Dublin, Karlsruhe and Luxembourg in dialogue

While financial markets have focused on Karlsruhe where the second challenge to the Eurozone rescue efforts in a year is currently pending, the Irish Supreme Court held on July 31 that Irish ratification of the Treaty establishing the European Stability Mechanism and the Fiscal Treaty was compatible with the Irish constitution.  The court referred two questions to the Court of Justice under the latter’s accelerated preliminary reference procedure due to the exceptional urgency of the case. Notwithstanding, the Supreme Court declined to enjoin the Irish ratification process while the case is pending before the Court of Justice. The Irish government ratified both treaties on August 1.

In contrast, the German Bundesverfassungsgericht bidded its time on a similar challenge to German ESM ratification. Ireland is on the frontline of the Eurozone crisis. The Economist, in departure from the deference it typically pays to court proceedings, called the German Constitutional Court ‘ scandalously slow’ . Ireland is one of three Eurozone countries with an EU-IMF financing package in place. Most of the support is provided by the European Financial Stability Facility that the ESM is designed to replace once it starts operating. The need to decide this significant case as a matter of urgency was evident to the Irish Supreme Court. It put seven judges on the appeal, super-fast-tracked the hearing, and reserved four days for the hearing.

The German NGO ‘Mehr Demokratie’ (More Democracy) had collected powers of attorney from 12,000 claimants. The German Parliament had passed the implementation legislation for the ESM Treaty on 29 June, so that that the Treaty could enter into force on 1 July. The same day the claimants submitted a request for a preliminary injunction to the German Constitutional Court seeking to enjoin the German President from ratifying the three implementing statutes on account of irreparable harm for among others the right of German citizens to vote, should the ESM Treaty enter into force prior to the Court’s decision. The President of the Constitutional Court had written to German President Gauck, who declared on June 21 that he would refrain from signing the implementing legislation pending resolution of the constitutional challenge. The Court held a day-long hearing on the petition on 10 July. In the hearing, the Court underscored the importance of its having time to examine the legal issues raised in depth. It will render its decision on September 12.

Piet Eckhout has voiced disquiet about the outsize role of the German Constitutional Court in adjudicating the legality of Eurozone measures designed to preserve financial stability in the Eurozone as a whole. Even though the German Constitutional Court’s remit is ‘only’ to assess whether German legislation is in conformity with the German constitution, Piet points out that there is a widespread, though mistaken perception that the German Constitutional Court has authority to interpret European Union Law. The latter is the exclusive domain of the Court of Justice.

The Irish Supreme Court has the first mover advantage. It has already decided to refer questions similar to the ones raised by the German challenge to the Court of Justice. As a result, the German Constitutional Court will struggle to avoid either submitting a similar request to the European Court, or take a preliminary ruling in respect of the Irish judgment into account that the European Court may hand down in the interim. This is an additional reason why the Irish judgment surveyed in the following paragraphs is significant. The courts in Luxembourg, Dublin and Karlsruhe are now engaged in a three-way dialogue.

In Thomas Pringle v The Government of Ireland, Ireland and the Attorney General, Thomas Pringle, a independent member of Dáil Éireann, the lower house of the Irish Parliament, challenged and sought to enjoin the Irish ratification of the ESM Treaty in the absence of a referendum. The Irish government had submitted a Constitutional Amendment in relation to the Fiscal Treaty to the Irish people, which 60 percent approved of on 31 May 2012. Mr Pringle’s challenge was limited to the ESM Treaty that had not been subject of the referendum. He argued that the ESM Treaty transferred excessive sovereign powers to an international organisation and shifted power from Parliament to the Irish government.

The European Council’s use of the simplified revision procedure in Article 48 (6) TFEU to add a paragraph 3 to Article 136 TFEU was unlawful because it altered the EU’s competences. Article 48 (6) provides the basis for the permanent European Stability Mechanism (ESM) to provide financial assistance to Eurozone States if such assistance is indispensable to safeguard stability of the euro area as a whole. The claimant alleged that ‘the amendment … provides a vague and open-ended amendment that enables the granting of financial assistance without limitations or restrictions as provided for in the Union Treaties’. Accordingly, the Council could not rely on the simplified revision procedure. This was the first invocation of the simplified treaty revision procedure that the Treaty of Lisbon introduced. Instead, Mr Pringle submitted that the ordinary treaty revision procedure had to be used that would require a second Irish referendum.

He also claimed that the ESM Treaty was incompatible with the EU Law, in part because it violated the no-bailout rule in Article 125 TFEU. Moreover, the EU had exclusive competence for European Monetary Union and the ESM Treaty was an instrument outside the Union legal order. The ESM Treaty was also said to disturb the vertical allocation of powers between the EU and national legal order, and vested new powers in EU institutions incompatible with the EU treaties. Finally, ESM Treaty provided for no effective judicial protection, in breach of the European Convention of Human Rights, the Charter of Fundamental Rights and the principle of legal certainty.

