgment which found that the support measures adopted by an Italian consortium of banks for the bene t of one of its members did not constitute State aid, insofar as they are not imputable to the Italian State.

Commission Communication on EU scal policy for COVID-19 recovery: support still necessary and should continue Wednesday 3 March

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EU sanctions on four Russians for human rights violations Wednesday 3 March

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e Council of the EU imposed EU sanctions on Russian individuals responsible for serious human rights violations, related to political opponent Mr Navalny’s arrest and subsequent protests.

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e European Commission adopted a Communication providing guiding principles on the proper design and quality of scal measures for Member States considering the consequences of the COVID-19 recovery, and the April deadline for stability and convergence programmes.

AG Szpunar: electricity supply contract not involving a contribution is not an investment under Energy Charter Treaty

ECB publishes guide on method of determining penalties for regulatory breaches

Wednesday 3 March

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In his Opinion in Grand Chamber Case République de Moldavie (C-741/19), Advocate General Szpunar advised the Court of Justice to rule that under Article 1(6) of the Energy Charter Treaty, a claim arising from an electricity supply contract not involving a contribution is not an investment within the meaning of that provision.

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e European Central Bank published a guide that outlines the methodology to calculate the penalties used to sanction supervised entities for breaches of prudential requirements under Council Regulation 1024/2013.

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Court of Justice: management of a postal current account for the collection of taxes by Poste Italiane may constitute State aid Wednesday 3 March

General Court dismisses action for annulment against selection procedure decision that was defectively noti ed Wednesday 3 March

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In its judgment in Barata v Parliament (T-723/18), the General Court’s Seventh Chamber, si ing in Extended Composition, dismissed an annulment action against the decision to reject the applicant’s complaints and con rmed a prior decision not allowing him to participate in a procedure for the selection of oﬃcials.

e Court of Justice ruled in Poste Italiane & Agenzia delle entrante (joined cases C-434/19 and C-435/19) that under Article 107 TFEU, the ‘statutory monopoly’ regime established in favour of Poste Italiane for managing the service for payment of the municipal tax on immovable property into post-oﬃce current accounts may constitute State aid.

ECtHR closes cases concerning nancial-crisis related convictions in Iceland following the State’s acknowledgment that fair-trial rights were breached

ESMA: suggestions for improvements to Transparency Directive following the Wirecard case ursday 4 March

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ursday 4 March

e European Securities and Markets Authority announced on Wednesday that it has sent the Commission proposals to improve provisions related to enforcement of nancial information in the Transparency Directive 2004/19 following events leading to the collapse of Wirecard AG.

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e European Court of Human Rights struck out ve cases concerning alleged violations of fair-trial rights in Iceland, as friendly se lements were reached between the State and the applicants.

Post-Brexit EU-UK tensions: EU exploring legal means to respond to UK’s intended unilateral extension of Northern Ireland Protocol grace periods

Court of Justice sets aside General Court ruling and con rms Commission’s decision that the tax scheme of four Spanish football clubs constitutes State aid ursday 4 March

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ursday 4 March

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A statement from Vice-President Commissioner Šefčovič announced that the EU is considering legal action against the UK under the EU-UK Withdrawal Agreement, in response to the UK government’s statement that it will unilaterally continue Irish Sea border grace periods (which expire in March and allows checks to not yet be fully applied) until October.

e Court of Justice delivered its judgment in Commission v Fútbol Club Barcelona (C-362/19 P), se ing aside a General Court judgment (T-865/16) that had annulled a Decision of the European Commission (2016/2391) in State aid case SA.29769.

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Corporate Tax Transparency: Council approves negotiations for new Directive ursday 4 March

Commission opens formal investigation into possible anticompetitive conduct of Teva in relation to multiple sclerosis medicine

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ursday 4 March

e Council of the European Union has mandated negotiations with the European Parliament for the ‘swi adoption’ of a proposed Country-by-Country Reporting Directive, requiring income tax information by large multinationals (with a revenue of over 750 million euros in each of the last two nancial years) to be disclosed.

e European Commission announced it is investigating whether pharmaceutical company Teva abused a dominant market position in breach of Article 102 TFEU by illegally delaying the market entry and uptake of medicines that compete with its blockbuster multiple sclerosis drug Copaxone.

Court of Justice dismisses appeal against dismissal of action for annulment of Single Resolution Board concerning Banco Popular

Commission presents European Pillar of Social Rights Action Plan ursday 4 March

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e European Commission presented an Action Plan on concrete actions to implement the principles of the European Pillar of Social Rights. e Pillar sets out 20 key principles and rights essential for fair and well-functioning labour markets and welfare systems.

ursday 4 March

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In Liaño Reig v CRU (C-947/19 P), the Court of Justice dismissed the appeal against the General Court’s Order in T557/17, by which it dismissed as inadmissible an action for annulment against the Single Resolution Board’s Decision concerning a resolution scheme in respect of Banco Popular Español, S.A.

EU sanctions concerning Ukraine extended for a further year: misappropriation of state funds

AG Bobek’s Opinions concerning the compatibility with EU law of Romania’s Constitutional Court’s judgments ursday 4 March

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Friday 5 March

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Advocate General Bobek advised the Court on possible infringement of the principles of judicial independence, the rule of law, and protection of the EU’s nancial interests by decisions of Romania’s Constitutional Court (Euro Box Promotion (C-357/19 & C-547/19), and DNA- Serviciul Teritorial Oradea (C-379/19).

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Further to an annual review, the Council of the EU extended EU sanctions against seven individuals in Ukraine for a further year until 6 March 2022, by way of the now published CFSP Decision 2021/394, and Council Implementing Regulation 2021/391.

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Insights, Analyses & Op-Eds Commission v Spain – cumulation of heavy sanctions in the ‘one-stage infringement procedure by Albrecht Wendenburg

Dalli v Commission and the investigatory powers of OLAF by Ana Bobić

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Analysis of the question of non-contractual liability of OLAF, more speci cally, whether the rules governing their conduct confers rights to individuals that can be subject to subsequent action for damages, raised in the Court of Justice’s recent dismissal of the appeal brought by former Commission John Dalli (C-615/19 P).

Op-Ed on the Court of Justice’s shaping of the one-stage infringement procedure pursuant to Article 260(3) TFEU, including the recent Commission v Spain ruling (C-658/19)to signi cantly increase the pressure on Member States to transpose EU directives on time.

Does a Municipality act as a VAT taxable person when charging fees for the transformation of the right of perpetual usufruct into immovable property ownership rights by operation of law? by Jordi Sol

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Oops You Did It Again: AG Rantos advises the Court of Justice to declare that once again Hungary has failed to ful l its obligations under EU Asylum Law by Silvia Bartolini

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Analysis of the Court of Justice’s ruling Gmina Wroclaw (C604/19), that the transformation of the right of perpetual usufruct into full immovable property ownership rights provided by operation of law against payment of a fee constitutes a supply of goods for VAT purposes

Analysis of Advocate General Rantos’s Opinion in Commission v Hungary (C-821/19), which advises the Court of Justice to declare that Hungary has once again failed to ful l its obligations under EU asylum law, this time due to the enactment of legislative measures that further restrict access to international protection and criminalise the activity of providing – in an organised manner – assistance to applicants for international protection.

First use of the EU Global Human Rights Sanctions Regime: EU sanctions four people responsible for serious human rights violations in Russia

Prokuratuur: Access to electronic communications data is legitimate only to ght serious crime and cannot be authorised by the prosecutor

by Celia Challet

by Alberto Miglio

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Analysis of important clari cations on access to electronic communications data by law enforcement authorities and their use in criminal proceedings provided by the Court of Justice in Prokuratuur (C-746/18).

Analysis of the recent EU sanctions against Russian oﬃcials as a follow-up to the arrest and sentencing of political opponent Alexei Navalny, the rst time this has occurred under the recently adopted Global Human Rights Sanctions Regime, in what is the rst use of the la er.

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Commission v Fútbol Club Barcelona: e need to conduct an ex ante analysis in State aid law and its practical impli-

e New Strategy for the Rights of Persons with Disabilities 2021-2030: A Step Forward in Realising the Human Rights Model of Disability

by Juan Jorge Piernas López

by Delia Ferri

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Op-Ed on the Court of Justice’s ruling in Commission v Fútbol Club Barcelona (C-362/19 P), analysing the ndings that the General Court commi ed various errors of law as being in line with the general architecture of State aid control in the EU; on how the ruling provides welcome clari cations concerning the Commission’s obligations on proving existence of an advantage; and also con rming that State aid must be assessed with reference to the time of adoption of the national measure under review, corroborating the need to conduct an ex ante analysis in State aid law.

Op-Ed analysing the new Strategy for the Rights of Persons with Disabilities 2021-2030 which lays out the renewed policy framework to implement the UN Convention on the Rights of Persons with Disabilities, looking at how it identies the core tenets of EU disability policies for the next decade, and how it complements existing policy initiatives.

Library - Book Review JANI MCCUTCHEON, ANA

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MALHO (EDS)

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International perspectives on disability exceptions in copyright law and the visual arts. Feeling art. Review of a ‘timely and much needed contribution’ that ‘critically explores the disability exceptions to copyright, a eld regre ably under-investigated in the literature’, assessing its comparative and interdisciplinary approach.