 Ireland had passed the European Communities (Amendment) Act 2012 (‘the Act’) on 3 July 2011 to implement the European Council Decision on Article 136 TFEU, the day following proceedings in the Pringle case in the Irish High Court. The High Court held seven days of hearing, and issued judgment on 17 July 2012. It declined to submit a preliminary reference to the Court of Justice of the European Communities with respect to whether the European Council Decision of 25 March 2011 (2011/199/EU) was valid. Relying on Foto Frost, the Court took the view that there was no need to refer to question to the Court of Justice as it was clear that the Council Decision ‘will not be to increase the competences of the Union in the Treaties’. The Court found that the ESM Treaty was compatible with European Union Law.

The Irish government fully endorsed the High Court’s approach. It argued that the ESM involved set up a  funding mechanism with a clearly defined mission and limited powers. Use of the simplified revision procedure accorded with the EU treaties. The Commission, the European Central Bank and the European Parliament had each formally taken the position, as envisaged in Article 48 (6) TFEU that the amendment of Article 136 TFEU did not increase Union competences, and their opinions deserved particular respect by national courts. The tasks conferred on Union institutions by the ESM Treaty had valid legal bases. The government noted in particular that the Commission was already performing similar functions in relation to the “Six Pack” on EU economic governance. With respect to the alleged lack of effective legal protection, the Irish Government emphasized that the ESM Treaty expressly confers jurisdiction on the Court of Justice, who would ensure that fundamental rights are fully protected.

The Irish Supreme Court held that the Act was constitutional, and rejected the request for an injunction to prevent the Irish ratification of the ESM Treaty. Importantly, however it submitted the following three questions for a preliminary ruling to the Court of Justice that it deemed necessary for its decision:

Whether European Council Decision 2011/199/EU of 25^th March 2011 is valid:

Having regard to the use of the simplified revision procedure pursuant to Article 48(6) TEU and, in particular, whether the proposed amendment to Article 136 TFEU involved an increase in the competences conferred on the Union in the Treaties;

Having regard to the content of the proposed amendment, in particular whether it involves any violation of the Treaties or of the general principles of law of the Union.

Having regard to Articles 2 and 3 TEU and the provisions of Part Three, Title VIII TFEU, and in particular Articles 119, 120, 121, 122, 123, 125, 126, and 127 TFEU;

the exclusive competence of the Union in monetary policy as set out in Article 3(1)(c) TFEU and in concluding international agreements falling within the scope of Article 3(2) TFEU;

the competence of the Union in coordinating economic policy, in accordance with Article 2(3) TFEU and Part Three, Title VIII, TFEU;

the powers and functions of Union Institutions pursuant to principles set out in Article 13 TEU;

the principle of sincere cooperation laid down in Article 4(3) TEU;

the general principles of Union law including in particular the general principle of effective judicial protection and the right to an effective remedy as provided under Article 47 of the Charter of Fundamental Rights of the European Union and the general principle of legal certainty;

is a Member State of the European Union whose currency is the euro entitled to enter into and ratify an international agreement such as the ESM Treaty?

If the European Council Decision is held valid, is the entitlement of a  Member State to enter into and ratify an international agreement such as the ESM Treaty subject to the entry into force of that Decision?

The Irish Supreme Court submitted its request for a preliminary ruling pursuant to the accelerated procedure in Article 104a of the Court’s Rules of Procedure that was introduced in 2008. The Court of Justice decides whether the requirements of Article 104a are met. In the majority of cases the Court rejected reliance on Article 104a, for instance in Laval. Yet the request of the Irish Supreme Court could be one of the exceptional cases where the Court permits reliance on Article 104a. The difference is substantial. Ordinary preliminary references take about 20 months, whereas the time is reduced to 4-6 months for the accelerated procedure. The Irish Supreme Court gave the following reasons for the accelerated procedure:

The Court considers the matter to be one of exceptional urgency. The High Court accepted evidence from the State to the effect that the ESM Treaty Members, including Ireland, and the Member  States of the European Union all have pressing interest in Ireland’s timely ratification of the ESM Treaty and that the stability of the  euro area would be seriously damaged by delayed ratification. The State says that it is essential that Ireland be involved in the ESM Treaty from the outset, in order that it may participate and vote on early decisions of the ESM taken by mutual agreement.

The State says that a range of adverse consequences may ensue if Ireland does not ratify the ESM Treaty in the short term, for example, detrimental impact on Ireland’s phased re-entry into the financial markets and a serious set-back to the substantial progress made to date by Ireland towards completing and exiting the EU-IMF programme by 2013.

The State says that Ireland’s timely ratification of the ESM Treaty is of the utmost importance for other Members of the ESM, and, in particular, the Members who are in need of financial assistance. In evidence placed before the Supreme Court on the     injunction issue, it was suggested that a failure to ratify and implement the measures contained within the ESM Treaty at the earliest possible stage would lead to  irreparable harm both to the interests of Ireland and those of the euro zone generally.